PRODUCT RECALL
BY: DESIREE MESHKI
VICE PRESIDENT,
JGS INSURANCE
Product Recall
Is Your Company Covered?
F
rom eavesdropping dolls to
faulty kitchen appliances, from
combustible smartphones to
defective airbags, the world is
a dangerous place and product
recalls are a fact of life. The public needs
protection from unsound products and
manufacturers need protection from
product recalls.
It is a common misconception that product
recalls are covered under a general or
product liability policy. Those coverages
do a good job of covering bodily injury
and property damage, but they generally
exclude product contamination and
product recall events. This limitation on
coverage is referred to as the sistership
liability exclusion. Adding a product
contamination or product recall policy
protects a company’s bottom line by
covering the direct costs of recall, but
transferring the risk in this way is only one
part of closing the recall exposure gap.
Every company with a product on the
market, regardless of size, should establish
solid product risk management policies
and procedures for handling a recall or
contamination event.
Insurance for first-party losses caused by
product tampering and contamination
incidents are broadly labeled as product
recall insurance. Product recall policies
help to cover the additional costs of a recall,
including product loss, product withdrawal
costs, product disposal, product testing,
overtime wages, and crisis management. All
of these costs can be devastating because
they arise at a time when a company’s
revenues are typically hit hardest.
There are several coverage forms, each
designed to isolate some component of
first-party product exposure. Work with
JGS Insurance to ensure your product recall
policy provides indemnity for the following:
RECALL EXPENSES.
These out-of-pocket expenses are
associated with executing a large-scale
product withdrawal. They include costs
like hiring temporary employees, overtime,
public safety messages, special testing and
handling, destruction and disposal costs,
and crisis management and public relations
consulting fees.
REPLACEMENT COSTS.
As the name implies, these are the costs
of replacing any product that has to
be destroyed. This includes the cost of
materials, labor, and overhead directly
associated with producing the product.
LOST PROFITS.
This indemnifies the insured for profits
that would have been earned on the
withdrawn products and also for profits
that would have been earned on future
product sales but were not because of
resultant future sales declines. This
protection is usually limited to a specified
time period.
BRAND REHABILITATION EXPENSES.
Most underwriters will also indemnify
the insured for the necessary
rehabilitation of the recalled product’s
consumer image. This includes costs like
extra advertising, extra expense to rush
a new product to market, and special
promotions to rebuild public trust in the
manufacturer and its products.
In addition to transferring risk through
a product recall policy, thorough risk
management practices are essential to
minimize the exposure and the cost of a
recall event. The product recall insurance
marketplace is highly specialized. Our
team of experts can help secure the
coverage you need and collaborate with you
to develop a business contingency plan that
meets your specific needs. Contact Desiree
for a complimentary consultation. +
Desiree Meshki has over 18 years of
experience in the Insurance Industry.
She started her career with a direct
carrier and is celebrating her 11th year
here at JGS Insurance focusing on
Commercial Insurance Sales. Desiree
and her family live in Millstone NJ
where they love to spend time outside.
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