Foster Farms Recalls Chicken, Sues Insurer for Rejecting Claim

Foster Farms has a problem, a big problem.

No, it isn’t its long-standing battle with Salmonella Heidelberg infections in the chicken in its processing centers, or the ongoing investigations by the U.S. Department of Agriculture, whose enforcement arm announced a recall of Foster Farm chicken the day before the Fourth of July holiday.

Its looming problem is with its insurance carrier, which is refusing to accept a claim for the $14.2 million that the manufacturer says it has lost from tainted chicken.

According to Lloyds of London, which insured the poultry manufacturer, Foster Farms' losses don’t fit the profile for a compensatable claim. But the interesting thing about this story is the wide spectrum of interpretations about just what has happened over the past 16 months and why Foster Farms is left holding the bag.

According to a letter from the USDA  to Foster Farms dated Oct. 7, 2013, the agency advised the company that it planned to “withhold the marks of inspection and suspend the assignment of inspectors at the three facilities in California unless the firm submitted plans to prevent the persistent recurrence of salmonella contamination.” In the letter, the FSIS warned Foster Farms of its responsibility to ensure that its product was not “adulterated.”  But it didn’t actually ever say that Foster Farms chicken was adulterated.

The U.S. Poultry Products Inspection Act, says the letter, “provides FSIS (Food Safety Inspection Service, the USDA’s enforcement arm) program personnel the authority to refuse to allow poultry or poultry food products and meat or meat food products to be labeled, marked, stamped, or the sanitary conditions of any such establishment are such that product is rendered adulterated, and provide definitions for the term 'adulterated.”

It continues with this warning by saying that the Livingston, Calif. plant “has been implicated as a producer and supplier of poultry products associated with this ongoing Salmonella Heidelberg illness outbreak. As a result, on Sept. 9, 2013, FSIS initiated intensified salmonella verification testing of various poultry products at this establishment, as well as three other Foster Farms establishments (Establishment 6137 in Livingston, Calif.; Establishment 7632 in Fresno, Calif.; and Establishment 6164A in Kelso, Washington).”

The “intensified testing” confirmed that salmonella was found both in one or more of the processing plants as well as in the products.

Yet four days later, Daniel Engeljohn, USDA’s assistant administrator for FSIS field operations, went on record saying that the FSIS found no evidence of adulterated product, and therefore did not ask for a voluntary recall.

“[The FSIS’] decision was that we did not believe the product being produced in the marketplace was adulterated, which would be what we would have to conclude to have it removed from the marketplace,”  Engeljohn said in an interview with Meatingplace.com.

In the end, the USDA may not have done Foster Farms any favors by not ordering a recall, either when the salmonella was first detected, or in January 2014, when FSIS ordered the Livingston plant closed due to cockroaches. When the company attempted to file a claim with Lloyds, the insurance carrier rejected the claim because no recall had been initiated, even though the plant had been closed by FSIS due to infestation.

“We agree that ‘recall’ is not defined within our policy, however to attempt to expand the definition of this word beyond the common meaning is clearly misguided and we do not agree that any ambiguity exists,” said Jonathan Kelly, claims manager for Lloyds’ underwriter XL Group.

Foster Farms calls the decision an “exceedingly narrow definition of the word 'recall,” and has launched a suit against Lloyd’s underwriters for $12.5 million.

One of the issues at the heart of this debacle is the USDA method of determining that a recall is necessary. In its letter, it painstakingly lays out the steps it took to determine that the antibiotic-resistant form of salmonella was in the product that consumers had bought.

“The majority of case-patients reported chicken consumption prior to illness onset; among those with brand information, 80 percent reported consumption of Foster Farms chicken during case-patients' interviews,” notes the letter. “A high proportion of case-patients were hospitalized. Foster Farms has been implicated as the producer and supplier of poultry products associated with an ongoing Salmonella Heidelberg illness outbreak in several states.”

Yet determination that a recall was necessary did not come until the agency was able to definitively link the poisoning to the case of a 10-year-old child who had been hospitalized for food poisoning in June. The USDA then announced a Class I recall, which is done when the USDA feels “there is a reasonable probability that the use of the product will cause serious, adverse health consequences or death.”

Whether Foster Farms wins the suit against XL Group et al, it may still be in for more litigation. At least two different lawyers have announced that they are interested in speaking with consumers who were sickened from tainted Foster Farms meat.

For its part, the company says it has attempted to caution consumers of the importance of washing their hands and notes the apparent failure of many to do so when handling raw chicken. It sponsored  a study by a UC Davis expert that shows that many consumers can potentially contaminate their food by not washing their hands often enough.  Unfortunately, while the study reiterates some pretty important standards for safe handling of raw meats, its lessons may well fall on deaf ears. After 600 cases in 29 states and evidence of infection in more than one plant, consumers may be less worried about whether they should wash their hands than whether they can risk buying chicken from Foster Farms -- at all.

And with the news that the USDA's recall only extends to three days of production in March 2014, the agency may find that consumers' growing loss of faith extends well beyond the company label on their supermarket shelves.

Image credit: Public Domain/Dnor