Critical Regulations and Libel Suit Raise Adverse Publicity Coverage Issues

by Wilson Elser
Contact

Brand is everything! The ability and opportunities to extend a brand’s reach are vast, with the smallest companies able to brand globally. Equally important is protecting an established brand. Competitors and consumers can criticize, attack, protest, boycott, complain about and even “nitpick” a brand at will. Protection against brand or reputation crisis events requires 24/7 vigilance. In an environment that allows an immediate response, companies must take effective and efficient action straightaway to successfully survive a brand attack.

Product contamination insurance (PCI) policies were developed to help companies manage crisis events. Critically, PCI policies provide hotline access to a panel of experts, including public relations professionals, and unique specialty coverages, including brand rehabilitation. Adverse publicity coverage was developed to broaden the coverages offered under PCI policies.

In a June 2015 article entitled “Food Safety Insurance and the FDA's Forthcoming Rule,” which appeared in Law360, we noted that due to the impending regulations under the FDA Food Safety Modernization Act (FSMA), food companies will find an increasingly hostile regulatory environment and will need to enhance standard insurance portfolios. As discussed below, the impact of the new regulations and the recent filing of a libel suit in China by a western restaurant brand raise interesting questions about adverse publicity coverage.

Adverse Publicity: Libel Suit Filed in China
After finding thousands of stories and rumors containing libelous claims about its food products circulating on the Internet, including the use of chickens with six wings and eight legs, a western restaurant brand recently filed suit against three Chinese companies alleged to have used their social media sites to spread the false claims. The suit seeks the immediate cessation of such activities, approximately $242,000 in damages and an apology from each company. At present, Shanghai Xuhui District People’s Court, the trial court, has accepted the complaint and if its judgment  is appealed, Shanghai No.1 Intermediate Court will issue the final decision.

The libel suit is a reminder of the harsh realities food companies face every day in the hyper-competitive Internet marketplace. Whether international or domestic, brands face fierce competition, especially in the food industry. With regard to the libel suit, no one has publicly stated the reasons why the three companies have spread the false rumors, and there is absolutely nothing wrong with the brand’s food products. However, because people are willing to believe Internet content, a brand must properly handle and respond to the crisis.

The New Reality: False Positive Test Results
As new FSMA regulations come on line beginning in late summer 2015, companies will have to create and develop quality assurance and testing regimes pursuant to compliance requirements. As with any new system, there will be bugs (no pun intended), and with them comes  an insidious type of harm to food brands – false positive test results.

Here is a simple, yet increasingly common, example: A company in the middle of a supply chain conducts a newly developed quality assurance test and receives a false positive result (FPR) for a pathogen or other foreign substance. The FPR starts an avalanche of recall regulatory procedures and negative publicity:

  • Brands and products appear on government agencies’ websites.
  • The regulatory investigation is costly in terms of time, effort and money.
  • Stories about the affected brands appear on websites and infamous “mom” blogs.
  • Lost profits and recall costs quickly mount as customers begin to leave for competitors’ brands.
  • The furor caused by the FPR literally sweeps away the brand efforts of each company involved with the affected supply chain.

For brands, the critical issue raised by this scenario is that while there may be nothing wrong with a brand’s products – no contamination, impairment or mislabeling – perfectly good foods, such as the associated brands, are considered tainted. Without expert assistance, how can a mid-cap or small food company respond to or survive brand crisis events?

Why Brands Need PCI Policies
PCI policies provide assistance in the form of  crisis response experts and coverage for brand crisis events. However, as with any insurance, standard PCI does not cover all incidents of loss. To broaden PCI coverages, brokers and underwriters developed adverse publicity and government recall coverages, which may be triggered when claim circumstances present an incident involving potential product contamination that is not covered under standard PCI coverages.

Generally, stand-alone adverse publicity coverage requires reporting of an alleged or implied insured event in national, regional or local media or in a governmental publication where the insured and/or insured products are named or otherwise identified. Adverse publicity is a unique specialty coverage in that, unlike other PCI coverages, it is dependent on the satisfaction of triggers contained in the other Insured Event definitions. In other words, adverse publicity is triggered when all of the respective triggers contained in the accidental contamination, malicious product contamination or governmental recall definitions are implied or alleged.

While an adverse publicity endorsement will broaden the coverage provided under a PCI policy, issues are raised as to the extent of the coverage. In addition, because wordings differ and some are more extensive than others, experienced PCI brokers and underwriters can assist brands in determining whether adverse publicity is an appropriate coverage and which wording best fits their insurance portfolio.

Potential Contamination Events: A Brand’s Worst Nightmare
A food brand’s worst nightmare is a widely publicized, massive recall caused by the supplier of a simple, ubiquitous ingredient, such as the recent peanut butter recalls. Past recalls received extensive adverse publicity for all of the companies involved in the numerous supply chains. Mom blogs listed, discussed, blamed and held responsible each and every brand that was involved with the affected supply chain. Yet, the vast majority of brands were innocent victims and their products were unadulterated by the claimed pathogens. Despite the fact that brands were involved with a potential, as opposed to an actual, contamination event, losses ensued, and for many mid-cap and small brands the losses were catastrophic and the brands did not survive the crisis event. PCI policies endorsed with adverse publicity or government recall coverages would have made the difference for many of these brands.

Conclusion
After the release of the new regulations under the FSMA, food brands will face their toughest tests and be challenged by the most hostile of environments. The pending regulatory regime will present operations obstacles and require new testing procedures. A brand’s failure to properly perform will bring about an avalanche of regulatory intrusions, adverse publicity, and costs and expenses associated with withdrawal or recall that may prove catastrophic. PCI policies can assist brands in surviving the inevitable crisis event.

NOTE: Jin Qian (Director of Information Research Services-New York) and Shengao Xu (Law Clerk-New York) assisted in researching and drafting this Alert.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Wilson Elser | Attorney Advertising

Written by:

Wilson Elser
Contact
more
less

Wilson Elser on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.