From the automotive industry to food and beverage, children’s products and even pharmaceuticals, product recalls are wreaking havoc on a business’ reputation and revenue stream. Occurring in greater frequency than ever before, today’s product recalls are caused by the globalization of supply chains and overseas manufacturing in countries that lack the high-standards we take for granted in the U.S. 

Even if your business simply repackages and distributes a product, has a track record of “best in class” quality control or you communicate your product’s risk to users upfront and in written product literature, you can still find yourself in a costly recall lawsuit, defending your product to your own customers and the general public. This can be devastating, wiping out a business’ hard-earned reputation, balance sheet, or worse - extinguishing a company entirely. 

Having a product recall plan is half the battle 

Before you find yourself in a serious product recall situation, consider setting a recall plan into action. A well-thought out and well-executed product recall plan can save lives, minimize reputational damage and reduce a business’ out of pocket recall expenses. Include the following in your product recall plan: 

  1. Understand the framework of a recall. This first step includes understanding how a recall response is structured, who is involved and when decisions need to be made, all of which can have a big impact on how the recall will be received by customers, regulators, shareholders and the public. 
  2. Build a recall team. Identify one person as the recall coordinator, responsible for managing and sustaining the recall together with the rest of the team.  
  3. Recall inspection and assessment. Establish a process by which to evaluate a product for recall. In this step, your recall team will gather information and evaluate the extent of the risks or hazards occurring with each product. This includes conducting root cause analysis to mitigate the situation from continuing. 
  4. Scope of the recall. Your plan should outline how you’ll determine the amount of product that should be recalled (such as examining serial numbers or batch numbers), and how you’ll go about making that happen, as well as what you’ll do will do with the product such as disposal or repair and redistribute.
  5. Maintain good records. Thorough production and distribution records will be key to finding your damaged product and alerting retail outlets in recalling the product. This may include distribution center or other on-sight inspections.
  6. Communications. Consider how and through which mediums your recall team will communicate with the public about the recall. This can include government agencies, your corporate website, trade safety notices, consumer hotlines and paid notices, as well as costs related to cancel current advertising, media and promotional schedules. 
  7. Control, Transportation and Return. Your plan should include an outline of how you’ll recoup the product in question. This may vary and may change depending on the product, the time of year of the recall, the location of the product and disposal plan.  
  8. Recall Simulation. The most effective product recall plans will conduct a recall simulation to help the team identify glitches in the plan, such as activation and communication, decision making criteria and processes. 

Securing the coverage you need for a product recall 
When dealing with a product recall on any scale, you may have to utilize multiple policies to achieve the necessary coverage. Here’s a quick look at relevant policies and what types of coverage they offer in the event you face a product recall. As always, remember that policy inclusions and exclusions will vary based on your company size, product liability and risk and industry.

  • Product Liability coverage – Typically an extension of your General Liability policy, Product Liability will cover your expenses (i.e., lawsuits, medical and financial damages and settlements) when your product hurts someone, makes them sick or damages their property. Most General and Product Liability policies exclude product recalls. 
  • Product Recall coverage – Product Recall coverage will pay for logistical costs of the recall itself, including expenses related to collecting recalled products from the public, costs to replace or reimburse the public, fines paid to government agencies because of the recall, disposal of recalled products, related public relations costs and more.  
  • Contamination coverage – Should your product be recalled due to an accidental or malicious contamination of food and beverage, pharmaceuticals, cosmetics, etc., contamination coverage will cover product recall costs, including laboratory analysis and product transportation, related public relations costs and more. 
  • Business Interruption coverage – One of the greatest fears of a product recall is the ensuing business interruption. This could include an interruption to the flow of product to the customer, loss of marketplace share and therefore, a potential downturn in sales related to the reputational harm done by the recall. BI coverage will cover the loss of income, sales and gross profits due to the product recall. 
  • Directors & Officers coverage – If your directors and officers or individual employees are specifically named in a lawsuit related to the recall, you’ll need Directors & Officers (D&O) coverage to back them. 

Contact your HUB broker today to review your liability policies and ensure you and your business are covered in advance of a product recall.