Spate of Supply Chain Liability Suits

An alert from McCarter & English looks at the question of insurance coverage for companies that are targeted by a kind of supply chain class action lawsuit that has started to show up in California. These lawsuits typically allege that child or slave labor was used at some step in the acquisition and production process. Among companies that have been targeted are Costco Wholesale Corp., whose supply chain for farmed prawns was alleged to include “pirate boats manned with slaves,” Nestlé USA, Inc.,  Nestlé Mexico, S.A. and the pet food company Iams. The plaintiffs look mainly to California consumer protection law, alleging that by failing to disclose the illicit labor source, the defendant company is deceiving consumers into buying a product they otherwise would shun. These lawsuits are likely covered by D&O policies, the authors write, but companies are advised to review the terms of their policy, noting for example what it says about the kind of notice the policy requires.