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Shade Foods2/28/2000
As amended March 29, 2000; no change in the judgment; all petitions for rehearing are denied.
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
(San Francisco County Super. Ct. No. 970035)
For Plaintiff and Joseph A. Hearst, Esq. Appellant Shade Foods, Inc. Pillsbury, Madison & Sutro Llp Reginald D. Steer, Esq. For Defendant, Emerich, Pedreira & Fike Cross-complainant David A. Fike, Esq. and Appellant Innovative Products Sales & Marketing, Inc. For Defendant and Musick, Peeler & Garrett Llp Appellant Cheryl A. Orr, Esq. Royal Insurance Company of America Lynch, Gilardi & Grummer Richard S. Gilardi, Esq. Ginsburg, Stephan, Oringher & Richman, P.C. Harry W.R. Chamberlain II, Esq. For Defendant, Ropers, Majeski, Kohn & Bentley Cross-defendant Susan H. Handelman, Esq. and Appellant Northbrook National Insurance Company
CERTIFIED FOR PUBLICATION
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 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 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 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 "stock" with a $3 million limit. The Northbrook liability insurance policy contained a vendor's endorsement that named Shade as an additional insured.
On April 5, 1994, General Mills notified Shade that wood had been found in the nut clusters used in its boxed cereals. Sha
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