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Insurance Community University 1 “Return to Sender” Insight on Product Recall.

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Presentation on theme: "Insurance Community University 1 “Return to Sender” Insight on Product Recall."— Presentation transcript:

1 Insurance Community University 1 “Return to Sender” Insight on Product Recall

2 Insurance Community University Welcome to your Insurance Community University All of you are currently on mute – Un-mute your own system – Telephone Option Select Telephone on your screen Dial in the PIN number so that your number becomes active – Microphone and/or Speaker Option You can use this option if you have a headset that you use with your computer 2 Audio

3 Insurance Community University Participation & Chat Window You will receive information from the monitor via the ‘Chat’ window. – Please locate window in the control panel Q & A is welcomed during the presentation and at the end of the presentation You will find the question box on your control panel – Write your question in that box and send it to the presenter/organizer The presenter will take those questions in the order submitted 3

4 Insurance Community University DOI Requirements When you see a slide with the hand up symbol, touch the “hand” icon on your control panel – Click ONCE only If you do not raise your hand, the monitor will be in contact with you in the chat box If you are in a group, the designated proctor is responsible to make certain you are all in attendance at all times 4 = Hand is down

5 Insurance Community University Polling Throughout the class we will be conducting periodic polls We need 100% participation on the polls The polls are intended to check participation but also to create discussion topics throughout the presentation 5

6 Insurance Community University Forms To Complete for CE After class ends – Return attendance form – Proctors – return your form to email address Email address is in chat window or in email sent to you today 6

7 Insurance Community University DOI Requirements We will file your hours with the DOI after the completion of this webinar and we have received the attendance form. You have 48 hours to return the form You will be sent a Certificate of Attendance/Completion by email. Please retain this for your records for five years. 7

8 Insurance Community University State Approvals for Equipment Breakdown CA CO FL ID IN IA IL ME MA NE NC NH NV NY OR PA TN TX UT WI WY 8

9 Insurance Community University Internet Disruption If the presenter looses internet connection STAY ON THE LINE The administrators will communicate with you

10 Insurance Community University Internet Failure If the internet fails and all participants are kicked off line by Go To Training or other source then the seminar will be terminated You will receive instructions by email as to how we will proceed This is a precautionary notice, only 10

11 Insurance Community University This class is being recorded Available in the University Archived Classes do not qualify for CE

12 Insurance Community University Disclaimer Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional material provided by Insight Insurance Consulting and the Insurance Community Center is intended as a general guideline and any interpretations provided by Insight, Insurance Community or presenters do not modify or revise insurance policy language. When ISO language is included in the materials, all ISO content is protected by the ISO copyright. All parties to this presentation and creation of materials assume neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Copyright 2010 – 2013 All Rights Reserved 12

13 Insurance Community University Your Instructor Today Al Parizo AFIS ACSR 13

14 Insurance Community University Understand the exposure Cover the basic triggers of coverage to understand the product The Insurance Agreement Be prepared to negotiate an offer in the Non- Standard market Make recall a standard option in our offers of coverage Couse Objectives

15 Insurance Community University Some Interesting History Products Liability first became available in England in1890. The target of the insurance were pie bakers who at times were known to inadvertently add roach powder to the baking dough. It is uncertain why these accidents happened but perhaps the bakers mistook the roach powder for powdered sugar. 15

16 Insurance Community University Some Interesting History Whatever the reason, this form of protection for bakers came to be appropriately known as “poison insurance”. It was about 20 years after it was first sold to bakeries in England that products liability insurance became available in the United States. 16

17 Insurance Community University Where’s the coverage? 17 Recall

18 Insurance Community University Ripped from the headlines Published: Aug. 1, 2013 at 11:15 AM Updated Aug. 1, 2013 at 12:08 PM National Beef Packing Co., a Kansas company, has issued a recall of 50,000 pounds of beef over an E. coli contamination.issued a recall The products, which were shipped nationwide, could be contaminated with E. coli O157:H7 18

19 Insurance Community University California Company Recall In 2/2014 Rancho Feeding Corp, of Petaluma recalled 8.7 million pounds of beef, It was allegedly processed without benefit of a full inspection for diseased or unsound animals. 19

20 Insurance Community University Hopefully, without a side of E. Coli WinCo Foods of CA expanded their recall for hamburger ground beef in its 70 WinCo Food Stores They are investigating their supply chain to determine the cause of contamination How Do You Want Your Burger?

