Opinion ID: 3046036
Heading Depth: 2
Heading Rank: 1

Heading: The Underlying State Court Litigation.

Text: CPB has been a Rexall vendor since at least 1997, and agreed, as recently as June 11, 2003, to Rexall’s vendor compliance regulations. Pursuant to that agreement, CPB promised to deliver products of the highest industry standards, and Rexall was entitled to reject imperfect goods and all goods not conforming to purchase order requirements. On October 1, 2004, Rexall ordered 10,000 kilograms of chondroitin at seventy-six dollars per kilogram from CPB. On October 27, 2004, Rexall ordered an additional 10,000 kilograms of chondroitin at the same price. In December 2004, CPB filled the first order, and billed Rexall $760,000 by invoice. Rexall paid the invoice in January 2005. Thereafter, CPB partially filled Rexall’s second order by sending it 9,500 kilograms of chondroitin, and billing it $722,000. Rexall did not pay for the second shipment. In April 2005, CPB filed suit against Rexall for breach of contract and demanded payment for the second shipment. Rexall filed an answer and counterclaim (the “underlying claim”), alleging that the chondroitin that was shipped to it was deficient, of improper composition, and unusable for its intended purpose, and -3- that the delivery of the material constituted a material breach of contract. Rexall thus sought return of its initial $760,000 payment and consequential damages in an amount exceeding $1,195,465 for the shipment of the allegedly defective chondroitin. Rexall did not discover that the chondroitin was of improper composition until after it had already combined it with glucosamine and other ingredients to form the nutritional tablets. The tablets, which were mixed with ingredients valued at more than $991,015, are now allegedly useless and without value. CPB tendered the underlying claim to Nationwide pursuant to the policy. Nationwide assumed defense of the action, but did so under a reservation of rights.