In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 16-3418

DANIEL J. RATAJCZAK, JR., et al.,

Plaintiffs-Appellants,

v.

BEAZLEY SOLUTIONS LIMITED,

Defendant-Appellee.

____________________

Nos. 16-3490 & 16-3920

LAND O’LAKES, INC.,

Plaintiff-Appellant,

and

FIRST MERCURY INSURANCE COMPANY, et al.,

Intervening Plaintiffs, Cross-Appellees,

v.

DANIEL J. RATAJCZAK, JR., et al.,

Defendants-Appellees, Cross-Appellants.

____________________

Appeals from the United States District Court

for the Eastern District of Wisconsin.

Nos. 13-C-45 & 14-C-1388 — William C. Griesbach, Chief Judge.

____________________
2 Nos. 16-3418 et al.

ARGUED MAY 23, 2017 — DECIDED AUGUST 31, 2017

____________________

Before BAUER, EASTERBROOK, and RIPPLE, Circuit Judges.

EASTERBROOK, Circuit Judge. Between 2006 and 2012 

Packerland Whey Products, Inc., deceived at least one of its 

customers about the protein content of a product called 

Whey Protein Concentrate. Whey, the watery part of milk 

that remains after the removal of curds, is rich in protein. 

Removing whey’s nonprotein components generates a concentrate that can be used in other products. Land O’Lakes, 

Inc., purchased Packerland’s protein concentrate for use in

making foods for calves and other young animals.

Buyers pay for protein. They infer protein levels from 

measuring nitrogen using the Kjeldahl method. This indirect 

measure invites adulteration: a seller could add another nitrogen-rich substance and so produce higher scores. Adulteration adds to profits as long as the substitute source of nitrogen is cheaper than whey. Urea, normally used to make

fertilizer, is such a substance. Daniel J. Ratajczak, Jr., Scott A. 

Ratajczak, and Angela Ratajczak, who collectively owned 

and controlled Packerland, started adding urea to its protein 

concentrate in 2006. Land O’Lakes suspected that the concentrate was high in nonprotein nitrogen but could not learn 

why, in part because the Ratajczaks cooked up excuses that 

Land O’Lakes accepted. Land O’Lakes kept buying Packerland’s protein concentrate, and none of its own customers 

complained. (In the levels Packerland added to the concentrate, animal-grade urea is safe to eat.)

The Ratajczaks sold Packerland in May 2012 to Packerland Whey Intermediary Holding Co., which kept them on 
Nos. 16-3418 et al. 3

as employees—and they kept on adding urea. In November 

or December 2012 the buyer learned what was going on. The 

Ratajczaks were soon out of jobs, and litigation began. The 

buyer threatened suit against the Ratajczaks. They settled for 

about $10 million in December 2012, before the buyer filed a 

complaint. Land O’Lakes stopped buying Packerland’s 

product and asserted three claims in federal court: breach of 

contract, fraud, and violation of the Racketeer Influenced 

and Corrupt Organizations Act. Each of these claims has 

bred ancillary insurance litigation. Packerland’s insurers refused to defend or indemnify it or the Ratajczaks in the Land 

O’Lakes suit; the Ratajczaks’ personal insurer refused to indemnify them for their settlement with Packerland’s buyer.

The district court dismissed Land O’Lakes’s suit and 

ruled in favor of the insurers. Ratajczak v. Beazley Solutions

Ltd., 2016 U.S. Dist. LEXIS 189240 (E.D. Wis. Aug. 17, 2016); 

Land O’Lakes, Inc. v. Ratajczak, 2016 U.S. Dist. LEXIS 186706 

(E.D. Wis. Aug. 24, 2016). We have three appeals: (1) Land 

O’Lakes contends that it is entitled to treble damages under 

RICO and a state-law counterpart (which we do not mention 

again); (2) the Ratajczaks contend that Packerland’s insurers 

had to defend and indemnify them in Land O’Lakes’s suit; 

(3) the Ratajczaks maintain that their own insurer must indemnify them for much of what they paid to Packerland’s 

buyer in settlement. We tackle the subjects in that order.

1. At its outset Land O’Lakes’s suit had three claims: 

breach of contract, fraud, and treble damages under 18 

U.S.C. §1964, RICO’s civil remedies provision. The strongest 

of these was breach of contract. Land O’Lakes would have 

been entitled to the difference between the price it paid and 

the market value of the product Packerland delivered. But 
4 Nos. 16-3418 et al.

the breach-of-contract claim was settled and the fraud claim 

has been abandoned on appeal, leaving only the RICO claim. 

The district court granted summary judgment to the 

Ratajczaks because Land O’Lakes failed to produce evidence 

of injury. RICO gives plaintiffs the benefit of the doubt in 

showing loss, see, e.g., Carter v. Berger, 777 F.2d 1173 (7th Cir. 

1985), but the district court thought that there is no doubt 

that could be resolved in Land O’Lakes’s favor.

