Over the past several months, salmonella has been front-page news. According to published reports, as a result of the latest outbreak, more than 1,300 Americans have been infected with the bacteria after consuming contaminated eggs. As of this writing, more than a half-billion eggs have been recalled, new safety regulations have been implemented, and a congressional investigation is well under way.
The egg-related salmonella outbreak is the latest in what the media would have citizens believe is an epidemic of food contamination cases. In truth, the United States' food supply is exceptionally reliable. The vast majority of growers, manufacturers, and retailers work hard to offer products that are safe for consumers. And the food industry as a whole does an excellent job of controlling the quality of the products they produce, process, and sell. Moreover, in the relatively few cases where problems do arise, the industry has a strong history of promptly identifying and responding to those problems in order to minimize their impact.
Unfortunately, with food-borne bacteria such as salmonella, even the best of efforts can't guarantee immunity in every case. That's where insurance comes in. For companies that operate in the food and beverage industry, a comprehensive insurance portfolio is an essential backstop against contamination-related losses. But, along with the increased scope and scale of food contamination cases has come an increased scrutiny by carriers of contamination-related claims. Given the vital role played by insurance, it is not enough to simply purchase a standard policy and hope for the best. Instead, policyholders must remain savvy.
Specialty products do exist and can go a long way toward removing some of the uncertainty involved in a contamination incident. Recall insurance is an example that may be familiar to many food and beverage policyholders. There are number of different recall products on the market, and the scope and scale of coverage varies widely. And, although simply purchasing a Recall Policy does not guarantee coverage for every incident, when such a policy is carefully researched and procured, it can offer policyholders a great deal of comfort.
One problem that we are seeing at the moment does not involve specialty policies that insure against specified perils. Instead, it concerns comprehensive general liability (CGL) policies. As the name suggests, CGL policies are designed to provide "comprehensive" coverage. Yet, when it comes to contamination losses sustained by food industry policyholders, comprehensive coverage can turn out to be anything but.
It is not uncommon for a carrier to sell, to a food/beverage company, a CGL policy that is specifically designed for the food/beverage industry. And any company purchasing such a product would naturally assume that the policy's "comprehensive" coverage would directly respond to losses caused by food-borne pathogens. After all, food-borne illness is one of the most obvious-and serious-risks that the food and beverage industry faces. Yet, recent experience demonstrates that carriers are aggressively contesting their defense and indemnification obligations when it comes to such losses. From their efforts to use policy sublimits to minimize available coverage, to their attempts to expand endorsements such as the "Communicable Disease Exclusion" to encompass food-borne pathogens, carriers seem more willing than ever to utilize lawsuits as a means to limit the "comprehensive" coverage available under their food-specific CGL policies.
The lesson here is vigilance. In the face of increased carrier scrutiny, it is essential for companies that grow, process, manufacture, distribute, and/or sell foodstuffs to take a proactive approach to risk management. Such companies can no longer afford to assume that standard general liability policies will protect them against contamination-related losses. Instead, they must closely examine their insurance portfolio to ensure that they are protected in case of an outbreak-and should obtain additional specialty coverage, if necessary, to further minimize their risk. At the same time, recent trends underscore that food and beverage companies must be ready, willing and able to aggressively pursue their contractual rights if and when they are ever impacted by a contamination-related loss.
If you have any questions or would like more information on the issues discussed in this Hot Topics Alert, please contact the author, Christopher C. Loeber (609.919.6672; firstname.lastname@example.org), or either of the following Morgan Lewis Insurance Recovery attorneys:
Paul A. Zevnik
Michel Yves Horton