By Daniel Hays, assistant managing editor, National Underwriter P&C
Copyright National Underwriter P&C
Language in a $30 million Lloyd's policy does not exempt the insurer from lost revenue claims from Taco Bell restaurant owners after a 2006 E. coli outbreak, a New Jersey Court has ruled.
A spokesman for Lloyd's said the corporation could not immediately say whether there would be an appeal from the decision by Superior Court Judge Philip L. Paley in New Brunswick, N.J.
William G. Passannante of Anderson Kill & Olick, P.C., one of the attorneys representing more than 1,000 Taco Bell outlets, said in any event legal battles in the case will continue over liability amounts and claims of bad faith against Lloyd's.
In the decision by Judge Paley, restaurant franchises won a partial summary judgment in a dispute over a policy with a $30 million limit providing trade name restoration coverage.
According to the decision, the restaurants first purchased a variety of coverages from Lloyd's Market to protect against effects of contaminated food in 1999. The coverage was modified in 2003 with an "Aggregate Supplier Incident Sublimit" that the plaintiffs said they were never told was providing zero protection for risk they previously had coverage for.
Judge Paley in his decision said the restaurant owners "apparently believed that the policy would provide reimbursement for revenue losses from reports (true or not) of food borne illness arising out of their restaurant operations."
The judge cited previous rulings that found insurance purchasers are entitled to "protection necessary to fulfill their reasonable expectations" and should "not be subjected to technical encumbrances or to hidden pitfalls and [that] their polices should be construed liberally."
The Court noted that the marketing for trade name restoration insurance stated that "even the best restaurants can suddenly be trapped in an infectious health situation…due to a food borne illness or supplier mistake that ends up totally out of control."
The franchisees suffered lost income stemming from the 2006 Taco Bell outbreak of E. coli, attributed to lettuce delivered to some northeastern Taco Bell franchises.
Lloyds asserted that the $0 sublimit precluded insurance on account of any alleged involvement of a "supplier" and refused to cover the losses.
Judge Paley found that the Lloyd's underwriters "did not state what the Sublimit meant; they did not communicate that it was an exclusion. The Sublimit does not exclude coverage for the Outbreak."
He also ruled that trade name restoration insurance may differ from the previous food borne illness coverage, "but there is no evidence that the Franchisees were told that earlier coverage was being reduced….Plaintiffs reasonably believed that the Policy was tantamount to a 'renewal' of those issued earlier which would 'mirror…the terms of the coverage…afforded in the past."
The judge also said the policy did not define what a supplier incident was and various other terms, including sublimit. He said he did not accept the Lloyd's argument that the lettuce was a "product", "to which the sublimit would apply, as opposed to "an 'ingredient', something used to produce or prepare 'the Insured's Products.'"
The plaintiffs in the case include more than 70 Taco Bell franchisees controlling more than 1,300 Taco Bell outlets.
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