Submitted September 23, 2014,
Appeals from United States District Court for the District of South Dakota - Sioux Falls.
For Hot Stuff Foods, LLC, Plaintiff - Appellee (14-1192): Alex M. Hagen, Stephen Landon, Shawn M. Nichols, CADWELL & SANFORD, Sioux Falls, SD.
For Houston Casualty Company, Defendant - Appellant (14-1192): William Fuller, FULLER & WILLIAMSON, Sioux Falls, SD; Terrence Reilly McInnis, Ross Smith, TROUTMAN & SANDERS, Irvine, CA.
For Hot Stuff Foods, LLC, Plaintiff - Appellee (14-1194): Alex M. Hagen, Stephen Landon, Shawn M. Nichols, CADWELL & SANFORD, Sioux Falls, SD.
For Houston Casualty Company, Defendant - Appellant (14-1194): William Fuller, FULLER & WILLIAMSON, Sioux Falls, SD; Terrence Reilly McInnis, Ross Smith, TROUTMAN & SANDERS, Irvine, CA.
Before RILEY, Chief Judge, LOKEN and KELLY, Circuit Judges.
LOKEN, Circuit Judge.
Hot Stuff Foods manufactures and sells consumer food products including Sausage Breakfast Sandwiches assembled at its processing facility in Shakopee, Minnesota. Hot Stuff uses sausage for the Sausage Breakfast Sandwiches that does not contain monosodium glutamate (MSG), a flavor enhancer that must be disclosed on a food product's label when it is an added ingredient. See 21 U.S.C. § 343(i). Hot Stuff also distributes sausage that contains MSG from its facility in Sioux Falls, South Dakota. On January 7, 2011, Hot Stuff discovered it had inadvertently used Sioux Falls sausage in making Breakfast Sandwiches distributed from Shakopee after July 2010. As those products contained MSG not disclosed on the labels, they were " misbranded" under federal law. 21 U.S.C. § 343(a)(1). Hot Stuff immediately reported the situation to representatives of the Food and Drug Administration and the U.S. Department of Agriculture. After discussions with both agencies, Hot Stuff conducted a voluntary recall of the mislabeled sandwiches. The recall encompassed 193,507 cases of Sausage Breakfast Sandwiches that Hot Stuff distributed between August 2010 and early January 2011. During the recall, Hot Stuff learned that approximately 40,000 cases of the mislabeled sandwiches remained in commerce.
At the time of the recall, Hot Stuff was insured under a Malicious Product Tampering/Accidental Product Contamination policy issued by Houston Casualty Company (HCC). HCC's policy defined " Accidental Product Contamination" as:
(1) any accidental or unintentional contamination, impairment or mislabeling . . . during the manufacture . . . labeling . . . production or processing . . . of the Named Insured's PRODUCTS (including their ingredients or components), or PUBLICITY implying such, or
(2) fault in design specification or performance . . .
provided always that the consumption or use of the Named Insured's CONTAMINATED PRODUCT(S) has, within 120 days of such consumption or use, either resulted, or may likely result, in: (1) physical symptoms of bodily injury, sickness or disease or death of any person(s) and/or (2) physical damage to (or destruction of) tangible property . . . .
Hot Stuff timely sought indemnification from HCC for losses sustained due to the recall. HCC denied coverage on the ground that the claim did not involve an " Accidental Product Contamination" as defined in the policy. Hot Stuff commenced this declaratory judgment action to recover its claimed loss.
The district court granted Hot Stuff's motion for partial summary judgment, concluding that the incident was a covered Accidental Product Contamination, Hot Stuff was entitled to indemnification of its covered losses, and the amount of damages required a jury trial.
Hot Stuff Foods, LLC v. Houston Cas. Co., No. 11-4055, 2012 WL 2675225 (D.S.D. July 5, 2012). After a four-day trial, the jury awarded Hot Stuff $755,268.07 for recall and crisis response expenses and $200,000 for lost gross profit. HCC moved for judgment as a matter of law with regard to the lost gross profit award, and Hot Stuff moved for an award of attorney's fees under S.D. Codified Laws § 58-12-3 for HCC's vexatious refusal to pay. The district court denied both motions. HCC appeals the grant of partial summary ...