If the final farm bill keeps the Senate’s provision for a feasibility study of recall insurance, that will be just a starting point.
To make coverage a reality requires answers to questions that can seem like conundrums to insurers.
Feinstein Sen. Dianne Feinstein, D-Calif., introduced the Senate amendment with an eye to companies swept up in a collapsing market when a competitor’s product is linked to contamination, said Art Garrett, general counselor and partner in Washington, D.C.-based Keller and Heckman LLP. The law firm advises the Produce Marketing Association, among others.
“Feinstein is concerned about those growers who get caught up in a hysteria or panic,” Garrett said. “Collateral damage is what she’s focused on.”
Recall insurance is already widely available but has limited relevance, said Greg Nelson, director of commercial lines and risk management at Irvine, Calif.-based Western Growers Insurance Services.
“Most major companies and several of the Lloyd’s syndicates offer it,” Nelson said. “It pays for the expense of bringing your product back from the market, loss of income, recovering your brand name. It’s a lot of coverage, but the policies specify that the only way you can recover is if your product causes injury or illness. It can’t be someone else’s product.”
Some insurers also require the recall to be mandatory. That’s problematic, to say the least.
“The reality is the federal government never formally requires anybody to recall,” Nelson said. “They’ve gotten everybody to do it voluntarily.”
McInerny Matt McInerny, executive vice president at Western Growers, says the challenges are multiple.
“One is to develop a robust coverage for the larger or smaller contained voluntary market withdrawals,” he said. “Have triggers for that, but have this other really broad coverage for innocent bystanders on the production side who are harmed through no fault of their own.”
Insurers have widely excluded recalls from liability coverage, offering it instead in a separate policy. But discussion of recall insurance seems to lead inevitably to concerns about liability.
“What keeps me up at night is an unprotected scenario that’s an equivalent of a Jensen Farms situation,” McInerny said, referring to the listeria outbreak in Colorado cantaloupe linked to more than 30 deaths.
“Inadvertently you fall into a tragedy beyond comprehension that takes up multigenerational assets built up over time,” he said. “How do you manage the risk? You do it on auto, on liability, but this one is tough. We’ve engaged insurance suppliers globally to see what could be collaborated on that would have layers of protection for everyone in the supply chain, but it’s been elusive.”