Five Tips For Recovering Insurance Coverage For HVP Recalls And Claims

Author:Mr Jonathan Cohen and Stephen A. Weisbrod
Profession:Gilbert LLP

On March 4, 2010, the U.S. Food and Drug Administration announced that it had identified Salmonella Tennessee in a commonly used food-flavoring ingredient – hydrolyzed vegetable protein ("HVP") – made by Basic Food Flavors Inc. Although there have been no reported illnesses associated with tainted HVP, Basic Food Flavors has recalled all HVP in powder and paste form that it has produced since September 17, 2009.

HVP is a flavor enhancer commonly used in small amounts in many commercially processed foods, such as soups, chips, frozen dinners, hot dogs, salad dressings, dips, stews, and seasoned snack foods. Basic Food Flavors is one of only a small number of companies that make HVP.

Although the FDA has stated that it does not know precisely how large this recall could become, the FDA has said that the number of products potentially affected potentially could be "very large." HVP manufactured by Basic Food Flavors reportedly may have been used in as many as 10,000 products, but the number of products affected by the recall might be significantly smaller than that. That is because many manufacturers using HVP cook their products before those products are sold, and companies that can document that their manufacturing process contains a "kill step" may not need to recall their products. Nonetheless, food manufacturers already have recalled more than 100 products in just the first days since the FDA's announcement.

HVP-related recalls likely will be very costly, but many companies have insurance coverage in place that might pay some or all of the costs of these recalls. In pursuing insurance for HVPrelated costs, companies should pay careful attention to the following lessons learned in connection with other food-related recalls:

1. Identify All Policies That Might Apply

Analyzing how to obtain insurance coverage starts with a comparison of what types of costs and losses have been incurred with what is covered under the company's various insurance policies. Immediately upon initiating a recall or otherwise suffering a loss, a company should review all of its insurance policies to determine what coverages may be available.

The costs of a product recall often are excluded from coverage under many of the most commonly held types of insurance policies, such as first-party property policies or third-party general liability policies. However, some companies' policies may provide at least limited product recall coverage, which sometimes is available subject to a separate, often smaller limit of liability. First-party property policies also may have other lines of coverage that can pay some, or all, of the costs of a recall-related loss. For instance, many property policies pay for the costs of business interruptions caused by the interruption of a supplier's ability to provide food ingredients or other product components, so long as the supply-chain interruption was caused by the supplier incurring certain types of property damage. Depending on the specific policy language used, the interruption in supply of HVP might result from property damage as required by the policy.

Companies also may have specialty insurance policies that expressly cover the costs of product recalls. Product recall policies generally are first-party policies that cover, among other things, the "reasonable and necessary" costs, expenses, losses, and liabilities that a company incurs as a result of a product recall. Product recall policies also sometimes cover lost profits...

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