Liability Insurance Contributing Columnist

 


Your Product Recall Plan:

A Tool For Improving Your Insurance Coverage

Jen Pino-Gallagher
Director of Food & Agribusiness Practice
M3 Insurance
jen.pinogallagher@m3ins.com

July 8, 2017


 

If you sign up for automated food recall notifications through the Food and Drug Administration (FDA), you’ll likely receive nearly a dozen emails a week beginning with, ABC company located in Any Town, USA is voluntarily recalling x product due to (fill in the blank with recall trigger).

Countless emails announcing food recalls can desensitize the casual reader to the true impact of a recall situation. But, for a dairy processor, a product recall is a stress-inducing, supply-chain-disrupting and a (potentially) financially devastating experience. Whether the recall is initiated due to a foodborne contamination or an undeclared allergen, a recall can have a tremendous impact on a company’s operations and reputation.

Managing the risks associated with product recall begins with a company’s proactive commitment to total quality management. Pre-incident planning is critical; having in place a strong food safety plan which includes a product recall plan, is paramount.

If the dairy plant is in Wisconsin, having a food recall plan is not optional – it’s required. Per state regulations, An operator of a dairy plant at which dairy products are manufactured or processed shall prepare a written plan for identifying and recalling milk and dairy products processed at that dairy plant, and any other food processed at the facility, should a recall become necessary.

According to James Beix, recall and emergency response coordinator at the Wisconsin Department of Agriculture, Trade and Consumer Protection, the best recall plans are those that are specific, include roles/responsibilities by job position (not person), include suppliers’/customers’ contact information, and are practiced and updated regularly as staff, suppliers and customers change. The plan should also include crisis response details – managing the message is key to mitigating reputational damage during a recall situation.
Specifics components of a food recall plan and crisis communication plans will be covered in a future article.

Product recall insurance coverages have been around since the 1980’s but policy coverages vary. When discussing product recall coverages, most dairy processors have the same three questions: do I have product recall coverage in my current policy, how much do I need, and how much does it cost?

Do I have product recall coverage in my current policy?
Most general liability policies provide bodily injury and property damage coverage for product liability caused by an occurrence. An occurrence is typically defined as an accident or repeated continuous exposure to the same general harmful conditions.

For example, a company issues a voluntary product recall before a product is consumed. The company incurs expenses associated with the recall.

Typically, in order to file a claim under the general liability coverage, the company must prove one of two things: a) someone was hurt/property was damaged, or b) whether an occurrence took place. In this case, a standard general liability policy won’t respond (pay) because the policy kicks in only if there is damage or an occurrence – as mentioned above.

The general liability coverage also fails to respond when the loss is strictly economic. (In Wisconsin, like most states the economic loss doctrine is alive and well.) In other words, if there is no bodily injury or property damage and your product is simply out of spec or mislabeled, the general liability policies are ineffective. In most circumstances, the general liability policy won’t cover costs associated with defending a breach of contract or product recall expenses incurred by you or your downstream customers.

To cover this gap, dairy processors have the option of adding a rider to their general liability policy for limited product recall expense or they can purchase a customized product recall insurance policy. The advantage of a stand-alone product recall policy is that it could include coverage for a variety of expenses associated with the recall including: additional staff time spent to manage the recall, expenses associated with crisis management services and product disposal fees, amongst other expenses. If a company exports internationally, the processor can consider a global recall policy.

How much do I need?
Ultimately, this business decision rests with the dairy processor because recall coverage is not one-size-fits all. An experienced insurance broker familiar with food processing will walk the client through many product recall considerations including reviewing the company’s batch sizes, ingredient list, label requirements, shelf life, per unit processing costs, costs for items like transportation, storage, product disposal, labor and administration. This information will help determine the amount of coverage needed.

How much does it cost?
The cost for product recall coverage policies will depend upon your specific situation. For example, are you interested in having coverage for government-initiated recalls in addition to voluntary recalls? Do you want recall coverage on some, but perhaps not all of your products?

 

The advantage of a stand-alone product recall policy is that it could include coverage for a variety of expenses associated with the recall including: additional staff time spent to manage the recall, expenses associated with crisis management services and product disposal fees, amongst other expenses.


As a general rule, rating basis (or the basis upon which your premium is derived) are largely based upon annual sales. If you are the insurance buyer, you can make your premium money go much further by becoming a better consumer. How so? By showing the underwriters that you are managing risks through rigorous preventative controls, written food safety and food recall plans and effective contractual liability control in your favor.

Ultimately, the stronger the case you make for your operation – showing that you have stringent recall plans that have been tested – the greater leverage your broker will have in negotiating a competitive offer from the insurance company.

Now might be the time to dust off your recall plan and use it as a tool to improve your insurance coverage program.

 

 

Jen Pino-Gallagher is director of the food and agribusiness practice at M3 Insurance. M3 Insurance offers insight, advice and strategies to help clients manage risk, purchase insurance and provide employee benefits. The views expressed above do not necessarily reflect those of Cheese Reporter. You can contact the columnist by calling (800) 272-2443, or by visiting www.m3ins.com.

 


For more information, call (800) 272-2443 or visit www.m3ins.com.

 

Jen Pino-Gallagher

Jen Pino-Gallagher is a Director of Food & Agribusiness Practice at M3 Insurance. M3 Insurance offers insight, advice and strategies to help clients manage risk, purchase insurance and provide employee benefits.
For more information, call (800) 272-2443 ,jen.pinogallagher@m3ins.com visit www.m3ins.com.


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