Justia.com Opinion Summary:Download as PDF
ConAgra Foods, Inc. ("ConAgra") sued Lexington Insurance, Co. ("Lexington") alleging breach of contract and breach of the implied duty of good faith and fair dealing. ConAgra's claims arose from the alleged 2007 contamination of certain Peter Pan and Great Value peanut butter products that ConAgra manufactured. ConAgra subsequently sought coverage under its insurance policy with Lexington for personal injury claims arising from its contaminated products and Lexington denied coverage. At issue was whether the provision in the insurance policy provided coverage in light of the "lot or batch" provision in the policy. The court held that the "lot or batch" provision was ambiguous where, under one of the two reasonable interpretations, Lexington's duties to defend and indemnify were triggered. The court also held that, because the policy arguably provided coverage to ConAgra, Lexington's duty to defend was thereby triggered when ConAgra satisfied the applicable "retained limit" for a single "occurrence." Accordingly, the court reversed and remanded to ascertain the intent underlying the ambiguous policy language for purposes of determining whether there was ultimate policy coverage.Receive FREE Daily Opinion Summaries by Email
IN THE SUPREME COURT OF THE STATE OF DELAWARE
CONAGRA FOODS, INC.,
LEXINGTON INSURANCE CO.,
No. 227, 2010
Court Below: Superior Court
of the State of Delaware in and
for New Castle County
C.A. No. 09C–02–170
Submitted: April 7, 2011
Decided: April 28, 2011
Before STEELE, Chief Justice, HOLLAND, JACOBS, RIDGELY, Justices, and
NEWELL, Judge,1 constituting the Court en Banc.
Upon appeal from the Superior Court. REVERSED and REMANDED.
John E. James, Esquire, of Potter Anderson & Corroon, LLP, Wilmington, DE; Of
Counsel: Jonathan M. Cohen (argued) and William E. Copley, Esquires, of Gilbert,
LLP, Washington, D.C., for Appellant.
Denise Seastone Kraft, Paul D. Brown, Aleine M. Porterfield, Esquires, of
Edwards Angell Palmer & Dodge, LLP, Wilmington, DE; Of Counsel: Stephen M.
Prignano, Esquire, (argued) of Edwards Angell Palmer & Dodge, LLP, Providence,
RI, for Appellee.
RIDGELY, Justice, for the Majority:
Sitting by designation pursuant to Del. Const. art. IV, § 12 and Supr. Ct. R. 2 & 4.
This case arises from the alleged contamination in 2007 of certain Peter
Pan® and Great Value® peanut butter products that Plaintiff-Below/Appellant,
ConAgra Foods, Inc. (“ConAgra”), manufactured at its Sylvester, Georgia plant
The Centers for Disease Control (“CDC”) informed ConAgra that it
suspected a link between a certain strain of salmonella and those peanut butter
products. Thereafter, ConAgra announced a voluntary, nationwide recall of all its
peanut butter products.
But, some of the peanut butter products reached
consumers, and many of those consumers have sued ConAgra.
Below/Appellee, Lexington Insurance Co. (“Lexington”), to insure itself against
personal injury claims arising from contamination of its products. ConAgra sought
coverage under that policy. Lexington denied coverage. ConAgra and Lexington
have different views on the extent to which the insurance policy provides coverage
because they interpret the provision in that policy called the “lot or batch”
provision differently. For insurance coverage purposes, a “lot or batch” provision
may operate to treat as a group all insurance claims that arise out of the same lot or
batch of products. ConAgra contends that the “lot or batch” provision serves to
expand coverage and does not apply where there is a single “occurrence,” as
defined by the policy. Lexington claims that the “lot or batch” provision applies to
limit coverage and requires ConAgra to satisfy a separate deductible (“retained
limit”) for each separate lot or batch to access coverage. The Superior Court
upheld Lexington’s position.
We conclude that the “lot or batch” provision of the policy is ambiguous.
Under one of the two reasonable interpretations of the “lot or batch” provision,
Lexington’s duties to defend and indemnify were triggered. Because the policy
arguably provides coverage to ConAgra, Lexington’s duty to defend was thereby
triggered when ConAgra satisfied the applicable “retained limit” for a single
“occurrence.” Accordingly, we reverse the judgment of the Superior Court and
remand to ascertain the intent underlying the ambiguous policy language for
purposes of determining whether there is ultimate policy coverage.
Nearly five years ago, ConAgra purchased an “Umbrella Prime®
Commercial Umbrella Liability Insurance with Crisis Response®” insurance
policy (the “Policy”) from Lexington. Under the terms of the Policy, ConAgra
paid Lexington $1.15 million in premiums.
In exchange for those premium
payments, Lexington insured ConAgra against many risks. One of those risks was
the Products-Completed Operations Hazard, which the Policy defines as “all
Bodily Injury and Property Damage occurring away from premises [ConAgra]
own[s] or rent[s] and arising out of [ConAgra] Product . . . .” The Policy defines
the term “Occurrence” for general liability purposes as follows: “as respects Bodily
Injury or Property Damage, an accident, including continuous or repeated exposure
to substantially the same general harmful conditions.
