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Hold harmless and enforceable damages agreements



I Sentinel Insurance Company, Ltd. v. VLM Foods, Inc., et al., No. 1:19-cv-1395 (LMB / TCB), U.S. District Court, ED Virginia, Alexandria Division (October 1, 2021 Sentinel Insurance Company, Ltd. (" Plaintiff or "Sentinel") defended its insured TSC in more than 25 lawsuits arising from the outbreak of hepatitis A virus (HAV) and payment of certain settlements. ("respondent" or "VLM"), a Canadian entity and Patagonia Foods, LLC ("respondent" or "Patagonia"), a California entity. Both entities were upstream links in a frozen strawberry distribution chain carrying HAV.

BACKGROUND

In this action "Sentinel" seeks to prosecute [TSC’s] right [s] "for recovery against VLM and Patagonia. Sentinel seeks recovery according to a theory of" Express compensation ", based on its insurance covering TSC and three agreements: the VLM-Patagonia Agreement, the Patagonia-Sysco Agreement and the Patagonia-ITI Agreement. If the insured has the right to recover all or part of any payment, including additional payments, that we have made under this coverage, these rights are transferred to us. The insured may not do anything after loss to impair them. to "sue" or transfer these rights to us and help us enforce them … "

Sentinel is in TSC's shoes for this lawsuit, where Sentinel is now trying to recover $ 3,548,292.90, best of $ 3,342,989.41 in legal fees it incurred to defend TSC against the underlying HAV claims, $ 187,636.82 in associated litigation costs and $ 17,666.67 it paid to settle three underlying HAV claims. , as well as advance interest on these amounts. Although VLM opposed the amount of damages in its claim for summary judgment concerning Sentinel's complaint, it acknowledged in oral argument that it did not dispute the amount. Patagonia has not disputed the amount.

Distribution Chain

TSC is a nationwide franchisee of cafes specializing in smoothies. TSC created the supply and distribution chain for the frozen strawberries involved in this civil action. TSC franchise agreements and documents require TSC franchisees to purchase frozen fruit in accordance with the guidelines, specifications, and approved vendor, distributor, and vendor lists issued by TSC.

Patagonia acts as a wholesaler of frozen products, including frozen strawberries. Since 2006, Patagonia has provided approximately 100 million pounds of frozen fruits, including strawberries, to TSC, equivalent to approximately $ 100 million in business. Although at the time there was no formal written agreement between them, Patagonia and TSC regularly communicated, negotiated and agreed on food product specifications and details, quality control issues, their business relationships, the policies and procedures applicable to this relationship. , TSC's supply chain and distribution needs, Patagonia's ability to meet those needs, forecasts of TSC's annual use of frozen fruit, frozen fruit prices, TSC's marketing efforts, potential new menu options for TSC to provide to its franchisees and the general state of the frozen fruit industry . Patagonia does not have this type of business communication with TSC franchisees.

In 2015, TSC and Patagonia entered into a written bulk purchase for frozen strawberries under which Patagonia agreed to provide a specific type of strawberry for use in TSC's franchises, which included the frozen strawberries involved in this civil action. To fulfill this arrangement, on September 14, 2015, Patagonia sent VLM, a Canada-based global frozen food retailer, processor and distributor, a purchase order for 60 lots of individually quick-frozen strawberries from Egypt. On the same day, VLM Patagonia sent a sales confirmation for the 60 loads (3,168 million pounds) of frozen strawberries.

HAV outbreaks

In late summer and early autumn 2016, several state health agencies, the Centers for Disease Control and Prevention ("CDC") and the US Food & Drug Administration ("FDA") (together "public health officials") identified and investigated a HAV outbreak. Public health officials identified 129 individuals — 54 of whom were hospitalized — who developed HAV infections as a result of consuming smoothies or other foods purchased from certain TSC sites made from or exposed to frozen strawberries. No deaths were identified. The FDA tested 19 samples of strawberries, six of which were from ICAPP and tested positive for HAV. The FDA's trace-back investigation concluded that the frozen strawberries served at the TSC franchisees involved were from ICAPP. In October 2016, ICAPP voluntarily recalled frozen strawberries imported into the United States as of January 1, 2016.

As a result of this HAV outbreak, dozens of state lawsuits and two federal class actions were filed, and over 200 claims were filed. against TSC and various TSC franchisees.

