Originally published on Medium.
A $13 million judgment, a $6 million claim, and an Illinois court holding in 2023 that none of it was an accident.
On June 29, 2017, the FDA told ChemRite CoPac that it had been making oral rinse for hospital patients on the same equipment it used to make toxic car wash. Sage Products recalled the kits and lost tens of millions. It thenspent six years finding out who pays for that, and guess what…the answer was nobody.
The product and the warning letter
Sage Products makes oral hygiene kits for hospital patients, sold as the Q-Care Oral Cleansing and Suctioning Systems. Each sleeve holds a toothbrush, a swab and one of several oral rinse solutions. Sage supplies most of the components itself and contracted ChemRite CoPac to manufacture and supply the rinse.
In the court’s recitation of the undisputed facts, the FDA’s warning letter of June 29, 2017 found that ChemRite’s manufacturing process “did not conform to relevant standards, including because ChemRite manufactured the solutions using the same equipment it used to make toxic car wash.” ChemRite told Sage the next day. On July 17, 2017, the FDA sent a warning letter to Sage.
Sage recalled and stopped distribution of everything containing ChemRite’s rinse. Federal guidelines required the rinse to be removed before disposal, which meant, in the opinion’s words, tearing open “each sleeve of each Q-Care Kit.”
The court records one figure and it is the only one it needed: “it is undisputed that Sage lost tens of millions of dollars in profits from the recall of its Q-Care Kits.”
How Sage ended up suing an insurance company
Sage sued ChemRite for breach of contract in August 2019. ChemRite asked its insurer, Federal Insurance Company, to defend it; Federal did not defend but paid for the defence. The parties mediated in late 2021, and Federal intervened in the case.
Then came the settlement that matters, and anybody who has watched a supplier dispute end will recognise its shape. Per the opinion, it “provided for a consent judgment of $13 million against ChemRite. ChemRite would pay $4 million, plus a contingent payment of $500,000 depending on Sage’s recovery from Federal, and ChemRite would assign its rights to insurance payments from Federal to Sage.”
So Sage, as the opinion puts it, “stepped into ChemRite’s shoes and sued Federal for $6 million, the maximum under ChemRite’s policy.”
A $13 million judgment on paper. $4 million actually paid. And the rest riding on one question about one word in a commercial general liability policy.
The word was “occurrence”
Federal’s policy obliged it to pay damages ChemRite became legally obligated to pay “by reason of liability” for “property damage caused by an occurrence to which this coverage applies.” The policy defines an occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
And then the gap that decides the case: as Judge Lindsay C. Jenkins noted in the Northern District of Illinois on October 25, 2023, applying Wisconsin law, “‘Accident’ is not defined in the policy.”
Wisconsin fills it from the case law. The means or cause must be accidental. The event must occur by chance, and be unforeseen and unintended. Faulty workmanship is not itself an occurrence, although faulty workmanship may cause one, a distinction the Wisconsin Supreme Court set out in Walworth, LLC v. Engerman Contracting, Inc. in 2023.
The court then asked the only two questions that could have produced coverage. Was putting the rinse into the kits an accident? Was taking it out one?
Neither putting it in nor taking it out
On incorporation, the opinion is blunt. Sage and ChemRite intended the rinse packets to go into the kits and be sealed, because “that was the purpose of their contract.” The court continues: “No one could say that the incorporation of the rinse solutions ‘occurr[ed] by chance’ or was ‘unforeseen and unintended’.”
On the recall, the same. It is undisputed, the court writes, that Sage recalled the kits, opened them and disposed of the rinse because government guidelines required it. “These were intentional and volitional acts, not accidents.”
The opinion then anticipates the obvious objection, that nobody chose any of this, that a federal agency forced the whole sequence. “The only difference with the situation here is that an outside party, the FDA, required the recall, but because those actions were intentional, not accidental, they do not amount to an occurrence.”
And it adds the sentence that should be printed and pinned above every supplier qualification file in the country:
“Nor can the fact that no one anticipated that ChemRite would provide a tainted product save Sage.”
Read that slowly, because it inverts what most people assume insurance is for. Your surprise is not the test. The question is not whether you knew the component was bad. It is whether what you did with it, putting it in and later pulling it out, was something you did on purpose. It was. Judgment for the insurer, case terminated.
The court never reached the exclusions. It did not need to. There was no grant of coverage to exclude.
A second legal system reaches the same place
Nine years on and eleven thousand kilometres away, the same reasoning turns up in a Chinese courtroom, and we flag immediately that our account of it is weaker than our account of Sage.
On July 9, 2026, lawyers at AnJie Broad published a note on what they describe as the first substantive Chinese ruling on the scope of coverage under a CGL policy. A manufacturer produced motor-shaft oil seals in 2020 for automotive electronic control drive units. An engineer changed process parameters without updating the process documentation, and a batch came out with what the note calls a serious durability defect. The manufacturer recalled. The customer sought roughly $4 million. The manufacturer claimed $2 million from its insurer, the single-occurrence property damage limit.
The insurer had already paid more than $1.5 million under a product recall extension clause, for dismantling and reinstallation labour and return shipping. What it refused was the value of the components scrapped in the process. Both the trial and appellate courts found there had been no occurrence, that the primary CGL coverage was never triggered, and that the manufacturer could recover only the agreed expenses under the recall extension.
