Risk: Food Contamination Liability: Is Your Brand Prepared?

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1 Human Resources & Risk and Safety Executive Study Group Risk: Food Contamination Liability: Is Your Brand Prepared? February 9, 2017 Austin, Texas Justin F. Lavella Partner Blank Rome LLP #

2 How to think about your insurance

3 How to think about your insurance 3

4 How to think about your insurance What is insurance to each of you? Safety Net? Regulatory Requirement? Business Expense? Ponzi Scheme? 4

5 How to think about your insurance Insurance is a major corporate asset that can be worth billions of dollars Insurance in implicated by virtually every aspect of the tort and regulatory regime that affects your conduct But, your insurance is unlike other assets in that it requires your attention, creativity, and timeliness 5

6 Attention Consider your risks and the risks faced by your competitors and suppliers, and then try to adapt your insurance to meet those risks Don t only think about insurance when it is time for renewal Remember to keep thorough records, including exempting insurance policies from document retention policies (i.e., never throw them away) 6

7 Creativity There s coverage for liabilities and loss that conventional wisdom says can t be insured Intentional torts Punitive damages Business conduct and disputes Assume a loss or liability is covered until someone definitively explains why it is not There is often coverage buried in unexpected places D&O coverage for privately held companies 7

8 Timeliness When purchasing or renewing coverage: Insure there is time to market the coverage Insure there is time to request policy enhancements Insure that outside contingencies are taken into account When making a claim: Provide notice early and often Provide notice expansively Remember to consider insurance, even when it is the last thing on your mind 8

9 Insurance Coverage for Food Contamination Swiss Re recently reported that the number of food recalls in the United States and the costs associated with those recalls have doubled since 2002 And the trend is likely to continue: Food industry is becoming increasingly integrated Supply chains are becoming longer Regulatory requirements are increasingly complex Infectious diseases are becoming increasingly drug resistant Perhaps not IF but WHEN 9

10 Insurance Coverage for Food Contamination Companies need integrated risk management strategies: Develop crisis management protocols and teams Require stringent testing requirements Require and maintain indemnification from suppliers Implement best practices for sanitation and preparation Be proactive with regulators and the public Evaluate existing insurance portfolio Consider new insurance products 10

11 Worst Case Scenario Self- Perpetuating Cycle Suits from injured customers Suits from investors or shareholders Governmental investigation(s) Media reports depressing current and future sales Leading to more investor suits 11

12 Worst Case Scenario Self- Perpetuating Cycle Suits from injured customers Commercial General Liability ( CGL ) Insurance Suits from investors or shareholders Directors & Officers ( D&O ) Insurance Governmental investigation(s) Errors & Omissions ( E&O ) Insurance Media reports depressing current and future sales First- Party Insurance (for Business Interruption, Food Contamination, Product Recall, Loss of Gross Profits, etc.) Leading to more investor suits 12

13 CGL Insurance Commercial General Liability (CGL) Covers liability for bodily injury, personal injury, advertising injury, and property damage Typically covers both liability and defense costs Defense costs are typically in addition to the limits of liability 13

14 D&O Insurance Directors & Officers Liability (D&O) Covers liabilities of directors and officers and often the company for breaches of fiduciary duties, securities, and other claims Private v. Public Defense costs are typically subject to the limits of liability 14

15 E&O Insurance Errors & Omissions (E&O) or Professional Liability Covers liabilities arising out of the provision of a company s services Language matters: Claims arising out of Wrongful Acts in connection with Professional Services Claims arising out of Wrongful Acts, including those in connection with Professional Services Defense costs are typically subject to the limits of liability vs. 15

16 First- Party Insurance Not just property and business interruption insurance Contamination and Recall Coverage Specialized form of insurance, which can be a hybrid of traditional first- party and third- party liability insurance Emerging area of the insurance market 16

17 Other Types of Coverage Fidelity Insurance Could an employee sabotage your products or services? Political Risk Could government action result new or revised food liability? 17

18 Food Contamination & Product Recall Standard Coverage Clauses: Accidental Contamination or Impairment Malicious Contamination Product Extortion Optional Coverage Clauses: Government Recall Adverse Publicity 18

19 Food Contamination & Product Recall Different Accidental Contamination definitions: any accidental or unintentional contamination, impairment or mislabeling of an Insured Product or an omission of an ingredient in an Insured Product, which occurs during or as a result of its production, preparation, processing, mixing, blending, compounding, manufacture, packaging, or distribution; provided that the use or consumption of such Insured Product has resulted in or would result in Bodily Injury error in the manufacture, production, processing, preparation, assembly, blending, mixing, compounding, packaging or labelling (including instruction for use) of any Insured Products; provided that the use or consumption of such Insured Products has led to or would lead to bodily injury, sickness, disease or death of any person or animal physically manifesting itself within 365 days of use or consumption 19

20 Food Contamination & Product Recall Different Government Recall definitions: the recall, withdrawal, removal, recovery of possession or control, or disposal of the Insured Product from a distributor, purchaser, or user of the Insured Product ordered by a regularly constituted federal, state or local regulatory or administrative body because of potential Bodily Injury arising out of the use or consumption of the Insured Product the recall of Insured Product which has been initiated (a) voluntarily by the Insured or (b) as a result of an order by the FDA or any other US or Canadian state or regulatory body with similar authority with regard to food safety 20

21 Food Contamination & Product Recall Adverse Publicity as separate Insured Event Definition of Loss and its sub- definitions Calculation of Loss provisions; potential effect of solely Potential effect of a Choice of Law provision Potential effect of a misrepresentation (even innocent) in the underwriting process Policy construction provisions 21

22 Contact Justin F. Lavella Blank Rome LLP