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COMPLAINT
P013.002/323649.3
Kirk A. Pasich (SBN 94242)
[email protected]
Pamela M. Woods (SBN 101520)
[email protected]
Kayla M. Robinson (SBN 322061)
[email protected]
PASICH LLP
10880 Wilshire Boulevard, Suite 2000
Los Angeles, California 90049
Telephone: (424) 313-7860
Facsimile: (424) 313-7890
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
GEDNEY FOODS COMPANY, a
Minnesota corporation,
Plaintiff,
vs.
AFFILIATED FM INSURANCE
COMPANY, a Rhode Island
corporation,
Defendant. Case No.
COMPLAINT FOR BREACH OF
CONTRACT AND TORTIOUS
BREACH OF THE IMPLIED
COVENANT OF GOOD FAITH
AND FAIR DEALING
DEMAND FOR JURY TRIAL
Plaintiff Gedney Foods Company (“Gedney”) complains of defendant
Affiliated FM Insurance Company (“AFM”) and alleges as follows:
NATURE OF THIS LAWSUIT
1. AFM sold Gedney broad “all risk” property insurance policies. Gedney
purchased these policies for the express purpose of protecting it against losses from
causes such as flood. AFM knew and agreed to this, and collected substantial
premiums from Gedney. Unfortunately for Gedney, wh en Gedney suffered an
insured loss, AFM’s promises of coverage turned out to be nothing more than empty
promises. Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 1 of 13 Page ID #:1
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COMPLAINT
P013.002/323649.3
2. Specifically, Gedney was forced to close and reloca te a manufacturing
operation as a result of flooding at one of its man ufacturing operations by the
Minnesota River, which runs next to this insured pr operty. When Gedney notified
AFM of its loss, AFM wrongfully denied coverage. B y this lawsuit, Gedney seeks
to recover the amount owed under the insurance poli cy, plus other damages for
AFM’s breach of contract and tortious bad faith.
JURISDICTION AND VENUE
3. This Court has jurisdiction over the subject matter of this Complaint
pursuant to 28 U.S.C. §§ 1332(a)(1) and 2201(a). G edney and AFM are of diverse
citizenship and the amount in controversy exceeds $ 75,000.
4. This Court has personal jurisdiction over AFM pursu ant to Federal
Rule of Civil Procedure 4(k)(1)(A). AFM has engage d in transactions or business
within this state from which this action arises.
5. Venue is proper in this Court pursuant to 28 U.S.C. A. § 1391(b).
THE PARTIES
6. Plaintiff Gedney is a Minnesota corporation with it s principal place of
business in Sun Valley, California. Founded in 188 1, Gedney is a leading regional
and national manufacturer and marketer of high qual ity branded and private label
pickle, relish, condiment and preserve products. G edney markets its products under
three highly recognized brands—Gedney in the Midwes t, Cains in New England,
and Del Monte on a national basis—as well as severa l trademarked sub-brands.
Gedney is a subsidiary of PMC Global, Inc.
7. Gedney is informed and believes, and on that basis alleges, that AFM is
a Rhode Island corporation with its principal place of business in Rhode Island.
Gedney is informed and believes, and on that basis alleges, that AFM is licensed to
transact business, and is transacting business, in the State of California and Los
Angeles County. Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 2 of 13 Page ID #:2
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COMPLAINT
P013.002/323649.3
8. Gedney is informed and believes, and on that basis alleges, that AFM is
a member of the FM Global group of insurance compan ies. Gedney is informed and
believes, and on that basis alleges, that AFM and t he other FM Global insurance
companies are extremely sophisticated and knowledge able in insuring against
property losses, and in investigating the risks the y are insuring.
