What is a Product Contamination incident?
Every insurer defines it differently which is why reading and understanding the true meaning is critical and why an experienced Product Contamination and Recall broker is so important to this process. In layman’s terms, we are talking about an incident where your product is contaminated or accused of being contaminated in the press, to the point where there is a bonafide threat of or actual injury or property damage. This includes food processing and packaging errors or the use of contaminated supplied ingredients that you may receive.
What is causing this risk?
- Although quality control standards and procedures are better than ever, the technology around testing products is also far superior to anything used as recent as 5–10 years ago. Industry and government can detect product imperfections far more accurately and quickly than ever before and now have the authority to make you take action. When a product is found to be contaminated, the product is recalled and/or destroyed. If it was caused by an ingredient, then all of the products made with that ingredient source can be recalled as well. We have not only more recalls but far more multiple recalls. Some have included several hundred products from dozens of companies all due to one bad ingredient.
- Prior to the advent of the internet and social media such as Facebook, Twitter or Instagram, was a time when GL/Product Liability was the largest threat to a food ingredients processor. This was a time when the fear of injuring a large number of people at once or damaging a customer’s product was THE RISK. Those days are over. The largest financial risk to an ingredients company is the risk of losing your customers because of the widespread belief that your products are dangerous, or worse, that your customers’ products lose customers due to the same belief caused by your product. Facts issued from the FDA and CDC indicate that food-related losses arising from economic loss (product contamination/recall) vs. actual bodily injury/property (GL/Product Liability) are roughly 4:1 in size. Based on recent trends and losses in the market, this ratio is believed to be even higher for a food ingredients processor. How many people died following the Chipotle incident? ZERO.
- We are now in an environment where, due to advances in detection/traceability technology, more scrutiny from government regulators and advances in communications among consumers and among regulators, food safety incidents are more easily discovered, traced and solved, leading to more frequency of recalls and more severe losses by industry.
What is the risk to an ingredients company?
The risk comes in three separate but important parts. The first item which is of greatest concern to a food ingredients processor are the economic loss or consequential damages you become legally obligated to pay commercial customers due to the contamination or defect of your product. This risk is specifically excluded by almost every GL policy written in the U.S. In addition to recall and replacement costs, this includes the business interruption and cost to rehabilitate the sales and reputation of applicable commercial customers. What makes this so dangerous is that one bad production run of ingredients could be shipped to many customers causing multiple losses. There have been several cases where 10+, 30+ or even 50+ customers were affected.
The second type of loss involves damage to a company’s reputation and business interruption as a result of this damage. Rehabilitating one’s reputation and stream of revenue is costly yet very important. Business Interruption can include both the lack of consumer demand, lost contracts and the inability to meet production goals due to a contamination.
The third part of the loss are the numerous but generally less catastrophic and more finite losses (depending on shelf-life, batches/runs affected, traceability and stage in the stream of commerce) including the cost to recall/replace the contaminated product as well as a host of logistical costs including destruction, employee overtime, storage, testing and very important crisis management-related expenses necessary to handle and mitigate an incident of this nature. Each of these risks can be covered by a well-designed Product Contamination program.
About the authors
Bill Harrison started his insurance career with an underwriting position at AIG. He worked his way up from a Regional underwriter to a global position in their Special Services Division which handled several products including Malicious Product Tampering. During this period, Bill rewrote the policy to include Accidental Contamination and other broadening aspects of the coverage to create the coverage we know today. Bill was involved with Underwriting, Marketing and reinsurance of the division’s products.
He then called the CEO of Aon to pitch the idea of starting the first brokerage group focused on the risks of Product Contamination and Product Recall, K&R and Terrorism. As Managing Director, he was responsible for the quality of the team’s work, growth and the profitability of this business. In addition to co-authoring a book—The Executive Desk Book on Corporate Risks and Response for Homeland Security, he spent 10 years improving the products, expanding the specialty insurance market and helping hundreds of companies address their Crisis Management Risks. This included a high-profile project with Pat Ryan and Rudy Giuliani, called Aon Giuliani Protocol which was a Crisis Management and Security partnership to offer high- level security and crisis consulting work to corporate America. The result was a very profitable group with brokers/consultants in 24 countries.
