A high-profile law group has jumped into a fight against the alleged mislabeling of products by food manufacturers—a move that has the insurance industry on its toes.

Don Barrett, a Mississippi lawyer who raked in millions of dollars with suits against the tobacco industry, is looking for another big payday—this time from food manufacturers he says are operating in “flagrant disregard of the U.S. Food and Drug Administration and California law” by misbranding and mislabeling products in order to capitalize on a consumer's desire for healthy foods.

“Food manufacturers have long realized the FDA has no teeth,” Barrett tells NU. “We don't think what the [food industry] is doing is right, and there is only one way to get their attention—hit them in the pocketbook.”

With 27 lawsuits filed so far (mostly in California, where laws favor consumers) Barrett's law group is seeking more than small settlements and orders to stop the mislabeling of products and ingredients.

“These guys are used to settling for pennies; they are used to having these cases, for the most part, quietly disappear,” he says.

“That is not what we are looking to do,” Barrett adds. “They are in for a rude awakening. This is a crime.”

SEEKING BIG-DOLLAR DAMAGES

Barrett says he seeks major damages for his clients—a pool that he says numbers into the thousands, thus far—because if a manufacturer is deemed to have misbranded food, “it means they have been selling a worthless product,” he declares.

“It's easy to calculate the overpayment for the sale of an illegal product which is 'worthless,'” he continues. “It is what the consumer paid for it. Collectively, it means the total of all sales within the last four years.”

Should Barrett succeed in his lawsuits against the likes of PepsiCo, General Mills, Heinz and ConAgra Foods, damages could theoretically run into the billions of dollars, considering the annual sales of the products Barrett alleges have been sold illegally.

He also seeks injunctions to stop the sale of products his firm is targeting, as well as to institute massive recalls.

These class-action cases are not new, but the status of Barrett and the damages he seeks for plaintiffs is. Historically, cases related to food mislabeling have sought only to force the manufacturer to “stop it.”

Stephen Gardner, the director of litigation for the advocacy group Center for Science in the Public Interest (CSPI), says he has been involved in fighting against food manufacturers for deceptive practices since the early 1980s.

Typically the CSPI sends a warning shot—a letter outlining demands—to manufacturers in an attempt to get them to stop what they're doing, unless CSPI is enlisted to take a case by a private attorney or history dictates an uncooperative company, says Gardner.

Most of the time this strategy works and no suit is filed. A trial is “extraordinarily rare,” Gardner says. A settlement is usually reached with a manufacturer, and a pool is established to refund consumers.

Gardner says he can “do more good” by getting manufacturers to stop wrongful practices rather than “spend $2 million [in a lawsuit] to get everyone a $5 refund.”

INSURANCE IMPLICATIONS: DUTY TO RESPOND?

Primary Commercial General Liability policies cover advertising injury, which is usually limited to violations of right to privacy and libel and/or slander, says Gregory Vallie, director of casualty for Minuteman Adjusters (Burns & Wilcox's in-house third-party administrator), who notes that such claims are exceedingly rare. “One per year is a lot,” he says.

“The policy severely limits what it provides defense and indemnity for,” adds Vallie. “I suppose if a litigator is creative he can get [insurance] in the door to provide a defense, but as far as indemnification—[there is] little to none.”

Even Barrett says his lawsuits allege willful acts on the part of manufacturers, and such acts are generally excluded in insurance policies.

Gardner says not once has he ever seen a company disclose whether insurance is available during pre-trial exchanges of information. “Either they choose not to bring it in, or they don't have coverage,” he surmises.

The response of specialized insurance coverage all depends on the wording of the lawsuit, as well as the wording of individual policies, says Linda Pierce, senior vice president and director of western-region claims & loss control for Arthur J. Gallagher Risk Management Services.

Consumer statutes appear to focus on remedies that are not in the form of monetary damages—and civil penalties aren't covered.

But if monetary damages are sought, “Maybe there's a shot” at claiming coverage, Pierce says, citing advertising-injury cases involving policy exclusions that weren't worded correctly—exposing the insurer.

Since there is no standard ISO form for Directors & Officers (D&O) coverage, there also could be openings with that type of insurance, but typically such policies are broader only for private companies. Public D&O policies are largely restricted to securities claims, Pierce notes.

“I believe the intent of insurers is not to cover these types of [deceptive labeling and marketing] claims,” she adds.

TOTAL RECALL

Bill Harrison, managing director and U.S. Product Recall practice leader for Marsh, says coverage for recall is triggered by unintentional product contamination—products that make it to the shelves despite stringent quality control.

Like his insurance peers, Harrison says coverage depends on policy language and endorsements. Each company has its own base policy, with different terms and conditions—with additional endorsements tailored to meet client expectations.

“I don't know if the policies anticipate these new risks,” he says. “If the label is wrong and a recall is ordered because a consumer may be injured—maybe that's a trigger,” says Harrison.

Many policies, if triggered, would also cover business interruption and costs to rebuild reputation and sales.

Coverage for mislabeling is available now but is limited currently to unintentional printing errors, he adds.

CARRIERS: RUN TOWARD NEW OPPORTUNITY—OR RUN AWAY?

Are insurers presented an opportunity with these cases for a new coverage class? Can insurance be structured for these large food manufacturers to better cover the risk of being sued for alleged deceptive marketing and labeling practices? What about the reputational damage?

“New types of risk emerge all of the time,” says Harrison. “You can always design endorsements to cover new emerging risks. It'll depend on what occurs. There are many different suits. [Depending on the results], maybe a need arises for which the industry can step in.”

After all, Harrison points out, specialty coverages such as Government Recall didn't exist until recently because recalls were a voluntary practice before the European Food Safety Directive in 2006 (and now the FDA has gained similar recall powers in the U.S.).

Other industry experts asked to contemplate possible industry responses hedged any predictions due to the fact the lawsuits are predicated on allegations dependent on loosely regulated claims of “healthy” and “natural.”

With no federal standards, how does a carrier provide coverage for a perceived violation? How can it underwrite the risk of bodily injury to a class of people who say they were harmed, or could have been harmed, by Chobani listing “evaporated cane juice” in its ingredients instead of simply saying the product contains sugar? (Barrett is also suing Chobani.)

Arthur J. Gallagher's Pierce, a former trial lawyer, firmly states, “I don't think any insurer in their right mind would want to cover these.”

Nan Meyer, managing director of Products Liability for Markel, says lawsuits like Barrett's would “get out of control” if plaintiffs' attorneys knew insurance coverage was available.

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