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Food Contamination and Spoilage is on the Rise

November 8th, 2017

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Food contamination and spoilage, whether the result of criminal activity or simple human error, is occurring with alarming frequency in the U.S., and around the world.

Foodborne illness claims are among the greatest financial risks facing the food industry. After a contamination event, all companies in the food supply chain—from farm to supermarket—may unexpectedly find themselves in the crosshairs of aggressive plaintiffs’ lawyers, regardless of the ultimate source of the contamination.

The CDC estimates “48 million people get sick, 128,000 are hospitalized, and 3,000 die from foodborne diseases each year in the United States”.

Food-related losses aren’t limited to power or equipment failures. Food could be mishandled or improperly stored; food may arrive at a facility carrying bacteria like E. coli and make consumers ill; employees could even unknowingly transmit a virus or bacteria during food preparation.

Companies that fall victim to these incidents often incur staggering costs in damage control and in the restoration of profits and brand reputation. When a contamination incident occurs, it can attract media attention that has a disastrous impact on the public’s confidence in the affected product or brand.

These instances make insurance a critical risk management tool that all companies in the food industry should employ to protect themselves against the risk of food contamination claims.

Product contamination insurance generally provides coverage for the following:

  • Recall costs, including laboratory analysis and product transportation
  • Announcement costs, such as radio, television and Internet placements
  • Third-party recall expenses
  • Loss of gross profits, typically up to 18 months
  • Rehabilitation expenses
  • The value of contaminated products
  • Crisis response and consulting expenses, including public relations and recall consultants
  • Increased cost of operations
  • Extortion costs

Additionally, recent lawsuits involving disputes over insurance coverage for food contamination losses demonstrate that executives at food companies can and should do more to protect themselves against the risk of an uncovered claim by paying careful attention to the fine print when purchasing commercial general liability (CGL) and commercial property insurance policies, and by negotiating coverage enhancements to fill potential gaps in coverage.

Coverage for adverse publicity and government recall may be included or added to a contamination policy as an extension.

Moreover, the manner in which a claim is characterized when submitted to an insurer can often be the difference between a covered and an uncovered claim.

Your insurance professional can help you identify your product liability risks and weigh your coverage options.

For example, if a health board shuts down your business after a food-borne illness outbreak, food contamination coverage can help. This coverage may help reimburse you for expenses, up to policy limits, for covered items such as:

  • Replacing contaminated food
  • Required cleaning of equipment
  • Loss of income due to the shutdown
  • Medical tests or vaccinations for affected employees
  • Advertising to help your business restore its reputation

Your policy may have limits on the maximum amount it will pay for a contamination-related loss. Read your policy carefully to understand what coverage limits apply.

Of course, the primary way to keep your perishables safe is to have both preventive and emergency backup plans for food safety says the Insurance Institute for Business and Home Safety (IIBHS). These could include:

  • Having refrigeration units regularly inspected and serviced
  • Having backup power generators or alternative, offsite food-storage facilities
  • Ensuring that employees understand and practice safe food-handling habits

Food-spoilage and food-contamination coverages are a smart backup to these basic practices.

For more information on adding extra coverage to your business owner’s policy, contact us today and be sure to visit our Foodservice specialty program page on our website.

Hugh Scott

Sr. Vice President - Commercial Lines

Hugh leads our North American Restaurant Program and specializes in multi-state, multi-location franchised and non-franchise restaurant owners.

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