All such exposure to
substantially the same general harmful conditions will be deemed to arise out of
one Occurrence” (a “General Liability Occurrence”).
If that were the only definition of “Occurrence,” interpretation of the Policy
would be straightforward. But, the Policy is a relatively complex sixty-six page
document, which includes twenty-one endorsements. One of those endorsements,
Endorsement # 3 -- the “Lot or Batch Provision” -- contains a separate definition of
“occurrence,” as follows:
Section IV. LIMITS OF INSURANCE is amended to include
the following additional paragraph:
With respect to the Products-Completed Operations Hazard, all
Bodily Injury or Property Damage arising out of one lot or
batch of products prepared or acquired by you, shall be
considered one Occurrence. Such Occurrence shall be subject
to the Each Occurrence and General Aggregate Limits of this
policy shown in Item 3. of the Declarations and shall be
deemed to occur when the Bodily Injury or Property Damage
occurs for the first claim of the claim of that lot or batch.
For the purposes of this Endorsement, Lot of Batch is defined
as a single production run at a single facility not to exceed a 7
Nothing in this endorsement shall be construed to provide
coverage for any Occurrences taking place outside the Policy
All other terms, definitions, conditions and exclusions of this
policy remain unchanged.
Thus, the Lot or Batch Provision provides another definition of the term
“Occurrence” (a “Lot or Batch Occurrence”).
The Policy’s two different definitions of the term “Occurrence” are relevant
because Endorsement # 10 -- the “Retained Limit Amendatory Endorsement” -contains a “Schedule of Retained Limits,” which prescribes different retained
limits for a General Liability Occurrence, on the one hand, and for a Lot or Batch
Occurrence, on the other. The Policy defines “Retained Limit” as “the SelfInsured Retention applicable to each Occurrence that results in damages not
covered by Scheduled Underlying Insurance nor any applicable Other Insurance
providing coverage to the Insured.” In other words, the Retained Limit, like a
deductible, is the amount of liability that ConAgra must itself pay, to trigger
Lexington’s contractual duties to pay for ConAgra’s defense and tort liabilities.
For a General Liability Occurrence, the Schedule of Retained Limits provides that
ConAgra must pay $3 million per Occurrence or $9 million regardless of the
number of Occurrences, to trigger Lexington’s duties under the Policy. For a Lot
or Batch Occurrence, the Schedule of Retained Limits requires ConAgra to pay $5
million per Occurrence, regardless of the aggregate liability that ConAgra pays, to
trigger Lexington’s duties under the Policy. If a Retained Limit is satisfied, the
Policy limits Lexington’s liability to $25 million.
The Salmonella-Tainted Peanut Butter
The Policy had a term of one year. During that year, an event occurred at
ConAgra’s Sylvester, Georgia plant site, where ConAgra manufactures peanut
butter. The CDC informed ConAgra that it suspected a link between a certain
strain of salmonella and the peanut butter that ConAgra manufactured. ConAgra
immediately announced a voluntary, nationwide recall of all its peanut butter
products. Thereafter, the United States Food and Drug Administration cautioned
consumers not to eat Peter Pan® or Great Value® brand peanut butter that bore
code number 2111, which was used to identify all peanut butter products that
ConAgra manufactured at its Sylvester, Georgia plant site.
In its complaint,
ConAgra alleges that approximately twenty thousand people will bring bodily
injury or illness claims in courts throughout the country. ConAgra also alleges that
it has settled or otherwise resolved over two thousand claims.
Lexington Denies Coverage
Shortly after the CDC informed ConAgra of the suspected link, ConAgra
contacted Lexington about coverage for the claims arising from the contaminated
peanut butter (the “Peanut Butter Claims”). Approximately nine months later,
Lexington preliminarily reserved its rights under the Policy in a letter to ConAgra
that relevantly stated:
[W]e request a face-to-face meeting to discuss these cases and
related coverage issues . . . .
In the interim, Lexington preliminarily reserves its rights,
including, but not limited to, the right to limit or decline
coverage of the claims discussed herein, or later asserted, under
the Policy and consistent with Lexington’s findings and
analysis pending completion of our ongoing investigation of the
[Peanut Butter Claims].
In that letter, Lexington also explicitly referred to the Lot or Batch Provision,
explaining: “The coverage provided under the Policy is guided by several
provisions, including, and without limitation . . . Endorsement No. 3 (Lot or
Batch) . . . . Please be advised that Lot or Batch is defined as ‘a single production
run at a single facility not to exceed a 7-day period.’”
Six months later, ConAgra sent a letter to Lexington that requested a
statement of Lexington’s coverage position, as well as any advice regarding
settlement of the Peanut Butter Claims. Over the next six months, ConAgra and
Lexington exchanged more letters, and ConAgra provided Lexington with
numerous documents to aid Lexington in developing its coverage position.
ConAgra also informed Lexington that it had paid or agreed to pay over $3 million
in settlements. ConAgra believed that Lexington’s duties under the Policy had
been triggered because that amount exceeded the Retained Limit for a General
Liability Occurrence. In response, Lexington issued a reservation of rights letter
that advised ConAgra of Lexington’s position that the Lot or Batch Provision
applied to the Peanut Butter Claims.
