Mc dermott product recall
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Mc dermott product recall

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Mc dermott product recall Mc dermott product recall Presentation Transcript

  • PRODUCT RECALL/CONTAMINATION INSURANCE
  • Did you know………………?EACH YEAR IN THE U.S. ………………………………. 48,000,000 PEOPLE SICKENED (1 in 6 citizens) 128,000 HOSPITALIZATIONS 3,000 + DEATHSEACH WEEK IN THE U.S. ………………………………. 25+ RECALLS OF FOOD (average)Source: Centers for Disease Control and Prevention 2011
  • HISTORY…Legal action and need for insurance
  • -1906-……year author Upton Sinclair wrote the novel“The Jungle” in which he detailed the corruption andunsanitary conditions in the meat packing industry.Upton SinclairSinclair’s novel lead to a50% reduction in purchasesof American beef.
  • -1930-Increased civil scrutiny and public awareness ledto….1930 Food & Drug Administration founded.Regulates and enforces food safetystatute along with Department of Agriculture.Food Standards Committee 1930
  • 1982 – Turning PointJohnson & Johnson spent $100,000,000 on recall ofTylenol after seven deaths following a maliciouscontamination of it popular drug with cyanide..
  • 1982 – Turning Point (cont)The “Tylenol Murders” resulted in increased publicand government awareness of contaminationissues.Led to increase in purchases of recall/contaminationinsurance. Policies coverages are expanded …..adding Accidental Contamination coverage.Until 1982, few contamination incidents, few recalls.Publicity of Tylenol incident caused increase innumbers of reported contamination incidents,malicious and accidental.
  • Product Recall/Contamination InsuranceIn a nutshell
  • What is a Recall?A recall is the action taken by a firm to removeor withdraw a product from the market because ithas caused, or has the likely potential to cause, bodilyinjury or property damage as a result of normal use orexposure.
  • Major Contamination CausesBiologicalpathogens (such as salmonella, E-coli, botulisms)bacteria and miscellaneous micro-organismsorganic matter (such as insects, rodents, rodentexcrement)Physicaldirt, packaging material, jewelry, metal shavings,miscellaneous debrisChemicalpesticides, cleaning solutions, lubrication residue,miscellaneous chemicals
  • Major Contamination Causes (cont)Cross-contaminationExample - raw meat juices mix with raw vegetablematter during processingMis-labeling(including allergens and consumptions dates):gluten, eggs, soya, shell fish, nuts, fruits, milk andwhey products, dyes, many others
  • Food Borne PathogensCDC Estimates of Food Borne Illnesses in U.S. - 2011
  • Product Recall/ContaminationCoveragesAccidental Product ContaminationMalicious Product ContaminationProduct Extortion**** Under most recall/contamination policies acontamination event must occur to trigger coverage.The event must take place within the policyholder’sscope of business. In most cases, events involvinga competitor’s business or other similar businesswill not trigger a PR/PC policy.**** Some policies will trigger on a speculation of a contamination.
  • Mistakenly, many company executives believetheir companies are properly insured for recall costsunder their General Liability/Products policies.General liability and product liability policiesdo not cover the expenses of recalling a productfrom the marketplace. Endorsements to GL policiessometimes provide a very low limit (usually$100,000) and restrict coverage to first party recallexpenses only.
  • Standard ISO forms specifically exclude“damages claimed for any loss, cost or expenseincurred by you or others for the loss of use,withdrawal, recall, inspection, repair, replacement,adjustment, removal or disposal of your product,your work or impaired property ………….”
  • Covered CostsPre-Recall Expense• Laboratory and forensic inspections, chemicalanalysis, testing• Costs and fees of experts and advisors
  • Covered Costs (cont.)Recall Costs• Third party recall costs of customers recallingthe insured’s product• Additional warehouse expenses• Costs of examining, disposing of, or destroyingthe insured product• Value of any recalled or destroyed insuredproduct• Costs of re-distributing the insured product• Communications and media announcements• Transportation costs• Employee overtime costs
  • Covered Costs (cont.)Recall Costs (cont.)• Expenses of additional staffing• Employees’ out of pocket expenses• Costs of cancellation of advertising andpromotion, shelf slotting• Other necessary retained consultants• Increased cost of working:– Cleaning machinery, vehicles, contaminationsite– Maintaining minimum workforce– Increased cost of sub-contracting to others• Rehabilitation costs (usually a sub-limit• Loss of Gross Income (usually a sub-limit)Note: Covered costs, sub-limit percentages and other provisions vary among insurancecompanies that offer this coverage. All insurance buyers should be advised to comparecoverage provisions carefully before making a purchasing decision.