9. Gedney is informed and believes, and on that basis alleges, that AFM
and the other FM Global companies participate in a wide range of first-party
property insurance programs and hold themselves out as being knowledgeable,
experienced, and reliable, and willing to insure, a nd capable of insuring, substantial
property damage and business interruption losses. Indeed, AFM publicly proclaims
that it “specializes in commercial property insuran ce for the middle market” and has
“depth and breadth” of expertise that is “second to none.” See
https://www.affiliatedfm.com/about/why-afm . AFM also claims that it does
“everything [it] can to help clients choose how to best manage, prioritize and reduce
future loss in a way that makes practical and affor dable sense,” adding that its
“holistic approach to property risk is backed by ov er 180 years of engineering
expertise and extensive research.” Id. AFM also represents that it “believe[s] in a
swift adherence to the real promise of insurance—ge tting businesses back to work
as quickly as possible,” adding that it is “recogni zed across the industry as second to
none in paying claims promptly, fairly and professi onally.” Id.
THE AFM POLICIES
10. AFM has provided broad, all-risk property insurance coverage to PMC
Global, Inc. for many years, including under AFM Po licy Nos. SS262 and SS711
(“the Policies”), which were in effect from June 1, 2018, to June 1, 2019, and June
1, 2019, to June 1, 2020, respectively. True and c orrect copies of at least the
relevant portions of the Policies are attached here to as Exhibits A and B,
respectively, and are incorporated by reference. Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 3 of 13 Page ID #:3
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P013.002/323649.3
11. The Named Insured under the Policies is “PMC Global , Inc., and its
wholly or majority owned subsidiaries and any inter est which may now exist or
hereinafter be created or acquired which are owned, controlled or operated by any
one or more of those named insureds.” Ex. A at 25, Ex. B. at 25. Gedney is
therefore an insured under the Policy.
12. Each Policy is an “all risk” property insurance pol icy—that is, a policy
that covers all risks of physical loss or damage ex cept those plainly, clearly,
conspicuously, and expressly excluded. Each Policy specifically covers “physical
loss or damage caused by or resulting from flood.” Ex. A at 60, Ex. B. at 60.
13. Each Policy insures, among other things, Gedney’s i nterests in the real
and personal property at 2100 Stoughton Avenue, Cha ska, Minnesota, 55318-2200
(“the Property”), the site of Gedney’s plant.
14. Each Policy has a limit of liability of $100,000,00 0 per occurrence
subject to certain sub-limits of liability, includi ng a $50,000,000 per occurrence
sublimit for all loss or damage resulting from floo d. There is a $100,000 per
occurrence deductible for loss or damage caused by flood.
15. Like most commercial property insurance policies, e ach Policy insures
not only against physical loss or damage of covered property, but also against the
economic losses that can result from such property loss or damage. This coverage is
typically referred to as “Business Interruption” co verage.
16. Each Policy insures Business Interruption loss incu rred
as a direct result of physical loss or damage of th e type
insured:
1. To property as described elsewhere in this Polic y
and not otherwise excluded by this Policy;
2. Used by the Insured;
3. While at a location or while in transit as provi ded by
this Policy; and Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 4 of 13 Page ID #:4
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P013.002/323649.3
4. During the Period of Liability as described
elsewhere in this policy.
Ex. A at 68; Ex. B. at 68.
17. Each Policy also insures coverage for Extra Expense : These are
defined as
The recoverable Extra Expense loss is the reasonabl e and
necessary extra expense incurred by the Insured of the
following during the Period of Liability to:
(a) Temporarily continue as close to normal the co nduct
of the Insured’s business; and
(b) Temporarily use the property or facilities of the
Insured or others:
All less any value remaining at the end of the Peri od of
Liability for property obtained in connection with the
above.
Ex. A at 71; Ex. B. at 71.
18. Each Policy also provides Ingress/Egress coverage. This covers:
the Business Interruption Coverage loss incurred by the
Insured due to the necessary interruption of the In sured’s
business when ingress or egress from a described
location(s) is physical prevented, either partially or totally,
as a direct result of physical loss or damage of th e type
insured to property of the type insured whether or not at a
described location.
Ex. A at 76; Ex. B. at 76.
19. Each Policy also provides Leasehold Interest covera ge. This covers:
the loss incurred by the Insured of Leasehold Inter est as
follows: Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 5 of 13 Page ID #:5
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COMPLAINT
P013.002/323649.3
If the lease agreement requires continuation of ren t; and if
the property is wholly untenantable or unusuable, t he
actual rent payable for the unexpired term of the l ease; or
if the property is partially untentable or unusuabl e, the
proportion of the rent payable for the unexpired te rm of
the lease.