Lexington informed ConAgra that
Lexington’s duties under the Policy had not been triggered because ConAgra had
not demonstrated that it had exhausted the Retained Limit -- $5 million -- for any
one Lot or Batch.
Approximately three and one-half months later, ConAgra filed this action in
the Superior Court, requesting compensatory and punitive damages for breach of
contract and breach of the implied duty of good faith and fair dealing. ConAgra
also requested a declaratory judgment that would define the scope of the parties’
respective rights and obligations under the Policy for the Peanut Butter Claims.
ConAgra further requested a declaratory judgment that would order Lexington to
defend ConAgra, and pay defense costs that ConAgra incurred, in connection with
the Peanut Butter Claims.
Lexington denied ConAgra’s allegations and asserted numerous affirmative
defenses. Lexington also counterclaimed for declaratory judgments regarding the
application of the Lot or Batch Provision, exhaustion of the Retained Limits, and
Lexington’s duties to defend and indemnify. Finally, Lexington asked the Superior
Court to declare that Lexington did not act in bad faith.
Lexington then moved for summary judgment, arguing that the Lot or Batch
Provision should apply as a matter of law and that ConAgra’s bad faith claim
should be dismissed.
ConAgra cross-moved for partial summary judgment,
arguing that Lexington’s duty to defend had been triggered because the Peanut
Butter claims at least arguably fell within the Policy coverage. ConAgra also
argued that the Lot or Batch Provision did not apply to the Peanut Butter Claims.
The Superior Court denied ConAgra’s partial summary judgment motion and
granted Lexington’s summary judgment motion, in part, declining to dismiss
ConAgra’s bad faith claim.
In a Memorandum Opinion, 2 the Superior Court
The court finds that the insurance policy is not ambiguous. If
the policy only defined “occurrence,” ConAgra would be
correct that there was only one occurrence, because the bodily
injury claims arose collectively out of one cause-salmonellatainted peanut butter made in one plant. And, because the
peanut butter was made continuously, ConAgra would still be
correct if the policy included an open-ended Lot or Batch
Provision. But, the policy seemingly contemplates continuous
production and, by its terms, the policy limits a lot or batch to
all the product ConAgra manufactures in seven days, or less.
Drilling down through the policy’s terms hits the seven-day
limit at the bottom. ConAgra’s reading of the policy renders
the seven-day limit meaningless.
Where lots or batches take longer than seven days, including
the sort of continuous production ConAgra asserts, after seven
days, for insurance purposes, a new lot or batch begins. The
occurrence was not the delivery of a bad batch of peanuts. That
is between ConAgra and the peanuts’ supplier. The occurrence
was ConAgra’s negligently making defective peanut butter and
putting it on the market, thereby causing bodily injury. In other
words, although ConAgra did not segregate finished jars of
peanut butter according to lots or batches, the insurance that it
purchased segregates the production by runs of no more than
seven days, each. The policy allows aggregation of the injured
consumers’ claims, but only to a point.
ConAgra Foods, Inc. v. Lexington Ins. Co., 2009 WL 3688014 (Del. Super. Oct. 30, 2009).
Even if, as ConAgra asserts, peanut butter’s production is
different from the other products manufactured by ConAgra
that are also covered under the policy’s umbrella, the seven day
provision makes sense and it cannot simply be read out of the
policy. The court appreciates ConAgra’s point that its
insurance policy will not respond until the claim is much larger.
But, that is consistent with the policy’s character as umbrella
coverage. And, again, Lexington made it clear that there is no
such thing as a production run lasting more than seven days for
Lexington then moved for reargument on the bad faith claim, but the
Superior Court denied that motion. 4 Pursuant to Supreme Court Rule 42 and
Superior Court Civil Rule 74, both parties applied for certification of an
interlocutory appeal. The Superior Court declined to certify that appeal because
“such an appeal’s outcome [would] not be case-dispositive.”5 We also refused the
parties’ interlocutory appeal.6 ConAgra then agreed to withdraw with prejudice its
bad faith claim against Lexington in order to obtain a final judgment and
immediately pursue an appeal to this Court. The Superior Court entered a final
order, and this appeal followed.
ConAgra raises four arguments on appeal. First, ConAgra contends that the
Superior Court erred in concluding that the Lot or Batch Provision supplants the
Policy’s General Liability Occurrence definition, thereby disaggregating a single
Id. at 4–5.
ConAgra Foods, Inc. v. Lexington Ins. Co., 2010 WL 663746 (Del. Super. Jan. 21, 2010).
ConAgra Foods, Inc. v. Lexington Ins. Co., 2010 WL 748171 (Del. Super. Feb. 4, 2010).
Lexington Ins. Co. v. ConAgra Foods, Inc., 991 A.2d 17, 2010 WL 618025 (Del. 2010)
Occurrence into multiple Occurrences.
Second, ConAgra contends that the
Superior Court erred in concluding that the Lot or Batch Provision applies to
continuous production processes, i.e., processes continuing beyond seven days.
