Blue Bell insurance carriers do not have to pay for 2015 Listeria damage

Federal Judge Robert Pitman, who presided over the 15-day trial of the former president of Blue Bell, has ruled in another case involving the Brenham, TX-based creamery.

From his bench in the Western District of Texas federal court, Pitman granted summary judgment in favor of the two insurance companies over Blue Bell Creameries USA Inc.

It finds that Blue Bell’s insurance coverage was poor during the worst year of the listeria outbreak that originated in the ice cream industry. It also means that Blue Bell is alone in paying $60 million to its owners that was approved by a Delaware court in 2020.

The judge also ordered the case closed and gave the insurance companies until September 6 to pay their fines and costs to the court.

Before the court granted summary judgment for plaintiffs, Discover Property & Casualty Company (“Discover”) and The Travelers Indemnity Company of Connecticut (“Travelers”), and defendants Blue Bell Creameries USA Inc., Blue Bell Creameries LP , and Blue Bell Creameries Inc . (collectively, the “Blue Bell Entities” or “Blue Bell”), including officers and directors John W. Barnhill Jr., Greg A. Bridges, Richard Dickson, Paul A. Ehlert, Jim E. Kruse, Paul W. Kruse, WJ Rankin, Howard W. Kruse, Patricia I. Ryan, and Dorothy McCleod MacInerney.

“Considering the arguments of the parties, the evidence, and the applicable law, the court will grant the plaintiffs’ motion and deny the defendants’ motion,” said Pitman.

The dispute between Blue Bell and its insurers stemmed from a 2015 listeriosis outbreak that led to a nationwide recall of all fragrance products and the temporary shutdown of its manufacturing facilities in Texas, Oklahoma, and Alabama. At least 10 people became ill and three died.

A shareholder lawsuit was filed in 2017 against Blue Bell’s officers and directors, alleging that the board “deliberately failed to exercise its power and responsibility to govern corporate governance and establish standards and controls to align with the company.”

The insurer’s lawsuit alleges that the breach of attestation caused Blue Bell and its shareholders “injury of approximately hundreds of millions of dollars,” resulting in a “significant financial disaster” for Blue Bell and its shareholders.

Blue Bell’s former president, 67-year-old Paul Kruse, retired, was indicted in 2020 on charges of conspiracy and fraud from his management during the shooting. His trial on Aug. 1-15 ended up in court. The government can try again.

Kruse is the only person to have been charged in connection with the 2015 outbreak.

Blue Bell pleaded guilty in a similar lawsuit in 2020 to two counts of distributing adulterated foods in violation of the Federal Food, Drug, and Cosmetic Act. The company agreed to pay $17.5 million in criminal penalties and $2.1 million to settle False Claims Act claims related to improperly manufactured ice cream sold to government agencies, including the military.

The total of $19.35 million in fines, forfeitures, and community charges was the second largest ever collected to resolve a food safety issue.

Pitman’s insurance policy cites “evidence of a history of repeated unsafe conditions” at Blue Bell. A number of business-related policy decisions affected various corporate entities between 2009 and 2016.

Each policy provided a limit of $5 million per “occurrence” and a limit of $10 million.

Pitman’s ruling said the two sides “argued that the summary judgment motion could only refer to the 2015 policy but would apply to all policies that occur from time to time.”

“On April 1, 2021, Blue Bell’s subsidiaries notified Plaintiffs of their claim that they are entitled to a share of the Shareholder Suit under Plaintiffs’ law.

“On June 3, 2021, plaintiffs filed this lawsuit. Plaintiffs seek:

(1) a declaration that the plaintiffs have no obligation to defend or indemnify any plaintiff of the shareholder under the insurance policies;

(2) if the court finds a duty to defend, declare that the claimants’ responsibility is limited to the post-tender payment and they spend a lot of money to settle the savings or other relevant statements;

(3) if the court finds the obligation to pay back, declare that the plaintiff’s liability is under the limits of the procedure, beyond the reasonable limits of the duty to save money, and submit to the disagreement with any circumstances;

(4) if the court finds liability for restitution, a declaration that the defendant’s liability is limited to damages;

(5) declaration of any other rights and obligations of the parties under the policy as they are done by the shareholder; and

(6) expenses and wages.

On Oga. 6, 2021, the defendants filed their answer, which includes a counterclaim for breach of contract due to the plaintiffs’ failure to pay the defendants’ fees in defending the owner’s lawsuit as provided in the statute.

On Dec. 10, 2021, the plaintiffs filed their summary judgment motion, and the defendants filed their motion for summary judgment.

Pitman argued that his motion for summary judgment was appropriate because there was no genuine dispute as to any of the facts.

The judge found the officers and directors of Blue Bell “knowingly and willfully breached their obligations” and, “therefore, cannot be considered ‘insured’ under this policy.”

Blue Bell said the oversight and failure of its agency did not rise to the level of disqualification to disqualify them from coverage as “insurers.”

The deadly outbreak of 2015 affected 10 people. The 10 confirmed patients were from four states – Arizona with 1, Kansas with 5, Oklahoma with 1, and Texas with 3 – and all required hospitalization. Conventional fingerprinting linked three people who died before 2015 to isotopes found in the Blue Bell material.

Blue Bell Creameries, founded in 1907 in Brenham, TX, today produces Blue Bell ice cream, the iconic Texan brand.

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