Do You Recall?

It’s been a tough year for recalls. First it was pet food. Then everything from livestock feed to toothpaste, shrimp, fish, and toys to tires were found with dangerous contaminants or defects: melamine, diethylene glycol, pharmaceuticals, lead, and the omission of critical components. Imported ingredients and products, all of them, used as components in American products or resold by American wholesalers and retailers.

Then there’s the contaminated domestic spinach, carrots, prepackaged sandwiches, and peanut butter–or other products with defects: everything from lawn and lounge chairs to lighting products, insulin pumps, and fire extinguishers.

Recall issues have been around for a long time, as have product liability suits. But with increasing quality control issues around imports, a staggering amount of imports to deal with (the U.S. Census Bureau says the U.S. has imported $953,869,000 worth of goods in the first half of 2007, up $38,498,000 from the same period in 2006), it’s only a matter of time till more businesses deal with fallout from inferior or dangerous products.

Carol Murphy, central region managing director for Aon Casualty, says that although the losses were far from negligible, had the pet food issue been a human food issue, it would have been far more costly. Menu Foods, the Canadian pet food manufacturer first hit by the recall, chalked up losses of $45 million in Canadian dollars, and its first quarter sales dropped from $93.9 million to $64.5 million. Pet owners in Canada and the U.S. have filed numerous lawsuits, and there is the possibility of a class action suit.

Bill Harrison, managing director of Aon’s Crisis Management practice, points out that there doesn’t even have to be a problem with a client’s business for there to be a loss. “We just settled one of these claims,” he says, in which a company was accused in the media of having a contamination. The media report was wrong, but that didn’t stop the loss to the company.