[Special thanks for this guest blog from Wendel Rosen insurance attorney Gary Barrera.]
Last month, a California federal court held that a food manufacturer’s insurers had no duty to defend or indemnify the insured for claims arising out of the manufacturer’s alleged false advertising of its product because the claims were based on the manufacturer’s intentional and deliberate decisions regarding the content of its advertising.
In West American Insurance Co. v. Nutiva, Inc., a class action lawsuit was filed against Nutiva arising out of its alleged misrepresentations about the health effects of its coconut oil products. Nutiva marketed its coconut oil products with statements such as “100% less cholesterol than butter,” “better than butter” and “0g trans fats.” The class action plaintiffs alleged that, contrary to Nutiva’s advertising that coconut oil is healthy, consumption of coconut oil causes adverse health effects, including impaired endothelial function.
Nutiva’s insurers filed a declaratory relief action seeking a judicial declaration that they had no duty to defend or indemnify Nutiva because there was no potential for coverage under their respective general liability policies. The policies insured Nutiva for damages because of “bodily injury” or “property damage” caused by an “occurrence,” which the policies defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The insurers did not dispute that the class action plaintiffs’ allegation of “impaired endothelial function” constitutes “bodily injury,” but argued that the injuries alleged by the plaintiffs arising out of Nutiva’s false advertising of its coconut oil products were not the result of an “accident,” which California courts define as “an unexpected, unforeseen, or undersigned happening or consequence from either a known or an unknown cause.” In response, Nutiva argued that the plaintiffs’ alleged injuries were the result of an “accident” because “an additional, unexpected, independent and unforeseen happening,” such as diabetes, hypertension or smoking, could have been an intervening event that produced the “impaired endothelial function.”
The court held that the insurers had no duty to defend or indemnify Nutiva because the false advertising claims did not arise from an “accident,” but rather, from Nutiva’s “deliberate marketing decisions.” The court reaffirmed that under California law, “accident” in the general liability insurance context refers to the insured’s conduct, and if the insured intends to perform the acts resulting in the alleged injury or damage, there is no “accident” even if the insured did not intend to cause injury. Since the class action complaint alleged that Nutiva intentionally marketed its coconut oil products with positive statements about its products’ health benefits, and these statements misrepresented the products’ health effects, the court held there was no “accident,” regardless of whether Nutiva did not intend the alleged adverse health effects from the use of its products.
The court also rejected Nutiva’s argument that the alleged health effects could have been caused by unintended problems in the manufacturing process that rendered the products defective. The court opined that although Nutiva speculated that its products might have been defective, it did not identify any supporting evidence, nor did it contest that it intended to advertise and sell its coconut oil products as healthy. Since no allegations in the class action complaint raised the possibility that Nutiva’s actions in labeling, advertising, and selling its coconut oil products were accidental, the insurers had no duty to defend or indemnify Nutiva.
The Nutiva case serves as a lesson to product manufacturers and especially food manufacturers that bodily injury or property damage claims arising out of the manufacturer’s alleged false or deceptive advertising of its product will not be covered under a general liability policy if the manufacturer intended to label and advertise its product in a certain manner, even if the manufacturer did not intend to cause injury to its customers via the sale or marketing of its product. Food manufacturers should carefully scrutinize the content and accuracy of their advertising in order to minimize their potential exposure for bodily injury or property damage claims based on false advertising, and scrutinize their insurance policies for possible lack of coverage for such exposure. It is also critical for food manufacturers to routinely review their coverage with an experienced insurance broker to ensure they have the maximum scope of coverage possible.