Insurer Says Coverage for HVP Recall "Limited or Precluded"
Employers Fire Insurance Company has brought a declaratory relief action against Basic Food Flavors, Inc. in the United States District Court for the District of Nevada. Employers Fire says in its complaint that its policy "contain[s] certain terms, provisions, limits, conditions, exclusions and endorsements that limit or preclude coverage to Basic Food with respect to losses, costs or expenses incurred as result of the HVP Recall." The HVP recall referenced is the many food product recalls issued nationally as the result of hydrolyzed vegetable protein ("HVP") potentially contaminated with Salmonella Tennessee.
Click on the image of the complaint below to read it:
Neither a copy of the policy nor Employer's Fire rationale for "limits or preclusion" of coverage is yet available. However, this action should serve as a reminder for all food companies to review with their broker and insurance coverage teams their recall coverage. The HVP recall (like the PCA recall and other recent recalls) illustrates how big a financial impact a food recall can have. With the recall insurance market evolving rapidly (and with more options than existed a year or two ago), insureds should keep their brokers working hard to find appropriate (and afordable) coverage.
The Great HVP Recall of 2010: A Review of Lessons Already Taught
As Ken noted last week, there has been a widespread recall of products containing hydrolized vegetable protein (HVP), a flavor enhancer, after salmonella Tennessee was discovered in product manufactured by Basic Food Flavors of North Las Vegas, Nevada. Consumers, who may have been unaware of the existence of HVP, are starting to learn how pervasive an ingredient it is in packaged and processed foods. The FDA has a handy list of products so far affected by the recall. There's a widget, too.
So far, no one has been reported to have been made sick or died as a result of this outbreak.
The FDA warns consumers "Remember to follow cooking instructions on all foods", except that many of the foods that contain HVP are not ones consumers cook. Included are salad dressings, ready to eat meal products, sauce and marinade mixes and snacks. I don't think there's a way for a consumer to cook a pretzel.
This outbreak is a good excuse to reiterate some of our advice from prior outbreaks, like the 2008 tomato outbreak and the 2009 peanut and pistachio outbreaks.
- Have a crisis management plan in place.
- Know what you will do when the investigators knock.
- Double check the language in your insurance policy to ensure that it covers the particular facts of a recall. In 2008, Ken blogged about this issue after the tomato outbreak and in 2009 after the peanut recall.
- If you know your products are not affected by the outbreak, publicize this appropriately and ask your trade organization to help with that as well.
- If your products are involved, consider getting criminal law advice as well as advice about civil law responsibilities.
- Reconsider how you choose your suppliers, and what you do to qualify them.
- Publicize whatever is happening on your web page; consumers who hear about your product being recalled may check your web page and don't want to see a sales pitch for the very product subject to recall.
- Review your supply contracts to ensure that you have recourse against someone selling you tainted product, but remember that such entities are unlikely to have adequate resources to make you whole; that is what insurance is for, and also what prevention is for.
- Consider how to publicize the situation to consumers who use different languages.
As Professor Moody would say, "Constant vigilance."
Difficult Week for the Food Industry (Good Week for the Plaintiffs' Bar): HVP Salmonella and FDA Warning Letters
The week of March 1 saw a double whammy hit food manufacturers.
I. Open Letter to Industry on Marketing Claims
First, on March 3, FDA sent warning letters to 16 food manufacturers concerning their labeling practices. FDA also issued an Open Letter to Industry warning against certain practices. For example, FDA warned that:
o Nutrient content claims that FDA has authorized for use on foods for adults are not permitted on foods for children under two. Such claims are highly inappropriate when they appear on food for infants and toddlers because it is well known that the nutritional needs of the very young are different than those of adults.
o Claims that a product is free of trans fats, which imply that the product is a better choice than products without the claim, can be misleading when a product is high in saturated fat, and especially so when the claim is not accompanied by the required statement referring consumers to the more complete information on the Nutrition Facts panel.
o Products that claim to treat or mitigate disease are considered to be drugs and must meet the regulatory requirements for drugs, including the requirement to prove that the product is safe and effective for its intended use.
o Misleading “healthy” claims continue to appear on foods that do not meet the long- and well-established definition for use of that term.
o Juice products that mislead consumers into believing they consist entirely of a single juice are still on the market. Despite numerous admonitions from FDA over the years, we continue to see juice blends being inaccurately labeled as single-juice products.
II. HVP Recall
A day later, on March 4, FDA announced a recall of hydrolyzed vegetable protein (HVP). As of noon on March 4, 56 products containing HVP have been recalled. Some have suggested that HVP is the "Next Peanut Butter.”
III. What Food Companies Can Do in the Wake of FDA's Warning Letters and HVP Recall
What do last week's FDA warning letters and HVP recall have in common? The answer is, of course, litigation and exposure of brand value.
The first thing any affected food seller should do is engage its crisis management team. While lawyers and public relations staff are critical in crisis response, management of the crisis should not be left solely in the hands of either. Decisions should be made holistically, examining legal, public relations, business, financial and public health implications.
As discussed previously in this blog, companies faced with putative class claims filed as a result of the FDA warning letters on labeling should develop strategies to challenge the merits of the claims and class certification at the earliest possible stage. The end game for the plaintiffs' class action law firms is to obtain class certification and use that "litigation blackmail" to enter into a settlement with a handsome payout of attorneys’ fees.
For those companies with products that include recalled HVP, the good news is that there are few, if any, reported illnesses. The bad news is that recalls are very expensive and, for some companies without recall coverage or sufficient resources, financially devastating. Many food manufacturers were driven out of business in 2009 after being overwhelmed with the expenses of recalling products that included ingredients manufactured by Peanut Corporation of America (PCA).
For those affected companies with recall coverage or financial means, proactive measures can pay dividends. For example, offering refunds to consumers mitigates against putative class claims. Setting up consumer hotlines and payment of medical expenses for persons with illnesses linked to recalled products mitigates against personal injury suits.