21 Insurance Community University To close out a dismal 2010, 34,373 pounds of organic ground beef recalled First Class Foods of Hawthorne CA confirmed E. Coli contamination in packaged products shipped to CA, NJ, NY, NC, WI, and WA No injuries reported to date, the company established a hot line for recall claims management More Beef

22 Insurance Community University Bringing Back The Lettuce 22

23 Insurance Community University Dole Fresh Vegetables is recalling 1,039 cases of bagged salad due to the potential that it may be contaminated with Listeria monocytogenes. The California-based company issued the voluntary recall Wednesday after a sample of its Dole Italian Blend taken by the North Carolina Department of Agriculture tested positive for Listeria.voluntary recall Bagged Salad | August 23, 2012 Recalled

24 Insurance Community University Fries With What?

25 Insurance Community University PB and Claims 25

26 Insurance Community University In 2009, Salmonella in peanut butter products sickened 475 people in 43 states and Canada Salmonella typhimurium may have contributed to 6 deaths according to the CDC Outbreak traced to the Peanut Corporation of America (PCA) processing plant in Blakely, Alabama PCA is presently in bankruptcy Peanut Butter

27 Insurance Community University Salmonella

28 Insurance Community University Bacteria Doesn’t Need a Passport German Inspector Sorts Impounded Spanish Cucumbers

29 Insurance Community University Spain, Italy and Germany had 1500 ill and 15 fatalities. New strain of bacteria source still unknown. Suspected source of Spanish Cucumbers, Tomatoes and Sprouts. Impounds and Embargoes cost food producers millions of Euros and strain political relations. New E-Coli Strain in Europe

30 Insurance Community University Some point to consolidation of small operations into CAFOs concentrating poultry, pigs and cattle to the point where if one gets infected, they all do Others point to understaffed and underfunded Food Safety inspection at the state and federal level resulting in lax oversight where food is processed or stored CAUSES in USA?

31 Insurance Community University In 2008, 21 cases of the “Saintpaul” strain of Salmonella found in and around Port Arthur, Texas Texas Department of State Health Services focused investigation on shipments from New Mexico and Arizona Hold The Tomatoes

32 Insurance Community University Recall Coverage Overview What’s the risk? 32

33 Insurance Community University Last Year

34 Insurance Community University It Is About CGL Exclusions n. Recall of Products, Work or Impaired Property Damages claimed for any loss, cost or expense incurred by you or others for loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of: (1)Your product; (2)Your work; or (3)Impaired property; 34

35 Insurance Community University It Is About CGL Exclusions if such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it. 35

36 Insurance Community University The fruits of the exclusion Topps Ground Beef recall in 2010 cost $12 million in BI claims. GL and layered XS responsive. Recall costs for I year’s production, however, bankrupted the company. 36

37 Insurance Community University Primarily a Business Interruption claim with a different trigger Not traditional “third party” coverage but first party direct and consequential damage Best suited for creative non-traditional forms from creative underwriters Recall Coverage Overview

38 Insurance Community University Expenses to remove the product from the market Extra expenses to contact customers Cost to destroy the product along with the product’s value Replacement cost of the product Legal and regulatory compliance costs (e.g. testing and inspection) Direct Costs To Insured

39 Insurance Community University Damage to reputation and brand Long term losses to category (e.g. consumer drop in demand until trust restored) Increased marketing and advertising expenses to recover market share Increased regulatory and testing costs Some Indirect Costs

40 Insurance Community University Loss of market value can lead to shareholder lawsuits (D&O) Loss of stock value in employee 401(K) can lead to Fiduciary Liability lawsuits Once optional, offers for D&O and Fiduciary Liability are now critical in the proposal protocols for the Agricultural Agent to Client Some Other Consequences

41 Insurance Community University A non-traditional insurance policy using Business Interruption techniques Combines Risk Management with Risk Transfer Specialized claims handling to manage reputational loss critical Recall insurance

42 Insurance Community University Triggers for Coverage Policy Responses 42

43 Insurance Community University Product Integrity. Broadest trigger requires only a reasonable expectation by the insured that the product could cause harm. Example. Gerber recall of baby formula distributed in South America because of an error in translation of mixing instructions from English to Spanish. No injury, no mandate for recall but could trigger policy response. Triggers For Coverage

44 Insurance Community University Trigger requires BI or PD to consumer or regulatory demand The regulatory demand (e.g., the FDA or DOA) need not involve BI or PD Either event could trigger the policy response More limited in scope than Product Integrity but more palatable to underwriters Intermediate Trigger

