By: Melita Thurling, Product Champion General Liabilities, ITOO Special Risks (Pty) Ltd
The recent Listeriosis panic has highlighted the need for proper product liability insurance cover in the food chain market.
The World Health Organisation has said South Africa’s Listeria outbreak, with nearly 750 confirmed cases, is believed to be the largest- ever outbreak of the bacterial disease. It has now become a notifiable disease in South Africa. Listeriosis is caused by bacteria which are found in soil, water, vegetation and some animal faeces. Animal products, including meat and dairy, seafood, as well as fresh produce, such as fruits and vegetables, can all be contaminated.
Food products are one of the main causes of recall claims. The Recall and Notification index for Europe for quarter 4 of 2017, published by Stericycle Expert Solutions, shows the highest number of recalls and notifications for foods since the Rapid Alert System for Food and Feed (RASFF) was created. Bacteria contamination is cited as the top cause of food recalls. (StericycleExpertSolutions.co.uk)
Liability cover not only provides an indemnity should you be found liable but ensures you have top notch legal representation throughout the entire process. The main covers triggered are product liability and product recall, recall being the first step in retrieving the potentially harmful products and ensuring that no further harm occurs with products that are out there in the public domain.
AN ITOO® PRODUCT RECALL POLICY WILL USUALLY COVER:
• the fees of product safety and public relations consultants or advisors,
• the costs incurred by the manufacturer or distributor to withdraw or destroy the affected products,
• newspaper, magazine, radio and television commercials,
• transportation costs related to the recall,
• additional staff required and overtime for regular employees,
• additional warehouse or storage space,
• the cost of shipping from a purchaser ,distributor or user,
• the expenses incurred in disposing of unused packaging and marketing material, and
• the cost of disposing of the products.
A POLICY WOULD NORMALLY NOT COVER:
• deterioration of the food stuff unless this was as a result of an error or omission in the manufacturing of the product,
• the failure to store properly,
• any fines or penalties,
• government investigations,
• intentional violations in connection with testing, manufacturing, storage, distribution, or sale of a product,
• using any ingredients which have been banned or declared unsafe, and
• not complying with regulatory standards or keeping adequate documentation of the manufacturing process.
Typically the costs of repair, refund or the replacement of the product are not covered by local recall policies but this cover can be obtained at a price, for instance from Lloyds or the multinational insurers.
Product liability provides cover for where harm, such as death or bodily injury or disease, has already been caused and claims have now arisen as a result. With a large outbreak of the disease and well publicized and documented deaths occurring from potentially a single source there will be product liability claims and a good chance of a class action, particularly where the poor and vulnerable have been affected. Vigilant NGO’s and consumer groups will be eager to step in and protect those who have limited access to legal redress. Usually claims will be for loss of support, medical costs, pain and suffering.
The Consumer Protection Act provides for strict liability (no negligence needs to be proved by the consumer) for both manufacturers and distributers of goods alleviating the need for the consumer to incur the burden of proof. Retailers in the supply chain are also on the hook and will have to show it was unreasonable of them to have discovered and dealt with the problem. This means that the insured and their insurers are on the back foot in defending any claim and sufficiently high indemnity limits are required bearing in mind that legal defence costs are typically included in the limit of indemnity.
If, as a result of alleged mismanagement of the crisis, the share price drops precipitously, the company concerned could also face a D&O liability claim from affected stakeholders
So it is not just about listeriosis, food safety is definitely a risk to watch with pathogens, bacteria and allergens becoming a more common occurrence and the stringent requirements for comprehensive and correct labels and warnings, creating many opportunities for liability claims.