On July 1, 2024, the Sixth Circuit released its opinion in J.M. Smucker Co. v. ACE American Ins. Co., No. 25-3799, ___ F.4th ___, holding that thousands of claims due to exposure to 225 lots of salmonella-contaminated peanut butter produced at a single plant were a single “occurrence” under ACE’s policies.
In 2022, Smucker recalled certain peanut butter products produced at one plant because of alleged salmonella contamination. The recall generated thousands of claims by consumers. At the time of the recall and claims, Smucker had CGL coverage from ACE that included coverage for claims based on contaminated food products. The ACE policies had a $250,000 per occurrence retention and a “lot endorsement,” making all claims or injuries from a single lot, as defined in the policy, a single occurrence subject to a separate $250,000 retention. When Smucker submitted its claim, ACE responded that each of the 225 job lots was a separate “occurrence” based on its reading of the “lot endorsement” so that Smucker had to pay $112,500,000 in retained limits before coverage attached. Smucker took the position that all of the claims were from a single “occurrence” and sued for a declaratory judgment.
Smucker’s lawsuit teed up two questions: (1) how many “occurrences” were there, and (2) what impact did the “lot endorsement” have on that question?
Applying Ohio law, the Court first addressed the number of occurrences. It first asked, “what [Smucker] did unintentionally that exposed it to liability?” Slip op., at *6. The Court continued, “On this point, Smucker’s only identifiable accident is the alleged salmonella outbreak which led to the production of potentially contaminated peanut butter.” Id. Having viewed the matter from Smucker’s perspective, the Court found that inclusion of the phrase “continuous or repeated exposure to the same general harmful conditions”—the salmonella—in the definition of “occurrence” in the ACE policies confirmed that there was one single, continuous event. Id., at *7. The Court then applied the “cause test” mandated by Ohio case law: “the number of occurrences is determined by reference to the cause or causes of the damage or injury, rather than by the number of individual claims.” Id., at *9, quoting Cincinnati Ins. Co. v. ACE INA Holdings Inc., 2007-Ohio-5576, 175 Ohio App. 3d 266, 886 N.E.2d 876, 885 (2007). Using this test, it rejected ACE’s argument that each claim was a separate “occurrence.” Id., at *9.
The Court rejected ACE’s argument about the “lot endorsement,” stating that it was ambiguous “because the operation of the endorsement on claims arising out of ‘any one ‘lot’’ does not speak to its effect on claims arising from the same general harmful conditions, but multiple lots.” Id., at *13. The Court accepted Smucker’s argument that the “lot endorsement” served a timing function so that “an occurrence is restricted to a single policy year when multiple injuries arise from a single lot and continue to crop up during later policy periods.” Id., at *15. On these bases, the Court ruled in favor of Smucker.
Smucker starkly highlights the possible consequences that follow from the number of occurrences—in this case a swing in retention from $250,000 to $112,500,000. The Court’s three-step analysis–(1) view events from perspective of the insured; (2) apply the definition of “occurrence;” and (3) apply “cause test”—adds the first two steps to application of the “cause test,” which focuses on the causal relatedness of multiple events. See, e.g., Kansas Fire & Cas. Co. v. Koelling, 729 S.W.2d 251, 252 (Mo. App. E.D. 1987). Finally, it is worth noting that ACE’s position about its “lot endorsement” was at odds with other interpretations of similar endorsements. See, e.g., National Union Fire Ins. Co. of Pittsburgh, Pa. v. Donaldson Co., 926 F.3d 1014, 1021-22 (8th Cir. 2019).
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