In 2019, 337 food products were recalled in the U.S.1 The result of undeclared allergens (52%), bacteria contamination (26%) and foreign material contamination (22%), these recalls lead to lost sales, high replacement costs, government penalties and costly lawsuits.
That’s where product recall insurance comes into play.
Essentially a loss prevention expense reimbursement policy, product recall insurance can cover the costs of notification, reimbursement, value of the product that has to be destroyed or rehabilitated and loss of profits for you and your customers.
Product recall coverage features
There are two types of events covered by product recall insurance – accidental contamination and malicious product tampering. Almost all product recall policies contain a manifestation clause, which requires symptoms for bodily injury or death to appear within a specified period of time, usually 365 days, of consumption in order to trigger coverage.
Food processors and manufacturers will want the broadest form of coverage, called Product Contamination and Recall insurance. Most policies will include these features:
- The cost of getting the product back. Years ago, informing the public of a recall was done through TV, newspapers and direct mail campaigns. Today, costs include social media and other online news outlets.
- The cost of damage to your product caused by contamination. Contamination coverage will cover the value of the contaminated product, including if it’s been tampered with in any way and must be destroyed.
- Loss of profits. Similar to business interruption (BI) coverage, this line item will reimburse processors and manufacturers and their business customers for loss of profits resulting from the recall. For example, in the case of a product contamination, loss of profits coverage would reimburse both the processor and the buyer who contracted with them for the loss of profits on cancelled sales.
- Rehabilitation expenses. Should the product need to be cleaned, reprocessed or pasteurized , the rehabilitation expenses to do so would be covered.
- Extortion costs. If someone should blackmail the food manufacturer over a potential product contamination, this line item will cover the costs.
- Crisis consulting. Crisis consulting helps companies with customer notification, media response, getting the product off the shelves and brand messaging in the event of a product recall. They help you navigate through the process, with services paid by your insurer.
- Self-insured retention. Insurance companies typically won’t get involved unless product contamination or recall costs exceed the retention listed on the policy. Consider a deductible amount that fits your business’ budget and risk.
In addition to the above coverage features, the following product contamination and recall policy endorsements could be important to your operation as well:
- Third party expense indemnity. This endorsement broadens the Customer Expense and Loss of Profits to protect you from a liability claim from the customer, should they not agree with your insurer’s assessment of their expenses and loss of profits.
- Governmental Recall. This endorsement will bypass the manifestation clause, requiring symptoms to become evident within a defined period, if a governmental agency has determined the product presents a danger of injury or death to the public. This broadens the circumstances that might trigger coverage.
- Comprehensive product refusal. Even if your business doesn’t experience a recall, but another business does and it affects your sales, comprehensive product refusal will cover the loss of your sales. For example, during the romaine lettuce contamination outbreak, all growers of romaine were affected, even those without contamination issues, when grocers cancelled product orders.
- Forensic Accounting and Claims Service. This coverage will cover the expense of hiring your own forensic accounting professionals to help calculate and prove the amount of your loss to the insurer.
For more information on product recall coverage, contact your HUB Agribusiness and Food specialist.
1 Food Safety Magazine "A Look Back at 2019 Food Recalls," March 17, 2020.