No Coverage For Defective Fruit Cup Packaging Where The Fruit Itself Is Not Damaged

When Del Monte Foods received in excess of 5,000 complaints from consumers who encountered difficulties opening the pull-tabs on Del Monte's line of fruit cup products, it turned to the manufacturer of the defective cans, Silgan Container Corporation ("Silgan"). As a result, Del Monte withheld approximately $6.5 million in payments owed to Silgan as compensation for Del Monte's alleged damages in connection with the defective cans. Silgan then turned to its liability insurers for coverage.

In Silgan Containers Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., Case No. 08-02246 (N.D. Cal. March 29, 2010), United States District Court Judge Phyllis J. Hamilton of the Northern District of California granted summary judgment in favor of National Union, one of Silgan's insurers, holding that Silgan's defective pull-tab lids did not cause "property damage" within the meaning of National Union's umbrella policy.

The National Union policy covered "those sums in excess of the Retained Limit that the insured becomes legally obligated to pay" because of "property damage. . . that takes place during the policy period and is caused by an occurrence happening anywhere in the world." The policy defined "property damage" as "physical injury to tangible property, including all resulting loss of use to that property" or "loss of use of tangible property that is not physically injured." The policy defined "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in. . . property damage neither expected nor intended from the standpoint of the insured."

Silgan argued on cross-motions for summary judgment that Del Monte's claim satisfied the "property damage" definition. Specifically, Silgan argued that the fruit inside the defective fruit cups was "tangible property" that was "physically" injured because the defective pull-tab lids, which were incorporated together with the fruit itself, rendered the fruit commercially useless. The court, however, distinguished this case from "incorporation" cases, such as California's notable decision in Shade Foods, Inc. v. Innovative Prods. Sales & Marketing, Inc., 78 Cal. App. 4th 847 (2000), which involved the incorporation of the insured's contaminated nut clusters into cereal products manufactured by the underlying claimant. Shade Foods involved inherently dangerous products where the host product was "damaged" by the mere fact of incorporation. Here, however, the...

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