Most insurance coverage is aimed at accidental losses. Policyholders are generally on their own when it comes to economic losses. One important exception to this rule is coverage for business interruption losses. When determining coverage, food producers and distributors who are concerned about economic losses arising from food recall issues need to make sure that they have an adequate business interruption plan in place.
Business interruption insurance coverage is intended to return the policyholder the amount of profit it would have earned had a food recall not occurred. It is important to be patient in handling business interruption claims involving food recalls, as the lost profits may continue for several months or even years after a recall event. Your business interruption coverage will be capped at the amount set forth in your policy. How much business interruption coverage do you need? Ask yourself these questions:
How much business would you lose if you could not sell your most popular product for six months or a year?
What is the longest period of time that you could go without selling your most popular product and still stay in business?
Honestly answering these two questions will give you an idea of how much business interruption coverage you need, and for what length of time.
Extra expense is a coverage that goes hand in hand with business interruption coverage. In a recall situation, you may need to use or rent additional warehouse space to store recalled product, have additional transportation costs associated with the recall, or even hire additional employees specifically to deal with the recall. These items or expenses may not be considered business income losses, but would be covered under the extra expense provision of your policy.
Having commercial liability and even recall insurance is not enough. It is important for food producers and distributors to have business interruption and extra expense coverage that will address the economic losses associated with a recall for food products.