Background
J.M. Smucker Company purchased commercial general liability insurance policies from Ace American Insurance Company for 2021 and 2022. Each policy provided $250,000 retained limits per “occurrence” and covered bodily injury from bacterial contamination. In 2022, Smucker recalled peanut butter products from its Lexington, Kentucky facility due to potential salmonella contamination, triggering thousands of consumer claims for bodily injury and property damage.
Smucker notified Ace of the claims and sought coverage. Ace denied coverage, taking the position that each individual claimant’s exposure to contaminated peanut butter constituted a separate occurrence. Ace further argued that the policy’s Lot Endorsement aggregated these thousands of individual exposures into 225 occurrences organized by production lot (defined as 24-hour production periods). Under Ace’s interpretation, Smucker would need to satisfy a $250,000 retained limit for each of the 225 lots—potentially requiring $56.25 million per policy, or $112.5 million total, before Ace’s coverage obligations commenced.
Smucker filed suit in federal court seeking a declaration that all claims arose from a single occurrence. The district court granted Smucker’s summary judgment motion, finding one occurrence and that the Lot Endorsement was ambiguous. Ace appealed.
The Court’s Holding
The Sixth Circuit affirmed, holding that the salmonella contamination constitutes a single occurrence under Ohio law and the policy’s definition of “occurrence.” The court reasoned that “occurrence” means “an accident”—and viewed from the insured’s perspective under Ohio law, Smucker’s unintentional production of contaminated peanut butter was the operative accident. By contrast, individual consumers’ consumption of the peanut butter was neither accidental nor Smucker’s conduct, and therefore could not determine the number of occurrences.
Applying Ohio’s “cause test” for determining the number of occurrences, the court held that courts must count occurrences by reference to the cause of injury, not the number of individual claims. Here, a single proximate cause—the salmonella contamination—gave rise to all injuries, making it one occurrence despite thousands of claims. The court rejected Ace’s reliance on product liability cases involving asbestos distribution, distinguishing them as involving different coverage questions and deliberate business decisions rather than accidental contamination.
On the Lot Endorsement, the court found it ambiguous. The endorsement did not expressly state it was redefining “occurrence,” and the phrase “arises out of any one lot” could be read either as a limitation (multiple injuries within one lot remain one occurrence) or as aggregation (injuries across multiple lots are separated by lot). Because the endorsement was ambiguous, it was construed against the insurer and did not override the baseline definition of occurrence. The court also found that the endorsement’s timing function—specifying when an occurrence is “deemed to occur” based on the first claim from a lot—gave it practical effect across multiple policy years, defeating an argument that the endorsement would be entirely superfluous.
Key Takeaways
- A single contamination event producing thousands of claims constitutes one occurrence, not multiple occurrences based on individual claimants or production batches.
- Under Ohio law, the “occurrence” is determined from the insured’s perspective—here, Smucker’s unintentional production decision, not consumers’ consumption of the product.
- The “cause test” requires counting occurrences by the cause of injury, not by the number of claims or individual plaintiffs.
- Ambiguous insurance provisions are construed against the insurer and in favor of the insured, even when the insurer argues surplusage or lack of meaning.
- An endorsement can have practical effect through timing or other provisions even if it does not change the core definition of occurrence.
Why It Matters
This decision has significant implications for product liability insurance in contamination cases. The Sixth Circuit’s interpretation protects insured companies from exponential increases in retained-limit obligations when a single contamination event affects thousands of consumers. Without this holding, a company facing a widespread product recall could face retained limits in the hundreds of millions despite policy language suggesting much lower exposure. The decision reinforces that the number of injured parties does not determine the number of occurrences in insurance law.
The ruling also strengthens the principle that ambiguities in insurance contracts—which insurers customarily draft—favor the policyholder. By treating the Lot Endorsement as ambiguous despite Ace’s sophisticated drafting, the court signals that clarity cannot be assumed and that commercial insurers bear the burden of unambiguous language. This decision will influence how courts interpret batch, lot, or date-based endorsements in other product liability policies, particularly in food safety and pharmaceutical contexts where contamination events may affect numerous batches or production runs simultaneously.