2. Did you know………………?
EACH YEAR IN THE U.S. ……………………………….
48,000,000 PEOPLE SICKENED (1 in 6 citizens)
128,000 HOSPITALIZATIONS
3,000 + DEATHS
EACH WEEK IN THE U.S. ……………………………….
25+ RECALLS OF FOOD (average)
Source: Centers for Disease Control and Prevention 2011
4. -1906-
……year author Upton Sinclair wrote the novel
“The Jungle” in which he detailed the corruption and
unsanitary conditions in the meat packing industry.
Upton Sinclair
Sinclair’s novel lead to a
50% reduction in purchases
of American beef.
5. -1930-
Increased civil scrutiny and public awareness led
to….1930 Food & Drug Administration founded.
Regulates and enforces food safety
statute along with Department of Agriculture.
Food Standards Committee 1930
6. 1982 – Turning Point
Johnson & Johnson spent $100,000,000 on recall of
Tylenol after seven deaths following a malicious
contamination of it popular drug with cyanide.
.
7. 1982 – Turning Point (cont)
The “Tylenol Murders” resulted in increased public
and government awareness of contamination
issues.
Led to increase in purchases of recall/contamination
insurance. Policies coverages are expanded …..
adding Accidental Contamination coverage.
Until 1982, few contamination incidents, few recalls.
Publicity of Tylenol incident caused increase in
numbers of reported contamination incidents,
malicious and accidental.
9. What is a Recall?
A recall is the action taken by a firm to remove
or withdraw a product from the market because it
has caused, or has the likely potential to cause, bodily
injury or property damage as a result of normal use or
exposure.
10. Major Contamination Causes
Biological
pathogens (such as salmonella, E-coli, botulisms)
bacteria and miscellaneous micro-organisms
organic matter (such as insects, rodents, rodent
excrement)
Physical
dirt, packaging material, jewelry, metal shavings,
miscellaneous debris
Chemical
pesticides, cleaning solutions, lubrication residue,
miscellaneous chemicals
11. Major Contamination Causes (cont)
Cross-contamination
Example - raw meat juices mix with raw vegetable
matter during processing
Mis-labeling
(including allergens and consumptions dates):
gluten, eggs, soya, shell fish, nuts, fruits, milk and
whey products, dyes, many others
13. Product Recall/Contamination
Coverages
Accidental Product Contamination
Malicious Product Contamination
Product Extortion
**** Under most recall/contamination policies a
contamination event must occur to trigger coverage.
The event must take place within the policyholder’s
scope of business. In most cases, events involving
a competitor’s business or other similar business
will not trigger a PR/PC policy.
**** Some policies will trigger on a speculation of a contamination.
14. Mistakenly, many company executives believe
their companies are properly insured for recall costs
under their General Liability/Products policies.
General liability and product liability policies
do not cover the expenses of recalling a product
from the marketplace. Endorsements to GL policies
sometimes provide a very low limit (usually
$100,000) and restrict coverage to first party recall
expenses only.
15. Standard ISO forms specifically exclude
“damages claimed for any loss, cost or expense
incurred by you or others for the loss of use,
withdrawal, recall, inspection, repair, replacement,
adjustment, removal or disposal of your product,
your work or impaired property ………….”
16. Covered Costs
Pre-Recall Expense
• Laboratory and forensic inspections, chemical
analysis, testing
• Costs and fees of experts and advisors
17. Covered Costs (cont.)
Recall Costs
• Third party recall costs of customers recalling
the insured’s product
• Additional warehouse expenses
• Costs of examining, disposing of, or destroying
the insured product
• Value of any recalled or destroyed insured
product
• Costs of re-distributing the insured product
• Communications and media announcements
• Transportation costs
• Employee overtime costs
18. Covered Costs (cont.)
Recall Costs (cont.)
• Expenses of additional staffing
• Employees’ out of pocket expenses
• Costs of cancellation of advertising and
promotion, shelf slotting
• Other necessary retained consultants
• Increased cost of working:
– Cleaning machinery, vehicles, contamination
site
– Maintaining minimum workforce
– Increased cost of sub-contracting to others
• Rehabilitation costs (usually a sub-limit
• Loss of Gross Income (usually a sub-limit)
Note: Covered costs, sub-limit percentages and other provisions vary among insurance
companies that offer this coverage. All insurance buyers should be advised to compare
coverage provisions carefully before making a purchasing decision.
