Insurer Entitled to Step in Shoes of Insured and Recover More than Three Million Dollars in Fees Paid to Defend Insured

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In Sentinel Insurance Company, Ltd. v. VLM Foods, Inc., et al., No. 1:19-cv-1395(LMB/TCB), United States District Court, E.D. Virginia, Alexandria Division (October 1, 2021 Sentinel Insurance Company, Ltd. (“plaintiff or “Sentinel”) defended its insured TSC in more than 25 lawsuits arising out of the hepatitis A virus (HAV) outbreak and in paying some settlements. Sentinel seeks express indemnification for those fees, costs, and payments from defendants VLM Foods, Inc. (“defendant” or “VLM”), a Canadian entity, and Patagonia Foods, LLC (“defendant” or “Patagonia”), a Californian entity. Both entities were upstream links in a frozen strawberry distribution chain that carried HAV.\

DISCUSSION

The voluntary payment doctrine, as established under Virginia common law, provides that where a party pays an illegal demand with full knowledge of all the facts which render such demand illegal such payment must be deemed voluntary, and cannot be recovered back. However, since Sentinel was obligated under the insurance policy to defend TSC against the HAV claims, the voluntary payment doctrine did not bar Sentinel’s recovery in this litigation.

Liability Between Patagonia and VLM

The court concluded that Patagonia and VLM are jointly and severally liable to Sentinel, standing in place of TSC.

Sentinel’s summary judgment motion against Patagonia and VLM was granted, and Patagonia’s and VLM’s cross-motions for summary judgment against Sentinel were denied. As a result, VLM and Patagonia are jointly and severally liable to Sentinel in the amount of $3,548,292.90, plus pre-judgment interest.

Patagonia’s summary judgment motion against VLM was granted, and VLM’s cross-motion for summary judgment on Patagonia’s crossclaim was denied. As a result, VLM must indemnify Patagonia for Patagonia’s liability to Sentinel, and if Patagonia seeks reimbursement for its attorney’s fees and costs incurred in this litigation, VLM will be liable for those fees and costs to the extent they are found to be reasonable.

ZALMA OPINION

This case teaches the importance of hold harmless and indemnity agreement in commercial transactions. The insurer, Sentinel, was required to defend its insured and then, properly sought reimbursement of the attorney fees it paid to defend its insured from the suppliers who agreed to hold harmless and indemnify its insured. Every liability claim investigation requires a determination of the existence of such contract and, if they are there, the insurer should obtain the indemnity that its insured would have obtained if it had no insurance.