Defective Products Recall Insurance & Contaminated Products Insurance

Background

Skillful handling of a product recall can minimise damage demonstrating reliability and professionalism to wholesale and retail connections.

Consumer Goods

Consumer goods recalls are on the rise and have been so for the past decade, usually as a result of injury, harm from excessive levels of a restricted substance, electrical shock and parts detaching causing choking hazards.

Product recalls and contaminations are sometime discovered by the manufacturer, as a result of their quality control procedures. Other times, as is often the case with extortion, news of the problem may come initially from third parties, such as the internet.

Worryingly, the first news of a damaged, dangerous or contaminated product will very often come from the end consumer – and they may have already suffered as a result of it.

Once embroiled in a product recall situation the costs to the manufacturer, retailer or wholesaler – both direct and indirect – can be enormous.

Food, Drink, Pharmaceuticals and Cosmetics

Instances of accidental food contamination occur in the UK regularly, arising from introduction of bacteria, viruses, chemicals and foreign objects, or as a result of formulation errors and mislabelling.

Food and drink account for around 90% of recalls each year.

Cosmetics and medicines, whether applied or sprayed onto the skin, inhaled, injected or swallowed, are also susceptible to contamination and potentially fatal errors.

Alerts regarding pharmaceuticals alone now stand at about 28 every year, for reasons ranging from product infection to faulty packaging assembly.

The potential damage from such incidents can be multiplied if they attract adverse publicity.

Legislation

Consumer protection legislation is both domestic and international. Legislation in the UK such as The Food Safety Act and the Sale of Goods Act provide a useful framework. Key EU legislation is enshrined in the General Product Safety Directive and the General Food Law Regulations. The latter applies to all food businesses, including supermarkets and restaurants.

Both focus on enforcement and make the notification of problems or potential problems mandatory through rapid alert systems – RASFF for food and RAPEX for other consumer products. The Directives offer product recall as the action of last resort, but given what’s at stake in terms of costs and brand reputation most companies play safe and opt for recall if there is any doubt.

Cover

Cover is generally triggered by the recall of a product (including government /public authority forced recalls) caused by:

• a deficiency of the product
• actual or alleged malicious product tampering
• product extortion threats, political activism or even grudges

… provided the use of the product has the potential to cause bodily injury or damage to property.

Cover includes

• the policyholder’s recall costs
• the cost of replacing the defective product
• consultants’ and advisers; costs
• loss of policyholder’s gross profit
• product extortion costs
• legal defence costs
• brand rehabilitation and necessary public relations costs
• third party recall and replacement costs