Ex. A at 76; Ex. B. at 76.
THE FLOODING AND THE PROPERTY LOSS AND DAMAGE
20. During the policy period, Gedney leased the Propert y to use as a
facility for manufacturing and packaging its produc ts. The Property is located near
the Minnesota River.
21. As part of Gedney’s manufacturing and packaging pro cess, wastewater
is created, treated and discharged. Therefore, the Property by necessity depends
upon its wastewater treatment facility. In general , this facility consists of a system
of wastewater treatment ponds, A, B, and C, each wi th electric powered aeration,
earthen walls and dikes, and clay linings. Wastewa ter enters into a collection basin
at the plant, and then flows via gravity feed throu gh dedicated piping into Pond A,
overflows through piping into Pond B, and during pe ak periods through piping into
Pond C. The waste water is processed using 8 to 12 electric aerators, depending
upon demand, that receive power from an onsite elec tric distribution hub, which is a
small wooden structure containing motor controls an d electric meters, feeding pond-
side power-boxes and cables connecting to the float ing electric aerators. The
wastewater quality is tested before being discharge d into the Minnesota River, using
an electric pump to prime the syphon pipe feeding t he v-notch weir gate and
discharge piping. This wastewater treatment facili ty has been permitted and
regulated by the Minnesota Pollution Control Agency (“MPCA”) for more than 40
years. Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 6 of 13 Page ID #:6
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P013.002/323649.3
22. From April 19, 2018, to May 1, 2019, as a result of heavy rains, the
Minnesota River periodically breached its normal ba nks and flooded nearby
property. Floodwaters came onto and inundated the Property, specifically the
wastewater treatment facility ponds on the Property and adjacent access roads.
23. As a result of the floodwaters on the Property, the wastewater treatment
facility was at times inaccessible to Gedney staff. The manufacturing and
packaging process at the Property, however, was abl e to continue for the short term.
24. Following the flooding, on May 23, 2019, and June 6 , 2019, Gedney
representatives met with representatives from the M PCA. In these meetings, the
MPCA advised Gedney that as a result of the floodin g from the Minnesota River,
the MPCA no longer wanted any wastewater ponds on f lood plains of the Minnesota
River. The MPCA further advised Gedney that it wou ld not allow Gedney to use its
wastewater treatment facilities at the Property unl ess and until Gedney submitted
both short- and long-term plans for replacing the w astewater ponds.
25. On July 16, 2019, the MPCA confirmed its position t hat it would not
authorize any further use of the wastewater treatme nt facility without an approved
plan in place to decommission and replace the curre nt facility with a new one. In
sum, the MPCA required that the wastewater treatmen t facility be replaced.
26. As a result of the MPCA’s statements and directives , Gedney was no
longer able to use the Property for its intended pu rposes. Gedney could no longer
continue to manufacture and package its products wi thout a fully functional
wastewater treatment facility. Therefore, Gedney s topped procuring new raw
materials for the Property and continued to process only existing inventory on hand
and green stock commitments. Gedney significantly decreased its production at the
Property beginning in June 2019.
27. After investigation, Gedney determined that the cos t of either (i)
replacing the wastewater ponds at the Property and otherwise modifying the water
treatment facilities to accommodate the new ponds, or (ii) building a new water Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 7 of 13 Page ID #:7
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P013.002/323649.3
treatment facility at a suitable location near the Property, would be in excess of
$2,000,000.
28. Because Gedney could neither continue its operation s at the property
with the existing wastewater treatment ponds nor re asonably replace those ponds,
Gedney determined that its only course of action wa s to wind down its production at
the Property and move its manufacturing and packing operations to a new facility.
Gedney continued operations at the Property (with d ecreased capacity) through
August 30, 2019, and vacated the Property by Septem ber 30, 2019.
29. As a result of the floods and the MPCA’s actions, G edney was required
to relocate its operations to a new facility in L éon, Mexico. The current and
projected cost of dismantling, moving, reassembling , and resuming its operations is
in excess of $5,000,000.
