PepsiCo prevails in precedential insurance coverage dispute over unusable goods

Client(s) PepsiCo, Inc.

Jones Day represented PepsiCo, Inc., in an insurance coverage action involving claims under PepsiCo's property insurance program (and also asserting a claim against Willis for professional negligence for failing to ensure that an exclusion PepsiCo had rejected was not in the policy). PepsiCo suffered a loss in excess of $30 million when Mountain Dew concentrate and finished goods were made unusable by bad raw ingredients purchased from third parties. The case settled shortly before trial for approximately the full amount of provable damages sustained by PepsiCo. The defendants filed summary judgment motions and pursued appeals on more than 10 issues and lost each issue on appeal.

The case involved several significant (and precedential) rulings that shaped New York Insurance law. On appeal from various summary judgment rulings, the New York Appellate Division held, inter alia, that: (1) the contamination exclusion in the policy did not apply to the loss because such exclusions apply only to "environmental" contamination (i.e., pollution); (2) an insured can prove property damage when the commercial value of its product is impaired; and (3) PepsiCo's loss must be valued at selling price (the measure of damages for finished goods) even though damage arguably occurred before the goods were fully ready for sale (this issue represented an order-of-magnitude damages swing in the case).

PepsiCo v. Winterthur International America Ins. Co. (Supreme Court of New York, Westchester Cty.)