Food recalls have skyrocketed, up 92% in the U.S. since 2012.1 This is not the result of more contaminants or allergens in our food. On the contrary, modern technology has enhanced food regulation and its compliance. Instead, the rise in recalls can be attributed to businesses looking to proactively manage potential liability. 

Most often due to undeclared bacteria including Listeria, Salmonella and E.coli, or a labeling error, food recalls can cost companies an average of $9.2 million in lost sales and recall costs,2 while long-term reputational damage and resulting lawsuits will raise the price tag even higher. 

Your product recall defense must be two-fold. It needs to include insurance coverage for Product Recall, Contaminated Products and Business Interruption, and you need to champion best practices aimed at preventing product recall in the first place, including: 

  • Have a good HACCP plan. A good Hazard Analysis Critical Control Point (HACCP) plan requires a bird’s-eye view of your operation, including:
    • ingredient and supplier verification; 
    • how products are received from vendors; 
    • how a product is handled, stored, mixed, cooled and tested  
    • how it’s packaged, shipped and traced to the end user. 
  • From basic hand-washing practices to indicator/swab testing and an incident investigation process, your HACCP plan will inform your business’ ability to minimize and eliminate a product recall. 
    • Consider third party verification. On top of your HACCP plan, many food handling businesses and manufacturers opt for third party verification of their product(s). This not only provides another layer of protection against recall, but may also open more distribution opportunities, as most large corporations will only work with vendors that have third party verification. 
    • Champion employee training. Having good manufacturing practices (GMPs) and a strong HACCP plan only help if your employees are regularly trained on them. Consider training on a daily, weekly, monthly and annual basis, depending on the issue and subject matter.   
    • Test your product recall program. Mock recall events, where the entire team runs through a recall exercise, can be invaluable in identifying gaps in your recall plan. Some companies will announce the recall event to the staff in advance; others will make it a surprise to create a real-life effect. Removing your main product recall manager from the test is a good way to find out if the program has proper succession planning in place. 

Coverage goes hand-in-hand with best practices
There are a number of liability policies to help minimize your loss during a product recall. These policies can cover costs associated with recall expenses, crisis consultants, regulatory fines and penalties, lost product and sales, reputational harm, legal fees, notification costs and rehabilitation expenses. They include the following: 

Product Recall – A standard business liability policy doesn’t include product recall coverage. The global economy and the internet have expanded today’s marketplace and accessibility to product issues and recall alerts, making recalls more widespread and costly than ever before. A Product Recall policy insures consumer parts and products. 

Contaminated Products – A Contaminated Products policy is a recall policy for consumable products. It can include the following enhancements: accidental contamination, malicious tampering or contamination, product extortion, government recall, and intentionally impaired ingredients. 

Business Interruption – As much as 50% of product recall costs fall under business interruption, including loss of income and profits during and after the recall and temporary business relocation. A Business Interruption extension can be added on to your Product Recall or Contaminated Products coverage.  

A businesses’ General Liability policy will cover bodily injuries, especially when the product being recalled is used in other products, and if property damage comes into play. Similarly, an Umbrella policy will cover ancillary expenses not covered by any of the above, or will provide increased limits where these coverages fall short.  

Having an experienced broker to negotiate the numerous enhancements and nuances in food recall insurance policy language is critical to ensuring you have the coverage you need to minimize liability. Contact your HUB product specialist for more information on instituting best practices in your plant as well as policies and enhancements you need to minimize loss during a product recall. 

[1] http://www.foodsafetynews.com/2018/02/five-years-of-data-show-bacteria-related-food-recalls-increasing/#.W1JW4y2ZNao

[2] https://www.agcs.allianz.com/insights/white-papers-and-case-studies/product-recall/