Clutching at straws for a start to this piece, but I thought that I would take reference from the 1990 classic sci-fi film “Total Recall”. For those of you who may have seen it or remember it, the star was the Austrian/American, muscleman, actor, politician, Arnold Schwarzenegger. The very same actor also had a lead role in the “Terminator” series of films, which featured his famous catchphrase, “I’ll be back”.
With “total recall” and “I’ll be back” out of the way, I think I can safely start on the purpose of my blog, which is product recall insurance!
In simple terms product recall insurance can protect a business from the financial implications of a recall of its products, usually because it has been found to be unsafe or could cause injury or damage. The policy should cover the costs of identifying and addressing the issue, whilst carrying out the recall and keeping the business going.
Although some third-party losses may be covered under a products liability policy, the sub-limits might be low, and the policy will not cover first party losses.
Some examples of first party losses that can be covered under a recall policy are:
- Rectification cover – e.g. cost associated with either cleaning and recalibrating buildings or equipment
- Business Interruption – e.g. cover for loss of future sales
- Brand & reputation protection – e.g. cost associated with specialist media crisis management
- Product Guarantee – e.g. if a product is safe, but has been manufactured out of specification
- Animal by-product – e.g. where a product is labelled vegan or vegetarian, but is found to contain traces of animal DNA
Certain industry sectors are likely to have more a recall claims than others. The food and beverage sector is one of those areas. By looking at the food standard agency website, you can see that there is already some food recall for 2020. The largest food & beverage recall of 2019 was 11.8m lbs, (yes, 11.8 million!) of ready to eat chicken…not a poultry amount! (sorry!)
Although large organisations are often in the spotlight (Whirlpool recently) a product recall situation can occur in any size of business. Companies are best advised not to rely on their suppliers to cover the costs and accept that even with the most top-notch quality assurance, mistakes in production can still happen. The Whirlpool example also highlights the additional impact on a business of a product recall, with both their website and phones lines being jammed as hundreds of anxious customers struggle to get the information they need about their appliances.