This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).




Maple Island, Inc.,



St. Paul Mercury Insurance Company,


Filed July 22, 1997


Peterson, Judge

Ramsey County District Court

File No. C2953420

Lawrence A. Maloney, Doherty, Rumble & Butler P.A., 3500 Fifth Street Towers, 150 South Fifth Street, Minneapolis, MN 55402 (for Appellant)

James C. Zacharski, Edward M. Laine, Bethany K. Culp, Oppenheimer Wolff & Donnelly, 1700 First Bank Building, 332 Minnesota Street, St. Paul, MN 55101(for Respondent)

Considered and decided by Norton, Presiding Judge, Peterson, Judge, and Schultz, Judge.[*]



Maple Island, Inc. appeals from a summary judgment that its St. Paul Mercury Insurance Company (St. Paul Mercury) policies do not cover damages resulting from salmonella contamination of dairy products processed by Maple Island. We affirm.


Appellant Maple Island owns a processing facility in Wanamingo, Minnesota, where it custom dries, blends, and packages dairy products for itself and other companies. During the relevant period, Maple Island was insured by respondent St. Paul Mercury under a comprehensive general liability (CGL) policy and an umbrella excess liability protection policy. The policies contained a "care, custody or control" exclusion, a "your products" exclusion, and a "product recall" exclusion.

In May and June 1993, salmonella bacteria were discovered in samples taken from the Wanamingo facility. The Federal Department of Agriculture demanded that Maple Island recall all infant formula and requested that Maple Island recall other products that were dried or packaged at the Wanamingo facility. Maple Island recalled the contaminated products pursuant to the FDA's directives and a later consent decree.

Several of Maple Island's customers sought damages as a result of the contamination and recall. St. Paul Mercury refused to defend or indemnify Maple Island for the claims for manufacturing and consultant costs, recall costs, replacement and reprocurement costs, removal and disposal costs, storage and inventory costs, transportation costs, lost sales, lost profits, loss of customers, loss of opportunity, and loss of goodwill.


On appeal from a summary judgment declaring the terms of an insurance policy, we determine "whether there are any genuine issues of material fact and whether the district court correctly applied the law." Kolby v. Northwest Produce Co., 505 N.W.2d 648, 650 (Minn. App. 1993). The interpretation of an insurance policy is a question of law, which we review de novo. Id. If a claim is not "clearly outside coverage," an insurer has a duty to defend. Prahm v. Rupp. Constr. Co., 277 N.W.2d 389, 390 (Minn. 1979).

1. "Care, custody or control" exclusion.

St. Paul Mercury's policy excluded coverage for damage to property that is in Maple Island's "care, custody or control." Maple Island argues that this exclusion applies only if it retained "exclusive" control over the contaminated products. We agree with the district court that the proper test is whether Maple Island retained "effective control" over the products and that the facts submitted by Maple Island itself demonstrate that it retained effective control over the products in question, even though some of Maple Island's processes were supervised by representatives from other companies. See Knutson Constr. Co. v. St. Paul Fire & Marine Ins. Co., 396 N.W.2d 229, 231, 236 (Minn. 1986) (concluding that general contractor retained "effective control" over all of the work and materials, even though owner's own architects supervised project); Bor-Son Bldg. Corp. v. Employers Commercial Union Ins. Co., 323 N.W.2d 58, 59, 63 (Minn. 1982) (holding that notwithstanding some supervision by a subcontractor and the Housing and Redevelopment Authority, building was within the care, custody, or control of the insured contractor).

Maple Island was responsible for overseeing the blending, drying, and packaging of the products at its own facility -- a factor favoring care, custody, or control. See Magnetic Data, Inc. v. St. Paul Fire & Marine Ins. Co., 442 N.W.2d 153, 156 (Minn. 1989) (applying care custody or control exclusion where insured worked on property at insured's premises). Furthermore, Maple Island's services and products involved personal property, rather than realty, a factor favoring exclusion from coverage. Cf. Ohio Cas. Ins. Co. v. Terrace Enters., Inc., 260 N.W.2d 450, 453 (Minn. 1977) (noting that property was realty -- a factor favoring coverage).

2. "Your products" exclusion.

The "your products" exclusion in Maple Island's policy with St. Paul Mercury excluded coverage for damage "to any of your products that's caused by the product itself or by any of its parts." This type of exclusion is intended to exclude coverage for damage to the insured's product itself, as opposed to damage to other persons or property that is caused by the insured's product. Holsum Foods Div. v. Home Ins. Co., 469 N.W.2d 918, 920 (Wis. Ct. App. 1991).

