Are you covered for product liability?

The frequency of recalled goods is increasing and newspapers frequently carry a product recall notice.

This is not because quality standards have fallen but because safety standards, consumer demands and controls have increased.

If a business becomes aware of or suspects its product has a defect that could cause harm, it has no choice but to recall it at great cost. No business insurance would protect a business if the goods were knowingly left on the market and then caused injury or damage. Directors may be held personally responsible if they allow unsafe products to remain on the market and businesses face possible prosecution or fines from regulators as a result.

A defect may be caused because of a faulty component, raw materials not up to specification or an ingredient that is contaminated before delivery. In these cases the supplier, manufacturer or importer may be liable for all the recall costs and be subject to claims for damages or loss of reputation. This can be a frightening prospect for already squeezed suppliers.

All these issues have insurance implications. Cover may be available against the cost of a product recall and this should be seriously considered by businesses in the retail consumer chain and investigated by others involved in the supply of volume goods where recall costs could be high. The number of insurers prepared to provide cover is low but sensible businesses, with our help, should weigh up the cost against the risk and then make a business decision.

Are you covered for product liability?

If you are in the supply chain in any sector and are concerned about what could happen if you provide a faulty component, product or ingredient, product liability could offer some protection.

Case study: Horsemeat in Tesco burgers prompts apology in UK papers

Recent stories in the press have shown that product recalls can have damaging and long-lasting effects.

Tesco placed full-page adverts in a number of national UK newspapers apologising for selling beefburgers that were found to contain horsemeat (BBC, 2013).

The supermarket giant said it and its supplier had let customers down and promised to find out “what happened”. It emerged Irish food inspectors had found almost 30% horsemeat in one brand sold by Tesco.

Smaller amounts were also found in beefburgers sold by Iceland, Lidl and Aldi and Dunnes.

Officials said the contaminated products - on sale in the UK and the Irish Republic - posed no risk to human health and had been removed from shop shelves.

News of the horsemeat contamination was followed by a drop in the company’s shares - wiping hundreds of millions of pounds off its market value.

Speaking in Parliament, Prime Minister David Cameron condemned the situation as “a completely unacceptable state of affairs” and called for an urgent investigation by Britain’s Food Standards Agency (FSA).

Case study: Ikea withdraws cakes over faecal matter

Unfortunately lightning can strike twice in the case of Ikea, the world’s leading flat-pack furniture retailer.

The company had to withdraw chocolate almond cake sold in its stores in 23 countries after it was found to contain sewage bacteria (McCarthy, 2013).

Faecal coliforms, bacteria normally found in human and animal waste, were detected in Ikea cake sold in China, and the Chinese authorities have destroyed nearly two tonnes’ worth.

The Swedish furniture giant, which has 18 stores in the UK, recalled the cake from its outlets in a swath of countries around the world – although it insisted the UK and Ireland were not affected.

The embarrassment came soon after the company was forced to withdraw the Swedish meatballs popular with its customers patronising its in-store restaurants, after tests on the product in the Czech Republic found traces of horse meat.

Disclaimer

Any views or opinions expressed in this briefing are for guidance only and are not intended as a substitute for appropriate professional guidance. We have taken all reasonable steps to ensure the information contained herein is accurate at the time of writing but it should not be regarded as a complete or authoritative statement of law.

Bluefin is one of the UK’s leading independent insurance brokers, providing specialist insurance and risk management services to individuals and businesses. It provides market leading insurance solutions delivered locally through a network of 42 offices and over 1400 staff.

As a top ten independent UK insurance broker, Bluefin provides specialist advice across all classes of business including property, employers liability, public and products liability, professional indemnity, contractors all risks, motor and engineering. Bluefin also underwrites on a wholesale basis for a wide range of products and schemes. Bluefin is proud to have been awarded Chartered Insurance Brokers status by the Chartered Insurance Institute in 2012.

This was posted in Bdaily's Members' News section by Jennifer Man .