30. In addition to the cost of moving its operations, G edney has suffered
business interruption losses as a result of the shu tdown and relocation. Although
Gedney began initial test production at its new fac ility on September 4, 2019, it has
only recently reached the production output of the equipment prior to the move from
the Property to Leon. In addition, Gedney was requ ired to eliminate some of its
product lines as a result of the move, resulting in a substantial loss of sales.
31. On September 30, 2019, Gedney gave its landlord not ice that, because
of the floods and the MPCA’s resulting directives, it would no longer continue
operations at the Property. However, the landlord demanded that Gedney continue
to make payments under the lease. Therefore, Gedne y remains liable for both the
lease payments for the Property as well as for the new location of its operations.
AFM’S BREACH OF CONTRACT
32. On July 20, 2020, Gedney notified AFM of the loss.
33. In response to requests by AFM, Gedney provided AFM with
substantial information relating to the flooding at the property, Gedney’s
communications with the MPCA, and Gedney’s losses. Specifically, on October 16, Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 8 of 13 Page ID #:8
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2020, Gedney provided AFM with responses to 23 ques tions posed by AFM and
several hundreds of pages of documents, e-mails, an d photographs of the property.
Gedney provided additional requested information to AFM on January 28, 2021,
and also assisted with AFM’s efforts to obtain rele vant information from the MPCA.
34. On March 25, 2021, AFM sent a letter to Gedney deny ing coverage for
Gedney’s losses. Despite being advised by Gedney t hat there was flooding on the
Property from April 19, 2019, through May 1, 2019, and that Gedney’s meetings
with MPCA took place after this flooding, AFM state d that no claim for loss was
made for the 2019 flooding. AFM also asserted that Gedney was late in notifying it
of its loss and further asserted that Gedney’s “lat e notice” of the claim “prejudiced
[its] ability to investigate the loss and confirm a ny actual physical damage to the
insured property.” However, AFM offered no evidenc e to establish that it was, in
fact, prejudiced, let along that it was, as the law requires, actually and substantially
prejudiced by an alleged “lateness” in notice. Fin ally, AFM incorrectly asserted that
Gedney’s decision to relocate its operations was a business decision and “not a
direct result of any physical loss or damage of the type insured,” ignoring the fact
that without the physical loss and damage and the M PCA’s orders, Gedney would
not have had to relocate its operations.
FIRST CAUSE OF ACTION
(Breach of Contract against AFM)
35. Gedney realleges and incorporates by reference para graphs 1 through
34 above.
36. AFM had a duty under the Policies, the law, and ins urance industry
custom, practices and standards, to pay Gedney for the loss it incurred, in excess of
the Policies’ deductible and within the Policies’ l imits, as a result of the floods.
37. Except as otherwise excused, Gedney has satisfied a ll conditions and
all duties it may have owed under the Policies. Th erefore, Gedney is entitled to all
benefits and insurance provided by the Policies. A FM breached its duties under the Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 9 of 13 Page ID #:9
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Policies by, among other things, denying coverage f or Gedney’s claim and refusing
to pay for any part of the loss suffered by Gedney as a result of the floods.
38. As a direct and proximate result of AFM’s breach of its duties under
the Policies, Gedney has been damaged in the amount in excess of $ 5,900,000, plus
interest thereon.
SECOND CAUSE OF ACTION
(Tortious Breach of the Implied Covenant of
Good Faith and Fair Dealing Against AFM)
39. Gedney realleges and incorporates by reference para graphs 1 through
34 and 36 through 38 above.
40. Implied in the Policies is a covenant that AFM woul d act in good faith
and deal fairly with Gedney, that AFM would do noth ing to interfere with Gedney’s
right to receive the benefits of the Policies, and that AFM would give at least the
same level of consideration to Gedney’s interest as it gives its own interest.
41. AFM also had a duty under the Policies, the law, an d insurance
industry custom, practice, and standards, to conduc t a prompt and thorough
investigation, including an investigation of all ba ses that might support Gedney’s
claim for coverage, before asserting coverage defen ses or denying coverage.
