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Certain Underwriters at Lloyd's v. Mills Bros. International, Inc.

United States District Court, W.D. Washington, Seattle

August 2, 2019

CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, that participate on marine cargo policy no. B0799MC030730k, foreign corporations, Plaintiffs,
v.
MILLS BROS. INTERNATIONAL, INC., dba GLOBAL HARVEST FOODS, LTD., a Washington corporation, Defendant.

          ORDER

          JOHN C. COUGHENOUR UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on Plaintiffs' motion for partial summary judgment (Dkt. No. 22). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby DENIES the motion for the reasons explained herein.

         I. BACKGROUND

         A. Factual Background

         Plaintiffs are a group of syndicates who proportionally subscribe to or provide capital to underwrite Marine Cargo Insurance Policy No. B0799MC030730k (the “Policy”). (Dkt. No. 1 at 1.) Plaintiffs issued the Policy to Defendant on July 24, 2017, with one amendment executed on October 21, 2017. (See Dkt Nos. 1, 1-1.) The effective dates of the Policy were August 1, 2017 to August 1, 2018. (Dkt. No. 1-1 at 4.) Defendant timely paid the premiums due on the Policy. (Dkt. Nos. 16 at 5, 18 at 2.)

         Defendant manufactures bird seed products, including “pressed seed products.” (Dkt. Nos. 1 at 4, 28 at 6.) Pressed seed products are formed using gelatin, dried to reduce moisture, and then packaged for sale. (Dkt. No. 28 at 6.) For many years, Defendant used an oven heating method to reduce moisture in its pressed seed products. (See Dkt. Nos. 1 at 4-5, 16 at 3.) This method reduced moisture in the pressed seed products by at least three percent. (Dkt. Nos. 22 at 7, 28 at 6-7.)

         Defendant sought advice as to how to increase its manufacturing capacity, and an expert advised Defendant that it should replace the oven with a spiral cooling drying system (the “spiral dryer”). (Dkt. No. 28 at 6-7.) Through research, Defendant learned that spiral dryers “had widespread utilization in food processing.” (Id. at 6.) Defendant's gelatin suppliers informed Defendant that a spiral dryer “would be preferable.” (See Id. at 6-7.) Defendant negotiated a warranty with a spiral dryer supplier to obtain a guarantee of at least a three percent extraction of moisture from the pressed seed product. (Id. at 7.) Defendant alleges it tested the spiral dryer and received positive results, and in April 2018 “beg[a]n commercial production using its new spiral dryer, utilizing the exact same process as [Defendant's] plant ha[d] used for more than 14 years.” (Id.; see also Dkt. No. 30 at 2.)

         In June 2018, several customers reported mold on Defendant's pressed seed products. (Dkt. No. 28 at 7.) Defendant claims that mold was discovered on about 28 percent of the pressed seed products in its warehouse, in transit, and at third-party locations. (Id.) Plaintiffs claim that the mold was discovered on some of the inventory at Defendant's warehouse facilities. (Dkt. No. 1 at 5.) After discovering the mold, Defendant reverted to using the oven heating method for at least some of its pressed seed products. (See id., Dkt. No. 16 at 3.) On July 26, 2018, Defendant submitted a Property Loss Notice to Plaintiffs, reporting that a loss occurred on June 22, 2018. (Dkt. Nos. 22 at 6-7, 23-1 at 2.) Defendant submitted a claim exceeding $511, 000 to Plaintiffs for reimbursement (the “Claim”), which included alleged losses of at least $300, 000 in unsalable products and $175, 000 in reimbursements to clients. (Dkt Nos. 1 at 5, 28 at 7.)

         Plaintiffs hired insurance adjuster Charles Colella of EIMC to investigate the Claim, and Colella submitted two reports to Plaintiffs. (Dkt Nos. 16 at 5, 18 at 2, 22 at 9.) On or about August 15, 2018, Colella determined that Defendant incurred costs of $511, 633.02. (Dkt. Nos. 16 at 5, 18 at 2.) The parties dispute whether Colella concluded that Plaintiffs were liable to Defendant for reimbursement of those costs. (See id.) Defendant alleges that Plaintiffs “demanded that the adjuster reverse his coverage conclusion, but he refused to do so.” (Dkt. No. 16 at 5.) Defendant also alleges that “[o]n or about November 2, 2018, [Plaintiffs'] agent, [broker] Lonmar Global Risks Limited [(“Lonmar”)], also confirmed that the [C]laim was covered.” (Id.) Plaintiffs deny both allegations. (See Dkt. No. 18 at 2.)

         B. Relevant Policy Provisions

         The Policy is governed by Washington law. (Dkt. No. 1-1 at 7.) The Policy covers “[a]ll risk of physical loss or damage from whatsoever cause howsoever arising” subject to the Policy conditions and clauses (the “all-risk language”). (Id. at 5.) The Policy applies to “[a]ll goods . . . incidental to the business of [Defendant] or in connection therewith . . . .” (Id. at 4.) The Policy covers shipments from “[p]orts and/or places in North America” to “[p]orts and/or places in the World and/or vice versa . . . Including whilst at rest and/or in store and /or whilst at contractors.” (Id.) Coverage attaches:

from the time [Defendant] assumes an interest in and/or responsibility for the subject matter insured and continues uninterrupted, including transit, stock and location coverage until that interest and/or responsibility ceases.

(Id. at 5.) The Policy contains a process exclusion clause (the “exclusion clause”), that provides:

Stock/Location coverage (other than in the normal course of transit and/or whilst at third party locations) shall ...

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