Before the Outbreak, Preapprove Defense Counsel with Insurer
When a food-borne illness outbreak happens, few food companies (especially those whose brand is at stake) want an unfamiliar defense lawyer who has little knowledge about food-borne illness responding to claims asserted against them. Unless a food company maintains a high, self-insured retention or has the lawyer of its choosing preselected, its insurer might appoint on the food company’s behalf low-cost defense counsel ill-equipped to respond to the claims and protect the brand.
Commercial General Liability insurance and Products liability insurance commonly maintained by food companies to protect them from the risks of food-borne illness outbreak usually will not cover the damage an outbreak can have on a company’s brand, stock value or sales. Lawyers appointed by insurers may have little understanding of the insured’s business or the impact the outbreak can have on its brand. Unlike in other areas, such as securities litigation, insurers are not as likely to have a panel or preapproved list of experienced food liability lawyers ready to deploy.
What a food company should consider before a food-borne illness outbreak happens:
1. Identify lawyers who are:
A. Familiar with (or will pledge on their dime to learn) the food company's business and brands;
B. Experienced in responding to consumer claims and food-borne illness; and
C. Knowledgeable about potential expert witnesses (about both those that the company will hire and those that plaintiffs will hire).
For companies with active crisis management plans , these lawyers likely have already been identified and included on the crisis management team.
2. Work with your broker, insurance coverage lawyer and preselected defense lawyer(s) to get preapproval of your chosen lawyers and agreement on their fees
For the sake of the business relationship (and self-interest), many insurers may agree to preapproval. Consider seeking preapproval at the time of renewal when a commercial insured may have the most leverage with an insurer.
For those with preapproved defense counsel, please consider sharing your experiences and insights. Comment or email.
Preparation for Melamine Issues- Updating Crisis Management Plans and Insurance Coverage
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While largely under the radar in the American press due to the compelling election cycle and historical meltdown in the financial markets, the news out of China concerning melamine has gone from bad to worse. Concern about Chinese dairies has morphed into a global crisis affecting what seems like an infinite number of products tainted with melamine.
Melamine has been intentionally introduced into animal feed, dairy products, pet food and other products because it can make diluted or poor-quality products appear to be higher in protein by elevating the total nitrogen content detected by some simple protein tests. Already, the FDA has identified a wide variety of products affected in the first wave of concerns about Chinese dairy products.
How should a food manufacturer or retailer prepare for a melamine issue? Any food company that imports any food ingredient or product from Asian markets should be concerned, and its first steps should be to update its crisis management plan and rehearse a melamine recall.
Food companies should also review with coverage counsel and their brokers whether they have—or can obtain—insurance coverage for financial exposure from melamine tainted products. Financially, a food company will be affected by a melamine issue in at least three ways: recall costs, loss of business and personal injury/consumer fraud claims. Standard comprehensive general liability (“CGL”) insurance may not cover any of these exposures. Most CGL policies do not cover recall costs. While recall and property insurance policies are available, the coverages offered by these policies also may be problematic.
Even personal injury or consumer fraud claims might be denied by CGL insurers. For example, many CGL policies will only provide coverage for occurances that arise out of events that are “accidental.” “Accident” is commonly defined as “a sudden, unforeseen or unintended event.” Even though a food company may have no knowledge of an upstream supplier’s fraudulent acts, some insurers are sure to argue that claims arising from products intentionally tainted by melamine are not covered.
The insurer's argument denying coverage is not a slam dunk and may not prevail. But, the key is to avoid (or minimize) the dispute with the insurer. To the extent possible, when placing insurance, a food company should obtain a representation or endorsement from its insurer that coverage will be extended to claims arising from melamine-tainted food.
