1. INTRODUCTION. Manufacturers of consumable products (food, drugs, etc.) face the risk of having their products contaminated. Such contamination may happen accidentally or it may be the result of an intentional act, meant to disrupt the company's operation or to discredit it for some reason.

One of the most famous product contamination cases in the United States happened during the 1980's when several people died because they took Tylenol capsules that were contaminated with cyanide. As a result, the makers of Tylenol faced huge expenses in recalling their products and reforming their manufacturing process. Shortly thereafter, drug manufacturers stopped marketing drugs in capsules that could be opened. More recently, a settlement has been made between the carrier for Peanut Corporation of America and 120 victims of salmonella poisoning who had eaten nuts from a contaminated processing plant in Georgia.

When such an incident occurs, a manufacturer faces expenses just like Tylenol did. Certain underwriters offer a policy to cover these expenses that arise out of malicious contamination, accidental contamination, and products extortion.

2.CONTACT:

Catlin US Headquarters.

3340 Peachtree Road N.E.

Tower Place 100, Suite 2950

Atlanta, GA 30326

(404)-443-4910

3. UNDERWRITING GUIDELINES. Not made available.

4. AVAILABILITY OF COVERAGE. Worldwide.

5. LIMITS AVAILABLE/DEDUCTIBLES. Limits up to $5,000,000 with higher capacity through Catlin Syndicate at Lloyd's.

6. INSURED EVENTS. Subject to the Insured's payment of the premium and in reliance on the veracity of information made in the application, the insurer agrees to reimburse the Insured for any covered loss excess of the Self-Insured Retention but not exceeding the limits of liability. The loss must be from one of the listed Insured events that is discovered during the policy period. The agreement goes on to list the three insured events covered by the policy:

A.   Accidental contamination. Accidental contamination or unintentional contamination, impairment or mislabeling of an Insured product is defined as that which occurs during production, manufacture, packaging, or distribution of a product provided that the use or consumption of the product:

a. has resulted in or would result in internal or external physical symptoms of bodily injury, disease or death of any person within a period of three hundred and sixty five days from consumption of the product or

b. has caused or would cause damage to or destruction of tangible property other than damage to the Insured Products or any other tangible product in which the Insured product is incorporated as an ingredient or component.

B.  Malicious tampering. Malicious tampering is defined as actual or threatened intentional, malicious and wrongful contamination or alteration of the Insured's Product, whether or not by an employee, which both:

a. specifically targets the Insured with the deliberate and exclusive purpose of either causing harm to the reputation or finances of the Insured, or causing injury or damage to property of any customer or employee of the Insured and

b. renders the Insured Product dangerous or unfit for its intended purpose, or creates such an impression to the public.

C.  Products extortion. This involves the communication to the Insured of any threat or connected series of threats to commit malicious tampering for the purpose of demanding ransom monies.

7. LOSS Under this policy, loss involves only the following listed reasonable and necessary costs incurred by the Insured in connection with a covered Insured event subject to the policy limits. Except for business interruption and extortion costs, loss is limited to expenses or costs incurred within twelve months of the Insured Event first becoming known to the Insured. Losses cannot be stacked under multiple Insured events.

A.  Pre-Recall Expenses. This is the chemical analysis or physical examination of the Insured Product to determine whether or not the product has been contaminated and to ascertain the potential effect of malicious tampering, accidental contamination, or product extortion.

B.   Recall Costs.

C.   Business Interruption. Includes extra expense and loss of gross revenue.

D.  Rehabilitation Expense. These are the expenses to restore the Insured Product to the reasonably projected level of sales or market share anticipated before the date of loss. The sub-limit for this expense is listed in the schedule, and it does not increase the Limit of Liability or modify the Self-Insured Retention.

E.  Extortion Costs. Costs paid in response to a demand for money to keep perpetrator from committing acts of malicious tampering against Insured Product.

F.   Consultant Costs. This covers the fees and costs of any of the crisis experts hired in order to assist the injured in response to a crisis.

