Insure Against the Inevitable

If you think a recall is unlikely, or that you’ll be covered in the event it happens, think again. From a food safety standpoint, we are living in a dynamic and fast-changing world. Because microorganisms exist naturally in our environment, they will continue to find their way into many of our foods. Given recent improvements in national foodborne illness outbreak surveillance, more illnesses are identified and more outbreaks are reported.

By extension, these outbreaks are associated with an increasing number of foods, and more companies are affected, either directly or indirectly. Thus, if your company has not yet been confronted with an alleged foodborne illness, associated with an emerging outbreak, or involved in a resulting recall, chances are it will in the future.

In the food industry, we also know that the potential downstream consequences of any upstream food safety problem can be catastrophic. If a single raw material supplier unknowingly introduces contaminated ingredients into the supply chain, each of the downstream products manufactured with those ingredients will be affected. As demonstrated in many recent outbreaks and recalls, the actions of a single supplier can impact thousands of downstream products processed by hundreds of different companies.

More Demands that Suppliers Test

But the analysis doesn’t stop there. To help mitigate such risks, at least in part, more companies are demanding that their raw material suppliers test their products for foodborne pathogens. Many companies are also increasing their own internal sampling and testing their outgoing products as well. A higher number of ingredients and food products sampled and tested by industry, however, will translate directly into more positive findings. Under the U.S. Food and Drug Administration’s (FDA) Reportable Food Registry, which first went into effect last year, any such positive findings obtained from products that could adversely affect the public health must be reported to the agency. Of course, this can, and has in many instances, led to additional widespread recalls.

Thus, regardless of whether foodborne contaminants are identified through internal testing or whether they escape detection until downstream illnesses are reported, all food companies must recognize that massive and widespread recalls can and will continue to occur. To enhance protection against these seemingly uncontrollable risks, all food companies should carefully assess their existing insurance policies and consider obtaining standalone food recall insurance.

While the merits of continuously assessing existing insurance seem obvious, the most important reason for a thorough review may not be readily apparent to the vast majority of food companies. Over the years, we have seen numerous food companies discover shortcomings in their coverage, or their insurer, long after a significant problem or crisis arose.

In some cases, food companies were told by trusted brokers who had no real experience in the food industry that they had coverage under a commercial general liability (CGL) policy for certain contingencies, when coverage did not in fact exist. Alternatively, some companies have purchased recall and business interruption insurance, only to discover later that the fine print actually excluded the specific problem they worried about most. And, in some cases, when companies had not negotiated or been afforded the right to select their own expert counsel, the lack of access to crisis resources and adequate representation created significant risks and problems when bet-the-company issues arose.

Assume a Product Recall Will Occur

Thus, starting with the assumption that your food company may someday find itself embroiled, either directly or indirectly, in a food product recall, it is critical to determine—today—whether you are adequately protected under your existing CGL coverage. Because most CGL policies do not cover recall-related losses such as direct recall costs, business interruption losses, and lost profits claims from suppliers, you should also assess your need for separate recall, business interruption, or other types of insurance.