Consider how a firm in Land O’Lakes’s position might 

show loss. (For this purpose we disregard the contract theory mentioned above, which Land O’Lakes does not invoke 

with respect to the RICO claim.) Land O’Lakes might contend, for example, that its own customers paid less for an 

inferior product made using the adulterated concentrate. It 

might contend that its customers paid the same per pound 

but bought less. It might contend that its business rivals 

raised their own prices between 2006 and 2012, but that 

Land O’Lakes could not do so because its customers thought 

its baby-animal feed inferior to that of the rivals. It might 

contend that it has been sued by its customers for selling 

adulterated animal feed and has incurred costs as a result. It 

might contend that some customers have threatened suit 

and that it is likely to incur future costs of defense. It might 

contend that, although none of its customers has threatened 

suit, one or more of them is likely to sue unless it offers some 

(expensive) inducement not to do so. It might contend that it 

recalled batches of animal feed that contained Packerland’s 

adulterated protein concentrate and replaced them with 

good product at its own expense. It might contend that it incurred extra costs of testing Packerland’s product in an effort 

to detect the source of the suspiciously high nonprotein ni-
Nos. 16-3418 et al. 5

trogen. From this extensive menu, Land O’Lakes chose: none 

of the above.

Land O’Lakes tells us that it did incur some extra testing 

costs but concedes that they cannot be quantified. It also 

notes that the statute of limitations in Wisconsin is still open 

on potential claims by the customers of animal feed that included Packerland’s adulterated protein concentrate. That’s 

true enough, but without any way to estimate the likelihood 

of such a claim, or the cost if one should be made, damages 

would be speculative.

There is a market in retroactive insurance. Once a casualty has occurred, people can buy policies that cover the cost 

of defending (and if necessary settling or paying) any future 

claims arising from that casualty. Retroactive insurance 

spreads the risk of outcomes’ variability should claims be

made. Land O’Lakes might have bought such a policy but 

did not, nor did it ask for a price quote. The price of a retroactive policy might help quantify potential loss. But all Land 

O’Lakes offered to the district court, or us, is lawyers’ talk, 

which is not an adequate way to estimate the existence, let 

alone the size, of injury. And since treble zero is still zero, 

Land O’Lakes was doomed to lose its RICO claim.

2. Packerland had several insurance policies, under 

which the Ratajczaks were additional insureds. The insurers 

all refused to defend or indemnify them. Their request for a 

declaratory judgment gave several reasons, two of which the 

district court accepted, but we need mention only one. All of 

the policies base coverage on an “occurrence,” and each defines that word this way: “an accident, including continuous 

or repeated exposure to substantially the same general 

harmful conditions.” Adulteration of a product is deliberate, 
6 Nos. 16-3418 et al.

not accidental. The Ratajczaks observe that the fraud claim 

in the Land O’Lakes complaint says that some of Packerland’s statements (those designed to lull Land O’Lakes into 

continuing to buy) may have been reckless if they were not 

deliberately false, but this does not move any of the underlying conduct (or its effects) into the “accident” category.

Wisconsin recognizes that deliberate conduct can have accidental effects that are covered by policies using the definition we have quoted. See Liebovich v. Minnesota Insurance Co., 

2008 WI 75 ¶52. Think of speeding: the driver intends to go 

80 miles an hour but does not intend to plow into another 

car, and so a collision still may be called an “accident.” But 

adulteration of a commercial product is not in that category.

Packerland set out to fool Land O’Lakes into paying for 

more protein than its product contained. It achieved exactly 

that. Neither the behavior nor the consequence can be called 

an accident. See, e.g., Stuart v. Weisflog’s Showroom Gallery, 

Inc., 2008 WI 86; Everson v. Lorenz, 2005 WI 51.

3. Before selling Packerland, the Ratajczaks purchased a 

policy of insurance promising to indemnify them for loss 

caused by breach of warranties made to the buyer. The policy, issued by Beazley Solutions, does not cover fraud but 

does cover damages for breach of contract. The contract of 

sale provided that a breach of warranty could come in two 

forms. One was a false statement in a Fundamental Representation—a list of specific representations made by Packerland on which the buyer relied. The other was a false statement not included among the Fundamental Representations. 

The contract set a cap of $1.5 million in damages for a false 

statement in the latter category. Beazley’s policy had a limit 

of $10 million with a $1.5 million deductible (called a self-
Nos. 16-3418 et al. 7

insured retention). Beazley contended, and the district court 

found, that, if there was a nonfraudulent breach of warranty, 

the false statement was not among the Fundamental Representations, so contractual damages were capped at $1.5 million. As that matched the deductible, Beazley had no need to 

indemnify the Ratajczaks.

