Federal District Court Rules Against Can Manufacturer in Coverage Claim Involving Damage to Fruit Product

A district court in California recently found that an insurer was not liable where its insured sought coverage under its Commercial Umbrella policy for loss it suffered as a result of the manufacture of a defective product. Ruling in favor of the insurer on partial summary judgment, the Northern District Court held that there was no "property damage" or "loss of use" under the policy where the defective product was incorporated into another product, but did not contaminate or otherwise created a dangerous product and where the resulting product was not wholly unusable.

In Silgan Containers Corp. National Union Fire Insurance Co. of Pittsburgh, PA, Silgan sued its insurer, National Union, for coverage of a claim involving its manufacture of a defective product. Silgan manufacturers steel and aluminum containers with pull-tabs used as packaging for food products. In 2004, one of its customers, Del Monte, began receiving complaints that the pull-tab cups were malfunctioning. Del Monte notified Silgan of the issue and after investigation, Silgan determined that there were various factors involving both design and manufacture contributing to the container defect. Del Monte then notified Silgan that it would no longer accept its products. Del Monte disposed of all rejected cups manufactured by Silgan, including cups that had already been filled with fruit by Del Monte and sought to recover over $6.5 million in costs from Silgan.

Silgan sought coverage for the claim under two insurance policies. One, a Commercial General Liability policy with Zurich, provided coverage up to $1.5 million in liability after a $250k deductible. The other, a Commercial Umbrella policy with National Union, provided coverage up to $25 million for certain occurrences that cause property damage. Zurich eventually accepted coverage of the claim. National Union, however, denied coverage on the basis that there was no physical injury to the fruit contained in the defective fruit cups, and thus no property damage. Under the National Union policy "physical injury" is defined 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." Silgan brought suit in district court for coverage of the remaining $4.6 million. Both parties brought cross-motions for partial summary judgment seeking a determination regarding coverage of the Del Monte claims.

Silgan argued that the loss...