Travelers need not defend Blue Bell in D&O listeria litigation

A federal appeals court on Tuesday affirmed a lower court and held Travelers Cos. Inc. units do not have to defend directors and officers of Blue Bell Creameries U.S.A. in shareholder litigation filed in connection with the 2015 deaths of three people from listeria in the company’s ice cream.

The deaths, which were allegedly caused by the Brenham, Texas-based company’s failure to contain listeria’s spread in its ice cream manufacturing plants, led to a derivative directors and officers liability lawsuit filed by a company shareholder in Jack L. Marchant II v. Jon W. Barnhill Jr. et al.

The Delaware Supreme Court reinstated the shareholder lawsuit in 2019.

Travelers units Discover Property & Casualty Insurance Co. and the Travelers Indemnity Co. of Connecticut filed suit in U.S. District Court in Austin, Texas, seeking a declaratory ruling they did not owe defense or indemnity coverage under the D&O policies they had issued.

The district court ruled in the insurers’ favor, and was affirmed by the 5th U.S. Circuit Court of Appeals in New Orleans in Discover Property & Casualty Insurance Co.; The Travelers Indemnity Co. of Connecticut v. Blue Bell Creameries USA et al.

The alleged injuries were not caused by an ‘’accident,” as required for coverage, the three-judge appeals court panel said.

“We agree with the district court that, as alleged in the shareholder complaint, the breach of fiduciary duties stemmed from intentional acts, and the Listeria outbreak and the resulting financial harm were natural and probable consequences that could be reasonably anticipated,” it said, in holding also there were no damages because of bodily injury.

Attorneys in the case did not respond to requests for comment.