By now, most people are likely aware of the recall of peanut
products produced by Peanut Corporation of America (PCA). Even
those unaware of the recall have likely been affected by it in some
way. Given the ubiquitous place of peanut butter and other peanut
products in the American diet, this recall is shaping up to be one
of the largest in U.S. history.
The problems began to come to light in early September 2008, when
the first illnesses were reported, according to the Centers for
Disease Control and Prevention (CDC). On November 25, 2008, the
CDC, working with state and local partners, began an assessment of
salmonella reports from 12 states. The first confirmed death
– of a resident of a nursing home in Brainerd, Minnesota
– occurred just before Christmas.
Signs soon began to point to peanut products produced by PCA as
the source of the outbreak and on January 8, 2009 the Food and Drug
Administration (FDA) visited an Ohio Distributor for the company.
The following day the FDA and the Georgia Department of Agriculture
began an environmental investigation of the PCA plant in Blakely,
Georgia. PCA voluntarily stopped production at the plant that same
day.
On January 10, the Minnesota Department of Agriculture confirmed a
link between salmonella bacteria found in a container of King Nut
brand peanut butter and the bacteria associated with nearly 400
illnesses around the country. That same day, King Nut announced a
recall of all peanut butter manufactured by PCA and distributed
under the King Nut label.
Several days later, PCA voluntarily recalled peanut butter
produced at its Blakely plant after July 1, 2008 because of
possible salmonella contamination. As the investigation continued,
the recall expanded and by the end of January included all peanuts
and peanut products produced at PCA's Blakely plant in the past
two years.
At the end of January, the government announced a criminal
investigation of PCA and on February 9, the FBI raided the Blakely
plant. The following day, the Plainview Peanut Company, a PCA
processing facility in Texas, announced that it too was voluntarily
suspending operations. On February 13, PCA filed for Chapter 7
bankruptcy.
The salmonella outbreak associated with PCA's products has
caused over 600 illnesses and at least 9 deaths. More than 2,300
peanut products have been removed from store shelves as a result of
the recall. The scope of the situation raises legal concerns for
companies at all levels of the distribution chain.
At least half a dozen lawsuits have been filed thus far against
PCA. Kellogg has also been named in several of the suits. More
lawsuits (including class actions), and more defendants, are sure
to follow. Claims would likely fall into two categories: negligence
and strict liability. The former would require proof of a breach of
the appropriate standard of care to establish liability; the latter
would hold every one in the chain of distribution liable for sale
of an unreasonably dangerous product. Under a strict liability
theory, manufacturers, suppliers, distributors, retail stores,
restaurants, nursing homes, schools, and anyone else who played a
role in the distribution of PCA products could be named as
defendants and face liability.
This raises the question of how companies can protect themselves.
Recall-related insurance coverage is becoming more common. Both
product-recall and product-contamination policies are available;
the latter tends to offer broader coverage, but the coverage under
either type can vary widely. Major companies may have comprehensive
coverage for such occurrences, but for smaller organizations, the
cost may be prohibitive. Many companies may presume that their
comprehensive general liability (CGL) policies will provide
liability coverage. Although claims for illnesses caused by
contaminated food may be covered under such policies, the amount of
coverage may prove to be inadequate in any case of widespread
contamination. Moreover, insurers have begun to include
"organic pathogens exclusions" in CGL policies. Such
exclusions take different forms, but typically exclude coverage for
losses caused by bacteria, fungi, and other pathogens. Companies at
risk of liability exposure due to food-borne illnesses should
regularly review their insurance policies for such exclusions.
Failure to do so can leave companies unprotected and unaware of the
potential liability.
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