Third, ConAgra contends that the Superior Court erred in concluding that
Lexington had not waived, and should not be estopped from asserting, the Lot or
Batch Provision as a defense to coverage. Fourth, ConAgra contends that the
Superior Court erred in concluding that the Peanut Butter claims have not triggered
Lexington’s duty to defend.
We review the Superior Court’s grant or denial of a summary judgment
motion de novo. 7 We also review the Superior Court’s interpretation of an
insurance contract de novo.8 Here, the only questions raised on appeal are matters
of contract interpretation. The parties agree that Delaware law applies to the
interpretation of the Policy.
The Policy is Ambiguous
This Court has adopted traditional principles of contract interpretation. One
such principle is to give effect to the plain meaning of a contract’s terms and
Stonewall Ins. Co. v. E.I. du Pont de Nemours & Co., 996 A.2d 1254, 1256 (Del. 2010).
Pac. Ins. Co. v. Liberty Mut. Ins. Co., 956 A.2d 1246, 1254 (Del. 2008) (citing Eon Labs Mfg.,
Inc. v. Reliance Ins. Co., 756 A.2d 889, 892 (Del. 2000)).
provisions when the contract is clear and unambiguous. 9 But, “when we may
reasonably ascribe multiple and different interpretations to a contract, we will find
that the contract is ambiguous.”10
We interpret insurance contracts similarly.
“Clear and unambiguous
language in an insurance contract should be given ‘its ordinary and usual
meaning.’” 11 “[W]here the language of a policy is clear and unequivocal, the
parties are to be bound by its plain meaning.”12 “In construing insurance contracts,
we have held that an ambiguity does not exist where the court can determine the
meaning of a contract ‘without any other guide than a knowledge of the simple
facts on which, from the nature of language in general, its meaning depends.’”13
“An insurance contract is not ambiguous simply because the parties do not agree
on its proper construction.”14 “[C]reating an ambiguity where none exists could, in
effect, create a new contract with rights, liabilities and duties to which the parties
had not assented.”15 But, we also have explained that an insurance contract is
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159–60 (Del. 2010) (citing Rhone-Poulenc
Basic Chem. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 1992)).
Id. at 1160 (citing Twin City Fire Ins. Co. v. Delaware Racing Ass’n, 840 A.2d 624, 628 (Del.
O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 288 (Del. 2001) (quoting Rhone-Poulenc,
616 A.2d at 1195).
Id. (quoting Emmons v. Hartford Underwriters Ins. Co., 697 A.2d 742, 745 (Del. 1997)).
Id. (quoting Rhone-Poulenc, 616 A.2d at 1196).
Axis Reinsurance Co. v. HLTH Corp., 993 A.2d 1057, 1062 (Del. 2010) (citing RhonePoulenc, 616 A.2d at 1196).
O’Brien, 785 A.2d at 288 (quoting Rhone-Poulenc, 616 A.2d at 1196).
ambiguous when it is “reasonably or fairly susceptible of different interpretations
or may have two or more different meanings.”16
Applying those principles to this case, we conclude that the Policy is
ambiguous, not “simply because the parties do not agree on its proper
construction,” 17 but also because multiple and different interpretations may
reasonably be ascribed to it.18 On the one hand, one reasonably may interpret the
Lot or Batch Provision as limiting coverage. The Lot or Batch Provision defines a
“lot or batch” as “a single production run at a single facility not to exceed a 7 day
period.” The Lot or Batch Provision provides that “all Bodily Injury or Property
Damages arising out of one lot or batch of products . . . shall be considered one
Occurrence.” Reading those two elements of the Lot or Batch Provision together,
one reasonably may interpret the Lot or Batch Provision as segmenting, for
insurance coverage purposes, claims into separate seven day periods.
interpretation would disregard the actual number of Occurrences.
interpretation, Lexington’s duties would be triggered only when ConAgra incurred
$5 million in liability for a given seven day period. The Superior Court adopted
that interpretation as the only reasonable interpretation of the Policy.19
Phillips Home Builders, Inc. v. Travelers Ins. Co., 700 A.2d 127, 129 (Del. 1997) (quoting
Rhone-Poulenc, 616 A.2d at 1196).
See Axis Reinsurance Co., 993 A.2d at 1062 (citing Rhone-Poulenc, 616 A.2d at 1196).
See Phillips Home Builders, 700 A.2d at 129 (quoting Rhone-Poulenc, 616 A.2d at 1196).
ConAgra Foods, Inc., 2009 WL 3688014, at *3–5.
At least one other court has found that interpretation persuasive. In London
Market Insurers v. Superior Court, 20 a California appellate court considered
whether a similarly worded “lot or batch” provision permitted thousands of
individual asbestos exposures to be deemed a single “occurrence” for insurance
coverage purposes.21 The insurance policy at issue in London Market relevantly
provided: “All . . . damages arising out of one lot of goods or products prepared or
acquired by the Named Insured or by another trading under his name shall be
considered as arising out of one occurrence.”22 Although the London Market court
concluded that the provision was ambiguous,23 the court also explained that the
“lot or batch” provision “preclude[d] treating all asbestos claims as a single
On the other hand, one also reasonably could interpret the Lot or Batch
Provision as expanding coverage. Under that interpretation, the Lot or Batch
Provision would operate to convert multiple claims in one lot or batch into a single
Occurrence for insurance coverage purposes.
