Food contamination and product recalls make good headlines but often result in headaches for the companies affected and their insurers, according to lawyer Jeffrey Weinstein, a partner with Mound, Cotton, Wollan & Greengrass of New York.
He said the insurance coverage that is offered under basic contaminated products policies was “limited to contamination of the insured's own product”.
However, even if manufacturers’ products are not contaminated, they may suffer by association and insurers are developing policies that could potentially cover these “falling-through-the-cracks situations.”
Weinstein, who made the comments ahead of a conference on the top ten insurance risks and opportunities, added: “In a lot of these more media-driven frenzies that we have had… the companies that are associated with these products lose tremendous sums of money. But sometimes, the company’s product itself is not part of the contamination.
“These policies have specific provisions so that business interruption-type losses are only payable if in fact your product suffered the contamination.
“So media driven or other economic factors that potentially bear on your profitability as a result of these incidents… are not covered under these policies.”
An example is the outbreak of E. coli in September 2006 that was traced back to packaged cut spinach originating from California. The outbreak killed three people and sickened more than 200 across the US.
Weinstein said: “People altered their lifestyles and stopped purchasing spinach and restaurants stopped serving it when in fact the actual spinach that was recalled was of a very limited nature.”
Basic insurance policies were not meant to cover such situations. However, Weinstein said that policyholders might soon be able to purchase an additional endorsement that would expand the scope of the coverage.
Other issues related to this include the definition of malice when products are deliberately tampered with, which can differ between states, and the measure of harm caused by the contamination.
Weinstein said these issues were important because insurers and policyholders needed to understand the risks being covered, as policies have limits.
Weinstein will be speaking at The Insurance Industry's Top 10 Risks & Opportunities Conference, which is to take place in Philadelphia on December 8-9 and is organized by BVR Legal, an education and information company serving attorneys and business experts in complex legal disputes.