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Ruiz Food Products, Inc v. Catlin Underwriting U.S.

September 13, 2012

RUIZ FOOD PRODUCTS, INC.,
PLAINTIFF,
v.
CATLIN UNDERWRITING U.S., INC., ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: Barbara A. McAuliffe United States Magistrate Judge

ORDER ON THE PARTIES' CROSS- MOTIONS FOR SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiff Ruiz Food Products, Inc. ("Ruiz") proceeds with this action against Catlin Syndicated Limited, sued as Certain Underwriters at Lloyd's of London ("Catlin") as a result of Catlin's denial of Ruiz' insurance claim. Currently pending before the Court are the cross-motions for summary judgment of Ruiz and Catlin regarding the issue of coverage. (Doc. 94, 95.) The parties filed opposition briefs*fn1 on August 17, 2012 (Doc. 101, 106), and Reply briefs on August 24, 2012. (Doc. 109, 113.) The Court heard oral arguments on September 7, 2012. (Doc. 116.) Counsel Richard Crossman and Michael Renberg appeared for Ruiz, and counsel Linda Hsu appeared for Catlin. Id. Having considered the moving, opposition and reply papers, the declarations and exhibits attached thereto, arguments presented at the April 27, 2012 hearing, as well as the Court's file, the Court issues the following order.

II. FACTUAL BACKGROUND

A. Structure of Ruiz' Relevant Business Operations

Ruiz produces frozen Mexican food products for distribution to retail customers. (Ruiz' Statement of Undisputed Facts "RSUF" No. 1, Doc. 94 Attach. 3.) One of these Ruiz products is Ranchero Beef and Cheese Tornados, a ready to eat product similar to burritos ("Tornados"). (RSUF No. 4.) One of the ingredients incorporated into Tornados is a beef spice mix produced by Superior Quality Foods, Inc. ("Superior"). (RSUF No. 2.) The beef spice mix contains hydrolyzed vegetable protein ("HVP") which is manufactured by Basic Food Flavors ("Basic"). (RSUF No. 3.)

B. Salmonella Contamination And Recall of HVP Products

The U.S. Department of Agriculture ("USDA") has jurisdiction over Ruiz' frozen Mexican food products, including Tornados. (RSUF No. 14.) Under USDA regulations, when a product is suspected of being "adulterated," the recall committee of the Food Safety Investigation Services ("FSIS") investigates the matter. (RSUF No. 15.) The definition of an "adulterated" product inquires "if it bears or contains any poisonous or deleterious substance which may render it injurious to health." (RSUF 16.)

Beginning in January of 2010, the FDA undertook several inspections of the Basic production facility. Environmental samples collected from the Basic facility near the food processing equipment tested positive for Salmonella on January 21, 2010, February 8, 2010 and February 18, 2010. (Ruiz' Exhibit C, Doc. 94, Attach. 2: 43-46.) On February 19, 2010, a sample from a finished lot of HVP tested positive for Salmonella. Id. Basic continued to manufacture the HVP under the contaminated conditions until February 20, 2010. Id. Basic issued a Class One recall on February 25, 2010 for all HVP products manufactured on or after September 17, 2009. (RSUF No. 9.) A Class One recall is defined as being issued when products have "reasonable probability that the use of the product will cause serious, adverse health consequences."

A different lot of HVP subject to the recall was sent to Superior and used as an ingredient in its beef spice mix. (Catlin's Statement of Undisputed Facts "CSUF," No. 9.) Basic retained samples of that particular lot of HVP and had those samples tested for Salmonella contamination.*fn2 Id. The testing on the lot of HVP sent to Superior was negative for Salmonella contamination. Id. Superior conducted its own testing on lots of recalled beef spice mix on November 24, 2009, December 1, 2009 and December 7, 2009. The results of these tests came back negative for Salmonella contamination. (CSUF No. 11; Ex. 11, Doc. 99.)

Only one lot of Basic's HVP tested positive for Salmonella, and that particular lot was not sent to Superior, and thus, did not reach Ruiz. (CSUF No. 7-8.) Nonetheless, due to Basic's recall of its HVP products, Superior issued a recall of its beef spice mix on March 1, 2010. (Ruiz' Exhibit D, Doc. 94, Attach. 2: 47-50.) Following receipt of Superior's recall notice, on March 6, 2010, Ruiz placed on "hold" its Tornado products. (CSFU No. 12.) Ruiz tested samples of its Tornado product on December 23, 2009, January 23, 2010, January 28, 2010, January 30, 2010, January 31, 2010, and February 1, 2010. Each of those tests were negative for Salmonella. (CSFU No. 14.; Ex. 14, Doc. 99.) No Salmonella was ever found in a Tornado product.