Bill then called the CEO of Marsh to start what would quickly become the largest and most successful Product Recall/Contamination brokerage team in the world. He and his team continued their push for better products and customized programs for their 400+ clients around the world. In 2018, Bill joined Gallagher and is now focused on helping clients manage their Product Recall and Product Contamination risk and building the most successful Product Recall team in the world.
Adam Nisenson is a graduate of Coe College in Cedar Rapids, IA where he majored in both Public Accounting and Finance. Adam began his career at the largest wholesale brokerage office in the country (RT Specialty Chicago) where he was a Casualty & Product Recall broker. After helping to grow a book there, he moved over to Marsh to run the Midwest for their Product Recall practice. Adam has provided expertise and policy placement for: Food & Beverage, Automotive, Electronic Components, Finished/Consumer Goods, Whitegoods, Pharmaceuticals & Nutraceuticals, Medical Devices, Restaurants, Supermarkets, Distribution/ Logistics, Chemicals & Ingredients, Aviation Components and more.
Adam’s past and current responsibilities include market placement and policy customization for clients ranging from roughly $10,000 to millions of dollars in premium. Additional responsibilities include client advisement, claims advocacy, contract review/feedback, crisis mitigation support, market relations and more. Here at Arthur J. Gallagher, he is also responsible for creating additional best-in-class services which include but are not limited to AJG-exclusive coverage enhancements, platforms, whitepapers, etc.
Steve Kluting, Esq. is a graduate of the University of Michigan, where he double majored in Economics and Political Science. He then earned his law degree at Indiana University (Bloomington) School of Law. Steve practiced law for 13+ years at a large, full-service regional law firm (160+ attorneys across six offices), co-chairing the firm’s Food Industry practice for several years. He focused on serving FDA- and USDA-regulated clients, advising them on the impact of changes in the food laws/regulations, crisis preparation and management (including contamination events, government enforcement actions and recalls), M&A and risk management. More recently, he worked as the Chief Strategy Officer for a family-owned food wholesaler and retailer. In addition to leading growth initiatives, he was general counsel, supported the risk management function and led the food safety team.
In 2014, Steve joined Gallagher with a focus on the food and beverage industry in the Product Contamination space where he could continue using his food industry-focused skills for the benefit of clients. At Gallagher, Steve has been responsible for placement/advisory on Product Contamination policies, consulting on regulatory and contractual matters and preparing clients for unexpected contamination events. As a “food lawyer” and certified HACCP manager, Steve brings new and differentiating capabilities to the insurance brokerage space.
AJG’s Product Recall & Contamination Team
In September of 2018, Bill Harrison and Adam Nisenson were brought onboard from Marsh where they previously were integral parts of building the largest Product Recall Practice in the world, placing policies and advising clients from the middle market to Fortune 100 in size.
Between the two, they bring decades of experience with backgrounds in underwriting, claims advocacy and product recall/contamination placement and advisory.
Now teamed up with Steve Kluting (AJG’s National Director of Product Recall for Food & Agribusiness), they have been tasked with helping Gallagher clients further understand how potentially catastrophic the gap of not holding a Product Contamination/Recall policy in their insurance portfolio may be to their business/operation. This includes topics such as the GL and Product Contamination/Recall coverages reacting both separately and together. This gap can be avoided with a properly tailored Product Contamination policy.
As product contamination incidents can be severely catastrophic but are few and far between, not all companies are prepared to properly react. With the proper risk transfer, expertise and preparation from an AJG Product Recall Practice member, claims advocate, 24/7/365 Crisis Consultants and Forensic Accountants, this process can feel much more manageable.
AJG’s Product Recall Team has combined to place hundreds of Product Contamination/Recall policies and has closed hundreds of millions in claims settlements. They’ve found over and over trusting a customizable coverage to a novice broker can be devastating not only in reacting to a contamination, but in getting it properly covered. AJG’s Product Recall experts are here to assist from coverage placement and advisement to assisting you through a crisis event and getting top dollar for any unexpected contamination events that may occur.