Litigation Team Prevails in Third Circuit Appeal

The U.S. Court of Appeals for the Third Circuit has affirmed the ruling of a U.S. District Court in favor of Choate’s client, Starr Surplus Lines Insurance Company, declaring void a $25 million product contamination insurance policy sold by Starr to H.J. Heinz Co.  Product contamination insurance covers losses incurred in connection with, among other things, contamination of food.  Just 15 days after Starr issued the policy, Heinz reported that the Chinese FDA discovered lead contamination in Heinz’s baby food and Heinz claimed coverage for that loss under the Starr policy.  When Starr launched a routine investigation, it discovered questions as to whether Heinz had made material misrepresentations concerning its loss history in the policy application which Heinz submitted to Starr.

When Starr asked about the accuracy of the application, Heinz sued to enforce the policy.  Starr responded by filing a counterclaim for rescission of the policy based upon material misrepresentations in the policy application.  The District Court bifurcated the case and scheduled, as a first phase, an advisory jury trial on Starr’s rescission claim.  Following compressed discovery and a three-day trial in Pittsburgh (Heinz’s hometown), the Court ruled in favor of Choate’s client.

The Third Circuit affirmed, rescinded the policy and declared it null and void.  “Heinz’s misrepresentations were of such magnitude that they deprived Starr of ‘its freedom of choice in determining whether to accept or reject the risk upon full disclosure of all the facts which might reasonably affect that choice.’ It is ‘obvious,’ that Starr, or any other similarly situated insurer, would not have issued the policy with [the same terms],” the Third Circuit wrote.  The Third Circuit’s affirmation represents a major victory for Starr, and a rare instance of insurance policy rescission.

The Choate team was led by Bob Frank, John Nadas, Matt Arnould, Eve Aguilar, and Kevin Finnerty.