Hold Harmless Agreements

Patagonia had three agreements relevant to the issues in this civil action. First, it had a Hold Harmless agreement and product guarantee ("VLM-Patagonia agreement") with VLM, which was signed by VLM at its head office in Canada and sent to Patagonia in connection with Patagonia's purchase of pineapple from VLM's La Paz production facility in Costa Rica. The VLM-Patagonia agreement provided in part that the strawberries were not counterfeit or mislabelled within the meaning of the Federal Food, Drug and Cosmetic Act ("the law") and (b) not to be an article that could not be imported

also to defend, indemnify and hold harmless purchasers and their employees, representatives, board members and customers (individually a "liable") from all acts, suits, claims, claims and proceedings, ("Claims") , and any judgments, damages, losses, debts, liabilities, penalties, fines, costs and expenses (including reasonable legal costs), which result in them arising from contracts, damages, strict liability, misrepresentation, violation of applicable law and / or for any reason.

DISCUSSION

VLM's Liability to Sentinel

Under the VLM-Patagonia Agreement, VLM guaranteed the quality of the goods it sold to Patagonia and agreed to indemnify Patagonia (the buyer). According to these facts, no reasonable jury could find that TSC was not a customer in Patagonia according to any of the parties by definition. Patagonia regarded TSC as its "customer", and therefore VLM must reimburse TSC in accordance with the terms of the VLM-Patagonia Agreement.

The VLM-Patagonia Agreement applies to frozen strawberries sent to Patagonia by VLM, and under that agreement, VLM is required to reimburse TSC, which the court finds is a customer in Patagonia.

Patagonia's liability to Sentinel

Patagonia's liability to Sentinel is governed by Patagonia-Sysco and the Patagonia-ITI agreements. Essentially the same language as the VLM Agreement, the Patagonia-Sysco Agreement contains a promise from Patagonia to indemnify and defend Sysco and its "customers" from claims and suits "alleged to have arisen from (a) delivery, sale, resale, labeling, use or consumption of any product ", and like the VLM Agreement, this is also signed only by the party against whom the harmless obligations are to be enforced, in this case Patagonia.

If Sentinel can recover Under Voluntary Payment Doctrine

The voluntary doctrine of payment, established under Virginia law, provides that where a party pays an unlawful request with full knowledge of all the facts that make such a request illegal, that payment must be considered voluntary and non-refundable. obliged to defend TSC against the HAV claims, however, did not prevent the voluntary payment theory Sentinel's recovery in this a dispute.

Liability between Patagonia and VLM

The Court concluded that Patagonia and VLM are jointly and severally liable to Sentinel, instead of TSC, for the costs and charges incurred in the HAV disputes and in these disputes. Under the VLM-Patagonia Agreement, VLM must also indemnify Patagonia for Patagonia's liability to Sentinel, as well as its legal costs. For these reasons, Patagonia has priority in its litigation against VLM for compensation for any damages it has incurred in connection with the disputes about the HAV lawsuits, as well as its lawyer's fees and costs incurred in this dispute, if these fees and costs are requested.

CONCLUSION

Sentinel's summary judgment against Motagonia and VLM was granted, and Patagonia's and VLM's opposition to summary judgments against Sentinel was denied. As a result, VLM and Patagonia are jointly and severally liable to Sentinel in the amount of $ 3,488,292.90, plus interest before judgment.

Patagonia's summary judgment against VLM was granted, and VLM's cross – movement motion for summary judgment of Patagonia's cross – claims was denied. As a result, VLM must indemnify Patagonia for Patagonia's liability to Sentinel, and if Patagonia seeks compensation for its attorneys' fees and costs incurred in this dispute, VLM will be liable for these fees and costs to the extent that they are reasonable. [19659032] This case teaches the importance of keeping a harmless and tortious agreement in commercial transactions. The insurer, Sentinel, had to defend its insured and then demanded a proper reimbursement of the legal fees he paid to defend the insured from the suppliers who agreed to keep harmless and reimburse the insured. Any inquiry into liability claims requires an assessment of the existence of such an agreement and, if they are there, the insurer should receive the compensation that the insured would have received if it had no insurance.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims handling, bad faith insurance and insurance fraudsters almost as much for insurers and policyholders.

He also acts as an arbitrator or mediator. for insurance-related disputes. He practiced law in California for more than 44 years as an insurance and claims management attorney and more than 54 years in the insurance industry.

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He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award. For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claims staff to become insured.

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