If you’ve been watching or reading the news at all in the last 12 months, you know that besides cyber hacking, the big news has been about product recalls. Nearly every industry has been affected by some sort of product recall in the last year, and something you own has probably been subject to recall in the last few years.
If you company offers a product, chances are you may be subject to a product recall at some point during the duration of your business. Product recalls are expensive, and unfortunately they probably aren’t covered under your business owner’s policy or your products liability insurance, if you have it.
Why Are Products Recalled?
Generally products are recalled for one of two reasons (and sometimes both):
- Because a manufacturing defect occurred that may cause harm, injury or death.
- Because a manufacturing defect DID cause harm, injury or death.
Recently General Mills issued a product recall on two of their cereal products. The products in question were meant to be gluten-free, but it was discovered that wheat flour containing gluten may have been introduced at one facility during the manufacturing process.
It is unclear whether injuries linked to the product were known at the time of the recall, but General Mills announced the recall when they uncovered the manufacturing error. All products were removed from store shelves and customers were directed to return their products for a refund.
On the other end of the spectrum was the Takata airbag recall covering 10 years of vehicles and eight fatalities. The company allegedly failed to notify federal regulators though they had known about the faulty airbags for several years.
Why Should You Care?
You should care about product recall for two reasons:
- Your products liability insurance (if you have it) will not cover products recalls.
- Product recalls are expensive.
General Mills recalled 1,800,000 boxes of cereal in their incident from stores and from consumers at significant cost. They are also facing a class action lawsuit for selling products that were mislabeled and allegedly caused harm or injury.
Takata has received a $200,000,000 fine for failing to notify federal regulators of faulty airbags. An internet search reveals several law firms willing to take cases, meaning the company will be tied up in litigation for years to come. In the meantime they must pay to replace every airbag they installed in every vehicle manufactured between 2002 and 2012. That is estimated at 30 million vehicles.
Product recalls involve not only refunding products or repairing or replacing products, but also the expense to retrieve the product and dispose of it, if necessary. Many companies require extended down time to correct or repair manufacturing facilities. Other companies suffer nearly irreparable reputational damage.
A products recall insurance policy can address many of these issues. Your insurance broker can help you craft product recall insurance coverage that will meet the specific needs of your business.
What Can You Do To Protect Your Business?
Products liability insurance is designed to cover a policyholder in cases where a product they sell or produce unintentionally injures, sickens or kills a consumer. If a product defect has the possibility of injury or harm but is voluntarily recalled when the defect is discovered, there would be no coverage under the products liability policy.
If a consumer was sickened or injured by a product resulting in a recall, the products liability would respond to the consumer or consumers that were sickened or injured, and a product recall insurance policy would respond to the recall.
Unfortunately, many businesses don’t even purchase products liability insurance so there is no coverage at all. Even fewer business purchase product recall insurance.
If you manufacture or distribute products to consumers, products liability insurance and product recall insurance should both be a part of your insurance portfolio. Schedule a risk management checkup with your insurance broker to find out how to purchase these valuable policies.