This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2006).
IN COURT OF APPEALS
St. Paul Fire and Marine Insurance Company,
Affirmed in part, reversed in part, and remanded
Hennepin County District Court
File No. 27CV05006042
Steven P. Zabel, Jeffrey A. Eyres, Leonard, Street and Deinard, P.A., Suite 2300, 150 South Fifth Street, Minneapolis, MN 55402 (for appellant)
Eric J. Strobel, Holly J. Tchida, Hinshaw & Culbertson, L.L.P., Suite 3100, Campbell Mithun Tower, 222 South Ninth Street, Minneapolis, MN 55402 (for respondent)
Considered and decided by Dietzen, Presiding Judge; Stoneburner, Judge; and Parker, Judge.*
Appellant, a sugar producer, challenges the district court’s denial of its motion for summary judgment and a subsequent jury verdict in its breach-of-contract action against respondent insurer for property-damage coverage for claimed property damage to a customer’s food product. Appellant argues that the district court failed to apply the appropriate definition of “physical damage” applicable in the food industry. Appellant also asserts that the district court erred in holding that respondent did not breach its duty to defend and in denying appellant’s request for attorney fees. We affirm the district court’s denial of appellant’s motion for summary judgment, reverse the jury verdict on the ground that the jury verdict form erroneously stated the law, reverse the district court’s holding that respondent did not breach its duty to defend, and remand for a new trial and for a determination of what damages, if any, appellant incurred as a result of the breach of the duty to defend.
Appellant United Sugars Corporation (USC) is the largest
marketer of industrial consumer sugar in the
The policy provides that
In July 2004, one of USC’s customers (Nestlé) informed USC that it had shut down the production of cookie dough at one of its facilities because it had discovered contaminants in the form of bee parts and cigarette butts in USC’s sugar. The bee parts and cigarette butts were observed on three inspections of screens through which the sugar passed before it was added to the dough. On the third inspection, Nestlé determined that all of the cookie dough that had been produced using this sugar was “adulterated” and could not legally be sold under federal Food and Drug Administration (FDA) regulations. Nestlé sent USC an invoice claiming more than $700,000 in damages for loss of dough and raw ingredients, cleaning production equipment, and storage of the frozen cookie dough prior to destruction.
USC determined that the contamination of its sugar had occurred at a shipping facility owned by Nutritive Sweeteners, Inc. Nutritive Sweeteners was under contract with USC to transport USC’s sugar to Nestlé. USC concurred with Nestlé that under FDA regulations, the cookie dough could not legally be sold due to contact with contaminated sugar. Neither Nestlé nor USC performed any testing on the cookie dough to determine whether any bee parts or cigarette butts from the sugar actually got into the dough.
USC submitted Nestlé’s invoice to
At trial, a single question was submitted to the jury in
a special verdict form: “On or about July 9, 12, or 13 was Nestlé’s cookie
dough contaminated with a foreign matter by [USC’s] product?” The jury answered, “no.” Based on the verdict, the district court
entered judgment for
I. Summary Judgment
USC argues that the district court failed to apply the correct standard for determining whether the dough was physically damaged and erred in denying its motion for summary judgment on this issue. USC argues that because it submitted undisputed evidence that the dough was unsaleable under federal law, it established as a matter of law that the dough was physically damaged, triggering coverage under the policy as a matter of law.
On appeal from denial of summary judgment, this court
considers two questions, whether there are any genuine issues of material fact
and whether the district court erred in its application of the law. Cummings
v. Koehnen, 568 N.W.2d 418, 420 (
Construction of language in an insurance contract is a
question of law reviewed de novo. Jenoff, Inc. v. New Hampshire Ins. Co.,
558 N.W.2d 260, 262 (
USC argues that in the absence of a definition of
physical damage in the policy, the issue of what constitutes physical damage in
this case is governed by General Mills,
Inc. v. Gold Medal Ins. Co., 622 N.W.2d 147 (Minn. App. 2001), review denied (Minn. Apr. 17, 2001). In General
Mills, we determined that a first-party all-risk policy provided coverage
for adulterated food products under a provision that covered all risks of
“direct physical loss or damage to property insured.”
In General Mills, we noted that “[t]he business of manufacturing food
products requires conforming to the appropriate FDA regulations” and held that
the district court did not err in finding that the fact that the cereal could
not be legally sold was “an impairment of function and value sufficient to
support a finding of physical damage.”