The St. Paul Mercury policy described Maple Island's products as milk processing and dry milk products. The policy further defined "your products" as

goods or products that * * * you * * * have manufactured, sold, handled, distributed or disposed of, including containers, materials, parts or equipment provided in connection with your products.

The plain meaning of the term "manufacture" is to "make" a product. Id. at 922. Under this definition, Maple Island "manufactured" most of the products in question. See id. at 920, 922 (insured, which mixed customer's ingredients with a sweetener provided by insured and then cooked, packaged, stored, and shipped product at customer's direction, "manufactured" product for purposes of "your products" exclusion). Cf. Olympic Steamship Co. v. Centennial Ins. Co., 811 P.2d 673, 679-80 (Wash. 1991) (concluding that insured did not "manufacture" anything where it merely "affixed the packers' labels to the packers' cans and placed them in the packers' boxes"). Maple Island "handled" the remaining products. See Black's Law Dictionary 716 (6th ed. 1990) (defining "handle" as "[t]o control, direct, to deal with, to act upon, to perform some function with regard to or to have passed through one's hands. To buy and sell, or to deal or trade in. * * * To manage or operate") (citing State ex rel. Bell v. Phillips Petroleum Co., 160 S.W.2d 764, 769 (Mo. 1942)).

Maple Island argues that the salmonella bacteria, which are what actually caused the contamination, were not a part of the products themselves, but were invasions of the products. We disagree. Maple Island produced milk products at the Wanamingo facility. Those milk products failed as a result of the salmonella bacteria that became an inextricable part of the products during processing at the Wanamingo facility. In similar situations, courts have applied coverage exclusions for contamination to an insured's cheese or milk. See, e.g., L.D. Schreiber Cheese Co. v. Standard Milk Co., 457 F.2d 962 (8th Cir. 1972); Lowville Producer's Dairy Coop., Inc. v. American Motorists Ins. Co., 604 N.Y.S.2d 421 (N.Y. App. Div. 1993).

3. "Product recall" exclusion.

The product recall exclusion excluded coverage for damages that result from the:

loss of use;

recall, withdrawal;

adjustment, inspection, repair, replacement; or

removal or disposal of;

impaired property or your products or completed work from the market or from use by anyone for any reason.

Maple Island argues that this exclusion applies only where an insured has recalled its own products, and the products at issue were not its products because it did not have exclusive control over the products. As we have already discussed above, however, effective control of the product, not exclusive control, is the test for determining whether the products were Maple Island's products.

Citing Ohio Cas. Ins. Co., 260 N.W.2d 450, 455, Maple Island argues further that the product recall exclusion is inapplicable because the exclusion applies only with respect to the cost of preventing other, additional failures and not to damages caused by products that have already failed. In Ohio Casualty, the supreme court construed a different product recall exclusion, which it referred to as a "sistership exclusion." The court explained that this term was originally applied to a situation where one airplane crashed and other similar "sister" airplanes were grounded because they were suspected of having a common structural defect. Id. The court described the purpose of the exclusion:

The recall of equipment or parts discovered to have a common fault involve[s] expenses incurred to prevent accidents which have not occurred. While the insurance covers damages for bodily injuries and property damage caused by the product that failed, it was never intended that the insurer would be saddled with the cost of preventing other failures, any more that it was intended that the insurer would pay the cost of preventing the first failure if the product had been discovered to be in a dangerous condition before the occurrence.

Id. (quoting Gulf Ins. Co. v. Parker Prods., Inc., 498 S.W.2d 676, 678 (Tex. 1973)).

Unlike the exclusion considered in Ohio Casualty, which was intended only to exclude coverage for the costs of recalling products to prevent additional product failures, the exclusion in the St. Paul Mercury excludes coverage for damages that result from the recall of a product "for any reason." Maple Island's reliance on Ohio Casualty is, therefore, misplaced.

Finally, Maple Island argues that the product recall exclusion does not apply to some of the damages claimed by its customers because the damages did not result from the recall. For example, two of Maple Island's customers incurred costs when they voluntarily tried to recover potentially contaminated products. Maple Island's argument ignores the plain language of the exclusion. In addition to excluding damages that result from the recall of products, the policy excludes coverage for damages resulting from the loss of use, withdrawal, repair, replacement, removal, or disposal of impaired products for any reason.


[ ]* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.