Salmonella issues may have contributed to Lake Country Foods shutdown

Company suing insurer for denying product contamination claim

Last updated on July 3rd, 2019 at 07:22 pm

Oconomowoc-based Lake Country Foods Inc. had more than $1.2 million in losses from Salmonella contamination discovered just months before announcing it would cease operations, according to new court documents.

Lake Country Foods found salmonella in large quantities of powdered whey protein processed and packaged at its facility in late-September and early-October of last year. The company attributes the contamination to construction work done at its facility in the summer and fall of 2017.

In January, the company announced it would cease operations, eliminating 91 jobs after determining “there was no economical path forward.”

The nearly 100-year-old plant at 132 S. Concord Road in Oconomowoc was once home to Carnation Instant Products and was also owned by Nestle Beverage Co. Lake Country Foods, a contract manufacturer that provided blending, agglomeration and specialty packaging of powders for the food processing industry, decided the costs of upgrading the facility were too high.

In a lawsuit filed Friday in the U.S. District Court for Eastern Wisconsin, Lake Country Foods says the “accidental product contamination” prompted the company to stop selling the products and offer customers refunds.

The company made a claim for the product contamination on an insurance policy it had with Houston Casualty Co. According to the complaint, HCC initially accepted the claim and made a $1.2 million payment to Lake Country Foods in December, covering a portion of the company’s losses.

In April, however, the insurance company reversed course, declining to cover the full insured losses and requesting the return of the $1.2 million payment, according to the complaint.

Houston Casualty determined the plant previously tested positive for salmonella before the insurance policy started on March 10, 2017, excluding it from product contamination coverage.

Lake Country Foods contends the positive test results were in an isolated floor area and would not have impacted the enclosed system products traveled through. In its complaint, the company says it was processing product for a year without any issues.

The company alleges the insurance company has breached its contract, causing damages for Lake Country Foods, including the “impending closure of its operations.”

Lake Country Foods is seeking an order allowing it to keep the $1.2 million payment and require the payment of any additional money it is eligible for under the policy.

Attorneys for Lake Country Foods did not immediately respond to requests for comment, including on the role the Salmonella contamination played in the company’s decision to close or the potential for restarting operations with a favorable outcome in the case.

Houston Casualty did not respond to a request for comment either.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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