But, that provision would not
operate to convert multiple claims arising out of multiple lots or batches into
distinct multiple Occurrences. Consistent with that interpretation, the Retained
53 Cal. Rptr. 3d 154 (Cal. Ct. App. 2007).
Id. at 170.
Id. at 162.
Id. at 171 n.8.
Id. at 170.
Limit for a General Liability Occurrence would apply. That is, Lexington’s duties
would be triggered when ConAgra paid $3 million of liability claims. Under that
interpretation, the Lot or Batch Provision would supplement the General Liability
Occurrence. If multiple Occurrences arose from a single lot created during a
seven-day period, those Occurrences would be aggregated pursuant to the Lot or
Batch Provision. But, if only one Occurrence arose, the Lot or Batch Provision
would not balkanize that one Occurrence into multiple Occurrences corresponding
to seven-day intervals.
At least two other courts have adopted this interpretation. In Diamond
Shamrock Chemicals Co. v. Aetna Casualty & Surety Co.,25 a New Jersey appellate
court interpreted a similarly worded “lot or batch” provision in the context of
claims arising from the use of Agent Orange during the Vietnam War. 26 The
United States used Agent Orange to defoliate Vietnamese jungle trails to deny
enemy forces the benefit of concealment.27 But, Agent Orange had a side effect -it made Vietnam War veterans more susceptible to various diseases. 28 Several
veterans brought suit, and the chemical company that made Agent Orange sought
insurance coverage. 29
The policy at issue in Diamond Shamrock relevantly
609 A.2d 440 (N.J. Super. Ct. App. Div. 1992), petition for cert. denied, 634 A.2d 528 (N.J.
Id. at 479–80.
Id. at 452.
Id. at 452–53.
provided: “[A]ll  damages arising out of one lot of goods or products prepared or
acquired by the named insured or by another trading under his name shall be
considered as arising out of one occurrence.”30 The insurers contended that the
provision operated to make each of the 133 lots of Agent Orange delivered to the
military a single occurrence. 31
The Diamond Shamrock court rejected that
argument and agreed with the lower court that the provision was intended to apply
only to manufacturing defects, and not to design errors.32 The court recognized
that the manufacturing-design distinction was debatable, but it concluded that the
following principle was “indisputable”:
The intent of the parties in adding the batch clause to the
policies was to minimize the number of occurrences in order to
maximize coverage. If the batch clause is interpreted to require
aggregation of deductibles to correspond with the number of
lots distributed, it will run counter to the parties’ intent. On the
other hand, although the language of the batch clause makes no
distinction between manufacturing and design defects, the
Chancery Division’s interpretation of the provision is consistent
with the purpose of the clause and the parties’ understanding.
While the question is far from clear, we choose the
interpretation of the contractual language that best advances the
purpose of the clause and comports with the parties’ intent. We
are convinced that the clause should be applied only where the
product manufactured is nonconforming, not where the product
is consistent with a faulty design. The equation of “lots” and
“occurrences” is consistent with the idea that the clause is
designed to prevent the stacking of deductibles where
manufacturing errors have taken place.
Id. at 480.
Division’s construction of the clause also comports with the
rationale of the cases we cited previously, referring to the cause
of the injury in defining the number of occurrences.33
The United States District Court for the District of Maryland and the United
States Court of Appeals for the Fourth Circuit also have concluded that a “lot or
batch” provision similar to the one in this case should be interpreted to expand
coverage. In Nationwide Mutual Insurance Co. v. Lafarge Corp.,34 those courts
interpreted that provision in the context of claims for property damage arising from
the sale of poorly performing cement.35 The policy at issue in Lafarge relevantly
provided: “[W]hen goods or products are of one prepared or acquired lot, all
claims arising therefrom shall be deemed to have arisen from a common cause and
to constitute one occurrence or accident.” 36 The insurer contended that the
provision operated to make each lot of defective cement a single occurrence.37 The
district court rejected the insurer’s interpretation and explained:
The purpose of a batch clause is to limit the number of
occurrences, not to expand it.
If this Court were to find that each lot constituted an
occurrence, then Lafarge’s insurance coverage would be
Id. (citation omitted).
Civ. Nos. H–90–2390, H–93–4173, Bench Op. (D. Md. Oct. 31, 1995), aff’d, 121 F.3d 699,
1997 WL 532509 (4th Cir. 1997) (TABLE).
Lafarge, 1997 WL 532509, at *1.
Lafarge, Civ. Nos. H–90–2390, H–93–4173, Bench Op., at 4039.
Id. at 4040; Lafarge, 1997 WL 532509, at *4.
