On the heels of Jennie-O’s salmonella-related ground turkey recall, as Thanksgiving approaches, consumers are facing two more recalls. The Center for Disease Control (CDC), public health and regulatory officials in several states and Canada, and the U.S. Food and Drug Administration (FDA) are investigating a multistate outbreak of Shiga toxin-producing Escherichia coli O157:H7 (E. coli O157:H7) infections linked to romaine lettuce. There have been at least 32 reported cases of infection. The CDC is advising that U.S. consumers not eat any romaine lettuce, and retailers and restaurants not serve or sell any, until more is learned more about the outbreak. Likewise, a ground beef producer recently recalled approximately 99,260 pounds of raw non-intact ground beef products that may be contaminated with E. coli O157:H7.
Food product recalls such as the current E. coli-related ones can be costly to businesses up and down the product distribution chain. Fortunately, insurance policies may provide coverage for policyholders affected by product recalls. Product recall insurance may respond to expenses and damages suffered by a policyholder in recalling affected products from the market, as well as covering business interruption, loss of profits, storage costs, product destruction costs, and costs associated with notifying customers. Likewise, coverage may be available for certain recall expenses, business interruption, extra expense, and profit losses suffered by the policyholder’s customers. Product recall policies may also provide certain crisis management services to assist policyholders in managing public relations.
Navigating a claim related to a product recall can be complex and businesses should seek input from a professional who is qualified to assist them. Likewise, policyholders should know what their policies say, and what they require, before incurring unnecessary costs. Commercial policyholders should consider the following guidelines while assessing the impact of a product recall and in preparing an insurance claim:
- First, work to contain the problem. Business should implement any recall plans they have in place to ensure that they isolate and remove any affected products from circulation. Likewise, businesses should develop a media communications strategy to keep customers informed and manage public relations.
- Attend to notice and timing. Make sure to give notice to all insurance companies that could be called upon to provide coverage. Spot any other time-related requirements and ensure they are satisfied or extended by the insurance company. Very often, product recall policies require the policyholders to contact a crisis consultant designated in the policy within days of any incident. The crisis consultant can assist with communication strategies. Failure to contact or work with the designated crisis consultant could affect the amount of recovery under the policy.
- Documentation and accounting. Keep exact and precise records of all communications, meetings, and exchanges. Set up accounting codes or other processes to track all invoices, costs, accounts receivable, and expenses of any kind related to the claim, by various categories (for example, recall announcement costs, storage costs, and product destruction costs). Policyholders will also need access to their customers’ records to the extent the claim includes customer losses. Continue to submit documentation to the insurance company as losses are incurred.
- Reserve all rights. Reserve all your rights to coverage. Do not allow the insurance company to classify or characterize your claim before you have had a full opportunity to review everything and properly present your claim.
- Form a team. Form a team of all personnel involved in the claim and hold regular team calls or meetings. Review the policy with counsel; remember that all exclusions and limitations must be construed narrowly. The insurance company will have counsel, adjusters, consultants, and accountants. Consider leveling the playing field with your own team. Many policies cover some of these claim-preparation costs.
- Communicate. Develop relationships at all levels of your team with their respective insurance company counterparts. Keep communication open and civil.
- Prepare the business interruption and extra expense claim carefully. Consider hiring forensic accountants skilled in computing business income and extra expense claims.
- Review other agreements that can affect the claim. There may be agreements that can impact a claim – a distribution agreement, a supply management agreement, etc.
- Draw on the business side. Insurance is expensive. You should expect fair treatment on the claims side. Business contacts, such as between risk managers and brokers, should be explored. If the insurance company does not live up to its end of the contract, consider renewal with a different insurance company.
- Work toward resolution. All claims should settle. If yours does not, make sure it is only because the insurance company is being unreasonable and that the record makes this obvious – so that if you do end up in litigation, it will be apparent that you gave the insurance company every opportunity to adjust the claim based on the facts, and that the insurance company chose to be aggressive and unreasonable.