Product Liability, Contamination and Product Recall Insurance

Lately it seems like everything from children’s toys to food products are being recalled.

Product recall is defined as “insurance coverage for the cost of getting a defective product back under the control of the manufacturer or merchandiser that would be responsible for possible bodily injury (BI) or property damage (PD) from its continued use or existence.”

With global consumer standards constantly on the rise, product recalls are becoming a harsh reality for many businesses. In 2012, the FDA recalled 9,469 products, the most EVER in history. Product Recall insurance is a must have for any company providing consumer goods.

So lets explore…

Product Liability Insurance isn’t the same as Product Recall insurance?!

No, it isn’t. Product Liability insurance does not include recalls. There is an exclusion in most product liability insurance policies that excludes coverage for damages arising from the withdrawal, inspection, repair, replacement, or loss of use of an insured’s product should it be recalled.

So Why Should I Purchase Product Recall Insurance?

1. Having a product recalled is very expensive — a significant liability.
   • Costs involved can include income reimbursements for the first (you) and third (your customers) parties, overtime for employees, extra warehouse and shipping fees, additional product testing, regulatory or consumer protection investigations, and many more.
   • Many industries don’t differentiate between big and small companies, so startups usually have to jump through the same regulatory hoops that fortune 500 companies do.  These bills can be killer for a young, lean company.
   • Your industry’s regulatory body may be able to implement a mandatory recall, in which case you must recall your product
2. “It won’t happen to me!”
   • Even companies with the best quality control are susceptible to product recalls (Hello, Chipotle!)
   • Check out all of 2016’s recalls here
3. A company can easily customize their product recall policy based on their needs.
   • There are typically three categories you can choose from:
     1. consumable products (food, beverages, pharmaceuticals, etc)
     2. consumer goods (finished household goods)
     3. non-consumable merchandise (cars)

How Can I Get the Most Out of My Product Recall Insurance Policy?

1. Check to see if your existing Product Recall insurance policy covers adverse PR- this may help boost your reputation back should a recall ever occur.
2. Provide notice before the recall is necessary.
3. Check to see what is NOT covered by your general liability & all-risk property insurances and fill in the gaps.
4. Document all cases and claims as they occur.

How To Survive the Recall

There are added risks for companies just starting out because they may not have their supply chain perfected. Here are some tips and tricks to handle this sticky situation:

1. Take control of your recall, don’t wait for the issue to multiply
   • Good example: Fitbit
   • Bad example: Toyota
2. Maintain a customer complaint file
   • Notice when there is a pattern in complaints then follow up
3. Establish initiatives to take care of customers affected
4. When involving food: inform the FDA immediately
5. MOST IMPORTANTLY: Be Prepared.
   • Get covered!

I’m uninsured…how do I get coverage?

Looking to purchase Product Liability or expand your coverage into Product Recall Insurance?

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