Product recall – five top tips for maximising insurance cover
For manufacturers of products, or components which will end up in products, such as toys, food and drink, electrical appliances, motor vehicles, cosmetics and others, the risk of a product recall with the associated costs and potential damage to that company's brand and reputation is very real. Taking out specific product recall insurance is one way for such companies to protect themselves in the event of a recall situation, but there are a number of potential pit-falls to look out for when placing cover and when making a claim under the policy.
Garbhan Shanks, a specialist insurance dispute expert, sets out some top tips below.
1. Try to negotiate coverage for preventative recalls. Does your policy require proof of actual personal injury or property damage caused by the product, or does it cover recall costs where there are reports or allegations of such injury and/or damage, whether true or merely speculative? If proof of injury / damage is required, insurers may seek to argue that any preventative recall is "voluntary" in nature and not covered by the policy. This will leave the manufacturer in the difficult position of having to prove to its insurers that its product is dangerous (potentially whilst disputing that it is dangerous in personal injury / property damage claims brought against the company and, to protect its brand, in the media).
2. Ensure you have cover for PR costs. A successful product recall will often require some form of publicity, which in turn will usually have an adverse effect on a company's brand. Ensuring that your insurance policy covers the costs of such publicity and any necessary PR will create peace of mind and hopefully ensure minimal reputational damage.
3. Take as much control as you can over PR. Assuming that your policy does provide "publicity coverage", where a recall situation causes adverse media coverage of the company, cover might nonetheless only be available if the company uses the insurer's own in-house PR team, or a PR company chosen by the insurer. The result can be that some very important decisions about how to protect your company's brand are left in the hands of people chosen by your insurer, and not by you.
4. Be aware of notice provisions. This consideration applies to all policies of insurance of course, but in the heat of a sensitive recall situation many companies might understandably be focussed on compliance with their regulatory obligations and ensuring the safety of their customers. Insurance policies contain strict notification requirements, which are very often conditions precedent to the insurer's liability meaning if notice isn't given in time, there could be no cover.
5. Consider other possible coverage. If your company does not have specific product recall insurance cover, that need not be the end of the matter. Be aware that your general liability insurance may provide cover for recall costs, for example where your product causes damage to another's property, although such costs may be excluded.