PRODUCT RECALL
The Potential Risk Of
A Product Recall
Protecting Your Company
T
here is an ever-present danger
looming over the shoulders of
retailers and manufacturers. It
happens time and time again,
and in many cases, it winds up
costing companies millions of dollars. I’m
talking about a product recall.
comes into play. Product recalls are not
covered by your Commercial General
Liability policy. With this in mind, could
your company withstand the impact of a
recall? Most companies could not and would
need to extend their basic coverage to allow
for a potential product recall.
The numerous costs associated with a
product recall can be astronomical. In
addition to the time and resources required
to execute the recall itself and transport the
product, you also have to alert consumers,
distributors, suppliers, and regulatory
agencies. Your brand, your market share, and
your cash flow can all take a hit. Add in any
third-party liabilities that could arise and
your company could be looking at a financial
disaster.
There are two primary types of product
recall coverages available to companies:
One of the biggest misconceptions about
product recalls is how insurance coverage
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FALL 2016
•
Product Recall Expense Coverage
•
Full Product Recall Coverage
The first, Product Recall Expense coverage,
is typically available under Commercial
General Liability coverage as an add-on.
The coverage must be requested, however,
and special attention needs to be paid to the
limit being purchased. This coverage is only
going to provide a company with a limited
reimbursement, and most expenses incurred
during a recall situation will fall outside of
the purview of these policies. As an example,
imagine you have a toy being recalled.
This coverage would help with arranging
the return of the product and some of the
associated costs (packaging, transport,
storage, advertising, announcements, or
correspondence) but would not cover thirdparty expenses, increased work costs, loss of
profits, etc.
Full Product Recall coverage is much
more difficult to obtain and is often very
expensive. This covers pre-recall expenses,
recall expenses, third-party expenses, loss
of gross profits, rehabilitation expenses,
increased working costs, and product
extortion demands. It can also include crisis
management, which can easily be one of the
most expensive parts of a recall situation.
This could come in the form of a phone line
for people to call, marketing costs to manage