Timothy Nash
Head of Product Recall, Bowring Marsh UK
Product recalls are a headache for everyone, in every industry. Businesses are interrupted, sometimes for extended periods. Stock prices and bottom lines suffer. Reputations are affected, which can cause brand loyalty to decline. And, depending on the nature of the recall, regulatory issues can affect a company for years.
A product recall can present a range of serious challenges, and your business likely has plans in place to respond. But there may be hidden issues that can cause even the best-laid plans to fall apart. And those problems can vary depending on the industry you’re in.
Smaller or middle-market businesses may assume that product recalls are not a major concern because they believe they’re protected—either because their product is embedded in a larger company’s product or because their general liability coverage will respond. That policy may respond to certain claims, but it typically won’t cover recall-related costs such as notification, shipping, storage, disposal, or class-action lawsuits.
Problems specific to the food and beverage industry
Besides everything listed above, food and beverage businesses are susceptible to supply chain problems and blind spots that can make it difficult to anticipate certain risks.
The key problem? Not having adequate coverage for contamination or quality defects.
If your product is removed from shelves because of contamination or quality defects, the impact can go deeper than physical property damage or bodily injury. That’s why you need to make sure you have a specialized policy to help protect against unanticipated costs.
Are you really ready for a recall to interrupt your business?
Commercial general liability (CGL) policies typically exclude product recall costs. Make sure you have dedicated product recall coverage, and be aware of the recall “triggers” your policy specifies.
Are you covered for crisis management?
Product recalls often result in damage to product reputation and, subsequently, brand loyalty. If you need to hire public relations (PR) consultants, run recall advertisements, and rebuild your brand reputation, you’ll find it can get expensive.
Are you responsible for contractual costs?
Will you have to pay lost earnings incurred by your customers or downstream partners? Could you be required to cover third-party recall costs incurred by them—costs that may be covered up to 100% with the right endorsements?
Problems specific to the automotive industry
Recalls can result in inflated warranty costs and drain you financially because of the cost of replacement parts, shipping, and labor. If there are parts shortages, the impact can be even greater.
The key problem? Not fully understanding your contractual requirements.
Automotive supply chains frequently struggle with product recall liability because of unclear indemnification clauses and regulatory requirements that overlap and cause confusion.
Do your liability limits match your indemnity clauses?
Original equipment manufacturers (OEMs) and Tier 1 suppliers often create contracts with broad terms that shift risk down the supply chain. Suppliers sometimes sign agreements without knowing whether their commercial liability limits match those indemnity clauses, leaving them financially vulnerable.
Does your commercial general liability policy or product liability policy cover recalls?
These policies may specifically exclude losses resulting from any form of product recall.
Are there clauses embedded in your contracts that could cost you?
Recovery and dispute issues often arise in liability policies when OEMs pass down parts and labor costs but also seek broader damages for noneligible repairs or “customer goodwill” responses embedded in OEM chargebacks.
What Marsh McLennan Agency can do to help
We have a Global Product Recall team with more than 50 years of experience across multiple industries. From food and beverage to automotive components, consumer products, packaging, cosmetics and toiletries, restaurants, aviation, pharmaceuticals, and more, Marsh McLennan Agency (MMA) provides solutions to help prepare for and respond to product recalls. We also provide dedicated claims handling support to help manage the process and advocate on your behalf.
Talk with your MMA representative about how we can help you prepare for the possibility of a recall event. It can have a major impact on the financial and reputational damage your company might experience. And as the final piece of the puzzle, talk with us about specialized product recall insurance that can help your business respond more quickly and recover more effectively.