That result is clearly not what the parties
The district court concluded: “The lot clauses plainly apply to situations when
multiple claims arise from a single defective lot. They do not purport to extend to
situations when multiple claims arise from multiple lots.”39 The Fourth Circuit
agreed with that interpretation and explained:
After reviewing the district court’s extensive opinion from the
bench on this issue, we agree with the court’s interpretation of
“each occurrence,” its conclusion that the “occurrence” and
underlying cause of the liability was the “continuous, largescale manufacture and sale” of defective cement, and its
holding that there was only one “occurrence” for deductible
purposes. Here, we affirm on the reasoning of the district
Given the two reasonable and competing interpretations before us -- one that
limits coverage and one that expands coverage -- we conclude that the Lot or Batch
Provision is ambiguous.41 That ambiguity permits a court to consider extrinsic
evidence of the parties’ intent.42 In this case, the extrinsic evidence reveals that the
Lot or Batch Provision was negotiated.43 We therefore remand this case for the
Lafarge, Civ. Nos. H–90–2390, H–93–4173, Bench Op., at 4040 (citing Diamond Shamrock,
609 A.2d at 480).
Id. at 4041.
Lafarge, 1997 WL 532509, at *4.
See Phillips Home Builders, 700 A.2d at 129 (quoting Rhone-Poulenc, 616 A.2d at 1196).
AT&T Corp. v. Lillis, 953 A.2d 241, 252–53 (Del. 2008) (citing Appriva S’holder Litig. Co.,
LLC v. ev3, Inc., 937 A.2d 1275, 1291 (Del. 2007)).
In reply to an inquiry by this Court during the course of this appeal, the parties have proffered
extrinsic evidence that was produced during discovery before the Superior Court granted
summary judgment in Lexington’s favor. That extrinsic evidence includes meeting notes and
email exchanges. The documents reflect that the parties actively discussed the Lot or Batch
Superior Court to consider extrinsic evidence of what the parties intended when
agreeing to Endorsement # 3. If the extrinsic evidence does not reveal the parties’
intent as to the Lot or Batch Provision, then the Superior Court should apply the
“last resort” rule of contra proferentem and interpret it in favor of ConAgra.44
Lexington Has a Duty to Defend
The duty to defend may be broader than the duty to ultimately indemnify.45
In assessing either of those duties, “a court typically looks to the allegations of the
complaint to decide whether the third party’s action against the insured states a
claim covered by the policy, thereby triggering the duty to defend.”46 “The test is
whether the underlying complaint, read as a whole, alleges a risk within the
coverage of the policy.”47 In determining whether an insurer is bound to defend an
action against an insured, we apply the following principles: (1) “where there is
Provision, including whether a Lot or Batch should be defined as a single production run at a
single facility not to exceed a 7 day period or a 24 hour period. ConAgra argues that “[t]he
extrinsic evidence shows that the wording of the terms . . . was drafted exclusively by
Lexington.” Lexington argues that the documents reflect that the Lot or Batch Provision was
“the product of [an] arms’ length negotiation between sophisticated parties of equal bargaining
power.” We do not address the intention of the parties at this stage because this extrinsic
evidence is now a matter for the Superior Court to address in the first instance on remand.
E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1114 (Del. 1985) (“[T]he
rule of contra proferentem is one of last resort, such that a court will not apply it if a problem in
construction can be resolved by applying more favored rules of construction.”) (citing Schering
Corp. v. Home Ins. Co., 712 F.2d 4 (2d Cir. 1983)). See also 11 SAMUEL WILLISTON & RICHARD
A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 32:12 (4th ed. 1993 & Supp. 2010) (“The
rule of contra proferentem is generally said to be a rule of last resort and is applied only where
other secondary rules of interpretation have failed to elucidate the contract’s meaning.”).
Am. Ins. Grp. v. Risk Enter. Mgmt., Ltd., 761 A.2d 826, 830 (Del. 2000) (citing Charles E.
Brohawn & Bros., Inc. v. Emp’rs Comm. Union Ins. Co., 409 A.2d 1055, 1058 (Del. 1979).
Pac. Ins. Co., 956 A.2d at 1254 (quoting Risk Enter. Mgmt., 761 A.2d at 829).
Id. (citing Cont’l Cas. Co. v. Alexis I. duPont Sch. Dist., 317 A.2d 101, 103 (Del. 1974)).
some doubt as to whether the complaint against the insured alleges a risk insured
against, that doubt should be resolved in favor of the insured,” (2) “any ambiguity
in the pleadings should be resolved against the carrier,” and (3) “if even one count
or theory alleged in the complaint lies within the policy coverage, the duty to
Here, we conclude that the Lot or Batch Provision is ambiguous because it is
susceptible to two reasonable and competing interpretations -- one that limits
coverage and one that expands coverage. Because the latter interpretation arguably
applies in this case, ConAgra need not satisfy the Retained Limit for a Lot or Batch
Occurrence -- $5 million -- to trigger Lexington’s duty to defend.
consistent with the interpretation of the Lot or Batch Provision that expands
coverage, ConAgra need only satisfy the Retained Limit for a General Liability
Occurrence -- $3 million. ConAgra surpassed that threshold approximately three
years ago. Consequently, Lexington’s duty to defend was triggered as of the date
that ConAgra’s liabilities exceeded the $3 million Retained Limit for a General
Liability Occurrence. 49 Whether or not there is ultimate coverage is for the
Superior Court to determine, upon an expanded record, on remand.
