HNRK Coverage Corner

On October 28, 2019, Justice Borrok of the New York County Commercial Division issued a decision in Travelers Prop. Cas. Co. of Am. v. ICCO Cheese Co., Inc., 2019 NY Slip Op 33224(U), holding that a CGL carrier had no duty to defend consumer fraud class actions against Walmart because the complaints did not allege claims for “bodily injury” or “property damage.”

Walmart was sued in class actions across the country (consolidated in an MDL proceeding) for allegedly mislabeling parmesan cheese sold under its Great Value brand as “100% grated Parmesan cheese when, in reality, it also contained cellulose and lower grade cheeses.” The class action complaints alleged various causes of action for consumer fraud and false advertising. Walmart sought defense coverage under its CGL policies, but the insurers disclaimed coverage and filed a declaratory judgment action, arguing that the claims against Walmart were not covered because the complaints did not allege that any consumer suffered “bodily injury” or “property damage.” Walmart argued that defense coverage was triggered because certain complaints alleged that additives found in the cheese were “toxic” or “linked to genetic damage in humans”—and such allegations could potentially give rise to “bodily injury” claims. Justice Borrok rejected Walmart’s argument and granted summary judgment to the insurers, explaining:

[A]s discussed more fully below, the death knell tolls for the Defendants' position because none of the facts or causes of action alleged in either the Amended Consolidated Complaint or the complaints filed in the Underlying Class Actions relate to claims for bodily injury or property damage. Rather, all of these claims relate to deceptive labeling and overpayment, which are not covered under the Travelers Policies. . . .

Wal-Mart and ICCO argue that there may nevertheless be a possibility of coverage and therefore a duty to defend based on factual allegations of bodily injuries which have not yet been pied but may someday arise. Relying on Harrington Haley LLP v Nutmeg Ins. Co. (39 F Supp 2d 403 [ND NY 1999]), Wal-Mart and ICCO argue that the causes of action alleged in Amended Consolidated Complaint and the underlying complaints are not determinative, and that the court must look to whether there are any facts alleged in any of the complaints or known by the plaintiffs to exist which might give rise to a possibility of coverage based on some potential future injury (id., at 408). Reliance on Harrington is misplaced.

There is a significant difference between Harrington and the instant action. In Harrington, the court found that "the complaint asserted 'underlying facts' which, if proven, could have given rise to covered liability" (id.). In this case, however, there are no facts alleged in any of the complaints from which the possibility of coverage might arise. Simply put, no one has alleged so much as a tummy ache or mild indigestion resulting from the eight percent of this product which is not Parmesan cheese, let alone cognizable bodily injury.

Relying on Medmarc Cas. Ins. Co. v Avent America, Inc. (612 F3d 607 [7th Cir 2010]), the plaintiffs argue that there is no duty defend because the complaints fail to allege any actual bodily injury or any compensable increased risk of future bodily injury. In Medmarc, consumers brought a series of class action lawsuits against Avent America, Inc. (Avent) alleging that Avent used Bisphenol-A (BPA) in its products without informing consumers of the health risks associated with BP A (id., at 607). Avent tendered the lawsuits to its insurance carriers seeking defense and indemnification for the underlying actions (id., at 612). The carriers denied coverage, and the parties brought declaratory judgment actions to determine whether the insurance carriers had a duty to defend Avent in the underlying suits (id.). The district court granted the insurance carriers' motions for summary judgment, and Avent appealed (id., at 613). The 7th Circuit affirmed, holding that there was no duty to defend because "even if the underlying plaintiffs proved every factual allegation in the underlying complaints, the plaintiffs could not collect for bodily injury because the complaints do not allege any bodily injury occurred" (id., at 614). . . .

Although Medmarc is not controlling, the rationale applied here is equally compelling. In other words, here, like in Medmarc, none of the complaints allege any physical harm whatsoever. And just as the court in MedMarc held that allegations that exposure to an ingredient in the products at issue can cause physical harm were insufficient to give rise to the possibility of coverage, this court holds that allegations that cellulose may cause ear and eye irritation and potassium sorbate may cause genetic damage are insufficient to support a possibility of coverage giving rise to the duty to defend the Underlying Class Actions which are essentially about overpayment and having nothing to do with anything covered under the insurance policies.

The policies at issue here had standard coverage for “Advertising Injury”, which one might expect would cover these claims. However, as is typically the case, such coverage was limited to claims arising from advertisements that “slander[] or libel[] a person or organization or disparages a person’s or organization's goods, products or services” (or infringes certain intellectual property rights). In other words, a false advertising campaign about a competitor’s cheese would have been covered, but misstatements about Walmart’s own cheese were not.