Insurance Coverage For Product Recalls, Property Damage And Injuries

Author:Mr Joshua Gold
Profession:Anderson Kill & Olick, P.C.

This article originally appeared in the January/February 2010 issue of Risk Management magazine.

Product recalls can be enormously expensive. So too can liabilities to claimants who assert that they have either been injured or suffered property damage from using or handling tainted goods: whether toys, construction materials, beverages, food products, etc. An event giving rise to a product recall often presents a double edged sword for policyholders: the huge costs of pulling a product from the marketplace; and potential liability to those claiming injury or damage as a consequence of using or handling the offending product.

Product recall insurance policies may protect against losses suffered by policyholders where their product or component parts of a product have the potential to injure, contaminate or damage property. Such insurance coverage may also cover situations where the contamination or damage is deliberately undertaken, such as scenarios involving product tampering claims and product extortion claims. Other insurance policies may apply to such claims too. For example, some kidnap and ransom insurance policies may provide coverage for instances of extortion by a threat to cause damage or loss to property through the alteration or contamination of raw materials, goods or stock.

In the context of product recall insurance coverage, some insurance companies may attempt to avoid coverage for a product recall losses by arguing that there is no evidence that the product in question did or would cause bodily injuries or damage. Specifically, the insurance company may argue that to trigger coverage, the use or consumption of the product must have resulted or would result in identifiable bodily injury, sickness, disease or death. Such insurance company arguments place the policyholder in an awkward position: namely, in an effort to establish coverage, the policyholder is being urged by the insurance company to evidence just how toxic its product was or could potentially be. These types of insurance company arguments can also be problematic where the policyholder is proactive in quickly removing a product from the marketplace before injury or damage can result. Often times this will be done on a voluntary basis without federal or state regulators formally requiring a recall.

To guard against these arguments, policyholders should carefully gather and record all information and documents that refer to allegations of bodily injury, contamination, damage, etc....

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