Despite recall frequency and the potential for extraordinary costs, most companies don’t adequately plan, prepare, practice for or buy insurance against product recall events. In addition to proper insurance coverage, careful planning is essential in managing the risk of a recall.
Costs from a product recall can easily cascade into the millions. In addition to the physical expense of a recall, reduced sales due to poor consumer confidence, brand rehabilitation expense and potential shareholder lawsuits may also contribute to long-term losses.
It is a common misconception that product recall is covered under a general or product liability policy. This coverage does a good job of covering bodily injury and property damage but generally excludes contamination and recall events.
Recently, I imagined a scenario where a successful vegetable snack bar was recalled for Listeria contamination. Let’s now walk through the mechanics of the product recall claim process as if this business had the proper standalone recall policy on day one.
The process should begin well in advance of an actual claim scenario; it begins when the coverage is placed and reviewed to identify the product recall response team. This team will be led by your Henderson Brothers’ consultant and claim representative along with the carrier’s adjuster, legal, and the various partners that are contained within the product recall policy.
From the moment the contamination was identified, the Henderson Brothers team would be notified and we would help manage the overall process on your behalf.
At the onset, we would engage your crisis response team that is part of the standalone policy along with the carrier. The crisis response team will assist with proper notification processes, interfacing with media, FDA and other regulatory agencies. In addition, the team will stay with you every step of the way to help you manage the crisis.
Once you gain control of the situation, there is a lot of behind the scenes work that will occur to value the loss and ensure the business enterprise is not adversely impacted by the event. Some of the work would include the following:
- Root Cause Investigation Process
- Parties Impacted by Claim
- Subrogation and Risk Transfer
- Inventory Tracking and Management
- Inventory Destruction
- Cash Flow Protection
- Client Loss Analysis
- Customer Loss Analysis
- Claim Settlement
As you can see, there are many variables that come into play during a product recall and there is a lot of work that happens behind the scenes.
Your dedicated Henderson Brothers Representative is available to answer your questions. If you are a new customer, we are ready to perform a comprehensive review of your business exposures.
Please note that the information contained in this posting is designed to provide authoritative and accurate information, in regard to the subject matter covered. However, it is not provided as legal or tax advice and no representation is made as to the sufficiency for your specific company’s needs. This post should be reviewed by your legal counsel or tax consultant before use.