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    Beyond Contamination

    Anglea Ives and Jae Pak, Product Recall Underwriters

    Salmonella, Listeria, E-coli- all terms that come to mind when you hear about a food product recall. Recalls in the food and agriculture industries happen every day and are what the public associates with a product recall. However, recalls and product defects in non-food consumer level products are nearly just as prevalent. In 2020, the Consumer Product Safety Commission (CPSC) issued 256 recalls**, while the FDA and USDA only issued approximately a 100 more, at 363*.

    In the consumer good space, it is common for the public to be aware of the bigger issues surrounding fitness equipment or big brand furniture claims, but product defects happen in all industry sectors. Take a look around the room that you are currently in as you read this article. Every tangible product surrounding you has the potential to have a manufacturing defect and before you purchased it, every member of the supply chain for the production of that product can be financially impacted if something were to go wrong with that item.

    Who is affected:

    Product recalls and defects tend to have a wide reach when it comes to the supply chain. A common misconception is that because companies are not the actual manufacturer of the product that they are safe from financial harm. The truth of the matter is, every member of the supply chain has a responsibility to deliver safe products to the market. A substantial number of consumer level products are manufactured overseas, and importers and distributors here in the US have the responsibility of getting those products into the stream of commerce. Importers and distributors are  considered the manufacturer of record and are legally required to address any product defect issues including circumstances that can lead to a recall. Additionally, small and start-up companies tend to use third-party manufacturers to help get their products produced. An issue these smaller companies may run into is that contractual language can restrict them from recovering the financial damages that may stem from a product defect caused by the third-party manufacturer.

    How to protect against product defects:

    Product defects can come with serious financial consequences including costs to withdrawal and replace the products, business interruption costs, and damages legally owed to customers. There are also some circumstances where a product is defective, CPSC is not involved, and a recall still occurs. There are some situations where the hazard is not substantial enough to trigger a full recall. Even without a full recall, the company is still subject to costs and damage to their reputation. The biggest way a company can protect themselves from the consequences that follow from a product defect is through their insurance portfolio. Product recall insurance can help protect against these potential issues. Other insurance products a company might hold in their portfolio including their general liability, might be triggered due to product defects but they do not address the pure financial loss that can stem from these incidents. Purchasing a true standalone recall policy will help fill the gaps within a company’s insurance portfolio and provide them with the peace of mind that they can continue to provide safe products.

    Disclaimer- The opinions expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of Beazley or its affiliates.

    * https://www.tracegains.com/blog/sqf-in-2016-a-recap-of-recall-stats-and-how-to-move-forward-in-2017#:~:text=The%20U.S.%20Food%20and%20Drug,337%20issued%20recalls%20in%202019.

    **https://www.cpsc.gov/s3fs-public/recall-data/recalls_recall_listing.csv

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