45 Insurance Community University There must be BI or PD and a regulatory demand to recall the product Unlike the intermediate trigger, the product must simultaneously cause harm and have an official demand to recall Limited Trigger

46 Insurance Community University Various Types of Insurance Products Integrity Coverage Products Tampering Coverage Malicious Product Tampering (MPT) Accidental Product Contamination (APC) Products Extortion Coverage Product Withdrawal Products Recall 46

47 Insurance Community University Accidental Product Contamination Product Tampering Product Extortion. Pay subject to the threat of product tampering. This can be added to most commercial crime forms along with Kidnap and Ransom coverage. Other Triggers

48 Insurance Community University Inspect and Negotiate “Contamination” is the default trigger for most carriers. Review the definition of “contaminated product”, e.g. does it require a companion GL product liability response? Will it allow a voluntary recall? 48

49 Insurance Community University Federal Food Safety Modernization Act signed into law 1/2011.(FSMA S. 101) Stronger Access Authority by FDA. Mandatory Recall Authority. Increased Inspection Frequency. Whistleblower Protection. Refused Admission of Imports if inspection refused. It’s Official

50 Insurance Community University HACCP Mandatory The new law requires a Hazard Analysis and Critical Control Point safety plan for food manufacturers and processors. A Product Recall plan is part of this procedure. You can help, after all, this is Risk Management! 50

51 Insurance Community University Stronger records Access. Triggered when “reasonable probability” of serious adverse health consequences. FDA can access records of other food affected in similar manner. FDA must show credentials and a written notice. Recall Authority Under FSMA

52 Insurance Community University If FDA finds probability of adulteration or misbranding and: There may be serious adverse health consequences, then FDA must provide opportunity for voluntary recall. FDA will file an informal hearing within two days of order to determine if mandatory recall required. Mandatory Recall Triggers

53 Insurance Community University Class I Involves a health hazard where a reasonable probability exists that eating the food would cause serious, adverse health consequences or death. – Example: E. coli O157:H7 in raw beef; allergens such as peanuts or eggs (not listed on the label). – Your recall policy trigger should always be crafted to respond to this event. 53

54 Insurance Community University Class II This type of recall indicates a potential health hazard where a remote probability of adverse health consequences from eating the food exists, or if the resulting condition is temporary or medically reversible – Example: Presence of FD&C Yellow #5 dye in candy. – Be careful of your recall policy trigger, some won’t respond. 54

55 Insurance Community University Class III Consumers not likely to experience adverse health consequences…so why? Usually because they violate FDA labeling or manufacturing regulations (e.g. shipped in defective containers) Most recall policy triggers won’t respond

56 Insurance Community University FDA to immediately increase frequency. FDA to apply “risk based” approach to determine priorities. Here is an example of a government recall. Increased Inspection Frequency

57 Insurance Community University Government Recall WASHINGTON, February 27, 2012 - London Meat Company, a New York, N.Y., establishment, is recalling approximately 200 pounds of country breakfast sausage because it contains monosodium glutamate (MSG), which is not declared on the label, the U.S. Department of Agriculture’s Food Safety and Inspection Service announced today. The products subject to recall include: 5-lb boxes of “Milano’s Country Breakfast Sausage,” containing 80 sausage links per box 57

58 Insurance Community University Protects employees who report violations. Testify, assist or participate in violation proceedings and/or: Object to “activity, policy, practice or assigned task” they reasonably believe to be a violation. Whistleblower Protection

59 Insurance Community University Foreign establishments must allow entry to U.S. inspectors within 24 hours of request for entry. Failure to comply will result in imported food refused admission. Imports

60 Insurance Community University FDA Action On Imported Citrus Reuters) - Fears that the U.S. might ban imports of orange juice from Brazil drove orange juice futures to an all-time high on Tuesday as health regulators began testing all incoming shipments for traces of an illegal fungicide called carbendazim.Brazil

61 Insurance Community University Imported Salad WASHINGTON (AP) - Taylor Farms of Mexico, a division of a California-based produce supplier whose greens go to national restaurants including Red Lobster and Olive Garden, shipped parasite-tainted salad mix that has sickened hundreds in Nebraska and Iowa, U.S. health officials said. 61

62 Insurance Community University FSMA Enforcement FDA's investigation did not implicate salad mix packages sold in grocery stores, officials said. As a result of the probe, the agency will step up surveillance of leafy products exported to the U.S. from Mexico. 62

