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Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc.

Court of Appeal of California, First Appellate District, Division One

February 28, 2000, Decided

No. A080316.

Opinion

 [*861]  [**373]  SWAGER, J. 

Two insurance carriers, Northbrook National Insurance Company (Northbrook) and Royal Insurance Company of America (Royal) appeal from a judgment awarding compensatory and punitive damages to two insureds, Innovative Products Sales & Marketing, Inc. (IPS) and Shade Foods, Inc. (Shade). We reverse the judgments for punitive damages and modify a portion of the judgment pursuant to the other-insurance clause in the policies but otherwise affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Shade is a wholesale food manufacturer that makes ingredients for larger food product companies. According to Shade's senior vice-president, General Mills is "by far" its largest customer and accounts for a "very large percentage" of its total [***3]  sales. In cooperation with General Mills, Shade developed a process for manufacturing nut clusters composed mainly of diced almonds and congealed syrup with small portions of walnuts and pecans. Shade began manufacturing this product at a plant in Kansas in the late 1980's for use in a General Mills  [**374]  breakfast cereal called "Clusters." In 1993 and 1994, it sold about $ 12 million of the product to General Mills under a standard purchase order.

Shade initially purchased processed almonds from various suppliers in California for manufacture of nut clusters. In 1992 and 1993, Skip Petitt, an almond processor in Madera, California, made a bid for this business by forming IPS and installing equipment in his plant for roasting and dicing almonds to the specifications required for the product. Shade ultimately entered into an agreement with IPS for the supply of processed almonds during a three-year period beginning in October 1993. During the first months of the agreement, Shade ordered a relatively modest supply of almonds, but it began increasing its orders in 1994 and purchased its entire supply of almonds from IPS in March 1994.

In 1994, Shade was insured by a commercial [***4]  general liability policy issued by Royal with limits of $ 2 million per occurrence. IPS was insured by a package policy issued by Northbrook that provided general liability coverage with a $ 1 million limit per occurrence and property coverage for  [*862]  "stock" with a $ 3 million limit. The Northbrook liability insurance policy contained a vendor's endorsement that named Shade as an additional insured.

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78 Cal. App. 4th 847 *; 93 Cal. Rptr. 2d 364 **; 2000 Cal. App. LEXIS 138 ***; 2000 Cal. Daily Op. Service 1553; 2000 Daily Journal DAR 2141

SHADE FOODS, INC., Plaintiff and Appellant, v. INNOVATIVE PRODUCTS SALES & MARKETING, INC., Defendant, Cross-complainant and Appellant; ROYAL INSURANCE COMPANY OF AMERICA, Defendant and Appellant; NORTHBROOK NATIONAL INSURANCE COMPANY, Defendant, Cross-defendant and Appellant.

Subsequent History:  [***1]  As Modified on Denial of Rehearing of March 29, 2000, Reported at: 2000 Cal. App. LEXIS 230.

Prior History: Superior Court of the City and County of San Francisco. Super. Ct. No. 970035. Paul H. Alvarado, Judge.

Disposition: We reverse the portion of the judgment for punitive damages against Northbrook in the amounts of $ 2 million and $ 3 million and the judgment against Royal for punitive damages in the amount of $ 8 million. We also reverse the portion of the judgment against Northbrook jointly awarding IPS and Shade $ 1 million as compensatory damages for liability insurance coverage and the portion of the judgment against Royal awarding Shade $ 1,054,419.50 as compensatory damages for liability insurance coverage and remand the case to the trial court for modification of these portions of the judgment in compliance with this opinion. In all other respects the judgment is affirmed. Each side shall bear its own costs on appeal.

CORE TERMS

insured, coverage, almonds, settlement, damages, bad faith, first party, stock, trial court, contamination, punitive damages, property damage, rights, other-insurance, policy limit, fair dealing, vendor's, negotiations, insurance coverage, processed, endorsement, clusters, good faith, parties, nut, policies, jury's finding, breached, liability insurance coverage, insurance policy

Insurance Law, Business Insurance, Commercial General Liability Insurance, Property Claims, Real Property Law, Environmental Regulations, Indoor Air & Water Quality, Exclusions, Intentional Acts, Coverage, Products & Workmanship, Policy Interpretation, Reasonable Expectations, General Overview, Damages, Property Insurance, Claim, Contract & Practice Issues, Fortuity Doctrine, Business & Corporate Compliance, Contract Conditions & Provisions, Implied Warranties, Merchantability, Civil Procedure, Jury Trials, Jury Instructions, Contracts Law, Breach, Commercial Law (UCC), Contract Provisions, Warranties, Implied Warranty of Merchantability, Contracts Law, Breach of Warranty, Sales of Goods, Liability & Performance Standards, Disclosure Obligations by Insureds, Remedies, Ambiguous Terms, Coverage Favored, Exclusions, Defenses, Ambiguities & Mistakes, Company Representatives, Agents, Insurance Company Operations, Types of Insurance, Insurable Interests, Third Parties, Beneficiaries, Claims & Enforcement, Types of Contracts, Covenants, Good Faith & Fair Dealing, Industry Practices, Unfair Business Practices, Claims Investigations & Practices, Discovery & Disclosure, Discovery, Relevance of Discoverable Information, Bad Faith & Extracontractual Liability, Elements of Bad Faith, Duty to Defend, Refusals to Defend, Obligations of Parties, Settlements, Sales (Article 2), Form, Formation & Readjustment, Liability & Performance Standards, Contract Formation, Acceptance, Reservation of Rights, Standards of Review, Substantial Evidence, Sufficiency of Evidence, Torts, Business Torts, Damages, Punitive Damages, Types of Damages, Punitive Damages, Seller's Damages & Remedies, Limitation & Modification, Property Damages, Buyer's Damages & Remedies, Penalties, Triggers, Continuous Triggers, Excess Insurance, Apportionment of Liability, Allocation, Indemnification, Relationship Between Clauses, Consequential Damages, Pain & Suffering, Emotional Distress, Settlements, Excess Judgments, Policy Limits, Reasonable Basis, Good Faith & Fair Dealing, Payment Delays & Denials, Payments