After the recent introduction of our Product, Defect, Recall, and Contamination (PDRC) coverage, we wanted to explain more about each aspect of the coverage. For this article, we’ll break down how PDRC protects food and drink manufacturers and suppliers from financial and reputational damage in the case of a recall.
Recalls are a common occurrence in the food and drink industry. HISCOX found that there were 764 food recalls in 2016 alone—a 22 percent increase from the year before—which were mostly due to undeclared allergens and contamination. The report also determined the average cost of a food recall is $10 million, a devastating expense for those who do not have proper insurance coverage.
Examples of Significant Food and Drink Recall Claims
- Peanut Corporation of America (PCA): In 2009, PCA issued one of the largest food recalls in history after knowingly releasing products contaminated by salmonella. The contaminated products resulted in more than 700 reported illnesses and nine deaths across the country. This massive recall included 3,900 products across more than 360 companies that used PCA’s peanuts. Within 24 hours of announcing the recall, PCA filed for Chapter 7 bankruptcy. The total cost of the recall was estimated to be well over $1 billion.
- Granola and breakfast cereal manufacturer: Even as a third-party contractor, this cereal manufacturer was liable for a pricey recall due to food product contamination. The FDA contacted the manufacturer to notify them of a salmonella outbreak associated with imported nuts they were using from a supplier. The manufacturer determined it could kill the salmonella during the cooking process, but some contaminated raw products still reached consumers. The total cost of the recall was approximately $3 million, which was split evenly between recall costs, the manufacturer’s business interruption, and third-party loss costs.
- Sweets manufacturer: Food and drink recalls aren’t strictly associated with contamination, though. In one case, a manufacturer of jelly sweets suffered a large loss due to a design flaw. The novelty candy encouraged children to squeeze and pop the treat until it oozed into their mouths. Yet, the sweet did not pop until the child exerted extreme pressure—something the FDA determined was a choking hazard. As a result, the company recalled and discontinued the product. Between recall and business interruption costs, the recall cost approximately $1.5 billion.
Falvey’s PDRC Coverage For Food & Drink Products
When it comes to the food and drink recalls, there is a wide range of triggers, from accidental contamination and malicious tampering to extortion and adverse publicity. Falvey’s PDRC policies cover processed foods, beverages, bakeries, canned goods, and confectionaries, protecting you from:
- Recall costs
- Business interruption
- Brand rehabilitation
- Third-party recall contractual liabilities
- Extra expenses
To find out more about how PDRC coverage can work for your specific business needs, contact us. We can help.