PRODUCT RECALL RISKS
Voluntary recalls occur frequently, and across a wide range of food products and distribution.
Until 2010, all recalls of consumer products were technically voluntary, since regulatory agencies didn’t have the authority to order a mandatory recall. Today, the FDA has the power to mandate a recall. Companies may be asked to voluntary remove product from the market due to competitors products being recalled or negotiations with regulatory agencies.
It costs money to do deal with voluntary recalls unless you are properly insured. Contact us a for a review of your current product liability portfolio to make certain you have this important coverage.
Understanding the cost of a Recall:
There are many costs involved when a recall or safety issue is discovered. These costs come in hard dollars and soft costs that could affect your bottom line for years.
Identifying the Issue
- Internal or Third Party Testing
- Employing Experts / Consultants
- Closing Facilities or Suspending production
- Cleaning, Fixing or Replacing Equipment
Conducting the Recall
- Issuing notices to customers
- Transporting, storing, destroying or disposing affected products
- Replacing ingredients materials or products
- Retailer per store fees
- Overtime for employees
- Crisis communication and PR
- Ongoing loss of sales or customers
- Cancelled Contracts
- Replacing suppliers or hiring contract mfgs.
- Prolonged interruption of Production
- Stalled R&D on new product development
- Impact of Brand and Reputation Damage
Product Recall Insurance Has You Covered
Rectification – covers both premise and product rectification ranging from cleaning and recalibrating buildings or equipment, replacing and redistributing products as well as associated staff costs.
Malicious Tamper and Extortion – addresses the costs associated with recalling a product that was altered or tampered with by a malicious person. It includes threats or extortion demands, it will also cover alteration or tampering carried out by cyber hackers.
Government Actions – the motto is “recall first ask questions later”. This means that you may be forced to withdraw your product even if there is nothing wrong.
Negative Publicity, Brand and Reputation Protection – Coverage will address the costs of employing PR, advertising and promotion activity to repair your brand in the initial aftermath of the recall.
Business Interruption – coverage includes future loss of sales for a defined indemnity period while the product remains “of the shelf” or out of production.
Additionally coverage includes claims for damages from customers as well as legal defense costs in the event of a recall; animal by product coverage if your product is labeled vegan or vegetarian but has traces of animal DNA.
Some polices such as your GL or Product Liability may include an element of recall insurance but this may be misleading. Under these policies your business may be protects from third party claims but first party costs are generally not covered (or is extremely limited). Furthermore the sub-limits are small and the coverage very narrow which leaves companies self-insuring a risk that can be significant in size.