When facing labeling and duty-to-warn claims—which often seek primarily injunctive relief or civil penalties—the most valuable part of any insurance policy is frequently the policy’s coverage for defense. Both CGL and D&O policies typically require the insurer to defend, or to pay defense costs, if any allegation in the complaint even arguably or potentially could be covered. In determining whether the insurer has a defense duty, all ambiguity in both the policy and the complaint generally must be construed in the policyholder’s favor, and thus in favor of coverage.
Companies should make certain insurers meet these defense obligations in a way that supports, and does not undercut, their policyholder’s interests. An insurer may have a duty to defend, but an insurer might claim that the duty comes with a right to control the defense, which insurers also sometimes assert includes a right to choose defense counsel and control settlement strategy.
Because these types of labeling and failure to warn cases sometimes put food and beverage companies in real risk of brand damage or other harms beyond the legal liability at issue in the claim, the stakes are very high. Companies should remember that, at bottom, it is their defense, and policyholders generally have the right to a defense that furthers not just their success in a particular litigation but also their broader interests. Where the insurer’s interests and the policyholder’s interests are in conflict, the insurer may be obligated to provide the policyholder with independent counsel, at the insurer’s expense.
Finally, it is important for companies to be prepared to avoid or refute insurer defenses. In the first instance, companies should be very careful to familiarize themselves with the policy’s conditions to coverage, such as the duties to provide notice and to cooperate with the insurer. Companies must make every effort to comply with these requirements because, in some states, a failure to comply could mean jeopardizing coverage.
Insurers also often assert a range of defenses based on coverage exclusions common to most modern insurance policies. For example, insurers often claim the policy’s pollution exclusion applies to Prop 65 claims, arguing that the presence of a potentially dangerous substance in the product means that any liability arises as a result of the dispersal or release of a pollutant, as those terms are used in the policies. However, policyholders often have very strong responses to these exclusion-based arguments. For instance, in California, where Prop 65 cases arise, the California Supreme Court addressed the pollution exclusion issue in McKinnon v. Truck Insurance Exchange, 31 Cal. 4th 635 (2003), and forcefully rejected a broad construction of the pollution exclusion, holding instead that the normal use of a product, in the ordinary course, does not constitute dispersal or release of a pollutant. Similarly, insurers’ other arguments often can be refuted based on well-established insurance cases, even if those cases were not in the context of food labeling or duty-to-warn cases.
Food and beverage companies are facing an increasing avalanche of labeling and duty-to-warn cases. Before the company faces a claim, it and its counsel need to review its insurance coverage to ensure the company has protection broad enough to cover these types of claims. Then, if a risk turns into a claim, the company should take immediate steps to secure its insurance proceeds.
Cohen is a partner in the Washington, D.C. law firm of Gilbert LLP. He works extensively with food companies on their legal risk management strategies. Reach him at email@example.com.
Wolf is an associate at Gilbert LLP. He litigates in both state and federal court on behalf of a broad range of clients. Reach him at firstname.lastname@example.org.