Protect Against Food Contamination Losses

Second, negotiate with the insurer when purchasing coverage. Your company’s ability to negotiate likely will depend on the type of coverage sought, the insurer’s past claims experience with your specific company and the food industry generally, and how “hard” or “soft” the market is in a given year. If you believe that the insurance offered by an insurer does not adequately protect you from anticipated risks, shop around and negotiate.

Do not be penny-wise and pound-foolish. For example, if your company intends to purchase only a CGL policy—and product recalls are expressly and unequivocally excluded from coverage—either negotiate with the insurer to fill the gap in the policy or purchase add-on insurance. Do not forgo that additional coverage without carefully considering the risks and benefits of doing so. If your company is involved in a tainted food incident, the increase in premium, in hindsight, may seem like a small price to pay.

In addition, carefully review your company’s policies, looking especially for potentially limiting language and exclusions. Before the policy is issued, the risk manager should obtain a complete draft and review it closely. Also, make sure the final version of the policy accurately reflects the coverage you intended to purchase. If a provision seems ambiguous, seek to clarify it or, if necessary, consult with coverage counsel to obtain that clarification. Be on the lookout for potentially limiting language and exclusions, which in the food contamination context can range from so-called “vermin” and “pollution” exclusions to product recall (“sistership”) exclusions. All policies should then be copied electronically and secured off site. In these days of natural and man-made disasters, the company should not rely on the broker alone to safeguard its insurance policies.

If a claim arises, immediately notify the insurer. Many policies require that the policyholder provide notice “as soon as practicable,” while others require that notice be provided “immediately.” This step is crucial and will help your company avoid giving the insurer an opportunity to argue that you lost the coverage you paid for by failing to provide proper and timely notice. Do not hesitate to give notice due to concern about jeopardizing your relationship with your insurer. You paid for the insurance, and you should avail yourself of its benefits. The moment a contaminated food incident arises, you should contact insurance counsel, who will assess your coverage and assist you in providing the appropriate notice under all potentially available insurance policies.

Finally, do not accept “no” for an answer. In the event you are denied coverage, do not walk away. Never assume that the insurer has your best interests at heart or that a court would agree with the insurer’s reasons for denying your claim. Instead, consult with insurance counsel to determine your next steps and to ensure that you obtain the insurance coverage to which you are entitled. Remember—countless companies have obtained billions of dollars in insurance coverage despite their insurers having initially denied coverage.

These ground rules can help businesses avoid some of the risks associated with food product contamination. Companies should bear in mind that no sector of the food industry is immune to foodborne illness claims. All companies should maintain sufficient insurance coverage, even those that are taking all possible health and safety precautions, and should form a relationship with insurance coverage counsel before any food-related contamination occurs. Hopefully, your company will never have to use this valuable insurance asset.

Wilson is a partner and Tomanda is an associate in the insurance recovery and litigation practice groups at the Washington, D.C., offices of Kelley Drye & Warren. Reach them at [email protected], [email protected], or (202) 342-8400.