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PBM Nutritionals, LLC v. Lexington Ins. Co.

Supreme Court of Virginia

April 20, 2012, Decided

Record No. 110669


 [**709]  [*627]   Present: All the Justices


In this appeal, we consider whether the circuit court erred in construing pollution exclusion endorsements in a commercial property insurance policy as precluding coverage for a multi-million dollar infant formula loss resulting from  [***2] the infiltration of filter elements into the formula during the manufacturing process.


PBM Nutritionals, LLC (PBM) filed a declaratory judgment action in the Circuit Court of the City of Richmond against Lexington Insurance Company (Lexington), Arch Insurance Company (Arch) and ACE American Insurance Company (ACE) (collectively the Insurers). PBM sought insurance coverage for its loss resulting from infiltration of filter elements into the infant formula it manufactured between January 22 and January 30, 2009. The Insurers claimed that the insurance policies' "Pollution Exclusion Endorsements" excluded coverage for PBM's infant formula loss because the formula was "contaminated." The circuit court found that the Insurers were not liable under the policies for PBM's infant formula losses, and PBM appeals.


Infant Formula Loss

PBM manufactures and produces infant formula at a facility located in Burlington, Vermont. PBM manufactures its infant formula  [**710]   [*628]  by mixing dry ingredients with hot, filtered water. To heat the water, PBM uses a heat exchanger, a vessel in which steam heats water flowing through tubes. A butterfly valve regulates the steam by opening or closing to allow  [***3] more or less steam into the heat exchanger. Once heated, the water is released from the heat exchanger and passes through water filters, to ensure its cleanliness before it enters the liquefying tank where it mixes the dry ingredients. Industrial dryers then dry the created mixture into finished infant formula.

On December 14, 2008, PBM conducted a routine cleaning and discovered a defect in the butterfly valve. The defect allowed steam to leak into the steam tube when the valve was in the closed position. PBM ordered a replacement valve, but it did not arrive until late January 2009. Until January 20, 2009, PBM continued to manufacture infant formula and conduct routine cleanings. PBM's testing revealed no problems with the infant formula produced during this period.

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283 Va. 624 *; 724 S.E.2d 707 **; 2012 Va. LEXIS 84 ***; 2012 WL 1377082


Subsequent History: As corrected April 23, 2012.

Prior History:  [***1] FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND. Walter W. Stout, III, Judge.

PBM Nutritionals, LLC v. Lexington Ins. Co., 2011 Va. Cir. LEXIS 16, 82 Va. Cir. 94 (2011)

Disposition: Affirmed.


Insurers, endorsements, pollution exclusion, coverage, contamination, pollution, infant formula, circuit court, policies, filter, manuscript, manufactured, insurance policy, cleaning, provisions, melamine, batches, formula, environmental, infiltration, ambiguous, dispersal, insurance company, contributed, broker, steam, insurance coverage, heat exchanger, disintegrated, construing

Civil Procedure, Appeals, Standards of Review, De Novo Review, Contracts Law, Contract Interpretation, General Overview, Insurance Law, Claim, Contract & Practice Issues, Policy Interpretation, Entire Contract, Judicial Review, Ambiguous Terms, Construction Against Insurers, Coverage Favored, Evidence, Burdens of Proof, Allocation, Exclusions, Plain Language, Commercial General Liability Insurance, Exclusions, Pollution