Id. (citing Alexis I. duPont, 317 A.2d at 105).
The judgment of the Superior Court is REVERSED and REMANDED for
proceedings consistent with this Opinion.
STEELE, Chief Justice, and NEWELL, Judge, dissenting:
ConAgra Foods, Inc. filed suit against Lexington Insurance Co. to obtain
insurance coverage for claims arising out of ConAgra’s production of salmonellatainted peanut butter.
The Superior Court awarded summary judgment to
Lexington on the basis of the insurance contract between the parties. ConAgra
now appeals this judgment.
Because we believe the contractual text is
unambiguous and favors Lexington’s position, we would affirm. Therefore, we
FACTS AND PROCEDURAL HISTORY
In 2006, ConAgra bought an insurance policy from Lexington which
provides broad general liability coverage to ConAgra once ConAgra satisfies
stipulated retained limits.
These retained limits operate like deductibles—
ConAgra pays up to the stipulated level, and under the conditions provided in the
contract, Lexington pays ConAgra’s liabilities that exceed the retained limits. The
general liability retained limit is $3 million for what the policy defines as a general
With regard to product liability claims specifically, the policy provides
coverage according to a defined “Products-Completed Operations Hazard.”51 The
policy clarifies the limits of coverage pertaining to this Products-Completed
Operations Hazard in the “Lot or Batch Provision” made part of the policy by
Endorsement #3. According to Endorsement #3, “[w]ith respect to the ProductsCompleted Operations Hazard, all Bodily Injury or Property Damage arising out of
one lot or batch of products prepared or acquired by [ConAgra], shall be
considered one Occurrence.” Endorsement #3 also defines “lot or batch” as “a
single production run at a single facility not to exceed a 7 day period.” Finally,
Endorsement #10 amends the schedule of retained limits applicable under various
conditions to show that while the limit for general liability is $3 million per
Occurrence, the limit for lot or batch coverage is $5 million per Occurrence.
The contract generally defines “Occurrence” as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions. All such exposure to
substantially the same general harmful conditions will be deemed to arise out of one
The contract defines the “Products Completed Operations Hazard,” in relevant part, as “all
Bodily Injury and Property Damage occurring away from premises [ConAgra] own[s] or rent[s]
and arising out of [ConAgra’s] Product or [ConAgra’s] Work.” It explicitly excludes products
still in ConAgra’s physical possession, work ConAgra has not yet completed or abandoned, and
bodily injury or property damage arising out of the transportation of property or the existence of
tools, uninstalled equipment, or abandoned or unused materials.
ConAgra manufactures its peanut butter at a plant in Sylvester, Georgia in an
uninterrupted, continuous process that exceeds seven days in duration.
February 15, 2007, ConAgra notified Lexington that it had recalled Peter Pan
Peanut Butter it produced at its Georgia plant after the Centers for Disease Control
identified salmonella contamination in the peanut butter. Later, ConAgra faced
thousands of claims asserting that ConAgra was liable for damages for its failure to
detect and eliminate the salmonella at its Georgia plant.
ConAgra notified Lexington that defending the peanut butter claims would
likely exceed the $3 million retained limit on general liability and trigger
Lexington’s obligations under the policy. On November 8, 2007, Lexington issued
a reservation of rights letter advising ConAgra of the potential applicability of the
Lot or Batch Provision and requesting documents related to ConAgra’s
manufacturing process. On June 23, 2008, ConAgra informed Lexington that it
was about to exceed the $3 million general liability retained limit, and on June 25,
2008, ConAgra exceeded it.
On October 31, 2008, Lexington sent ConAgra
another reservation of rights letter in which it informed ConAgra that the Lot or
Batch Provision applied. In this letter, Lexington did not deny coverage, but
informed ConAgra of its belief that ConAgra had not yet triggered Lexington’s
obligations because ConAgra had not alleged that it had satisfied the $5 million
retained limit applicable under the Lot or Batch Provision.
The central issue in this case is whether the Lot or Batch Provision applies.
ConAgra argues that it does not apply.
According to ConAgra, the general
Occurrence definition applies, the peanut butter claims arise from a single
Occurrence, and ConAgra must pay a single $3 million retained limit in order to
trigger Lexington’s coverage obligation. Because ConAgra has spent more than $3
million defending against the peanut butter claims, it argues that it has triggered
Lexington’s insurance coverage. Contrarily, Lexington argues that the Lot or
Batch Provision applies. According to Lexington, the Endorsement’s Occurrence
definition applies, the peanut butter claims arise out of multiple lots or batches of
product, and therefore ConAgra must pay a $5 million retained limit for each lot or
batch represented by the peanut butter claims before it triggers Lexington’s
coverage obligation. Because ConAgra neither has asserted that it has exceeded
the $5 million lot or batch retained limit, nor has provided documentation to that
effect, Lexington argues that it has no coverage obligation.
The parties pursued the same arguments in Superior Court. ConAgra sued
Lexington to collect all excess liability over the $3 million general retained limit.