  • Third Party CoverageLosses suffered by insured’s customers that areforced to recall insured’s productsEspecially vulnerable if product is usually aningredient (nuts, spices, grains, fruits, flavorings,hundreds of others)Costs of recall can multiply significantly(An optional coverage in some policies)
  • Crisis ManagementServicesA crucial component ofPR/PC Insurance.
  • Elements ofCrisis Management Services1. Notify and coordinate forensic and testing specialists2. Investigation – confirm recall is needed3. Crisis team assembly4. Arrange for additional consulting specialists5. Assist in and guide media announcements andcommunications6. Regulatory liaison7 Post incident assistanceThese services are usually included in the premium.Other services, such as procedural reviews, crisis simulation,recall and HAACP plan review, mock recall, microbiological riskassessment and training can usually be purchased as fee forservice.
  • Targeted IndustriesVirtually all entities involved in the food and beveragebusiness, from the farm and pasture to the consumer’splate, should consider the purchase ofRECALL/CONTAMINATION insurance……Farmers/GrowersProcessorsManufacturersLivestock operationsMeat packersDistributorsPackagersLabelersImportersBottlersWineriesHarvestersCo-ops
  • Products/IngredientsRecalled RecentlyPre-prepared burritosSmoked salmonPeppersAvocadosBeef cheek productsPorkGarlic breadFrozen novelty popsGround beefClam ChowderKernel cornPeanutsSalted CroakerPistachiosRaw chickenLettuceSpinachCantaloupe(above is very small percentage of recently recalled food/beverage products)CheeseBottled waterCookiesInstant coffeePrepared pestoFrozen musselsTaco dinner kitsRaw tunaSnack nit blendsPastaPrepared piesEggplant and garlic spreadFrozen entreesBird foodDog foodFrozen piesNoodlesSprouts
  • Products/IngredientsRecalled Recently (cont.)Sausage productsSalad dressingChicken saladCrackersFruit cakeBreadTurkey BurgersPre-prepared sandwichesCanned seafoodRazor clamsRaw food barsIce creamBaking mixSoup mixAlfalfa productsCucumbersDiet barsFlavoringsPound cakeHerring in oilGround turmericTaco sauceShrimpChocolate energy drinkPre-prepared sushiCilantroTomatoes
  • Recall Costs (cont.)Among the members of the Grocery ManufacturersAssociation who participated in a recent survey,58% reported they had been affected by a productrecall in the last five years.For the participating companies that have faced arecall in the past five years, 77% reported that the costwas under $9,000,000. The remaining 23% reportedhigher costs. About 81% described the potential riskfrom recalls as being “significant” to “catastrophic.”(source – Grocery manufacturer’s Association “Capturing Recall Costs” 2012)
  • Recall CostsIn 2007, the estimated cost of the peanut butter recallto one company due to Salmonella contamination was$78,000,000. The estimated total cost to peanut butterproduct producers was $1,000,000,000.Experts agree that arriving at an “average cost” of arecall is difficult owing to many variables …. type ofproduct, distribution area, company size, etc.(source – Grocery manufacturer’s Association “Capturing Recall Costs” 2012)
  • Recall Costs (cont.)Moreover, there is no one industry bureau orgovernment authority that collects and analyzesspecific recall experience data to determine recallcosts broken down by wide industry segments andcompany size … thus no broadly proven data areavailable.However, all the experts agree that the cost of anuninsured recall could easily cause the bankruptcy ofthe company involved(source – Grocery manufacturer’s Association “Capturing Recall Costs” 2012)
  • Food Safety Modernization ActBecame law on January 1, 2011First major amendment to Food Safety laws in 75 yearsAmong the provisions:1. FDA will inspect high risk food facilities in next 5 years.Every 3 years thereafter2. FDA has authority to detain food products it deemspossible to be contaminated3. FDA can suspend operations if there is probability thatfood from a facility may prove harmful4. FDA can force a recall5. FDA can request safety certifications from food importers
  • Food Safety Modernization Act (cont.)6. FDA can request registration of food businesses7. Unannounced inspections by FDA now authorized8. Food companies require to keep detailed records9. Whistleblower protection for employeesExpected impact: Difficult to assess.However, government mandated recalls, morefrequent recalls, higher operating costs are verypossible.
  • The wise man knows ……“It takes 20 years to build a reputation and fiveminutes to ruin it. If you think about that, you’lldo things differently.”Warren BuffetProduct Recall/Contamination Insurance:Protecting your and your client’s reputation