By Ganesh Setty · Dec 13, 2021, 4:50 PM EST ·

Blue Bell Creameries told a Texas federal court that two Travelers units must defend it in a shareholder suit over listeria contamination because the alleged investor losses stem directly from bodily injury to customers, which falls within the scope of the ice cream maker’s insurance policy.

Blue Bell is facing a shareholder suit alleging that the ice cream maker’s leadership did nothing to change course after product samples tested positive for listeria in as early as 2013. (AP Photo/Orlin Wagner)

The ice cream maker’s bid for summary judgment came after the Travelers units — Discover Property & Casualty Insurance Co. and Travelers Indemnity Co. of Connecticut — filed a declaratory action in June seeking to avoid covering the 2017 shareholder suit, citing exclusions in Blue Bell’s commercial general liability policy.

“Without the bodily injury to consumers, the financial injury to [shareholders] would not have happened. These allegations are sufficient to trigger the duty to defend,” Blue Bell said Friday.

The 2015 listeria outbreak, which prompted mass product recalls from the U.S. Food and Drug Administration and Centers for Disease Control and Prevention, qualifies as an occurrence even if the underlying suit claims that company executives breached their fiduciary duties by failing to adequately oversee operations or investigate potential hazards, Blue Bell said. The shareholder suit specifically alleged that company leadership did nothing to change course after samples tested positive for the bacteria in as early as 2013.

“Texas courts have long held that even intentional acts may constitute an occurrence that results in covered bodily injury or property damage when the damage itself is not intended or expected by the actor,” Blue Bell continued, adding that an exclusion for intentional bodily injury doesn’t apply either.

Blue Bell last year paid $17.25 million in criminal penalties after it pled guilty to two misdemeanor counts of distributing adulterated ice cream products. That amounts to the largest-ever criminal penalty following conviction in a food safety case, the U.S. Department of Justice said at the time.

As for the other exclusions the insurers raised, a product recall exclusion doesn’t apply because Blue Bell is not seeking coverage for losses stemming from its recalls, but rather the alleged losses to shareholders, the ice cream maker said. A personal and advertising injury exclusion is not applicable either, since the bodily injuries arose out of product contamination and the underlying suit did not allege personal or advertising injury, Blue Bell added.

“Because the undisputed facts show a potential for coverage and also that at least some of the claims in the underlying suit fall outside of the named exclusions, plaintiffs are obligated to defend the entire suit,” Blue Bell said.

The ice cream maker also claimed the insurers breached its 2015 CGL policy and are therefore on the hook for an unspecified amount of damages.

Counsel for the parties did not immediately respond to Law360’s requests for comment Monday.

Discover and Travelers Indemnity are represented by Amanda Laviage Goldstein, J. Stephen Barrick, James R. Old and Courtney E. Ervin of Hicks Thomas LLP.

Blue Bell is represented by Douglas A. Daniels of Daniels & Tredennick LLP, and Jesse J. Bair and Timothy W. Burns of Burns Bowen Bair LLP.

The case is Discover Property & Casualty Insurance Co. and Travelers Indemnity Co. of Connecticut v. Blue Bell Creameries USA Inc. et al., case number 1:21-cv-00487, in the U.S. District Court for the Western District of Texas.

–Additional reporting by Daphne Zhang. Editing by Breda Lund.