Blue Bell’s insurance carriers sue ice cream firm, its officers and directors

Blue Bell’s insurance carriers sue ice cream firm, its officers and directors

Discover Property & Casualty and Travelers Indemnity insurance companies have sued the officers and directors of Blue Bell Creameries to void any general liability coverage for the 2015 listeria outbreak traced to the company’s ice cream.

It was not long ago that corporate Blue Bell seemed to have put some distance between itself and the deadly 2015 Listeria outbreak. Especially significant was its agreement with the Department of Justice to settle the company’s criminal liability with payments of $19.35 million in fines, forfeiture, and payments of civil settlements.

But the legal process is not letting the Blue Bell corporation get away so quickly. The company was recently ordered to provide evidence in the coming criminal trial involving its long-time and now retired president, Paul Kruse.

The insurance companies want a declaratory judgment that the Blue Bell entities are not entitled to coverage under any of the commercial general liability policies issued by Discover or Travelers.

Discover issued general commercial liability (CGL) policies to Blue Bell from 2009 through 2010, and Travelers gave CGL insurance policies to some or all of Blue Bell entities in 2011 and 2013 through 2016.

The new civil action follows a shareholder derivative lawsuit against Blue Bell Creameries USA Inc. filed on Aug.14, 2017, two years after the deadly Listeria outbreak.

That shareholder lawsuit named the creamery officers and directors for breach of fiduciary duties resulting in misconduct that led to the recall of all Blue Bell ice cream products.

Three years later, in early 2020, a Delaware court approved a $60 million settlement that Blue Bell reached with the shareholders who sued the ice cream maker.

In the new lawsuit, the insurance carriers say that on April 1, 2021, Blue Bell entities “alleged for the first time that they were entitled to coverage under the policies for the shareholder suit.”

“The reason for the delay is evident; the Blue Bell entities know that the policies do not provide coverage for a shareholder derivative suit,” say the insurance companies. They say Blue Bell’s officers and directors “breached their fiduciary duties” by failing to maintain standards and controls for sanitary and safe production. It resulted in company-wide Listeria contamination.

According to the insurance companies, reports on Blue Bell by the FDA and other government organizations showed “repeated findings” of unsafe conditions.

The Food and Drug Administration notified Blue Bell of its positive tests for Listeria in February 2015.

The FDA ultimately issued three reports finding, among other things, that Blue Bell failed to manufacture foods under conditions and controls
necessary to minimize the potential for the growth of microorganisms.

The complaint recalls how by April, Blue Bell had to recall all its products, destroying 8 million gallons of ice cream and laying off its nearly 1,500 employees.

Houston attorney Courtney Ervin filed the insurance lawsuit with the federal court for the Western District of Texas in Austin. The same court will select a jury in November to hear the criminal charges against former Blue Blue President Paul Kruse.

Conspiracy and fraud accusations filed in 2020 against Kruse will be decided by jury trial.

The insurance carriers complaint against Blue Bell seeks specific release as follows:

• A declaration that officers and directors breached their fiduciary duties to Blue Bell.
• Determination of and award to Blue Bell the damages sustained by it as a result of the officers and directors’ breach of fiduciary duties.
• Disgorgement and cancellation of stock in Blue Bell owned by the officers and directors and their affiliates and disgorgement of the dividends and other benefits received by defendants unjustly at the expense of Blue Bell, and
• Directing Blue Bell to implement policies and procedures to maintain adequate operational controls.

In addition to Paul Kruse, Officer and Directors named as defendants in the insurance lawsuit include John W. Barnhill Jr., Greg A. Bridges, Richard Dickson, Paul A. Ehlert, Jim E. Kruse, W.J. Rankin, Howard W. Kruse, Patricia I. Ryan and Dorothy McLeod MacInerney.

About the 2015 outbreak

• Listeriosis is a life-threatening infection caused by eating food contaminated with the bacterium (germ) Listeria monocytogenes (Listeria). People at high risk for listeriosis include pregnant women and their newborns, adults 65 and older, and people with weakened immune systems.
• A total of 10 people with listeriosis related to this outbreak were reported from 4 states: Arizona with 1, Kansas with 5, Oklahoma with 1, and Texas with 3. All ill people were hospitalized. Three deaths were reported from Kansas.
• On April 20, 2015, Blue Bell Creameries voluntarily recalled all of its products currently on the market made at all of its facilities, including ice cream, frozen yogurt, sherbet and frozen snacks.
• On May 7, 2015, the U.S. Food and Drug Administration released the findings from recent inspections at the Blue Bell production facilities in Brenham, Texas Cdc-pdf; Broken Arrow, Oklahoma Cdc-pdf; and Sylacauga, Alabama Cdc-pdf.

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