A US court has allowed an insurer to avoid a $25 million policy it issued to H.J. Heinz Co. because of a material misrepresentation regarding its product recall history.
In response to a question whether the company had experienced any product recalls or withdrawals within the previous ten years, the insured failed to disclose a destruction of nearly 500 kgs of baby cereal contaminated with nitrite in 2014 and a fine for mercury-tainted baby food in 2013.
The court concluded that the insured had made the misrepresentations to obtain a lower self-insured retention or a lower policy premium.
The evidence of a director who said he was relatively new at the job so that he didn’t think the non-disclosures and misrepresentations were material was not found to be credible. The insured argued that the insurer had sufficient prior information from disclosures on applications for different policies and from newspaper articles contained in its underwriting file.
The court held that the underwriters had acted professionally and prudently and need not have been expected to look at applications for different insurance or to independently verify the insured’s own account of its loss history.