42. Instead of complying with these duties, AFM breache d its implied
covenant of good faith and fair dealing by, among o ther things:
(a) Artificially and narrowly interpreting the Policies ’ provisions;
(b) Asserting grounds for denial of coverage that it kn ows are not
supported by, and in fact are contrary to, the term s of the Policies, the
law, insurance industry custom, practice, standards , and the facts;
(c) Failing to fully inquire into possible bases that m ight support
coverage for Gedney’s claim and negate AFM’s attemp t to avoid its
duty to pay Gedney for its covered loss;
(d) Ignoring California law and insurance industry stan dards; Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 10 of 13 Page ID #:10
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(e) Giving greater consideration to its own interests t han it gave to
the interests of Gedney; and
(f) Otherwise acting as alleged above.
43. In breach of the implied covenant of good faith and fair dealing, AFM
did the things and committed the acts alleged above for the purpose of consciously
withholding from Gedney the rights and benefits to which it was entitled under the
Policies, and without considering Gedney’s interest s at least to the same extent as it
did its own interests.
44. AFM acts are inconsistent with Gedney’s reasonable expectations, are
contrary to established insurance industry custom, practice, and standards, are
contrary to legal requirements, are contrary to the express terms of the Policies, and
constitute bad faith.
45. Pursuant to the holding in Brandt v. Superior Court , 37 Cal. 3d 813
(1985), Gedney is entitled to recover all attorneys ’ fees and costs that it reasonably
has incurred, and incurs, in its efforts to obtain the benefits of insurance that have
been, and continue to be, wrongfully and in bad fai th withheld by AFM.
46. AFM conduct is despicable and has been done with a conscious
disregard of Gedney’s rights, constituting oppressi on, fraud, and/or malice, in that
AFM engaged in a series of acts designed to deny th e benefits due under its
insurance policy and to conceal and/or misrepresent material facts.
47. The Insureds are informed and believe, and on that basis allege, that
AFM—acting through one or more of its officers, dir ectors, or other corporate
employees with substantial independent and discreti onary authority over significant
aspects of AFM’s business—performed, authorized, an d/or ratified the bad faith
conduct alleged above.
48. As a direct and proximate result of AFM’s acts, Ged ney has been
damaged in an amount in excess of $ 5,900,000, plus the attorneys’ fees that it has Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 11 of 13 Page ID #:11
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incurred, and is incurring, in its effort to obtain the benefits that AFM owes to it
under the Policies, plus interest on these amounts.
49. In light of information, facts, and relevant law th at it knew or should
have known, AFM, by acting as alleged above, consci ously disregarded Gedney’s
rights and forced Gedney to incur substantial finan cial loss, without any assistance
from it, thereby inflicting substantial financial d amage on Gedney. AFM
consciously ignored Gedney’s interests and concerns , with the requisite intent to
injure within the meaning of California Civil Code section 3294. Therefore, Gedney
is entitled to recover punitive damages from AFM in an amount sufficient to punish
and make an example of it and in order to deter sim ilar conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Gedney prays for relief as follows:
ON THE FIRST CAUSE OF ACTION
1. For damages according to proof at the time of trial , plus interest;
ON THE SECOND CAUSE OF ACTION
2. For damages according to proof at the time of trial , including the
reasonable attorneys’ fees and costs incurred in ob taining the benefits due under the
Policy, plus interest;
3. For punitive damages in an amount to be determined at trial;
ON BOTH CAUSES OF ACTION
4. For costs of suit herein; and
5. For such other, further, and/or different relief as may be deemed just
and proper.
DATED: April 30, 2021
By: PASICH LLP
/s/ Pamela Woods
Pamela Woods
Attorneys for Plaintiff
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DEMAND FOR JURY TRIAL
Gedney hereby demands a trial by jury in this actio n.
DATED: April 30, 2021
By: PASICH LLP
/s/ Pam ela Woods
Pamela Woods
Attorneys for Plaintiff
Case 2:21-cv-03714-MRW Document 1 Filed 04/30/21 Page 13 of 13 Page ID #:13