You’ve invested tremendous capital in product design, patents, manufacturing, transportation and logistics. You’ve sunk thousands or even millions into materials and labor, research, marketing and everything else it takes to bring a product to market. You’re committed… and the unexpected happens.
It could be a manufacturing defect, either on your part, or on the part of one of your suppliers. It could be that a food or drug product has become contaminated. A disgruntled worker could maliciously tamper with your product. Or it could be that new evidence comes to light that establishes your product is unsuitable or unsafe for any reason.
What happens then? If the right thing to do is to issue a product recall, can you do this, and stay in business? Can you do this at all?
Without product recall insurance, a large-scale recall can be disastrous to any design or manufacturing firm. You may take a hit to your brand reputation even as you deal with the expenses of a recall – and the substantial cash outlays in repairing defects, replacing defective products, or issuing cash refunds to your customers. In some cases, even a modest recall can mean mass layoffs, bankruptcy and possibly ceasing operations. That doesn’t help you, your employees, your vendor partners or your customers.
That’s where product recall coverage comes in.
Product recall coverage helps defray the costs of issuing a recall of a defective, unsafe or unsuitable product.
Areas of Coverage
Not every policy covers everything. Your insurance agent can help you select and design a policy that best fits the specific circumstances of your business. But consider the following kinds of coverage:
Malicious Product Tampering: Covers the risk that an employee or other criminal intentionally damages your product. This may cause you to have to shut down operations for a period of time. Coverage is available to help protect you not only against direct costs, but also indirect costs, such as business interruption and investigation.
Product Refusal: In some instances, a dealer or distributor could refuse payment or delivery of your product based on rumors, unconfirmed reports, or because someone else’s similar product was contaminated. For example, if you’re distributing California lettuce, but there are reports of an e-coli contamination involving Mexican lettuce, and your outlets stop selling lettuce entirely for a time, and they refuse delivery of product, your product refusal insurance policy would help defray your costs and damages.
Restaurant Owners: A food product recall or restaurant equipment recall could cause a restaurant significant financial harm. If the ingredient affected is a mainstay of your menu, or if the equipment being recalled is a critical item, you could be out significant sums of money. For example, imagine a pizza restaurant hit with a massive pepperoni recall on Superbowl Sunday.
Special coverage is available specifically to meet the concerns of food service establishments, to include expanded liability protection for claims arising from food-borne illnesses, for example.
Extortion: Specialized coverage is available to help business owners deal with the costs of extortion – whether from within or by someone outside the company. While rare, it does sometimes happen, and the costs of such coverage can be severe.
Product recalls are comparatively rare. But their risks in any single instance can be a financial catastrophe for the business. This makes insurance an ideal solution for the risk of product recalls and related potential liability. The risk is potentially disastrous, but you can still largely protect yourself with a known and affordable premium.