September 2, 2010

Product Recall Insurance Debated in Wake of Egg Recall

Losses costly; coverage not yet known

In the wake of the recall of over half a billion eggs due to contamination by salmonella, economic losses are still being calculated; how much of those losses are insured is yet to be determined. And as incidents of food contamination rise in frequency and severity, insuring against losses incurred because of such events becomes more of a matter for consideration.

Product recall insurance has been steadily rising on business owners' radar screens for the past few years, as recalls of everything from pet food to spinach to peanut butter and now eggs take a higher and higher toll - not just on the public, with deaths and hospitalizations, but also on businesses - business interruption, the cost of the recall itself, and the reputational damage to the company involved can amount to a devastating loss, depending on the incident.

While the cost of claims resulting from injury or illness may be covered by general liability insurance, the expense of business interruption is another matter altogether. Coverage is not that common - third-party recall insurance, for instance, is not offered by that many insurers, although first-party coverage is more widely available - and only 10-20% of companies that deal in foods and beverages carry such insurance. Still, coverage has increased since 2006, and seems likely to continue to rise.

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