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» Product Recall Insurance: Coverage Myths and Misconceptions

November 26, 2018

Mitigate Risk With A Cyber Insurance Policy

Most believe a product recall event would have coverage under a general or product liability policy–this is a dangerous misconception. Most policies only go into effect if there is bodily injury or property damage, but exclude contamination or recall events without the presence of a defined coverage occurrence or claim.

In today’s market, consumable, non-consumable products and operations providing components or larger products are being brought into these recall issues. While some companies may never face a product recall matter there are developing statistics to take note:

  • In 2017 the CPSC (Consumer Products Safety Commission) reported 280 recalls, and thus far, in 2018 the CPSC reported 232 recalls.
  • There has been an increase in the number of reported recalls that never hits the media.
  • Many more companies are experiencing their first recalls and find out too late they do not possess adequate coverage for the expenses involved in a recall.

Consider the following “what ifs” about your product:

  • What do we do about products in the same batch or production line that have not put to intended use in the marketplace?
  • What about expenses related withdrawal from the market, destruction, and restocking/replacing?
  • What about a loss revenue to your business or your customer?
  • What if the Government Entity forces a business to recall its product after years of R&D expenses?

These exposures are considered a first-party loss and are often overlooked as part of a company’s risk management strategy. This coverage exclusion has the potential to cost your business for the long-term due along with reputational damage along with the loss of sales for months or even years.

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