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GRAIN DEALERS MUT. INS. CO. v. PORTIA GRAIN CO.

November 21, 1988

GRAIN DEALERS MUTUAL INSURANCE COMPANY, PLAINTIFF
v.
PORTIA GRAIN COMPANY, A Division of Agri-Marketing, Inc., DEFENDANT



The opinion of the court was delivered by: ROY

 ELSIJANE T. ROY, UNITED STATES DISTRICT JUDGE

 This is a declaratory judgment action wherein the plaintiff asks the Court to declare that there is no coverage under the insurance policy in issue for the acts involved. The parties have entered into an agreed stipulation of facts, which are set out as follows:

 1. Grain Dealers Mutual Insurance Company, (hereinafter "Grain Dealers"), is an insurance company incorporated under the laws of Indiana and doing business in Arkansas.

 2. Portia Grain Company, a division of Agri-Marketing, Inc., (hereinafter "Portia Grain"), is a Texas corporation licensed to do and doing business in the State of Arkansas.

 3. Grain Dealers insures Portia Grain pursuant to a general liability insurance policy, number GL18719, which policy was in effect from July 31, 1984, to July 31, 1987, with property damage insurance limits of $100,000. The Completed Operations Hazard and Products Hazard Exclusion Endorsement L9141, is a part of the policy. Also as a part of the policy under the term "exclusion" is the following language:

 "This insurance does not apply:

 
(a) to liability assumed by the insured under any contract or agreement except an incidental contract; but this exclusion does not apply to a warranty of fitness or quality of the named insureds products or a warranty that work performed by or on behalf of the named insured will be done in a workmanlike manner;"

 4. In August 1986, Portia Grain purchased from Jerry Flippo of Portia, Lawrence County, Arkansas, wheat which was stored in grain bins on a farm owned by Jerry Flippo.

 5. Portia Grain sold the wheat to Banquet Foods, a Division of Con-Agri Frozen Foods, (hereinafter "Banquet Foods"), in August of 1986, pursuant to an ongoing contract with Banquet Foods to provide grain to be used for chicken feed and the grain herein involved was shipped pursuant to that contract.

 6. This wheat was shipped directly from Jerry Flippo's farm in Portia, Lawrence County, Arkansas, to Banquet Foods at Batesville, Arkansas, and never came into the actual physical custody of Portia Grain. The grain involved was never in the grain bins owned by Portia Grain.

 7. It is alleged that this wheat was contaminated with a chemical, Chlordane, a pesticide. This wheat was fed to chickens under contract with Banquet Foods. As a result of the alleged contamination of the wheat, numerous flocks of chickens had to be destroyed. It is alleged that the damage to the chickens and wheat is approximately $500,000.

 8. Banquet Foods has written a letter putting Portia Grain on notice that it intends to pursue a claim against them for these damages. Banquet Foods claims that the presence of the Chlordane in the wheat violates the express requirements of the purchase contract, express warranties, and implied warranties of merchantability and fitness for a particular purpose and also claims that Portia Grain was negligent in the purchase, handling, sale and delivery of the wheat to Banquet. This claim made by Banquet Foods does apply to a warranty for fitness of quality of the named insured's products.

 9. Portia Grain has placed Grain Dealers on notice that it contends there is coverage for these events ...


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