Finding that product actually contained salmonella unnecessary to conclude “property damage” occurred.

The Eighth Circuit has upheld a Minnesota federal judge’s ruling that The Netherlands Insurance Co. must cover instant milk supplier Main Street Ingredients LLC’s $1.4 million settlement with Malt-O-Meal Co. over losses from an instant oatmeal recall tied to salmonella fears.  The court rejected Netherlands’ argument that the dried milk did not suffer “property damage” under Minnesota law.  The court held that, while there was no factual finding that either the dried milk or the instant oatmeal contained salmonella, there was “property damage” in this case because the instant “oatmeal is physically affected, as it includes instant milk that was manufactured in insanitary conditions.” In addition, there was “property damage” because Malt-O-Meal’s dried oatmeal was legally unsaleable.  Netherlands argued that the allegedly tainted milk was withdrawn from the market because of a potential, but not actual, failure of the product.  The court held that evidence of “actual failure” before the district court included numerous FDA findings of insanitary conditions in the milk’s originating plant during the relevant time period.  According to the court, this constituted physical property damage to the instant oatmeal, and Main Street had shown it could have been liable.  The case is The Netherlands Ins. Co. v. Main Street Ingredients, LLC, 2014 WL 1012793 (8th Cir. (Minn.) March 18, 2014).