Massive food recall spotlights product liability exposures
In addition to this week's E. coli outbreak at McDonald's, contamination concerns caused the recent recall of millions of pounds of food.
Editor’s Note: The original version of this article first published on the Burns & Wilcox website and is reprinted here with permission from Burns & Wilcox.
A recent recall over listeria concerns has now expanded to 11.8 million pounds of potentially contaminated foods, including some that may have been sent to schools.
First announced as a recall of nearly 10 million pounds of BrucePac meat and poultry products on Oct. 9, the U.S. Department of Agriculture has since updated the recall notification to include additional items and a specific warning about schools that may have received the products.
The USDA’s Food Safety and Inspection Service identified the contamination during routine product testing, and no confirmed reports of adverse reactions from consuming the products have been identified at this point, according to reports. The Oklahoma-based company said in a statement that safety is its top priority, and that production will not resume until the issue has been resolved, Forbes reported.
“This recall is right on the heels of the Boar’s Head outbreak of their cooked meat, so it is not going to help with consumers’ confidence in the system that they are not going to get sick from these types of products,” said Steve Bartell, Senior Broker, Casualty, Burns & Wilcox Brokerage, Chicago, Illinois, referencing a recent listeria outbreak linked to Boar’s Head deli meats that caused nine deaths and dozens of hospitalizations. “Fortunately, in this case, it does not look like any injuries have been reported just yet.”
Affected products were being sold at Walmart, Publix, Target, Trader Joe’s and other popular retailers, according to USA Today, and they also could have been used in ready-to-eat foods distributed in schools and restaurants.
The insurance response
Companies facing this type of recall often lean heavily on their Product Recall Insurance and Products Liability Insurance to help them recover from the loss.
“From a reputational standpoint, those facilities could be questioning whether or not to use these suppliers of pre-cooked meat going forward,” Bartell said. “If that is a company’s main product, they may not be able to recover from this if those suppliers decide to cut ties. Then if, God forbid, somebody were to get sick or die from one of these products, it is even more catastrophic and everybody is going to get brought into a lawsuit.”
Recalls impact the bottom line
According to NPR, products affected by the BrucePac recall include salads, wraps, enchiladas and a variety of ready-made frozen meals from brands such as Home Chef, Boston Market, Rao’s, and more. The foods were produced between May 31 and Oct. 8, 2024. Any recall of this scale can be damaging for a food manufacturer, Bartell said. “The recall is likely going to be very impactful on their bottom line,” he said.
With so many products involved, customer notification and the physical recall of these items is likely to be particularly expensive, Bartell said. These costs can be covered by Product Recall Insurance, which can help pay for notification, shipping back recalled products, business interruption, 24-hour crisis management, brand rehabilitation and more. The policy could cover both voluntary and involuntary recalls.
“The two big expenses are the very basics of notifying anyone who bought it, and the expense of getting the product out of the marketplace and destroying it,” Bartell said. “The loss of their own profits is also a possible coverage enhancement.”
The policy may also provide coverage for third-party losses, such as grocery stores and other retailers that lose revenue due to the recall, Bartell said. “Until those other grocers find an alternative supplier, there could be some damage out there from a balance sheet perspective,” he said.
The longer-term effects of the recall may not be fully realized for quite some time. “After a recall, a consumer may be less likely to shop where the purchased the item,” he said. “It could take years for them to recover.”
While Product Recall Insurance policies often include an indemnification clause that will cover costs for a designated time period, such as 12 to 18 months following a recall, the policy is designed to help the company through the initial recovery period so they can “recoup their losses and stabilize their brand,” Bartell said.
Food recalls growing in U.S., Canada
In 2023, the U.S. saw its highest number of food recalls since before the pandemic, NPR reported in September.
Canada saw its highest number of total recalls in fiscal year 2019-20, but its number of food recall incidents grew from 137 in 2021-22 to 172 in 2023-24, according to the Canadian Food Inspection Agency (CFIA). A listeria outbreak in Canada earlier this year that was linked to almond milk and other plant-based drinks caused 18 known infections and more than a dozen hospitalizations, CBC News reported in July; the outbreak was linked to three deaths, according to the CFIA.
Earlier this month, Illinois-based TreeHouse Foods announced a voluntary recall of frozen waffle products due to potential listeria contamination that was found during routine testing; the affected products were sold in stores in the U.S. and Canada under various brands, according to the company.
Experts have pointed to various reasons behind the apparent rise in food recalls, including better reporting methods, breaks in the food safety chain, changes in consumer preferences toward more ready-to-eat foods, and food safety technology advances that may make it easier for officials to identify pathogens, Medical XPress reported last month.
In the food industry, as well as some other industries such as automotive, Product Recall and Products Liability Insurance will generally be required before a company is permitted to sell their products in certain stores, Bartell said. In order to obtain Product Recall Insurance, companies may have to provide information on their quality control protocols, he said.
“Quality control did not discover this — it was a random find,” he said of the BrucePac contamination. “A lot of Product Recall Insurance companies will ask: What are your testing procedures to make sure that things do not slip through the cracks? A lot of carriers require testing procedures to consider a new account, especially when their product goes into multiple other products. They need to make sure they have quality control procedures in place.”
While a food producer’s Products Liability Insurance is designed to respond to bodily injury and property damage claims, the policy could include a small sublimit for recall expenses. This is generally not sufficient for even the direct recall expenses, Bartell explained.
“There could be third-party loss of income, adverse publicity as they try to remarket their brand, consulting costs and more,” he said. “The most important thing is making sure a company can survive a loss like this. Even with a million-dollar limit, you are probably going to go through that in a quick amount of time. The cost of everything is going through the roof these days, and $1 million does not get you very far. Checking to make sure they are adequately covered in the event of something like this is key.”
Consumer illness or death
Although no illnesses or deaths have currently been reported in the BrucePac recall, the risk of a serious bodily injury or death is the most significant risk with a food contamination situation, Bartell explained. “At the end of the day, a company’s largest exposure is somebody getting sick and passing away,” he said.
When these incidents do occur, companies may be responsible for millions of dollars in punitive damages, depending on the state. “What has happened recently in the news is product manufacturers getting hit with punitive damages. There are some states that allow punitive damages to be insurable, a larger swath of states do not address it, and then in other states it is specifically not an insurable vehicle,” he said.
When seeking Products Liability Insurance, food manufacturers should be aware of whether their policy will have a punitive damages exclusion. “A qualified broker will be trying to remove that as much as they can,” he said, adding that a Puni-Wrap policy may be available in some cases to provide this coverage.
Contamination will always be a risk in the food industry, Bartell said, and insurance is an important way for companies to mitigate this ongoing risk.
“There is more testing going on, individuals are more watchful about their food, and we are seeing a lot more recall activity over the years,” Bartell said. “Recall losses are getting bigger. More individuals are buying their food from these big-box chains, so the products are getting disseminated across the U.S. Food manufacturers are getting bigger, stores are getting bigger, consumers are more proactive, and there is better testing and quality control. For a lot of companies, recall is still something that they think is just not going to happen to them, but these losses can be catastrophic in nature.”
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