USC argues that because the cookie dough in this case was not saleable under FDA regulations, just as in General Mills, there has been an impairment of function and value sufficient to support a finding of physical damage to the dough, triggering coverage under the policy. See also Marshall Produce Co. v. St. Paul Fire & Marine Ins. Co., 256 Minn. 404, 423, 98 N.W.2d 280, 293-94 (1959) (holding that it was not necessary that a merchant’s food items, which were rejected by the government due to exposure to smoke from a nearby fire, be “intrinsically damaged so long as [their] value was impaired in order to support a claim for either loss or property damage”).
At the time of the hearing on USC’s summary-judgment
II. New Trial
An appellate court “will not set aside a jury verdict on an appeal from a district court’s denial of a motion for a new trial unless it is
manifestly and palpably contrary to the evidence viewed as a whole and in the
light most favorable to the verdict.” Navarre v. S. Washington County Schs.,
652 N.W.2d 9, 21 (
At trial, USC’s theory of recovery was that because the cookie dough came into contact with contaminated sugar, the dough was “adulterated” and therefore unsaleable under FDA standards, constituting physical damage to the dough covered by the policy. USC proposed jury instructions based on quotations from General Mills explaining that “impairment of function and value [is] sufficient to support a finding of physical damage.” General Mills, 622 N.W.2d at 152. The district court rejected USC’s proposed jury instructions and rejected USC’s proposed special verdict question: “Do you find by the preponderance of the evidence that the Nestlé frozen cookie dough was ‘adulterated’ by [USC’s] product?” Instead, the special verdict form submitted to the jury asked: “[On relevant date] was Nestle’s cookie dough contaminated with a foreign matter by [USC’s] product?”
USC presented evidence that, under FDA regulations, the dough was adulterated and not saleable once it had come into contact with contaminated sugar, whether or not the dough actually contained any bee parts or cigarette butts. The evidence also established that FDA regulations are subjective and depend on good-faith self-regulation by food producers and that Nestlé made a valid judgment call about when to declare the dough unsaleable.
In its motion for a new trial and on appeal, USC argues that the question submitted to the jury erroneously required USC to prove that the cookie dough actually contained bee parts or cigarette butts, when, under General Mills,USC only had to prove that contact with the contaminated sugar made the dough adulterated and unsaleable, thereby constituting physical damage to the dough and triggering coverage under the policy. USC argued that the special verdict form should have asked the jurors to determine whether the dough was adulterated rather than asking whether the dough was contaminated with a foreign matter.
In its order denying USC’s motion for a new trial, the district court stated:
[USC] believes that the word “adulterated” should have been used in place of “contaminated.” Because of this, [USC] wants a new trial using this standard.
[Earlier], the Court denied [USC’s]
Motion for Summary Judgment stating the issue to be determined by a jury as to
whether or not the dough in question was actually contaminated. [Then] the Court denied [USC’s] Motion for
Reconsideration of the Summary Judgment Order and reiterated that “the present
case requires a fact finding of contamination.”
Language is important. [USC’s]
choice of language has been was the cookie dough adulterated. [
Nowhere in the record does the district court explain why it rejected the General Mills definition of what can constitute property damage in the context of food production, i.e., that mere exposure of a food product to contaminants supports a finding of physical damage as that term is used in an insurance policy. We conclude that the General Mills definition of what can constitute physical damage to a food product applies in this case, and the district court abused its discretion by submitting a special verdict form that did not allow the jury to determine whether USC met its burden to prove property damage by establishing that the dough was adulterated and unsaleable under FDA regulations. The district court abused its discretion by submitting a special verdict form that did not allow the jury to find that the cookie dough was physically damaged by any means other than proof that it actually contained “foreign matter.” Because the verdict form did not accurately reflect the law as stated in General Mills, we conclude that USC is entitled to a new trial.
III. Attorney Fees
USC also argues that the district court erred in holding
The district court, without explanation,
Affirmed in part, reversed in part, and remanded.
* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.
Federal law provides that food is adulterated
“if it has been prepared, packed, or held under insanitary conditions whereby
it may have become contaminated with filth, or whereby it may have been
rendered injurious to health.” 21
 General Mills, 622 N.W.2d at 152 (quotation omitted).