Insurance coverage usually depends on the nature of the 

victims’ claims, and the draft complaint that the buyer 

showed to the Ratajczaks did not specify a falsehood in one 

of the Fundamental Representations. Instead it accused 

Packerland and the Ratajczaks of fraudulently concealing the 

adulteration and the fact that Packerland’s profits had been 

artificially inflated, which could not continue because the 

truth was bound to emerge. The Ratajczaks insist that the 

buyer’s complaint implies accusations that could have come 

under a Fundamental Representation, such as warranty 3.3 

about the accuracy of Packerland’s books and records. The 

draft complaint does not mention that representation, but 

the Ratajczaks remind us that in federal civil procedure 

complaints are liberally interpreted, so that to the extent the 

document is ambiguous resolution is handled through motions for more definite statements, motions for summary 

judgment, and briefs. So far, so good. Their problem is that 

there was no complaint, and Fed. R. Civ. P. 8 never came into play. The buyer threatened litigation but did not file a suit; 

the Ratajczaks settled to avoid suit. There was nothing that 

could be liberally construed in their favor vis-à-vis Beazley.

What the draft complaint did harp on is fraud, including 

fraudulent statements and omissions of material facts (such 

as the adulteration) necessary to make the statements not 

misleading. Fraudulent statements are outside Beazley’s pol-
8 Nos. 16-3418 et al.

icy altogether. True enough, some of the draft complaint’s 

language might be understood to specify negligent misstatements, such as some of the lulling statements the 

Ratajczaks used to prevent Land O’Lakes from looking too 

closely for the source of nonprotein nitrogen, but even if this 

gets past the policy’s fraud exclusion it does not get past the 

contract’s $1.5 million damages cap for breach of any warranty other than a Fundamental Representation.

The Ratajczaks ask rhetorically why they would settle for 

$10 million if their contractual liability was capped at $1.5 

million, but there is a ready answer: there was no contractual 

cap on liability for fraud. And the fact of settlement is itself a 

problem for the Ratajczaks. Beazley’s policy provides that it 

is not bound by settlements that it did not approve. Beazley 

not only didn’t approve the settlement but also was not notified of the claim until the settlement talks were almost done. 

The Ratajczaks insist that Beazley can’t prove prejudice from 

the delay—how could one prove that a different sequence of 

events, or more time to think things over, investigate, and 

make suggestions, would have produced a different outcome?—but the policy does not demand that Beazley prove 

prejudice. The approval requirement is absolute.

This situation shows why. Beazley received notice of the 

claim less than a week before the settlement was concluded. 

To be precise, the Ratajczaks notified Beazley after the close 

of business on December 24, 2012, and signed the settlement 

on December 28. That was two business days’ notice. It may 

take an insurer longer just to find the policy and send it to 

adjusters or analysts to begin an evaluation. It would require

time after that to study a proposed settlement and make 

suggestions, time that the Ratajczaks did not allow. After re-
Nos. 16-3418 et al. 9

ceiving notice, Beazley swiftly asked the Ratajczaks for more 

information about the adulteration and the proposed settlement; they closed on the settlement before replying. That 

haste prevented Beazley from trying to allocate potential loss

among three categories: loss attributable to fraud (not covered), loss attributable to nonfraudulent breach of a nonspecific warranty (capped at $1.5 million), and loss attributable 

to nonfraudulent breach of a Fundamental Representation 

(covered to the policy limit). By cutting Beazley out of the 

negotiations, the Ratajczaks prevented it from taking steps 

vital for self-protection.

The Ratajczaks’ riposte is that Wisconsin law applies a 

prejudice requirement even if the policy does not. Gerrard 

Realty Corp. v. American States Insurance Co., 89 Wis. 2d 130, 

146–47 (1979). Prejudice might be presumed (which would 

make sense here), but the Ratajczaks maintain that a presumption is not enough. Indeed, the Ratajczaks maintain 

that Wisconsin law forbids clauses that give insurers authority to reject settlements, if they have received notice of the 

negotiations. They rely on International Flavors & Fragrances 

v. Valley Forge Insurance Co., 2007 WI App 187.

That may or may not be a correct statement of Wisconsin 

law, but the controlling law is New York’s. The policy provides for the application of New York law. This was a multijurisdictional business transaction. Beazley is based in the 

United Kingdom. Its adjuster for U.S. claims is located in 

New York. It is understandable that Beazley prefers to designate one state’s law for all of its business in this nation; it 

can become familiar with New York law more easily than it 

can master (and price) the intricacies of many states’ insurance laws. The Ratajczaks are sophisticated business people 
10 Nos. 16-3418 et al.

and entered this transaction with eyes open; they cannot escape the choice-of-law clause in this policy. New York permits insurers to insist on having control of settlements. Vigilant Insurance Co. v. Bear Stearns Cos., 10 N.Y.3d 170, 177–78 

(2008). So the Ratajczaks lose for two reasons: the deductible 

offsets the maximum damages for breach of a general warranty, and they settled without Beazley’s consent.

Other arguments have been considered but do not require discussion.

AFFIRMED