Lexington counterclaimed and sought a declaration that the Lot or Batch Provision
applied and that it had no coverage obligation unless and until ConAgra exceeded
the $5 million per lot or batch retained limit.
Lexington filed a Motion for
Summary Judgment and ConAgra filed a Cross Motion for Summary Judgment. A
Superior Court judge found the insurance policy unambiguous, agreed that the
Endorsement’s Occurrence definition applied and granted summary judgment to
Lexington. ConAgra appeals that judgment.
STANDARD OF REVIEW
We review a trial court’s decision to grant summary judgment de novo with
respect to both the facts and the law.52 We also review the proper interpretation
and construction of an insurance contract de novo. 53 If the relevant contract
language is clear and unambiguous, we must give it its plain meaning.54
We believe the language of this insurance policy is clear and unambiguous
on its face. The Products-Completed Operations Hazard provisions of the policy
apply to product liability claims, and Endorsement #3 changes the definition of
Occurrence for purposes of those claims. The peanut butter claims in this case fall
within the purview of the Products-Completed Operations Hazard because they are
bodily injury claims occurring away from ConAgra’s premises and arising out of
ConAgra’s products. Endorsement #3 instructs the parties to treat as a single
Occurrence all bodily injury claims that arise from each lot or batch of product,
and it defines a “lot or batch” as “a single production run at a single facility not to
LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 191 (Del. 2009).
Phillips Home Builders, Inc. v. Travelers Ins. Co., 700 A.2d 127, 129 (Del. 1997).
exceed a 7 day period.” Consequently, with respect to products liability claims
arising out of the Products-Completed Operations Hazard, there is one Occurrence
for, at most, every seven day period of production during which bodily injury
claims, like the peanut butter claims here, arise.
ConAgra argued that the policy’s general Occurrence definition applies in
this case, primarily because it manufactured the tainted peanut butter products in
an uninterrupted, continuous production schedule that exceeded seven days in
ConAgra’s argument implies that reliance upon Endorsement #3
disaggregates claims that should otherwise be aggregated and defeats coverage
rather than enhances it. This interpretation, however, conflicts with the explicit
agreement of the parties. ConAgra and Lexington agreed to specific terms—in
Endorsement #3—that apply to the precise product liability bodily injury claims
that are asserted here. Specifically, those terms dictate that all bodily injury claims
arising out of one lot or batch of completed products constitute one Occurrence,
and they define one lot or batch as a single seven day production run. They make
no exception nor are they subject to any caveat that depends upon the de facto
production schedule ConAgra decides to pursue. Accepting ConAgra’s argument
that the general policy definition of Occurrence applies in this case would
eviscerate the seven day limitation contained in the Lot or Batch Provision and
defeat the method that the parties expressly agreed upon for determining an
Occurrence for purposes of product liability claims.
The insurance policy in this case is a general insurance policy. The parties
agreed to a general definition of Occurrence that applies in cases of general
liability. The parties also agreed to the terms of Endorsement #3, including the Lot
or Batch Provision. The very purpose of Endorsement #3 and its Lot or Batch
Provision is to allow the parties to zero in on production—specifically, products
liability claims. It explicitly changes the definition of Occurrence for purposes of
bodily injury claims subject to the Products-Completed Operations Hazard. In
cases involving those claims, which include this case, Endorsement #3
intentionally temporally limits the aggregation of claims to those arising out of the
same discrete seven day period of production and then subjects those aggregated
claims to an increased retained limit of $5 million.
Considering the vast scope of potential liability that could arise from
ConAgra’s completed products it produces in continuous manufacturing cycles,
imposing these dual limitations—redefining Occurrence to permit aggregation of
claims only within distinct seven day production runs and raising the applicable
retained limit from $3 million to $5 million—may have been the only way that
Lexington could offer insurance coverage at a price ConAgra would pay.
Regardless of the motivation underlying the inclusion of these terms in the policy,
however, their import is clear. With respect to bodily injury claims arising out of
finished products under the Products-Completed Operation Hazard, the insurance
policy imposes a $5 million retained limit on each lot or batch, which the policy
defines as a discrete production run lasting seven days or less. Unless and until
ConAgra satisfies that heightened limit for any of its lots or batches, ConAgra does
not trigger Lexington’s coverage.
We believe the text of the insurance policy is clear. Consequently, we
interpret the text according to its plain meaning.
In this case, ConAgra and
Lexington used Endorsement #3 to alter the general definition of Occurrence and
raise the applicable retained limit in cases of bodily injury claims arising out of the
Products-Completed Operation Hazard.
Because the peanut butter claims are
products liability claims for bodily injury, they fall within the purview of
Endorsement #3. Therefore, we believe that the policy requires ConAgra to satisfy
a $5 million per seven day production run retained limit with respect to the peanut
butter claims before it can trigger Lexington’s insurance coverage. Because we
believe the text is unambiguous and yields this result, and because ConAgra has
not asserted that it reached its applicable retained limit, we believe ConAgra has
not yet triggered Lexington’s coverage and exposure to the tainted peanut butter
claims. We would affirm the Superior Court. The majority believes otherwise,
and therefore, we respectfully dissent.