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From: Food Quality & Safety magazine, August/September 2012

Insure Against Food Contamination

by Andy Moreno

Well-publicized food recalls over the past few years, along with increased federal regulation, have sent a wave of concern through the food industry. Recent food contamination events and recalls have caused serious, negative financial effects. Many of these are still being felt and will impact our society for years. Food executives are realizing that increased regulations and recalls are a new and disturbing trend. Many want to know whether they are protected by the insurance they have purchased for this purpose.

“It’s common for me to come across food industry executives who believe their company’s food contamination exposures are covered under a standard commercial liability policy,” said Michael Lieberman, an insurance broker at Capitol Risk Concepts in White Plains, N.Y. “This belief is faulty and leaves companies open to large uninsured losses.”

The general liability policy plays an important role in managing your supply chain risks as part of the corporate insurance portfolio, but it is only one of several policies needed for complete coverage. Lieberman calls the various insurance policies and risk management practices addressing supply chain risks “bricks in the wall of protection. The liability policy is one of those bricks, covering third party bodily injury and property damage.” However, there are more bricks needed to build a supply chain wall of protection. Among them is the product contamination/recall policy. This policy has become crucial to a well-designed protection wall and fills many of the gaps left by the general liability policy.

In a number of the recent outbreak and recall events that have hit the food industry, product contamination damages and lost profits caused a large portion of the overall financial losses to food producers. The product contamination/recall policy is designed to step in and respond to both product damages and lost profits. In addition to the value of the contaminated product and lost profits, some of the additional coverage features included in the product contamination/recall policy are the value of the product that must be retrieved from customers, the value of the product that is not sold and is still in the possession of the seller, testing costs, transportation costs, loss of future sales, and public relations expenses. “These financial losses can be covered by a well-designed product contamination/recall policy,” Lieberman said.

Lieberman cautioned potential buyers of this coverage, however. “A variety of policies are available from a number of insurers in the marketplace, and many of these policies differ greatly in the coverage provided. At the same time, risk analysis and financial quantification can be complex, with the policies themselves being equally complex in their coverage provisions and the interpretation of critical words and phrases.”

“Don’t be fooled by the lowest price,” Lieberman warned. “While coverage can be obtained at a competitive price, the unique needs of the individual food company must be identified first, and policy coverage molded around those needs, before addressing premium cost. Furthermore, it is vital that you deal with an insurance professional who understands the ins and outs of coverage and how policies are applied to your unique needs. Otherwise, you may find yourself with a policy that will not respond at the time of loss.”

Lieberman concluded, “To manage the risk well, one must get out of the ‘It will never happen to me’ attitude. Consider the worst-case scenario. Work with an insurance professional who understands your business and knows which questions need to be asked to evoke the information needed for proper analysis and assessment. Once the exposure is put into proper perspective, one can decide to transfer the risk to an insurance company through a well-designed insurance policy, or the risk can be self insured.”

Many production managers are interested in reducing insurance costs with the implementation of product traceability, temperature tracking, and food safety systems. The following insurance coverage products would be helpful to consider with these issues.

More and more product liability insurers are moving away from underwriting food risks. The more an insured company can show an insurer that it has good practices in place, the better its chances are of securing needed coverage at the best price.

Marine cargo insurance policy (ocean, air, truck, storage): When it comes to marine cargo insurance costs, temperature tracking is probably the most important element, because this policy protects against physical loss or damage to the product during transit and possibly during storage. Temperature devices don’t necessarily prevent losses from happening, but they can help to pinpoint where the damage occurred and who the negligent third party may be. This is very helpful in subrogation efforts and in reducing the overall impact of a loss.

Product contamination and product recall insurance (lost account and lost customers): Having a good food safety program in place can eliminate the need for insurance in this area. Effective safety programs have an impact on cost, because it is less likely that a company with a good program will have a loss in the first place.

Even when a loss does occur, companies with a good program in place are usually better able to manage than those with a sub-par program, because they are better able to pinpoint the problem and confine the issue before it blossoms out of control.

Rehabilitation (brand name protection): Most contamination/recall policies have limits available for rehab of the brand name in the marketplace. Once again, a company with a good plan in place is less likely to need to rehab its name. However, if a loss were to happen, a company with a good system in place, one that also focuses on public relation issues, can quickly minimize and control a loss.

Product liability (bodily injury/property damage): More and more product liability insurers are moving away from underwriting food risks, especially imports. The news has had a big impact. For example, the press has put out the story that “only 2% of imported foods are inspected,” scaring off a lot of insurers. The more an insured company can show an insurer that it has good practices in place, the better its chances are of securing needed coverage at the best possible price.


Moreno is a microbiological systems engineer at AME, which offers rapid, robust, and validated PCR assays to food safety and production quality assurance/quality control managers. Reach him at andy.moreno@ame-pcr.com.

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