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Berry Plastics Corp. v. Ill. Nat'l Ins. Co.

United States Court of Appeals for the Seventh Circuit

January 9, 2018, Argued; September 10, 2018, Decided

No. 17-1815

Opinion

 [*632]  Rovner, Circuit Judge. Berry Plastics Corporation filed this action seeking indemnity from its excess insurer, Illinois National Insurance Company, for a multi-million dollar damage award Berry was ordered to pay to a disappointed former customer. The insurance policy covers damages that Berry is required to pay "because of ... Property Damage." R. 42-4 at 11. Berry had supplied defective laminate material to the customer, which incorporated that material into containers that subsequently failed. A jury ordered Berry to compensate the customer for the profits it could have expected to earn on future sales had the failure caused by Berry's defective material not caused [**2]  buyers to turn away from the containers. Berry contends that it has been held liable for its customer's lost profits because of the property damage its defective component caused to the customer's containers. Although we agree with Berry that some portion of the lost profits theoretically might be attributable to property damage, Berry has neither undertaken to make that showing nor demanded the opportunity to do so. For that reason we affirm the district court's entry of summary judgment in favor of Illinois National.

Berry is a global manufacturer of (primarily plastic) packaging products with headquarters in Evansville, Indiana. Berry produced a foil laminate product for Packgen, a small firm that manufactures specialized containers for bulk quantities of industrial chemicals, manufacturing byproducts, and other materials. Over a period of two years, Packgen worked with one of its customers, CRI Catalyst Company, to develop a new type of intermediate bulk container ("IBC")1 that could be used to store and ship a chemical catalyst that CRI produced for use in the refining of crude oil into other petroleum products. This IBC was innovative in that its outer surface was comprised primarily [**3]  of a polypropylene fabric rather than metal, allowing the container to be collapsed for pre-use storage and saving users space, several hundred pounds of weight, and money. The catalyst that CRI produces is a self-heating material that can ignite when exposed to oxygen, so it poses hazards that require special care in handling. To enhance the protective characteristics of the IBC's outer surface, Packgen engaged Berry to manufacture a laminated product comprised of a woven polypropylene chemically bonded to a layer of aluminum foil; the foil would strengthen the IBC's exterior and serve as a barrier to oxygen, ultraviolet light, and infrared radiation. After extensive testing of the final product, Packgen began to manufacture and ship the IBCs to CRI in October 2007. By April 2008, Packgen was selling an average of 1,261 IBCs per month to CRI. Packgen anticipated that it would continue to sell IBCs to CRI in comparable numbers for the foreseeable future. Packgen was also making overtures to 37 petroleum refiners in North America with ties to CRI; these  [*633]  refiners had expressed interest in the IBCs for use in disposing of spent catalyst.

In April 2008, while CRI personnel were lifting [**4]  an IBC full of catalyst in order to re-position it on a pallet, the foil layer of the container's exterior surface separated from the polypropylene, causing the outer portion of the container to come apart and expose the interior lining. Several other failures of the foil laminate followed in short order, some resulting in fires when the catalyst within the containers was exposed to air. Packgen was notified of the failures and determined through its own testing that the large roll of foil laminate that Berry had delivered to Packgen in January 2008, and which Packgen had used to produce some 2,000 IBCs since that time, was defective. Although Packgen believed it could correct the problem either by eliminating the foil laminate as a component of the containers or turning to another vendor for the foil laminate, the damage had already been done: CRI canceled all pending orders for the IBCs, destroyed the IBCs that Packgen had already shipped to it, and refused to pay Packgen for those containers. Word of the product's failure reached the oil refineries that had expressed interest in purchasing IBCs, and they made no purchases from Packgen.

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903 F.3d 630 *; 2018 U.S. App. LEXIS 25576 **

BERRY PLASTICS CORPORATION, n/k/a Berry Global, Inc., Plaintiff-Appellant, v. ILLINOIS NATIONAL INSURANCE COMPANY, Defendant-Appellee.

Prior History:  [**1] Appeal from the United States District Court for the Southern District of Indiana, Evansville Division. No. 3:15-cv-00170-RLY-MPB — Richard L. Young, Judge.

Berry Plastics Corp. v. Ill. Nat'l Ins. Co., 244 F. Supp. 3d 839, 2017 U.S. Dist. LEXIS 41546 (S.D. Ind., Mar. 22, 2017)

CORE TERMS

property damage, lost profits, damages, insured, losses, customer, manufacturer's, laminate, foil, containers, coverage, profits, liability policy, indemnify, warranty, district court, heater, catalyst, cases, causal, business loss, chambers, sales, terms, consequential damages, bodily injury, economic loss, expectations, restaurants, petroleum

Insurance Law, Policy Interpretation, Ambiguous Terms, Construction Against Insurers, Unambiguous Terms, Claim, Contract & Practice Issues, Ordinary & Usual Meanings, Evidence, Burdens of Proof, Allocation, Exclusions, Policy Interpretation, Business Insurance, Commercial General Liability Insurance, Coverage, Civil Procedure, Preclusion of Judgments, Estoppel, Collateral Estoppel, Liability & Performance Standards, Bad Faith & Extracontractual Liability, Elements of Bad Faith