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Second Circuit Affirms Denial Based Upon ‘Your Product’ Exclusion
Insurance Law Update
Second Circuit U.S. Court of Appeals
The Second Circuit Court of Appeals affirmed a district court's order granting summary judgment for Maryland Casualty Company based on the application of the "Your Product" exclusion in the general liability policy. Tradin Organics USA, Inc. had sold its raspberry crumble to Crofters Food Ltd. After delivery was accepted by Crofters, the crumble was discovered to contain plastic, pits, cherry stems, glass and other materials. Tradin agreed to compensate Crofters $214,444.32 for the contaminated crumble. Tradin then made a claim to recover costs of its settlement with Crofters under the Maryland Casualty general liability policy. Maryland Casualty denied coverage based upon the “Your Product” exclusion, which precluded coverage for any property damage due to “‘your product’ arising out of it or any part of it.”
The district court, at Tradin Organics USA, Inc. v. Maryland Casualty Company, 2008 WL 241081 (S.D.N.Y. Jan. 29, 2008), determined that New Hampshire law governed the policy, but relied upon decisions of other jurisdictions because no New Hampshire court had interpreted the “Your Work” and “Your Product” exclusions. The district court noted that New York courts, similar to other jurisdictions, “have held that similarly defined ‘your product’ exclusions unambiguously precluded coverage for losses caused by a contaminated or defective product sold by the insured.” Finding that the “plain language of the contract supports this interpretation, as the Policy explicitly defines ‘your product’ as ‘any goods or products . . . manufactured, sold, handled, distributed or disposed of by’ Tradin or others using Tradin’s name,” the court held that the Maryland Casualty policy unambiguously excluded coverage for the loss incurred by Tradin and granted summary judgment. Id. In the appellate decision, Tradin Organics USA, Inc. v. Maryland Casualty Company, 2009 WL 1024633 (2d Cir. (N.Y.) Apr. 16, 2009), the Second Circuit affirmed the district court but applied the “Your Product” exclusion in a different manner, indicating that the exclusion is intended to exclude coverage for damage to the insured’s product, but not for damages caused by the insured’s product. Otherwise, the insurer would be insuring Tradin’s warranty of quality, which is not what Maryland Casualty intended to insure because it issued a liability policy, not a performance bond. “Because Tradin’s claim was based on damage to Tradin’s product – a risk specifically excluded by the ‘Your Product’ provision – Maryland properly denied coverage of the claim.”
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