Blog: Product Recall Insurance: Checking is the Best Policy

Cooley LLP

Cooley LLP

Over the last few years, a number of factors, including the introduction of a new UK regulator, the Office for Product Safety and Standards, and an increased international focus on enforcing product safety regulatory regimes, have led to an increase in the frequency of product recalls. This, and the fact that recalls are becoming more complex and expensive, has strengthened demand for product recall insurance.

The cost of a recall can be very significant, not only the immediate cost associated with retrieving the product from the consumer and from the supply chain, but also the effect on a business’s profits and potential damage to its brand. It has never been more important to make sure that product recall insurance meets the policyholder’s needs.

There is no standard form of product recall insurance. The many different policies available on the market provide what can appear to be a bewildering range of coverage options, some geared towards particular industries. The basic cover, provided by all policies, is for the direct cost of a recall: the expense of tracing the product; advertising the recall; and collecting, transporting, storing and, if necessary, disposing of the relevant product. A vital first question is which types of recall are covered? Beyond this, insurers offer an array of options to cover other costs and expenses, many of which are aimed at protecting a business’s profits and market reputation. Some policies contain protection against liabilities to third parties resulting from a recall. That protection can be very important if the relevant product is in a complex supply chain and a recall would affect other businesses.

Two apparently similar policies may contain slight variations in wording that no one has noticed or identified as being of any significance, but these variations can mean the difference between a claim being covered and not being covered. Moreover, there is often no cost difference between a policy that provides the cover needed and one that does not. This highlights the importance of checking the cover, ideally through testing it by reference to “what if” factual scenarios based on a business’s own profile. The alternative is to leave it to happenstance to determine whether the policy will provide cover when it is needed, but that is a potentially costly approach.

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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.

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