Category Archives: Recalls In The News

Does The Peanut Corporation of America Have Product Liability Insurance?

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The technical answer to the question, does the Peanut Corporation of America have product liability insurance?’ is “yes”; however, the real answer may be “no”.

Of course the Peanut Corporation of America has a product liability insurance policy, but it may not provide any coverage because of the “intentional acts exclusion” in the policy.

It appears that via email the company president, Stewart Parnell, was informed by the plant manager, Sammy Lightsey, of a positive Salmonella test and despite of that warning instructed the plant manager to ship the products.

Typically, a commercial general liability policy states that the policy does not cover “bodily injury” or “property damage” expected or intended from the standpoint of the insured.  It could be easily argued that Stewart Parnell and Sammy Lightsey could have reasonably expected consumers to get sick and possibly die because of the positive Salmonella test and chose to ignore the positive test and warnings for profit.

The Peanut Corporation of America’s insurance carrier, Hartford Casualty Insurance Company, will be within their rights, in my opinion, to deny the claim. However, based on an inside source at The Hartford, it is more likely The Hartford will pay the $10,000,000 in policy aggregate limits and wash their hands of the ugly mess.

From The Hartford’s viewpoint, even if they could successfully deny product liability coverage based on the “intentional acts exclusion”, they would still pay out the full $10,000,000 in policy limits sooner or later.  All the insurance carriers of the manufacturers such as Cliff Bar and Hershey that used Peanut Corporation of America’s products in their finished products and were sued, as a result, would sue The Hartford to recover their losses.

All You Need To Know About The 2008 Peanut Butter Recall

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  • 600 people sickened by peanut butter products from the Peanut Corporation of America;
  • 8 dead;
  • 1800 products recalled
  • When company president, Stewart Parnell, and manager of the plant, Sammy Lightsey, were asked by congress if they would eat any of their own products, they pleaded the 5th Amendment right so as not to incriminate themselves;
  • Employees of the company said they would not allow their children to eat any of products associated with the plant;
  • The Georgia Dept. of Agriculture, while stating their goal was 2 inspections per year, conducted no inspections of the plant in over a year;
  • Email by the plant manager to the company president informed the president of positive salmonella test;
  • After being informed of positive Salmonella test, company president, Stewart Parnell, instructed plant manager to ship the products.

Obviously, the saying “do unto others as you would have them do unto you” never crossed the company president’s or the plant manager’s mind.

Before the dust on this tragedy has settled the direct and indirect costs associated with this peanut butter products recall will reach into the billions of dollars.  I mention this because apparently, to the officers and employees of the Peanut Corporation of America, human life only has value if it is your’s or one of your immediate family members.

My Product Is Safe – That’s What They All Say!

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Possibly the most over used comment by product liability prospects is ‘my product is safe’ and usually followed by something regarding a low insurance premium because the product is so safe.

What I find most difficult about this statement is there is almost never any independent test data to back up these assertions and the products that are so safe are often being imported from a foreign manufacturer where the prospect likely has little or no control on the overall quality control.  However, those that do have independent test data to back-up their assertions are typically very well received by the product liability insurance underwriters and do receive better than average insurance premiums and rates.

Even if you product is safe, it is important to understand when you purchase insurance, you are participating in a product liability pool with businesses that sells products similar to your own or a similar class of products such as sporting goods, dietary supplements, etc.  One or two product liability claims can result in sever losses by your product liability insurance carrier; even if was not your product that caused the loss.

If you are one of the many that believe being a product liability insurance carrier is a license to print money, I strongly recommend that you go to www.recalls.gov.  The number of recalls in just one month will astound you.  To have a product recall there must be imminent danger that the product in question could or has caused bodily injury or property damage so all of those products being recalled represent potential product liability lawsuits.

The U.S. Consumer Products Safety Improvement Act of 2008 Mandates Searchable Database for Consumers

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One of the most significant changes of the U.S. Consumer Product Safety Improvement Act of 2008 is the creation of a searchable database (Section 212) for consumers by the Consumer Product Safety Commission.  This one change could significantly impact a company’s reputation and product liability litigation.

CPSC is required to establish a searchable data base by October 2010 on the internet that consumers can access.  The information provided will identify the name of the product, the manufacturer’s name and provide reports on deaths and injuries caused by the product.  In order to make sure that no information on the website is materially incorrect or trade secrets are not exposed, manufacturers will be allowed to review and comment on the information before it is posted on the database.

This one change should help potential U.S. importers and distributors of foreign products to identify problem foreign manufactures and as a result, reduce the number of unsafe products brought into the U.S.  It may also increase product liability litigation because U.S. consumers will be able to identify more easily whether their product in question has a history or potential for harm and assist with gathering important facts to assist them with their product liability lawsuit.

Buying The Assets of A Similiar Business? – You May Also Be Buying The Liabilities!

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When one corporation buys the assets of another similiar corporation, they may also being buying the liabilities of that corporation.  In most cases, the buyer of a firm or corporation’s assets does not inherit the seller’s liabilities.  However, there is an exception when the acquiring corporation is similiar and possibly viewed as a continuation of seller’s operation.  In an instance like this, the buyer may be strictly liable for injuries caused by defects, even if the product was previously manufactured and distributed by the selling corporation.   

A perfect example of this is SFCA, Inc’ purchase of Simplicity, Inc.  SFCA, Inc., an affiliate of Blackstreet Capital Partners, LLC purchased the debt and then purchased the assets through a Foreclosure sale of Simplicity, Inc.   Simplicity, Inc. was a leading juvenile and baby furniture designer, importer and distributor.  SFCA, Inc designs, distributes and imports cribs, changing tables, toddler beds, bassinets, etc. so there is a definite similiarity between SFCA and Simplicity.

Currently, the Attorney General Lisa Madigan of Illinois, has brought a lawsuit against SFCA, Inc. because SFCA acquired the inventory of Simplicity in March of 2008 and continued to sell design-flawed bassinets to retailers, despite knowing the bassinet design was responsible for, at least, one infant death.  Apparently, SFCA refused to participate in the recall because it claimed it was not responsible for the design flaws, since it did not design the defective bassinets.

The million dollar question in my mind is – did SFCA act on the advice of their legal counsel or was this an executive decision by one or more of the officers of the company not to fully participate in the recall of these defective bassinets?   Surely, SFCA’s legal counsel would have made them aware of this legal precedent.  Regardless of who was responsible for this curious decision, I am guessing if SFCA only spends a million dollars to resolve this mess, they will consider themselves fortunate.  Hopefully, SFCA, Inc. carried both product liability and product recall insurance.