You recall a batch of biscuits because they’re carrying the wrong label. How will your insurance respond?
According to Michael White, Steadfast Group’s Broker Technical Manager, that may depend on exactly how the label misleads.
“If there are nuts in a product when the label says it’s nut free, this is potentially dangerous to consumers,” he says. “It could even be fatal to someone with a severe nut allergy. In this case, the right Product Recall insurance, sometimes called Crisis Cover or Contaminated Products Cover, should cover many, if not all, of the associated costs.
“However, if the label promises that the biscuits will be chocolate flavoured when the contents are vanilla, the cover may not apply. It’s usually only triggered where there’s potential for personal harm.”
An expensive process
The costs associated with a product recall can be huge.
“Firstly, you need to identify where the problem products actually are,” says White. “If you’re a manufacturer who uses a distributor, that can be a major challenge, particularly if your product is sold across both major supermarkets and smaller retail outlets.”
“A recall can also be very damaging to your reputation so you may need professional help with managing the media and the messages your share with your customers”
Then there’s the cost of physically removing the contaminated products from the shelves and stacking safe replacements.
“You will probably have to bring in additional staff to help with this because you’ll need your own people to be to concentrating on keeping the business going,” White says.
A recall can also be very damaging to your reputation, so you may need professional help with managing the media and the messages your share with your customers – for example, across your social media platforms.
“A comprehensive policy should cover all these areas,” White says.
What if the harm has already been done?
If someone ate one of your biscuits and was injured by a shard of glass that fell into the mix by accident, Public & Products Liability Insurance may cover the cost of legal liabilities arising from a subsequent claim. It, however, may not cover the costs of recalling any other packets that might be contaminated by broken glass.
“Most businesses that manufacture, import or distribute products will have Public and Products Liability Insurance,” White says.
“If you are in an occupation where Product Recall cover is not available, it may be possible to extend this cover with a what’s known as a Product Recall Add On, although this may not be as broad as the cover you get with the standalone policies.”
A serious responsibility
Business owners are responsible for any product that they import, manufacture, sell, supply or distribute. That means you may be held liable for anything that makes your products unsafe. In a worst-case scenario, the immediate costs and subsequent damage to your reputation may put your business at risk.
Product recalls are not black swan events. Food Standards Australia reported 776 recalls between 2012 and 2021 in the food sector alone. For businesses in particularly vulnerable sectors such as food and beverage manufacture, a combination of product liability and stand-alone recall coverage may provide possible protection.
Your broker can help you put in place the right cover for your business. Get in touch with a broker today to find out more.
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