Editorial: Recall insurance needed

07/09/2012 08:12:00 AM
The Packer Editorial Board

The produce industry has really stepped up its game in the food safety arena to protect public health.

But when it comes to protecting their own financial well-being related to product recalls and foodborne illness liability, some solutions are needed regarding what’s currently available for recall insurance.

A comprehensive and cost-effective coverage solution that makes sense for the insured as well as the insurer has proved difficult to craft, and recall insurance that is currently available has some shortcomings, due largely to the complicated nature of what must be covered:

  • Some policies require a recall to be mandatory, but federal regulators’ recalls are voluntary.
  • Tracking the ultimate source of contamination can be a lengthy process that can for a time incorrectly link a product or company to the event. From the field where product is grown, to the packinghouse, truck, repacker, processor, retailer — there are multiple possible points of contamination and liability.
  • They fail to take into account collateral damage. Policies cover the cost of bringing product back from the market, and loss of income. But they specify the only way a policy holder can be compensated is if it’s their own product that causes illness or injury — for example, if ABC Tomato Co. recalls its product but the source of the outbreak is eventually traced to XYZ Tomatoes Inc.

Funding for a feasibility study of recall insurance in the Senate farm bill is a welcome step, and the House would be wise to preserve that provision as it begins work on its version.



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John Turner    
New York  |  July, 12, 2012 at 04:35 PM

Sir/Madam, As an underwriter of product contamination insurance and product recall coverage, I believe there are some important misconceptions in this article. Firstly, most specialist carriers policies respond to voluntary recalls involving contamination which presents a clear threat to health and not just mandatory recalls. XL has a Food Safety Modernization Act based coverage which covers Class I and II recalls irrespective of whether an insured's product is actually contaminated. This is very much in tune with the currently regulatory risk environment in the US and Canada Secondly, Adverse Publicity coverage is commonly available in the market and responds when an insured or their product is specifically named as the source of contamination even if that subsequently turns out to be erroneous. In this way and using the above example, ABC Tomato Co gets coverage as well as XYZ Tomatoes, Inc. Thirdly, the contamination policies respond to contamination events rather than recalls. In this way a produce company can be covered if they discover a problem before the contaminated products have left their facilities. So nobody needs to get ill to trigger the coverage if the company withholds product to prevent such illness. As well as providing these coverages, specialty policies include provision of crisis management services which can be critical to reputation and brand risk mitigation in a recall scenario. The insurance industry would welcome a dialogue with the produce industry on this and I would also encourage produce companies to speak with their brokers to find out what is available to them from the insurance market. Nobody thinks a recall will happen to them but if or indeed when it does, the last thing a produce company wants is to become another statistic in the line of companies that failed to survive a recall or contamination event. Thanks, John

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