Pre-Policy Knowledge of Contamination Bars Coverage

The United States Court of Appeals for the Sixth Circuit, applying Sixth Circuit precedent, affirmed the District Court’s dismissal of the insured Arbre Farms Corporation’s (“Arbre Farms”) claim for coverage stemming from a 2019 recall of listeria-contaminated green beans. The Sixth Circuit found that a 2017 finding that the green beans were contaminated was sufficient to exclude coverage based on prior knowledge and that Arbre Farms had failed to preserve on appeal their argument that that exclusion was ambiguous.

In early 2019, Arbre Farms discovered that it had inadvertently shipped to customers green beans that had, in 2017, tested positive for listeria contamination. As a result, Arbre Farms was forced to recall or destroy up to eight million pounds of green beans. One of its insurers, Great American E&S Insurance Company (“Great American”) denied coverage, arguing that Arbre Farms knew of circumstances that could lead to a recall in 2017, prior to the beginning of the coverage period on October 1, 2018.

Specifically, Great American relied on a policy exclusion (“Exclusion G”) that precluded coverage for “[a]n insured event or any circumstance that could give rise to an insured event that is discovered, known by or should reasonably have been known by the insured prior to the inception of the Policy Period[.]” In responding to Great American’s argument on a motion to dismiss, Arbre Farms failed to address the meaning or application of Exclusion G.

The District Court found that the 2017 testing and quarantine of contaminated green beans triggered Exclusion G, and thus coverage for the 2019 recall was excluded. On appeal, Arbre Farms devoted its arguments to the interpretation of Exclusion G, something it had not addressed at all in the lower court. As a result, the Sixth Circuit found that it had forfeited that argument, and, in addition, that the District Court had not otherwise erred in looking outside the complaint in applying Exclusion G. As a result, the Sixth Circuit affirmed the dismissal of Arbre Farms’ complaint. Arbre Farms Corp. v. Great Am. E&S Ins. Co., 21-1091, 2021 WL 5095533 (6th Cir. Nov. 2, 2021).