South-Western Legal Studies in Business

Food Lost Due to Mad Cow Scare Caused Business Interruption Insurance to Take Effect
Description

Appeals court held that when a U.S. company could not import and use the beef it bought in Canada, because beef imports were prohibited due to the Mad Cow disease, the company suffered a direct physical loss covered by its business interruption insurance.

Topic Insurance
Key Words

Business Interruption; Direct Loss; Government Embargo; Mad Cow

C A S E   S U M M A R Y
Facts

Source Food has a facility in Minnesota. It relied on beef coming from Canada. The U.S. Department of Agriculture closed the border to Canadian beef due to concerns about Mad Cow disease. Source Food could not the receive beef it had ordered and had to shut down facilities while searching for domestic supplies. Some clients cancelled their contracts with Source Food. It filed a claim with its insurer to collect on its business interruption coverage. The policy states that the insurer will pay "the actual loss of business income you sustain due to the necessary suspension of your operations during the period of restoration. The suspension must be caused by direct physical loss to property." It included losses "caused by the action of civil authority." Insurer refused to pay; Source Food sued. The district court held for the insurer, ruling that there was no "direct physical loss" as described by the policy. Source Food appealed.

Decision

Reversed and remanded. Source Food suffered "direct physical loss to property" within the meaning of the business income loss coverage provision of business interruption insurance. When the USDA prevented the importing of Canadian beef there was an action by a civil authority. The beef Source Food had bought from its Canadian supplier was caused to be unusable due to the border closing. The inability to use the beef was a direct physical loss.

Citation

Source Food Technology v. United States Fidelity and Guaranty Co., 460 F.3d 995 (8th Cir., 2006)

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