The Importance of Product Recall Insurance:

June 20, 2019

Posted in Commercial Insurance by

Product Recall Insurance

“Product Recall Insurance” is aptly named, as it sounds exactly like what it is: coverage that provides protection for you in the event you must recall any of your products. Coverage can include product recall expenses and liability to third parties seeking damages because your product recall could cause a loss of income or damage to the brand’s reputation. A comprehensive Products Recall Policy will trigger if your product poses an imminent threat of property damage or bodily injury, and a recall action, voluntary or involuntary (government or 3rd party-imposed), is pursued.

The Two Core Elements of Product Recall Coverage:

Coverage A or “First Party Expenses” covers the following Direct Expenses associated with your product recall:

  • Costs associated with notifying customers
  • Shipping Cost(s)
  • Extra warehouse and storage expenses
  • Actual cost to dispose of the products
  • The cost of extra personnel required to conduct the recall

Coverage B or “Third Party Liability” covers damages of a third party sustained due to a product recall attributable to your product. This covers your legal obligation to pay compensatory damages. Costs include, but are not limited to:

  • The recall expenses of any third party for the recall of any product that incorporates your product, including the cost to repair or replace such product
  • Business Interruption losses of others resulting from the covered incident
  • The cost to repair and rehabilitate brand reputation
  • The additional cost to purchase substitute goods to replace your products

Why You Should Consider Purchasing Both Coverage A & B

Coverage A & B should be purchased together if any of the following conditions exist:

  • If there is a third party between your company and the ultimate consumer because the third party can claim loss of income or loss of reputation due to the recall (IE. Big Box Stores)
  • If your company manufactures a product that is sold under a third party’s name. This could be either a component or the finished product.

The only time Coverage B may not be needed is when you sell products under your own label or a third party is not involved. It is also important to note that Coverage B will not cover any direct expenses you could incur such as replacement parts, repair, retrofitting or disposal if the recalled product is returned to you for handling.

Additional Endorsements

  • The Impaired Property Endorsement can be an important coverage if you are a component or ingredient manufacturer. Impaired property is a third party’s product that cannot be used or is less useful because it incorporates your component or ingredient that is known or thought to be deficient and cannot be restored by repair, replacement, adjustment or removal of your component or ingredient. (It is important to note that Product Recall coverage is triggered by the imminent danger of your product or component causing bodily injury or property damage, while the trigger for Impaired Property is that your ingredient or component potentially has made another product less useful.
  • Business Interruption / Loss of Gross Profit
  • Customer Loss of Gross Profit
  • Cost to Refund, Repair or Replace Endorsement amends coverage A to include your cost to refund, repair or replace your product or products.
  • Worldwide Coverage amends Coverage Territory to include all parts of the world, excluding any jurisdiction in which this policy may be prohibited by local laws, statute or regulation.

Minimum Premiums Observed
$25,000-$50,000

Limits Available
Up To $10,000,000

Deductible or Self-Insured Retention
$50,000 or higher

NOTE: At any point the availability of supplemental coverage enhancements or limitations/restrictions may be possible as this coverage offering continues to evolve in the marketplace.

 

QUESTIONS:

Richard Sobel, ARM

Direct Phone: 201-475-4443

Email: richard.sobel@cookmaran.com