From GM’s recall of 2.6 million cars due to its faulty ignition switch to the massive recall of flawed Takata airbags, Niagra Water’s recall of its 14 brands tainted with E.coli bacteria, and Lululemon’s recall of its defective, stretchy black inadvertently “see-through” yoga pants, product recalls are more pervasive than we think. Furthermore, the impact of a recall can be far-reaching for a company if not handled properly and without the proper manufacturing insurance product in place, which should include Product Recall coverage.
All manufacturers, unfortunately, do not purchase Product Recall coverage, thinking they are either insured under a Commercial General Liability (CGL) policy or as part of their Products Liability insurance. Yet, the costs associated with a product recall are typically not covered under the CGL or Product Liability policy that insureds commonly purchase. Product Recall insurance is required either as a separate policy or added as part of the CGL program. This coverage is uniquely designed to reimburse insureds for financial losses they face because of evidence indicating a product has caused or would cause bodily injury or property damage.
What’s Covered with Product Recall Insurance
Product Recall coverage can be structured to provide protection for first- and third-party losses. First-party product recall exposures include the costs of a recall, including product loss, costs to withdraw the product from the market, product disposal, product testing, product replacement, overtime wages, crisis management, and loss of profit. Third-party product recall exposures include reasonable and necessary expenses incurred by others on behalf of the insured due to a covered recall.
Typically there are three types of Product Recall policies depending on the items being manufactured: consumable products (food, beverages, pharmaceuticals, cosmetics and tobacco) where coverage kicks in because of accidental contamination or malicious tampering; consumer goods (appliances, electronics, furniture, clothing, and other household items) where coverage is triggered when there is knowledge that the product is defective and will cause bodily injury or property damage; and component parts (cars, machinery and airplanes) where coverage applies when use of the product has caused bodily injury or property damage, the product poses an actual and imminent danger of causing bodily injury or property damage, and the product has impaired property.
Without Product Recall insurance, manufacturers put themselves in the position of facing significant corporate expenses that go beyond the cost of the recall itself and can result in sale declines, reputational damage, poor stock performance for publicly traded companies, and even bankruptcy. The end result without the proper insurance in place can be financially devastating.
Product safety and recalls continue to be top-of-mind issues among regulators, with stricter standards and new laws continually being implemented. In addition, the frequency and severity of recalls continue to increase. RPS, can assist you in providing clients with a comprehensive manufacturing insurance product that includes Product Recall coverage. We represent more than 40 open brokerage carriers with an appetite for manufacturing business and, depending on the risk, can provide full coverage and sub-limited Products Recall insurance within the Commercial General Liability policy.