8. DEFINITIONS. As used in this policy:

A.  Extortion costs Mean ransom monies paid by the Insured as a direct result of an extortion demand and in-transit/delivery loss due to the destruction, disappearance, confiscation or wrongful appropriation of ransom monies while being handled by someone authorized to handle the funds as long as the extortion that gave rise to the delivery is covered under this policy.

Extortion expenses include but are not limited to:

Rewards to informants for information, interest costs for a loan to pay a ransom, costs of travel and accommodations for the purpose of paying ransom, medical and hospitalization services incurred by someone handling the negotiation of an extortion situation or the delivery of ransom funds within 36 months of the last creditable extortion threat, fees and expenses of forensic analysts or interpreters, and increased costs of security due to extortion including guards and armored vehicles as long as approved by a crisis expert.

B.Extra expense means the additional cost of conducting business activities during the time necessary to clean or repair the location owned or operated by the Insured where the event occurred. The purpose is to reduce loss and costs over and above the normal cost of such activities during normal operations had no incident occurred.

Extra expenses include:

Cleaning of contaminated machinery or handling of the contaminated product in order to create a safe environment, costs to maintain workforce salaries for a maximum of 6 months, costs to main a skeleton crew in order to be able to resume functioning as soon as possible, increased cost of subcontracting some or all parts of the manufacturing process until the facility can be restored for normal use.

C. Informant is any person other than an employee, director, officer, or agent of the Insured who provides information not otherwise obtainable in return for a reward.

D. Insured is the sole proprietorship, partnership or corporation as shown in the schedule.

E. Insured event includes accidental contamination, malicious tampering, and product extortion.

F. Insured product includes all topical and ingestible products, any of their ingredients or components, for human consumption or use that are identical with or similar to and require the same processing mechanisms as products listed on the Application on file with the insurer which are listed as Specified Insured Product and are:

a. In production by the Insured or

b. Have been manufactured, handled or distributed by the Insured or

c. Manufactured by a contract manufacturer for the Insured or

d. Are being prepared by the Insured or are available for sale,

Also included as Insured product are newly introduced or newly developed products by the Insured provided that:

a. written notice is given to the insurer as soon as practicable and no less than ninety days prior to the introduction of the product for sale and

b. the Insured did not know, or have any reasonable way of knowing as of the date of notice to the Insurers that an insured event had already occurred and

c. the insurers have given written acceptance of the product. Failure to respond in writing within thirty days of receipt of the Insureds notice does not imply acceptance of the product.    

G. Loss of Gross Revenue. The loss of gross revenue is calculated by taking the projected sales revenue before the loss event and subtracting the variable costs that would have been incurred during that time but which have been saved as a result of not making those sales then subtracting the increased sales of another insured product within the same product line as the affected product in the loss event. For example, the Insured makes toy trucks and it is discovered that the paint is contaminated with lead. Projected sales from the date of discovery are $500,000.00. Variable costs that are saved from not selling those trucks are $200,000.00 for raw materials and advertising. Increased sales of toy trains during the period are $100,000.00. The loss of gross revenue is then calculated as follows: 500,000 – 200,000 – 100,000 = 200,000 actual loss of gross revenue.

H. Ransom Monies. These are monies the Insured has paid or lost in transit in response to an extortion threat. The monies include cash, monetary instruments, bullion or the fair market value of any securities, property or services.

I.   Recall Costs. Are any reasonable and necessary costs incurred by the Insured to inspect, withdraw, destroy or replace affected Insured Property including but not limited to:

Cost of newspaper, magazine, or any printed advertising, radio and television announcements necessary to effect the recall, transportation and accommodation costs related to the recall, overtime paid to regular employees, expense of renting additional storage space for a maximum of 12 months, expense of disposing of unused packaging and marketing material if it cannot be reused, and replacing recalled products that have been destroyed or are unsellable with products of similar value.

J.    Reward. Monies offered in exchange for information related to the Insured Event.

K. Sub-Limit. Maximum an Insured can collect under a specified section of the policy.

L. Corporate Act of the Insured Any deliberate dishonest, willful, illegal, fraudulent or criminal act committed with the express or implied approval or endorsement by any two or more members of the Insureds management which results in an Insured Event.