Two caveats, and they are not small. The note was written by the insurer’s own counsel, who won the case. And it names no court, no case number and no decision date, so we cannot read the judgment or confirm it independently.
What it does show, if accurate, is that the structural answer is not an artefact of Wisconsin. The liability grant is built around accidents. A recall is a decision.
What changes if the part was counterfeit
Here is where we have to be careful, because it would be easy and wrong to say these are counterfeit cases. They are not. ChemRite was a contracted manufacturer with an FDA-regulated plant and a shared production line. The Chinese case was a process-control failure by the insured itself. Neither opinion mentions counterfeiting.
Our reading, offered as a reading and not as a holding, is that the reasoning is indifferent to how the bad part got in. The test the court applied was whether the acts were intentional, not whether the defect was known. Incorporating a counterfeit capacitor into a display assembly is as intentional as incorporating a tainted rinse into a kit, and more so, because you believed it was genuine and meant to use it. Pulling it back out under regulatory pressure is as volitional in Michigan as it was in Illinois. Nothing in that chain looks more like an accident because the supplier was a forger rather than a sloppy contract manufacturer.
And then the part that is worse, which took us by surprise when we worked through it.
Sage lost, but look at what Sage had. A named, solvent, identifiable supplier. A contract. A breach claim worth a $13 million consent judgment. $4 million actually collected. An insurance policy capable of being assigned, even if it paid nothing in the end. Every one of those is recourse, and every one of them exists because Sage knew exactly who made its rinse.
A counterfeit component offers none of it. There is no contract with the party that actually made the part. There is frequently no identifiable party at all, which is the finding this series has recorded again and again: NHTSA could not establish how many DTN60DB inflators are in the United States, and the falsified packs in Nigeria carried a manufacturer’s name whose connection to them nobody has established. You cannot sue a carton. You cannot take an assignment of a policy from a company that does not exist.
So the honest version of the lesson is sharper than the cases themselves. If the component is merely defective, you may lose the insurance argument and still have a supplier to pursue. If it is counterfeit, you may lose the insurance argument and have nothing to pursue at all.
What we are not saying
We are not saying that recalls are uninsurable. They are not. Product recall insurance is a distinct product with its own grant, and the Chinese case shows a recall extension clause doing exactly what it was bought to do: more than $1.5 million paid for dismantling, reinstallation and freight. The finding in both cases is narrower, that the general liability grant did not reach the loss. If recall exposure is covered, it is covered because somebody bought that cover on purpose.
We are not saying Federal behaved badly. It paid for ChemRite’s defence, it litigated a coverage question that a court agreed with, and insurers are entitled to the words they wrote.
We are not saying this is settled law everywhere. Sage is one district court applying one state’s law, and we found no published appellate decision in it, although we did not check the docket. Jurisdictions differ on faulty workmanship, and Wisconsin’s own position moved as recently as 2023.
And we are not saying our own field would have prevented any of this. Nothing we build would have caught ChemRite. The rinse was genuine product from the correct supplier, made on the wrong line, and an identity check would have confirmed every true thing about it. That is the same concession this series made about the Kota oxytocin deaths, and it holds here.
Who meets this problem
The quality lead who signs off a supplier qualification and does not know that surprise is not a defence in the coverage argument that follows.
The risk manager who has a CGL tower and no recall endorsement, and has been assuming the first covers the second.
The CFO who learns from a court, six years after the event, that the $13 million judgment on paper was always going to be $4 million in cash.
The brand protection lead whose counterfeit exposure is usually described in units seized, when the number that will reach the board is the cost of the pull and who absorbs it.
And the contract manufacturer with an honest process failure, who finds its own insurer and its own customer on the same side of the table against it.
If you are one of these people
If you buy the insurance. Ask your broker, in writing, whether a recall triggered by a regulator counts as an occurrence under your general liability wording, and what the recall endorsement actually pays for. The Chinese case is a useful checklist of what got paid: dismantling, reinstallation, return shipping. And of what did not: the value of the components destroyed in the process.
If you qualify the suppliers. The coverage question does not care what you knew. Build the file on the assumption that the loss lands on you and that your recourse is only as good as your ability to name and reach the party that actually made the part.
If you are a brand with counterfeit exposure. Price the recall, not just the seizure. Then ask who you would sue, and whether that party has assets, a policy, or a address. For a genuine supplier the answer is usually yes. For a counterfeit one it is usually no.
If you sell verification, including us. This is not a case our product wins. The right claim is narrow: knowing which units are affected and who supplied them decides the size of the pull and whether there is anyone to recover from. That is a cost argument, not a safety argument, and it should be made to a CFO in those terms or not at all.
The bill is the deadline
For six years, the single most consequential fact about this recall was not what was in the rinse. It was that two companies, a federal agency and an insurer all behaved exactly as they were supposed to, and tens of millions of dollars of loss still had nowhere to go but onto the company that assembled the kits.
What would have had to be provable, at item level, is narrower than the whole problem and worth stating precisely: which units contain the affected component, and who actually made it. The first bounds the recall. The second decides whether there is anybody left to pay for it. Sage had the second and still lost the argument. With a counterfeit part you can lose both, and the bill arrives anyway.