Almost every day, the FDA announces a new recall or safety alert for a potentially dangerous food. Earlier this month, Trader Joe’s recalled some SKUs of apple sauce due to complaints that they may contain small pieces of glass, and Whole Foods announced a recall of certain, specific cheeses due to listeria concerns.
The Food Safety Modernization Act, passed in 2011, gave teeth to America’s food regulators. Whereas the FDA could previously only recommend a recall, the FSMA gives the FDA the power to execute mandatory recalls and to administratively “detain” certain products deemed to be dangerous. The law also allows the FDA to suspend a facility’s FDA registration, thereby criminalizing that facility’s sale of food in the United States. Utilizing its new statutory authority, the FDA’s standards have been tightening, thereby reducing the permissible levels of pathogens in certain foods. The resulting increase in the number of recalls has been dramatic, and it is here to stay. Regulations to give effect to the FSMA have already been enacted, and repealing them would require legislative or judicial action or a years-long bureaucratic effort.
According to a study by the Food Marketing Institute and Grocery Manufacturers Association, the average food recall costs $10 million in direct costs, in addition to brand damage and lost sales. As a result of the increased cost, frequency, and visibility of food recalls, first-party insurers have begun to issue recall insurance. More than 20 insurers now offer recall policies, which often typically cover recall expenses, lost profits, business interruption, and brand rehabilitation. And liability insurers continue to see claims by insureds who have been sued by consumers or downstream vendors.
But, with the aid of counsel, manufacturers, distributors, and insurers can minimize their losses. If the claim is insured, counsel for the insurer should carefully review the policy to ensure that all provisions and exclusions are applied, and the loss is property calculated. Alternatively, the manufacturer or the first-party insurer can pursue subrogation from third-party tortfeasors. Whether the harm arises from defective packaging or ingredients that are tainted or contain undeclared allergens, they can sometimes recover losses through litigation against the supplier under theories of negligence, product liability, or breach of contract.
In short, the Food Safety Modernization Act is here to stay, as is the increased frequency of food-safety recalls. But manufacturers, insurers, and others affected by the recalls can sometimes limit their losses by pursuing third parties and relying upon the legal tools available to them.