63 Insurance Community University Feds take action FDA officials, in conjunction with company leaders, will conduct an environmental assessment of the processing facility in Mexico to determine the probable cause of the outbreak. State officials had said the salad mix included romaine and iceberg lettuce, along with carrots and red cabbage. 63

64 Insurance Community University The fallout. Siouxland (IA) woman sues Olive Garden owner claiming salad made her sick. Siouxland (IA) woman sues Olive Garden owner claiming salad made her sick More lawsuits sure to follow. Bodily Injury a question of limits (CGL, XS). Recall and reputational losses are a different matter. 64

65 Insurance Community University Recall is risk that is real and pervasive in any business The discussions of risk management and options for risk transfer must be addressed in any new and renewal insurance proposal Identifying risk and giving choices to our clients is what we do Who Pays Continued

66 Insurance Community University The Insuring Agreement Language of risk transfer! 66

67 Insurance Community University “You get what you negotiate, not what you deserve”(anon.) Watch the triggers! Should cover the cost of the recall up to the policy limit Replacement cost of the product Rehabilitation costs Disposal, testing and other extra expenses The Insuring Agreement

68 Insurance Community University No coinsurance There can be a participation clause and retention The application will often be a warranty There will be a survey and inspection with contingencies and requirements to be complied with and often warranted First Party

69 Insurance Community University When a third party uses the insured’s product, their revenue is impacted by the insured recall (think contingent business interruption) Some companies offer a separate limit, often called Coverage B, for third party liability to cover their expenses and lost income associated with the insured recall(This is a critical consideration) Third Party Coverage

70 Insurance Community University Peanut Company of America (PCA) recall affects other businesses Cracker manufacturers that used their product Ice cream using PCA’s peanut butter paste Bulk purchasers of PCA products who repackaged and retailed own brand All created (uncovered) litigation Third Party Example

71 Insurance Community University Whey purchased in bulk from Chinese supplier Manufacturer who uses it in pet food formulation Wholesalers who buy in bulk and repackage Retailers who buy from wholesaler or directly from manufacturer See the linkage? (let’s discuss) The Supply Chain (Example)

72 Insurance Community University Recall offer should not be limited to client’s direct exposures only The direct coverage is often labeled Coverage A The offer should include Third Party Liability (Coverage B) Remember, A and B may be subject to an Aggregate Limit Risk Transfer

73 Insurance Community University Working with a competent carrier's application and survey can help identify improvements needed in operations Exposures in supply chain Protocols for safe handling and storage All value-added services that will help you in a client relationship Risk Management

74 Insurance Community University Protecting brand identity is a primary consideration What additional steps does the Claim Department feature to help manage the recall? Consider this carefully when going to market Claims Management

75 Insurance Community University If they don’t, it should be because you gave them the choice The offer to quote should be a standard part of your proposal. Always get a sign off on your offers. The process to quote will take effort Two benefits ensue What If They Won’t Buy It?

76 Insurance Community University If they don’t buy it, the process will give them a better understanding of their recall exposure with you as the enabler If they buy it, they get not only risk transfer within the policy terms but loss control and claim resources to improve their business Neither can happen unless you make an offer Two Benefits

77 Insurance Community University Product recall exposure is pervasive in the supply chain All businesses needs to address risk management and have risk transfer options This is where you come in! What Now?

78 Insurance Community University Partner with a good resource to offer product recall options Insurance Company or third party loss control can help a client prevent a recall problem from happening or manage one efficiently if it does Make a product recall offer a standard in your proposals and require a sign off if declined Agents And Brokers

79 Insurance Community University Ultimately, the business, usually out of operating income If they have Recall coverage, their bottom line has less stress In addition to the Recall coverage up to the policy limit, effective claims management can protect their reputation Who Pays?

80 Insurance Community University Recall is risk that is real and pervasive in today’s business climate. The discussions of risk management and options for risk transfer must be addressed in any new and renewal insurance proposal Identifying risk and giving choices to our clients is what we do Who Pays Continued

81 Insurance Community University  Consulting firm with resources for recall notification and response, remedies, resolution and retrieval.  Announced a recall policy and partner with for loss control and claims management.  has new recall insurance and risk management products. Some Resources

82 Insurance Community University Some More Resources for the Food Safety Act regulations. for the Consumer Product Safety Commissions updated list of recalls. for access to a new contamination recall policy., a resource for risk management.

83 Insurance Community University For up to date examples 83

84 Insurance Community University Upcoming Classes 2/13Tenant Improvements and Betterments 2/20Certificates and Additional Insureds 2/26 & 27 Ethics, Privacy and Compliance 3/4Annuities

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