50% reduction in defence costs for an engineering company in contaminated product claim settlement

The Insured, an engineering company headquartered in Australia, was contracted to repair equipment used to produce dehydrated milk powder in an overseas operating location. Scaffolding was installed to facilitate the inspection of the completed works by the milk product manufacturer.

Once the Insured had completed the works, they handed over confined space permits to the manufacturer. It was unclear if the inspection had been carried out by the milk product manufacturer, but the scaffolding was not removed before the manufacturer resumed production. 

The manufacturer, unaware of the presence of the scaffolding, restarted their operation. As contamination takes time to set in, after approximately 14 days of production, the milk contamination issue surfaced when the plastic components of the scaffolding had melted into the dehydrated milk power. As a result, a 100-tonne volume of dehydrated milk powder was contaminated, determined during routine quality assurance. Subsequent contamination testing was required to detect if the product was safe for sales with approval from the regulator. It was determined that while the contaminated milk powder could still be deemed safe for animal consumption, it was no longer approved for human consumption, leading to a significant decrease in its value.

The milk product manufacturer sought damages from the Insured alleging that the failure to remove the scaffolding constituted a breach of contract, negligence, and breached consumer guarantee/warranty legislation. Swiss Re Corporate Solutions was the primary lead (single carrier) insurer.

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