A New York court has ruled that a demand letter threatening a lawsuit does not require an insurance company to provide a defense, even when the amount at stake exceeds $1 million.
The dispute began in October 2020 when High Quality Organics found salmonella contamination in its dried parsley. The company alerted its customers, including Red Monkey Foods, which uses the herb in several spice blends and powder products. Red Monkey responded by voluntarily recalling affected items.
Nearly four years later, in February 2024, Red Monkey sent High Quality Organics a demand letter seeking over $1 million. The letter asked for payment to cover various costs, such as customer chargebacks, air freight for onion granules, disposal fees, lab testing, audits, and spoiled inventory. The letter gave High Quality Organics 14 days to respond and warned that legal action could follow. However, Red Monkey never filed a lawsuit.
High Quality Organics then turned to its insurers, Berkley Assurance Company and AXIS Insurance Company. AXIS refused coverage, saying they were not obligated to defend or pay because no actual lawsuit had been filed. They also noted the damages claimed were not covered under the policy.
This led to a legal battle in the U.S. District Court for the Southern District of New York. The main question was whether a demand letter alone counts as a "suit" under the insurance policy. The AXIS policy promised to defend and pay damages if the insured became legally required to do so, but specifically defined a “suit” as a civil proceeding, arbitration, or alternative dispute resolution process.
Judge Gregory H. Woods sided with AXIS. He said the policy’s language clearly distinguishes between a “claim” and a “suit.” Without an actual lawsuit or formal proceeding, there is no suit to defend. The threat in the letter, no matter how serious, was not enough.
The judge also dismissed High Quality Organics’ request for AXIS to pay damages, calling it premature. He pointed out that many facts were still in question: whether the contaminated parsley was incorporated into Red Monkey products, whether it could have been removed, and what the real costs were. Without a lawsuit, those issues couldn’t be fully examined.
The court recognized that Red Monkey might sue in the future and possibly claim more damages, but for now, AXIS does not owe anything. This case highlights how specific policy terms can shape insurance coverage and how important timing is for triggering an insurer’s responsibilities.
For now, AXIS has won the key battle over the duty to defend, leaving High Quality Organics without insurer support as the dispute remains unresolved.