First, it was spinach. Then, it was lettuce.  Most recently, it was ham and turkey.  No, this is not a chef salad, but rather, a list of this season’s most infamous product recalls.

If you are a food-related business, then being associated with, placed in the same category of or cited as the source of a product recall is perhaps your worst nightmare come true. And for good reason, as a product recall can physically harm consumers, scare away future buyers and take a chunk out of your bottom line.

On the Menu: Diminished Sales, Class Action Suits and Bankruptcy

“When a food-related product recall occurs, sales of the implicated product – or any food made with it – can decline swiftly and dramatically,” says Bill Cilente, Executive Vice President, Commercial Lines Product Coorodinator, and Food Specialist with the NIA Group.  “Diminished sales not only affect the implicated company, but also those companies that produce, use or serve the same product.  For these businesses, it is simply guilt by association.”

"The FDA can also trace a food-borne illness back to its source before an outbreak ends,”adds Cilente.  This can be financially damaging for all product makers – guilty or not.  “Within weeks of the spinach recall, fresh-cut produce provider Ready Pac was forced to close its Indiana-based plant and potentially leave 200 employees without jobs. Ready Pac was not implicated as a source of the spinach recall,” notes Cilente.

Other companies, like AP Military Group, a California-based produce broker/supplier of bagged spinach to the military, filed Chapter 11 after the spinach-related E. coli outbreak.

Natural Selection Foods, the company implicated in the spinach recall, is now facing a class action suit.  As of October 2006, 199 people have fallen ill, allegedly from its spinach, and three people have died.  The company also reported a 40% drop in sales after the recall occurred.

Avoid Financial Disaster with Product Recall Insurance

Product recall insurance is designed to help businesses financially survive a product recall. The policy, which can have available limits of up to $200 million (depending on company size, business type), covers:

• Product recall and replacement costs.
• Third party recall and contamination liability expenses, which are often excluded on traditional Commercial General Liability policies.
• Business interruption costs related to the recall.
• Public relations (i.e. Crisis PR) and specialty consulting costs.
• Defense costs.

Interested in learning more about Product Recall Prevention and Financial Survival? Contact your NIA advisor or Bill Cilente at 201.336.1330 or wcilente@niagroup.com.