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Lettuce In Tacos Could Cost $76 Million

Federal Judge S.W. Lew Tuesday could accept a schedule agreed to by Taco Bell, its produce supplier, Ready Pac Foods Inc., and their insurance companies that will culminate in a trial sometime in 2011.

At issue is who ultimately pays up to $76 million in costs incurred from a 2006 outbreak of E. coli O157:H7 associated with Taco Bell restaurants that the company says was caused by lettuce supplied by Ready Pac.

taco-featured.jpgNational Union Fire Insurance Company originally sued Ready Pac Foods Inc. over liability coverage it sold to the produce wholesaler.  Taco Bell filed a counterclaim and became a third-party plaintiff. 

Then, American Guarantee Liability & Insurance Company got involved as a “plaintiff-in-intervention.”  And, finally, Taco Bell filed a third-party complaint to bring St. Paul Fire & Marine Insurance Co., one of its liability insurance carriers, to into the lawsuit.  St. Paul has only recently been served.

Taco Bell restaurants were the source of an outbreak of the dangerous E. coli O157:H7 during the final weeks of 2006, which was traced to contaminated lettuce.

The federal Centers for Disease Control and Prevention (CDC) reported on Dec. 13, 2006 that 71 people were ill with E. coli infections associated with the Taco Bell outbreak.  Eight victims developed life threatening Hemolytic Uremic Syndrome.

Companies responsible for foodborne illness outbreaks typically insure themselves for loss of business, recall expenses, and the expense of lawsuits from the customers they kill or injure.

All the parties, except St. Paul, gathered in mid-November for a Rule 26(f) conference.

In holding Ready Pac responsible for the contaminated lettuce, Taco Bell is seeking payment for so-called business interruption claims.  National wants the court to rule that Ready Pac has already exhausted the limits of its excess liability policy.

Ready Pac carried excess liability coverage from National, American, and St. Paul. The produce wholesaler entered into an agreement with “various Taco Bell entities” in April 2008 before any of its insurance companies acknowledged their coverage.

Ready Pac wants to reserve “its right to seek coverage for all the amounts it has incurred responding to Taco Bell’s business interruption claims, including the cost of defense and all amount paid to Tacoma Bell entities under its settlement.”

“The CDC,” Taco Bell claims, “determined that the E. coli illness suffered by customers of various Taco Bell restaurants was not caused by circumstances connected with employees or sanitary conditions of those restaurants, but was instead caused by a food ingredient shipped to those restaurants that was contaminated prior to reaching Taco Bell restaurants.

“The CDC concluded that the lettuce supplied by Ready Pac to Taco Bell restaurants was most likely the cause of the E. coli outbreak.”

Taco Bell says Ready Pac has both general and excess liability coverage to compensate for its losses.  Ready Pac has $25 million in commercial general liability coverage from National Union, $25 million in excess of National Union coverage from St. Paul, and $25 million in excess of the St. Paul coverage from American Guarantee.

Taco Bell and its involved franchises have an agreement with Ready Pac that the restaurant chain says make it the “real party in interest” with respect to the insurance coverage.

American Guarantee says it does not have “a duty to indemnify or reimburse” Ready Pac.

According to their report on the Rule 26(f) conference, Taco Bell, Ready Pac, and National Union propose Nov. 1, 2010 as the deadline for completing discovery and Nov. 22, 2010 for naming all expert witnesses.  A trial would begin May 30, 2011.

American Guarantee wants to add about six months to all the various deadlines with the trial not starting until Nov. 14, 2011.

It wants more time, in part, because it says: “Although Ready Pac/Taco Bell may contend that policies issued to Ready Pac Foods afford coverage for up to $76 million in bodily injury claims, property damage claims and/or alleged ‘business loss’ claims, Taco Bell, to date, has refused to provide certain potentially significant information which was informally requested by American Guarantee regarding each of the Taco Bell franchises which allegedly suffered ‘business losses’ and/or property damage.”

American Guarantee anticipates “voluminous written discovery” and “numerous depositions.”

Judge Lee, who was appointed to the federal bench for the Central District of California by President Ronald Reagan in 1987, will decide the actual schedule.

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