Federal Judge Robert Pitman, who presided over the 15-day mistrial of Blue Bell’s former president, has ruled in another case involving the Brenham, TX-based creamery.
From his Western District of Texas federal court bench, Pitman granted the motion for a summary judgment favoring two insurance companies over Blue Bell Creameries USA Inc.
It finds Blue Bell’s insurance coverage was no good during the critical year of a listeria outbreak traced to the ice cream company’s products. It also means Blue Bell is on its own for a $60 million settlement with shareholders that was approved by a Deleware court in 2020.
The judge further ordered the case closed and gave the insurance companies until Sept. 6 to present their fees and costs to the court.
Before the court were cross-motions for summary judgment filed by plaintiffs, Discover Property & Casualty Company (“Discover”) and The Travelers Indemnity Company of Connecticut (“Travelers”), and defendants Blue Bell Creameries USA Inc., Blue Bell Creameries LP, and Blue Bell Creameries Inc. (collectively, the “Blue Bell Entities” or “Blue Bell”), including officers and directors John W. Barnhill Jr., Greg A. Bridges, Richard Dickson, Paul A. Ehlert, Jim E. Kruse, Paul W. Kruse, W.J. Rankin, Howard W. Kruse, Patricia I. Ryan, and Dorothy McCleod MacInerney.
“Having considered the parties’ arguments, the evidence, and the relevant law, the court will grant plaintiffs’ motion and deny defendants’ motion,” Pitman ruled.
The dispute between Blue Bell and its insurance carriers was over a 2015 listeriosis outbreak that resulted in a nationwide recall of all of the creamery’s products and the temporary shutdown of its production facilities in Texas, Oklahoma, and Alabama. At least 10 people were infected and three died.
A shareholders’ lawsuit followed in 2017 against Blue Bell’s officers and directors, claiming the board “willfully failed to exercise its fundamental authority and duty to govern company management and establish standards and controls for company compliance.”
The insurance case says that the alleged breaches of fiduciary duty caused Blue Bell and its stockholders “injury in the amount of at least hundreds of millions of dollars,” resulting in “catastrophic” financial harm to Blue Bell and its shareholders.
Blue Bell’s former president, the retired 67-year-old Paul Kruse, was indicted in 2020 on federal conspiracy and fraud charges stemming from his management during the outbreak. His Aug. 1-15 trial ended in a hung jury. The government can try again.
Kruse is the only individual to face criminal charges because of the 2015 outbreak.
Blue Bell pleaded guilty as a corporate entity in a related case in 2020 to two counts of distributing adulterated food products in violation of the Federal Food, Drug, and Cosmetic Act. The company agreed to pay criminal penalties totaling $17.5 million and $2.1 million to resolve False Claims Act allegations regarding ice cream products manufactured under unsanitary conditions and sold to federal facilities, including the military.
The total $19.35 million in fines, forfeiture, and civil settlement payments was the second-largest amount ever collected to settle a food safety matter.
Pitman’s insurance ruling notes “evidence of a history of repeated findings of unsafe conditions” at Blue Bell. Several commercial general liability policies covered the company’s various entities between 2009 and 2016.
Each policy provided a liability limit of $5 million for each “occurrence” and a general aggregate limit of $10 million.
Pitman’s ruling says the two sides “stipulated the cross-motions for summary judgment may refer only to the 2015 policy but apply to all policies in effect at times relevant.”
“On April 1, 2021, the Blue Bell Entities notified Plaintiffs of their claim that they were entitled to coverage in the Shareholder Suit under Plaintiffs’ policies.
“On June 3, 2021, plaintiffs filed this suit. Plaintiffs seek:
(1) a declaration that plaintiffs have no duty to defend or indemnify any defendant for the shareholder suit under the insurance policies;
(2) if the court finds a duty to defend, a declaration that plaintiffs’ obligations are limited to post- tender fees and costs excess to exhaustion of self-funded retentions or other applicable terms;
(3) if the court finds the duty to indemnify, a declaration that plaintiffs’ obligations are subject to the limits of the policies, excess of proper exhaustion of self-funded retention obligations, and subjection non-cumulation of each occurrence;
(4) if the court finds a duty to indemnify, a declaration that plaintiffs’ obligations are limited to the payment of covered damages;
(5) a declaration of any other rights and obligations of the parties under the policies as implicated by the shareholder suit; and
(6) costs and fees.
On Aug. 6, 2021, defendants filed their answer, which included a counterclaim for breach of contract arising out of plaintiffs’ failure to pay defendants’ costs from defending the shareholder suit as provided in the policies.
On Dec. 10, 2021, the plaintiffs filed their motion for summary judgment, and the defendants filed their cross-motion.
Pitman said his ruling on the summary judgment motions was appropriate because no genuine dispute exists regarding any material fact.
The judge found the Blue Bell officers and directors “knowingly and willfully breached their fiduciary duties” and, “therefore, cannot be considered ‘insured’ under the policy.”
Blue Bell claimed the oversight and failures by its board did not rise to the level of misconduct necessary to preclude them from coverage as “insureds.”
The 2015 listerious outbreak sickened 10 people. Ten confirmed patients were from four states – Arizona with 1, Kansas with 5, Oklahoma with 1, and Texas with 3 — and all required hospitalization. Generic fingerprinting linked three deaths before 2015 to isotopes found in Blue Bell products.
Blue Bell Creameries, founded in 1907 in Brenham, TX, today produces Blue Bell ice cream, an iconic Texan brand.
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