With all our recent articles on the imminent dangers of product recalls and contamination events, the astronomical costs associated, and the growing government push for more stringent oversight and safety requirements, you can see why product recall coverage is a must for any size business. But, what is actually covered—and what are the coverage options?
Product recall insurance is intended to protect a company’s balance sheet from financial loss and possible bankruptcy due to a product recall or contamination. These costs can include retrieval, replacing or refunding the product, business interruption losses, as well as compensatory damages the insured may be obligated to pay their customers as the result of a recall. As we’ve recently shown, even large corporations are vulnerable to the financial implications of a product recall, and smaller organizations simply cannot absorb the losses.
Berkley Global Product Recall helps you keep your clients protected with worldwide product recall and contamination insurance, preemptive risk mitigation services and 24/7 crisis support. By providing risk transfer through our insurance policies, combined with crisis consultant services, we can help grow your business with the industry-leading protection and support that your clients need.
We have innovative insurance solutions for a broad range of companies, from food & beverage to consumer goods. Coverage can be custom-tailored to meet individual client needs and can include:
- Product recall expenses such as notification, recovery, disposal, storage, and additional labor
- Cost to refund, repair or replace the product
- Business Interruption
- Brand Rehabilitation
- Customer loss of gross earnings
- Government recalls
- Adverse Publicity
- Product Refusal
- Product Extortion Costs
- Impaired Property for components
- Third Party recall damages
- Defense Costs
- Crisis Consultant costs including 24/7 global support
Contamination vs Recall Insurance
These specialized lines of insurance first originated in the 1980s following the Chicago Tylenol Murders, when someone tampered with capsules of Extra-Strength Tylenol, turning them lethal with potassium cyanide. Seven people in the Chicago area died. Copycat attacks around the country caused several more deaths. Johnson & Johnson spent more than $100 million to recall 31 million bottles (the equivalent of roughly $250 million today).
The first policies available only covered losses caused by a product tampering, similar to the Tylenol incident, but eventually broadened coverage to also include extortion and contamination. Today, policies that include these three components of coverage for 1) Accidental Contamination, 2) Malicious Product Tampering and 3) Product Extortion are referred to as Product Contamination Insurance. You can also describe Product Contamination as a recall policy specifically tailored for topical and ingestible products, as it covers losses due to:
- Accidental Contamination – Any inadvertent or unintentional contamination or mislabeling of an insured product that occurs during or as a direct result of its production, preparation, manufacture, packaging or distribution, and the use or consumption of an insured product has resulted in or would result in bodily injury or property damage
- Malicious Product Tampering – Any actual, alleged or threatened, intentional, malicious, and wrongful adulteration or contamination of the insured product(s), whether or not by your employee, so the use or consumption of the insured product(s) has resulted in or would result in bodily injury or property damage or the creation of adverse publicity
- Product Extortion – Any threat or connected series of threats to commit a Malicious Product Tampering of the insured product, for the purpose of demanding extortion monies
Over the past few decades demand for recall insurance has grown among many industries, but because the triggers of a Product Contamination policy were specifically designed for consumable products, the policy forms had to evolve to provide coverage for a more diverse range of consumer products. For example, there is significant risk of a bicycle or blender being recalled, but not due to an accidental contamination. As a result, another type of recall policy was created to provide coverage for manufactured goods.
As described above, a Product Contamination policy is triggered by an accidental contamination, malicious product tampering, or extortion. However, a Product Recall policy is triggered by the recall, removal, recovery of possession or control, withdrawal or disposal of, or purposeful destruction of an insured product because the use or consumption has resulted in, or poses actual and imminent danger of resulting in, bodily injury or property damage. Through our Product Contamination and Recall offerings, we’ve developed innovative insurance solutions to provide coverage for a diverse range of products at all levels of the supply chain, for both ingredients and components as well as finished goods. Based on the type of product and exposure, we can help customize coverage to meet your client’s specific needs.
Disclaimer: Berkley Global Product Recall is pleased to share this material with its customers. Please note, however, that nothing in this document should be construed as legal advice or the provision of professional consulting services. This material is for general informational purposes only, and while reasonable care has been utilized in compiling this information, no warranty or representation is made as to accuracy or completeness.