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Product Recalls – Prophylactic Measures to Reduce/Shift Risk
 

Product Recalls – Prophylactic Measures to Reduce/Shift Risk

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Product Recalls – Prophylactic Measures to Reduce/Shift Risk Through Insurance and Indemnity

Product Recalls – Prophylactic Measures to Reduce/Shift Risk Through Insurance and Indemnity

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    Product Recalls – Prophylactic Measures to Reduce/Shift Risk Product Recalls – Prophylactic Measures to Reduce/Shift Risk Presentation Transcript

    • Recalls – Prophylactic Measures to Reduce/Shift Costs A Panel Discussion USLAW Spring – 2009 Charleston, South Carolina March 28, 2009
    • The Panel
      • Brad Brush, General Counsel
      • Lasko Products, Inc.
      • Westchester, PA
      • Chris Galla, Associate Counsel
      • Genuine Parts Company
      • Atlanta, GA
      • Dan Gerber
      • Goldberg Segalla LLP
      • Buffalo, NY
      • Jim Martin, Vice President
      • Standard Lines Liability/Major Case Unit
      • CNA Insurance Chicago, IL
      • Tom Segalla
      • Goldberg Segalla LLP
      • Buffalo, NY
    • THE PROBLEM 2008 CPSC Recalls
      • 563 voluntary recalls
      • Largest number in last 10 years
      • 60.8 million product units
      • 3.675 million in civil penalties recovered for failure to report
      • 2/3 of al U.S. consumer product recalls are of imported products
      • The Fact Pattern
    • Discussion Overview
      • Liability and Risk Shifting
      • Insurance Related Issues
    • Supplier Selection & Negotiation Issues
      • What concerns are there when selecting suppliers -- especially with recalls in mind?
        • Domestic
        • Overseas
    • Supplier Selection and Negotiation Issues
      • What proactive measures can taken at the negotiation stage?
      • What obstacles need to be overcome with suppliers to achieve protective measures during negotiations?
    • Recall and Potential Recalls
      • After a recall is issued, what can downstream entities do to force the supplier to handle the recall?
        • What are the pitfalls?
      • What other the potential issues and hazards relate to a recall?
        • Is enforceable insurance in place?
    • Insurance Issues
      • Recall Insurance Policies
        • Who purchases, if at all?
          • Food and beverage companies
          • Pharmaceutical companies
          • Consumer products manufacturers
    • Insurance Issues
      • What issues should be addressed during the contract negotiation process?
        • See generally, Siemens, Cohen & Christensen, Finding Insurance for Product Recalls, Knowing Where to Look, BNA, June 23, 2008 (155N 0092-7732).
    • Insurance Issues
      • Recall Insurance Policies
        • What is purpose of coverage?
          • Direct Expense – costs to inspect, ship, store and replace a recalled product and notify customers of recall
    • Insurance Issues
      • Recall Insurance Policies
        • What is purpose of coverage?
          • Indirect Expenses – brand rehabilitation costs, loss of business income during any suspension period
    • Insurance Issues
      • Recall Insurance Policies
        • What is purpose of coverage?
          • Third Party Liability – bodily injury and losses incurred by customers
          • Product Extortion – product tampering and threats
    • Insurance Issues
      • Recall Insurance Policies
        • What are the Pitfalls?
          • Specified products
          • Costs only “reasonably” incurred or only after insurer’s consent
          • Initiation of recalls – excluded if initiated by insured
          • Recalls related to design or manufacturing defect may be excluded
          • Recalls excluded where recall is a result of the disregard of regulations or safety standards
    • Insurance Issues
      • Recall Insurance Policies
        • What are other considerations?
          • Premiums exorbitant
          • Deductibles high
          • Coverage limits low
    • Insurance Issues
      • Traditional Policies Purchased
        • Property policy
        • Commercial general liability
        • Professional liability
    • Insurance Issues
      • Traditional Policies Purchased
        • Property Policy – Coverage
          • Physical damage to insured’s premises and covered goods
          • Economic losses from business interruption
    • Insurance Issues
      • Traditional Policies Purchased
        • Property policy – coverage
          • Destruction of inventory
          • Temporary suspension of business
    • Insurance Issues
      • Traditional Policies Purchased
        • Property Policy – Exclusions
          • Faculty workmanship
          • Inherent vice
          • Pollution
    • Insurance Issues
      • Traditional Policies Purchased
        • CGL Policy
          • Coverage – damage or loss the policyholder is legally obligated to pay because of bodily injury or property damage
          • Third party related recall costs
    • Insurance Issues
      • Traditional Policies Purchased
        • CGL Policy
          • Courts – product recall or replacement liability are covered “damages” that result from “property damage”
          • Examples – direct costs to recall and repair and property damage. Also costs such as reputatural damage, value of inventory destroyed, breach of contract damages
    • Insurance Issues
      • Traditional Policies Purchased
        • CGL Policy
          • Exclusion
          • “ Sistership Exclusion”
            • Only applies to the costs of prophylatic recalls (i.e. costs of withdrawing a non-defective product for preventative or curative action)
            • Does not recover costs of recalling products that are actually defective or replacing products that have failed
    • Insurance Issues
      • Traditional Policies Purchased
        • Professional Liability Policy (E&O)
        • Coverage – liability insurance for an insured’s professional service
        • Recall costs – tangible v. intangible property
    • Recalls – Prophylactic Measures to Reduce/Shift Costs A Panel Discussion USLAW Spring – 2009 Charleston, South Carolina March 28, 2009