In late July 2024, the Boar’s Head Provisions Company announced a recall and consumer alert for listeria contamination affecting several deli meat products across a wide swath of states in the Northeast. As of this writing, three people have died, and 43 have been taken ill.
I thought breaking down the business and insurance implications that a company like Boar’s Head would face from this type of scenario would be helpful, especially for smaller food manufacturers and distributors.
Okay, so let’s jump into this. First – I do not know any of Boar’s Head insurance details; what I want to do here is take this scenario and explain it from the perspective of a smaller food manufacturing company and break down what coverages and coverage elements come into play on an event like this. Many of these issues we’ll discuss are often dangerous coverage gaps we’ve identified in food industry company insurance programs.
Legal Liability stemming from Boar’s Head Product Recall
This is a very serious contamination event, and when there are fatalities involved, you’ll likely see substantial litigation. If you look on Google for news about this event, you’ll see sponsored ads from law firms that are “investigating” this outbreak, so the event draws the attention of personal injury lawyers trolling for clients.
The point is that anytime a product, consumable or non-consumable, triggers bodily harm to others, the manufacturer, distributor, and retailer will face significant liability claims. This is where the General Liability policy comes into play, specifically the product liability portion of the policy.
Most small and medium-sized businesses will purchase this coverage with a limit of $1,000,000 per occurrence and $2,000,000 aggregate. Often, an umbrella is also purchased to provide excess limits on top of the general liability policy for an extra $1M, $5M, or more, depending on the size of the client.
The Need for High Liability Limits
In situations where multiple individuals become ill or, worse, die, the general liability and umbrella policies will be stressed, and it will be too late when you find out that a $1M umbrella policy is sufficient or insufficient.
The propensity for a food products manufacturer and others in the distribution chain of any consumable products to be sued multiple times for illness or fatalities will strain their liability policies, so purchasing high limits of protection in your umbrella or excess policies is critically important to safeguarding the company’s balance sheet.
Product Recall Insurance
The next issue to talk about is product recall insurance.
Product recall differs from product liability insurance as it covers two different things. Product Liability insurance covers the business for claims – meaning lawsuits that arise from harmful products.
Product recall covers the business for the costs associated with pulling a potentially harmful product from the marketplace.
In the case of the Boar’s Head product recall event, there are multiple layers of how a product recall policy will respond.
The first thing a company has to determine is how to communicate a large recall without blowing up your entire brand and suffer years of unfavorable standing in the marketplace.
The answer is to hire a crisis management PR firm to notify the media, retailers, and others in the distribution chain to begin the process of stopping the public from using the contaminated products as quickly as possible.
A product recall policy will pay for that crisis management firm, and most insurers have a list of experts on file, ready for your call 24/7. Remember, minutes count in a recall scenario, and you don’t want to waste time finding the right expert.
Next, you’ve got to recall and destroy that contaminated product on the retailer’s shelves. This may include transportation costs, replacing the contaminated products with wholesome products, disposing of the contaminated products, etc. It is all very costly.
But more importantly, it is done quickly – like lightning quick. The sooner you get that product out of the distribution stream, the fewer potential liability claims will occur. Again, this is what a product recall policy will pay for and give you access to the experts to arrange a fast remediation of the situation.
What other considerations are there?
Lost Profits
When a product recall is initiated, there are two reasons for profits being lost, which a product recall policy can cover. The first is the loss of income suffered by the insured by not selling the products that were produced or distributed that were destroyed by the recall process.
The second is a decline in sales that typically occurs following a recall where consumer confidence plummets.
A recall policy can cover both forms of lost profits. The business interruption section of your property policy will not respond to this type of claim.
Brand Rehabilitation
Once the recall is complete, even small brands will need to rehabilitate their brand so that consumers have the confidence to purchase their products again, and this is also an optional endorsement of a product recall insurance policy.
So those are the significant elements that need to be considered in a scenario like this, and it begs the question – Is your business insurance written to protect you from claims like this?
Often, when I speak with the decision makers at food manufacturers and distributors, I hear a lot of – well, that won’t happen to us, or We’re not that big, the chances of a big recall are unheard of, or I think my policy already covers us for that stuff.
The fact is that recalls happen to small companies just like they do to large companies, and the financial impacts can be even more devastating to a smaller firm that doesn’t have a massive balance sheet to absorb the costs related to a claim like this. In my opinion, it pays to be informed and know if you have the protection your company needs, and that’s what I do for my clients.
Want to learn more about our process and how our team of experts works with small and large businesses across various industries? Contact me and let’s chat. To get started, hit that “Get Insured Now” button.
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