Tainted Peanut Firm's President Loses Claim Against Insurer

NU Online News Service, Sept. 16, 2:00 p.m. EDT

A federal court has rejected efforts by the president of a firm whose tainted peanut butter killed nine people to obtain coverage over the $1 million limit of his company's directors and officers liability policy.

U.S. District Court Judge Norman K. Moon, sitting in Lynchburg, Va., on Sept. 3 granted the insurer–Federal Insurance Company–a summary judgment tossing out claims by Stewart Parnell, president, chief executive officer and a part owner of Peanut Butter Corp. of America.

Mr. Parnell had entered a counterclaim for legal defense expenses outside of the policy's limits. He had also alleged that Federal had agreed to fund a defense within the policy. The judge found his claim was implausible, inconceivable and failed to plead the prima facie elements for a breach of contract.

Georgia-based PCA was hit with massive lawsuits and a federal criminal probe after its peanut products infected with salmonella bacteria caused nine deaths and prompted massive recalls last year.

After the firm filed for bankruptcy, Federal–anticipating that claims would exceed the policy limit–secured an order from the bankruptcy court in Western Virginia permitting the insurer to deposit its policy limit of $1 million with the court.

Mr. Parnell, one of 14 defendants who filed competing demands under the policy, was seeking $951,000.

Judge Moon in his decision said there is "no genuine dispute that Federal legitimately fears the risk of multiple lawsuits over the policy proceeds in this case," noting there are now more than 100 defendants.

"The fact that PCA, its executives and its employees are the subject of so many serious accusations of wrongdoing certainly makes it 'legitimate' for Federal to fear that there will be claims that will easily exhaust the policy limit, and none of the defendants dispute that contention," he wrote.