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Olympic Steamship Co. v. Centennial Insurance Co.5/23/1991
Olympic Steamship Company appeals a Court of Appeals decision that the "sistership clause" in its insurance policy excluded coverage of the cost Olympic incurred when it paid its customers for the expense they suffered recalling their product from the market.
We hold that the sistership exclusion does not apply when a third party withdraws the insured's product from the market and that Olympic's defective packaging did not make the packers' canned salmon Olympic's product, for purposes of insurance coverage.
We affirm the trial court.
Facts
Olympic Steamship Company operated Salmon Terminals, a warehouse for salmon packers. Olympic received unlabeled cans of salmon from the packers during the fishing season and stored the canned salmon until the end of the season, when the salmon packers executed purchase contracts with their customers. Once the packers executed contracts, they instructed Olympic to label, case, and ship the salmon. The packers provided the can labels and the shipping cartons. Olympic affixed the packers' labels onto the cans and boxed the cans using its own casing equipment.
On May 6, 1985, Olympic discovered that its casing equipment was defective and was crimping .015 percent of the packers' cans of salmon, breaking the seams on the cans. Olympic believed that all of the one-half pound cans of salmon that passed through the caser from the date of its installation, December 6, 1984, through the date Olympic discovered the crimped cans, May 6, 1985, were tainted because of the threat of botulism that the defective cans of salmon presented.
Olympic notified the salmon packers and the National Food Processors Association, which oversees the interests of the salmon industry, of the casing defect. The Association
contacted the Food and Drug Administration (FDA) and summarized the results of Olympic's investigation. The FDA collected samples of the canned salmon. The Association and the FDA tested the sample cans at their laboratories and, based on test results, the FDA ordered a product recall. The FDA required that the packers either destroy tainted cans of salmon or, if the packers had already shipped the salmon to their customers, that they recall the tainted product, unpack and inspect the cans, and then repack and reship undamaged cans.
Some of the packers and their customers threatened to send their canned salmon back to Olympic. Ultimately, the parties agreed that it would be less expensive if the inspection were conducted in the field. The Association and the packers, jointly, conducted a physical inspection of the canned salmon. Olympic did not participate in the field examination of the packers' salmon because " t's not our business." Clerk's Papers, at 118.
After the packers inspected the canned salmon, they demanded that Olympic pay the expenses that they incurred in the recall process. Olympic notified its insurers, including Centennial, of the recall and of the packers' claims, believing that the costs incurred fell within the "completed operations" provision of the comprehensive general liability insurance policy it purchased from Centennial. The insurers, including Centennial, denied coverage of the claims. Olympic paid the packers for the costs they incurred conducting the recall in December 1985.
Olympic filed suit against its insurers, including Centennial, on September 16, 1987. Brief of Appellant app. A. It sought damages representing the cost that salmon packers incurred "uncasing, inspecting, and recasing" the cans of salmon that Olympic labeled between December 6, 1984,
and May 3, 1985, and because the packers lost the
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