In 2008, Jalapenos and Serrano Peppers, contaminated by agrower in northern Mexico, were responsible for the largestSalmonella outbreak in the United States since 1985, and createda scare that swept across the nation’s restaurants, grocery storesand food suppliers. In 2007, frozen hamburger meat contaminatedwith the dangerous E. coli 0157:H7 bacterium led to the 2ndlargest meat recall in U.S. history and the demise of Topps MeatCompany which had been in business for 67 years. In 2006, baggedspinach contaminated with E. coli created fear across the countryafter hundreds of people became ill and several died.
These were the just a few of the headline grabbers. Every year,the U.S. Food and Drug Administration issues dozens of food–relatedrecalls because of product contamination. Despite the bestefforts of growers, packers, distributors, restaurants and grocers,the reality is such that where a foodproduct is involved, the possibility ofcontamination exists in some shape,form or fashion. And a recall, whetheron the scale of the jalapeno, groundbeef or spinach recalls, or on a smallerscale, can have a devastating effect on along list of associated businesses, bothon their financial outlook and theirreputation. The business can sufferfinancially even if the contaminationis accidental or even– as was the casewith the tomatoes implicated earlierthis year– the contamination turns outto not involve the targeted products.
Most food–related companies carry commercial general liabilityinsurance which typically includes product liability coverage toprotect the company if a patron or customer becomes ill from eatinga contaminated product. But few businesses realize that thesepolicies exclude the cost of a recall of their product from the marketplace,that is, the cost of doing everything possible to get thesuspect food off the market: tracking, testing, transferring, storing,destroying and then actually replacing the product with a new supplyof “untainted” product.
These costs add up quickly and as we saw in the case of ToppsMeat Company, the frozen hamburger company with the E. coliscare, this expense can become insurmountable.
The good news, says Mikel Fitzgerald of Wortham Insuranceand Risk Management, is that there is a special type of insurancecoverage available to prevent such a devastating loss. Unfortunately,many companies are never made aware of this importantcoverage. It’s called Product Recall Coverage and it is available incustom–designed policies to cover businesses ranging from a smallmom–and–pop restaurant to larger franchised restaurant operationsto large food processing plants.
“One of the biggest expenses when a product is recalled can bethe cost of trying to find it,” Fitzgerald says. “Think about the Jalapenoand Serrano peppers. The produce house had to trace eachpepper across 16 states. The expenses can be enormous.”
“And,” Fitzgerald says, “even if the company is a victim of circumstance,say a restaurant that purchased the contaminated foodfrom their supplier, if the product is linked to their business, especiallyif someone becomes ill after buying the product from them,the damage to their reputation can be enormous, too.”
“A company’s reputation can be destroyed after this happens,”Fitzgerald says. “Every other manufacturer or packer or grocer orrestaurant in that marketplace will seize upon the opportunity todemonstrate how their products are superior and how all of yourprevious customers should be purchasing their product instead.Your reputation is impaired very fast ina very large way.”
And that’s perhaps one of the mostimportant reasons food–related companiesshould consider Product Recallcoverage. Should a recall happen, thepolicy can be designed to cover theexpenses you will incur for crisis consultantsto begin the long and arduousprocess of rehabilitating your reputationin the marketplace.
“This policy will also cover the continuingexpenses that the business incursand can even cover the loss of profits the business experiencesfrom the downturn in sales. This will allow them the time theyneed to restore their reputation, weather the financial storm andget back on their feet again,” says Fitzgerald.
In order for a business to secure Product Recall Insurance, theiroperations will be closely evaluated by the insurance company thatis underwriting the policy to make sure that they are following thebest practices for their respective industries. This is good news forthe consumer. This means customers can rest easy knowing thatthose companies that carry Product Recall Insurance are doingeverything possible to keep their products safe and free from contamination.
“In this day in age, food companies of all sizes simply can’t affordto not consider the cost implication and the impact on reputationthat a food–borne illness or product contamination can have ontheir business,” says Fitzgerald. “You are not only insuring againstthe crippling costs of a recall, but you are covering the actual livelihoodof your business and its associates.”