M. Insured's Management. For corporate acts this includes past or present chairman, chief executive officer, president, managing director, or any executive or non-executive director or any who has an equivalent position with authority to make decisions about the Insured's operations or management. For any other reference, in addition to those just mentioned included are any department or division of the Insured including legal, compliance, risk management, internal audit, or insurance department or division.

N. Terrorism. Any actual, alleged or threatened, intentional, malicious and wrongful alteration of a product committed by any person or groups of persons, acting alone or in connection with an organization or government committed for political, religious, ideological or similar reasons including the intent to influence the government or put the populace in fear.

O. Property Damage. Physical damage or loss to tangible property.

8.    EXCLUSIONS. The following are excluded from coverage:

A. Accidental Contamination. Of a competitor's product similar to an Insured Product, involving gradual deterioration, transformation or destruction unless as a result of a sudden identifiable event, arising out of failure of another party to adhere to procedures, arising out of bioengineering, hormone treatment, irradiation of any product, that occurs after the Insured has knowledge of a defect or deviation in production, arising out of a government recall, or arising out of a change in governmental regulations or public perceptions of the Insured product,

B. Malicious Product Tamper. Tampering of a competitor's product which is similar to the Insureds, or tampering involving the use of counterfeit, fraudulent, or substandard ingredients or components on Insured products which is supplied by any other party without malicious intent,

C. Changes in population, customer tastes, seasonal variations, economics or competitive environment,

D. Corporate act of the Insured,

E. Injury, damage or claim made by a third party arising out of use of an Insured product, including defense costs related to a third party lawsuit,.

F. The Insured's intentional violation of any governmental regulation in connection with the manufacture, sale, or distribution of any insured product or the use of materials in the manufacturing of the product which have been banned or declared unsafe by any government entity,

G. Nuclear reaction, radiation, or contamination, controlled or uncontrolled or resulting from war, invasion, hostilities, civil war, rebellion, or insurrection,

H. Costs of litigation or proceedings before any governmental agency as a result of an Insured event or otherwise,

I. Loss of value of land, water, crops or lawns, crop failure due to weather, pest or other contamination of livestock,

J. Costs to redesign, engineer or reengineer any Insured product,

K. An event or series of events of which an officer or director had knowledge of prior to the inception date of the policy.

L. Actual or alleged acts of terrorism unless the Insured is the direct target of the terrorist act,

M. Fines or p enalties imposed by third parties, governmental agencies or courts.

9.     CONDITIONS.

A. Action against the Insurers.

B. Additional exposures. Notice will be given to the insurers of any consolidation or merger with or acquisition of the majority stock ownership of or assets of any other entity whose revenues are in excess of 10% of the gross revenue of the Insured.

C. Assistance and cooperation.

D. Authorization clause. The first Insured on the schedule agrees to act on behalf of all other Insureds with respect to payment of return premiums, endorsements and giving of notice.

E. Calculation of the amount payable under a sub-limit. The self insured retention is subtracted from the applicable section of the loss, then the coinsurance will be deducted from the balance. The amount payable will be the lesser of the sub-limit or the amount remaining.

F. Cancellation.

G. Changes.

H. Choice of law and forum. The laws of the country or state specified in the schedule will control the construction, validity, and performance of this policy.

I. Coinsurance.

J. Concealment, misrepresentation, non-disclosure and fraud.

K. Confidentiality.

L. Self-Insured retention.

M. Due diligence.

N. Examination under oath.

O. Excess insurance.

P. Inspection and audit.

Q. Limits of liability.

R. Non-accumulation of liability.

S. Non-assignment.

T. Notice of an incident.

U. Notice of a claim.

V. Notices.

W. Other insurance.

X. Salvage.

Y. Severability, construction and conformance to statutes.

Z. Territory.

AA. Computation of loss.

BB. Valuation clause.

CC. Subrogation.