Batch Contamination Under an Occurrence-Based CGL Policy
Sunrise AgroChem Ltd manufactures a foliar micronutrient sold across Maharashtra. It has held an occurrence-based commercial general liability policy with the same insurer since 2019, renewed annually. Each policy has a Rs. 10 crore limit, a Rs. 25 lakh self-insured retention per occurrence and a Rs. 20 crore aggregate. The policy contains a batch clause: all bodily injury arising from one batch is treated as one occurrence. In June 2024, 340 farmers filed claims alleging that batches manufactured in November 2019 and March 2021 caused crop burn. Symptoms first appeared in December 2019 and April 2021 respectively, but no claim or circumstance was notified until 2024. The company also spent Rs. 80 lakh recalling unsold stock. A vendor's endorsement extends insured status to distributors. The insurer has reserved rights and asks for a coverage position before the first hearing.
1. Which policy year or years respond to the farmers' claims, and how should the limits and self-insured retention be applied?
Read the worked answer
The policy is occurrence-based, so the trigger is the bodily injury, not the date of claim. The 2019-20 policy responds to injury from the November 2019 batch, and the 2021-22 policy responds to injury from the March 2021 batch; the 2024-25 policy is not triggered merely because the claims were filed in 2024. The batch clause makes each batch one occurrence. Therefore the Rs. 25 lakh self-insured retention applies once to the 2019 batch and once to the 2021 batch, not once per farmer; the total retention is Rs. 50 lakh. Each policy year has its own Rs. 10 crore limit and Rs. 20 crore aggregate, so the 2019 claims erode the 2019-20 aggregate and the 2021 claims erode the 2021-22 aggregate. If a claimant was exposed to both batches and cannot apportion injury, the insurers should allocate by agreement or, failing that, on a fair basis; the batch clause does not merge two batches into one occurrence. The insurer should not apply a single 2024 limit or a single retention to all 340 claims.
2. Is the Rs. 80 lakh recall cost covered, and does the vendor's endorsement create a separate occurrence or limit?
Read the worked answer
The recall cost is not covered. Standard CGL wordings exclude recall, withdrawal, inspection, repair, replacement or loss of use of the insured's product, and the 'impaired property' exclusion bars costs to restore property that cannot be used because of a known defect. The Rs. 80 lakh is a first-party mitigation cost, not damages for bodily injury or property damage, and no product recall endorsement was purchased. The vendor's endorsement makes distributors additional insureds for their liability arising out of the named insured's product, but it does not increase the limit, create a separate occurrence, or give the vendor cover for its own independent acts. The batch clause applies to all insureds, so a claim against a distributor for the same batch remains one occurrence. If a distributor altered or repackaged the product, the vendor's endorsement would typically exclude that part of the claim. The insurer should pay defence costs for the vendor within the same limit, subject to the retention and allocation.
3. What difference would it make if the policy were claims-made with a retroactive date of 1 April 2019?
Read the worked answer
A claims-made policy would respond to claims first made during the policy period, not to the date of injury. On these facts the claims were first made in June 2024, so the 2024-25 policy would be the responding policy, provided the product sales occurred after the retroactive date. A retroactive date of 1 April 2019 would cover the November 2019 and March 2021 batches, so the 2024-25 policy would respond, but only up to that policy's limit and aggregate. The 2019-20 and 2021-22 policies would not respond because no claim was made during their periods. The batch clause would still treat each batch as one occurrence for the retention. The practical difference is that the insured loses the benefit of the older, separate limits and may face a gap if the 2024-25 limit is insufficient. A claims-made policy also makes the notification of circumstances critical: a 2024 claim cannot be shifted back to an earlier year unless the earlier policy had a circumstance-notification extension.