Insurers Sued for $1 Billion for Allegedly Enabling 'Dumping' of Food Products From China

Marcia Coyle
The National Law Journal
April 8, 2009

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What do fresh garlic, crawfish meat, canned mushrooms and honey have in common? A $1 billion lawsuit by their domestic producers against major insurance companies for enabling the "dumping" of competing food products from China.

The domestic producers, represented by the Washington, D.C., office of New York's Kelley Drye & Warren and by Washington's Adduci, Mastriani & Schaumberg, filed the class action in the U.S. Court of International Trade, charging that the insurance companies posted "surety bonds" that allowed importers to bring in food products from China at below cost, or "dumped" prices, causing the domestic producers severe financial harm. Sioux Honey Association v. Hartford, No. 09-00141.

The lawsuit also claims that the U.S. Customs and Border Protection and the U.S. Department of Commerce failed to enforce four anti-dumping orders issued years ago to protect the domestic producers from dumped Chinese imports.

Named as defendants in the billion-dollar lawsuit are the Hartford Cos., Lincoln General, Washington International, American Home Assurance, Great American Insurance Cos. and International Fidelity.

The complaint states that from May 1998 until August 2006, the insurers negligently issued hundreds of customs surety bonds that guaranteed the payment of any dumping duties the government might determine were owed by U.S. importers for the specified Chinese goods.

"Without these customs surety bonds, the importers could not have brought in and sold the Chinese goods in the U.S. market at steeply dumped prices," said Michael Coursey, a partner in Kelley Drye's international trade practice group. "The dumping of these imports forced the domestic producers to significantly lower the prices for their competing products, causing the producers to lose hundreds of millions of dollars."

John Heintz, chairman of Kelley Drye's insurance recovery and Washington litigation practice groups, said the insurers knew or should have known that the importers posed a significantly high risk of defaulting on assessed dumping duties because these importers "were new, thinly capitalized, and had little or no credit history or experience in importing. The insurers, nevertheless for years, continuously issued the bonds on behalf of the importers, and made millions of dollars in premiums."

The importers, they said, have now defaulted on paying hundreds of millions of dollars in dumping duties assessed by the government. The insurers similarly have refused to pay the duties as required by their bonds, and Customs has failed to prosecute any collections lawsuits against the insurers, they added.

The lawsuit states that according to Customs' Web site, that agency has failed to collect 93 percent -- $723 million -- of the $771 million in final anti-dumping duties it assessed under four orders during the past six years. To date, the suit adds, Customs has not filed any collection lawsuits against the insurers for recovery of those duties, and "it is unlikely that any [insurer-defendant] will perform as promised under any of its new shipper bonds without the intervention of this Court on behalf of the] Plaintiffs and the Class."

The government, according to Coursey and Heintz, is legally obligated to distribute to the competing domestic producers any dumping duties ultimately paid by the importers or the insurers. The government's failure to collect these duties from either the importers or the insurers, they contend, has resulted in huge losses for the domestic producers.

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