Each year since 2004, there have been more than 1000 recall incidents mandated by federal and other agencies …….. an unknown number of voluntary recalls have occurred. Food and beverage recall events during 2008 and so far in 2009 that have made the news include imported and domestic vegetables and fruits, soft drinks, peanuts, pistachios, baked goods, meat and poultry products, pre-mixed salad, fresh and frozen seafood, and many others.

Product Contamination – Recall Insurance is purchased to insure against incidents involving ACCIDENTAL PRODUCT CONTAMINATION, MALICIOUS CONTAMINATION, and PRODUCT EXTORTION. Damages occur because of the expense of recalling contaminated products, replacing or destroying the contaminated product, rehabilitating the reputation of the insured, loss of gross profits, and the cost of a customer’s expenses if the insured’s product contaminated the customer’s product. A CONTAMINATION EVENT (as defined in a policy) MUST OCCUR TO TRIGGER A CLAIM.

Some carriers limit coverage to only those expenses involving the physical recall of the insured’s contaminated product. Others offer a broader policy that provides coverage for third party exposures such as situations in which an insured’s product contaminated the product of a customer.

Industries that typically purchase this insurance include food and beverage manufacturers, growers, custom food packers, livestock operations, meat packers, canners, medical and pharmaceutical manufacturers, packagers, consumer goods manufacturers and distributors, and custom packagers and labelers.

ACCIDENTAL CONTAMINATION occurs virtually anywhere in the production process; processing, preparation, assembly, blending, mixing, compounding, and packaging/labeling.

MALICIOUS PRODUCT damages occur when an insured’s product is purposely contaminated by an unrelated third party (or there is a threat of contamination) causing a recall and associated expenses.

PRODUCT EXTORTION damages occur when an insured receives an extortion demand asserting that a product has been, or will be, purposely contaminated.

The food and beverage industry is extremely vulnerable to this exposure and constitutes the fastest growing segment of buyers of product contamination – recall insurance. Of special concern is the cost of rehabilitating the reputation of an insured following a contamination event. The costs associated with such rehabilitation can be enormous and uninsured contamination – recall events commonly lead to bankruptcy. The cost of destroying goods that are either contaminated or suspected of contamination, and even the cost to replace such goods, are often small compared to the long-terms damages to reputation that cause loss of gross profits.

The increased frequency in the number of contamination incidents in the food and beverage industry is alarming and industry experts generally ascribe it to: a) importation of food products from countries with poor inspection procedures and inability of U. S. inspectors to deal with surging foreign food imports, b) inability of inspectors to deal with growing number of U. S. food and beverage processors, c) insufficient and poor oversight at production facilities, and d) faster and more efficient production systems that limit inventory and decrease the time between manufacture and consumption.

Most providers of this insurance product include assistance by crisis management experts should a recall be necessary. The cost of this service is generally included in the premium. These services typically include an initial consultation (after the policy is in place) that includes a discussion of how the service works and review of any in-place crisis management plans. Thereafter, the crisis management team is available 24/7 to respond to an insured should a covered incident occur.