On March 4, 2010, the FDA announced Basic's recall of HVP products due to Salmonella contamination, and "advis[ed] industry that the recalled bulk HVP product should be destroyed or reconditioned according to FDA-approved procedures." (Ruiz' Exhibit E, Doc. 94, Attach. 2: 51-53.) On March 6, 2010, Ruiz contacted the FSIS after receiving notice of the HVP recall. (RSUF No. 18.) Ruiz attempted to avoid a recall because the HVP constituted only .0007% of its Tornado product, and sample testing for Salmonella contamination was negative. (RSUF No. 19.) The recall committee of the FSIS found that Tornados needed to be recalled because they had incorporated HVP from Basic that was subject to the FDA recall. (RSUF No. 20.) On March 9, 2010, Ruiz recalled its Tornado products containing HVP manufactured after September, 2009, and the FSIS issued a news release concerning Ruiz' Class One recall of its Tornado products due to potential Ssalmonella contamination. (Ruiz' Exhibit F, Doc. 94, Attach. 2: 54-57.)

C. Ruiz' Accidental Contamination Policy With Catlin

In October of 2009, Catlin issue to Ruiz a Product Contamination Policy (the "Policy"). (RSUF No. 27.) The Policy covered the period from October 1, 2009 to October 1, 2010. (RSUF No. 30.) The insuring language of the Policy provides coverage for an "Insured event," which, as relevant to the parties' motions, is defined to include an "accidental contamination." (RSUF No. 32.) An accidental contamination is defined as:

"any accidental or unintentional contamination, impairment or mislabeling of an Insured product(s), which occurs during or as a result of its production, preparation, manufacture, packaging or distribution; provided that the use or consumption of Insured product(s):

(I) Has resulted in or would result in clearly identifiable internal or external physical symptoms of bodily injury, sickness, disease or death of any person(s) within one hundred and twenty days (120) days following such consumption or use."

(CSUF No. 2.) (Emphasis added.) Section 3.6 of the policy defines an "Insured product" as

(I) All topical and ingestible products for human consumption or any of their ingredients or components, that are identical with or similar to and requiring the same manufacturing processes and infrastructure as products reported to the Insurers on the Application on file with the Insurers or by addendum to such Application and which are as Specified Insured product(s) in the Declaration AND are

a. In production by the Insured or

b. Have been manufactured, handled or distributed by the insured or

c. Manufactured by any contract manufacture for the Insured or

d. Are being prepared by the Insured for or are available for sale."

(RSUF No. 36.) (Emphasis added.)

The parties dispute whether the circumstances of Basic's recall of HVP products, and Ruiz' related recall of its Tornado products, triggers coverage under the Policy. Catlin argues there is no coverage for the following reasons: (1) because none of the products received by Ruiz tested positive for Salmonella, there is no contamination of an Insured product; (2) "potential contamination" does not constitute an impairment of an Insured product; (3) even if there were a contamination or impairment, such contamination or impairment took place at Basic's facilities, thus, did not occur "during or as a result" of Ruiz' production of Tornados; and (4) because there was no contamination or impairment, consumption of the Tornados could not result in injury, sickness or death.

Ruiz argues that the potential Salmonella contamination of HVP, as well as Basic's subsequent recall of its HVP products, qualifies as both a contamination and an impairment under the terms of the Policy. Ruiz also argues the language of the Policy does not require the contamination or impairment take place during Ruiz' manufacture of the Tornados. Lastly, Ruiz argues that because the Tornados were potentially contaminated and otherwise impaired, the potential contamination had the potential to result in injury, sickness or death.

III. DISCUSSION

A. Legal Standard For Summary Judgment

Fed. R. Civ. P. 56(b) permits a "party against whom relief is sought" to seek "summary judgment on all or part of the claim." Summary judgment/adjudication is appropriate when there exists no genuine issue as to any material fact and the moving party is entitled to judgment/ adjudication as a matter of law. Fed. R. Civ. P. 56( c); Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986); T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). The purpose of summary judgment/ adjudication is to "pierce the pleadings and assess the proof in order to see whether there is a genuine need for trial." Matsushita Elec., 475 U.S. at 586, n. 11, 106 S.Ct. 1348; International Union of Bricklayers v. Martin Jaska, Inc., 752 F.2d 1401, 1405 (9th Cir. 1985). On summary judgment/adjudication, a court must decide whether there is a "genuine issue as to any material fact," not weigh the evidence or determine the truth of contested matters. F.R.Civ.P. 56 ( c); Covey v. Hollydale Mobilehome Estates, 116 F.3d 830, 834 (9th Cir. 1997); see Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598 (1970).

To carry its burden of production on summary judgment/adjudication, a moving party "must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co. v. Fritz Companies, Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). "[T]o carry its ultimate burden of persuasion on the motion, the moving party must persuade the court that there is no genuine issue of material fact." Nissan Fire, 210 F.3d at 1102. "As to materiality, the substantive law will identify which facts are material. Only ...


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