19. Third Party Coverage
Losses suffered by insured’s customers that are
forced to recall insured’s products
Especially vulnerable if product is usually an
ingredient (nuts, spices, grains, fruits, flavorings,
hundreds of others)
Costs of recall can multiply significantly
(An optional coverage in some policies)
21. Elements of
Crisis Management Services
1. Notify and coordinate forensic and testing specialists
2. Investigation – confirm recall is needed
3. Crisis team assembly
4. Arrange for additional consulting specialists
5. Assist in and guide media announcements and
communications
6. Regulatory liaison
7 Post incident assistance
These services are usually included in the premium.
Other services, such as procedural reviews, crisis simulation,
recall and HAACP plan review, mock recall, microbiological risk
assessment and training can usually be purchased as fee for
service.
22. Targeted Industries
Virtually all entities involved in the food and beverage
business, from the farm and pasture to the consumer’s
plate, should consider the purchase of
RECALL/CONTAMINATION insurance……
Farmers/Growers
Processors
Manufacturers
Livestock operations
Meat packers
Distributors
Packagers
Labelers
Importers
Bottlers
Wineries
Harvesters
Co-ops
23. Products/Ingredients
Recalled Recently
Pre-prepared burritos
Smoked salmon
Peppers
Avocados
Beef cheek products
Pork
Garlic bread
Frozen novelty pops
Ground beef
Clam Chowder
Kernel corn
Peanuts
Salted Croaker
Pistachios
Raw chicken
Lettuce
Spinach
Cantaloupe
(above is very small percentage of recently recalled food/beverage products)
Cheese
Bottled water
Cookies
Instant coffee
Prepared pesto
Frozen mussels
Taco dinner kits
Raw tuna
Snack nit blends
Pasta
Prepared pies
Eggplant and garlic spread
Frozen entrees
Bird food
Dog food
Frozen pies
Noodles
Sprouts
25. Recall Costs (cont.)
Among the members of the Grocery Manufacturers
Association who participated in a recent survey,
58% reported they had been affected by a product
recall in the last five years.
For the participating companies that have faced a
recall in the past five years, 77% reported that the cost
was under $9,000,000. The remaining 23% reported
higher costs. About 81% described the potential risk
from recalls as being “significant” to “catastrophic.”
(source – Grocery manufacturer’s Association “Capturing Recall Costs” 2012)
26. Recall Costs
In 2007, the estimated cost of the peanut butter recall
to one company due to Salmonella contamination was
$78,000,000. The estimated total cost to peanut butter
product producers was $1,000,000,000.
Experts agree that arriving at an “average cost” of a
recall is difficult owing to many variables …. type of
product, distribution area, company size, etc.
(source – Grocery manufacturer’s Association “Capturing Recall Costs” 2012)
27. Recall Costs (cont.)
Moreover, there is no one industry bureau or
government authority that collects and analyzes
specific recall experience data to determine recall
costs broken down by wide industry segments and
company size … thus no broadly proven data are
available.
However, all the experts agree that the cost of an
uninsured recall could easily cause the bankruptcy of
the company involved
(source – Grocery manufacturer’s Association “Capturing Recall Costs” 2012)
28. Food Safety Modernization Act
Became law on January 1, 2011
First major amendment to Food Safety laws in 75 years
Among the provisions:
1. FDA will inspect high risk food facilities in next 5 years.
Every 3 years thereafter
2. FDA has authority to detain food products it deems
possible to be contaminated
3. FDA can suspend operations if there is probability that
food from a facility may prove harmful
4. FDA can force a recall
5. FDA can request safety certifications from food importers
29. Food Safety Modernization Act (cont.)
6. FDA can request registration of food businesses
7. Unannounced inspections by FDA now authorized
8. Food companies require to keep detailed records
9. Whistleblower protection for employees
Expected impact: Difficult to assess.
However, government mandated recalls, more
frequent recalls, higher operating costs are very
possible.
30. The wise man knows ……
“It takes 20 years to build a reputation and five
minutes to ruin it. If you think about that, you’ll
do things differently.”
Warren Buffet
Product Recall/Contamination Insurance:
Protecting your and your client’s reputation
