Food Companies Should Revisit Insurance Program and Other Risk Management in Light of Emerging Massive European Union E. coli Outbreak
The E. coli outbreak unraveling now in the European Union, centered primarily in Germany, is setting new records for both the number of affected persons and the number of persons diagnosed with Hemolytic Uremic Syndrome (HUS), a serious complication from E. coli infection (HUS can lead to kidney failure, brain damage and death). As of the writing of this blog, the latest news can be read here and here. To date, 17 people are believed to have died, 470 people have been diagnosed with HUS, and 1,534 people have been infected with E. coli.
The strain of E. coli is reported to be E. coli O104:H4, a previously rare strain of shiga toxin producing E. coli. The source is still a mystery, but many believe it to be associated with fresh produce.
How is this relevant for U.S. food businesses? At the very least, the European Union outbreak changes the equation for liability exposure. Previously, most food safety experts would opine that about 10% of those infected with a shiga toxin producing E. coli would be expected to develop HUS. In the European Union outbreak, the percentage of HUS cases now exceeds 30%. In even a small outbreak, a 30% HUS rate could increase exposure threefold.
Now is the time to:
- Convene your coverage team (brokers, risk management and legal) to reevaluate and audit coverage,
- Reevaluate your suppliers and food processing procedures,
- Revise and clarify your supply chain/co-packing agreements, and
- Rehearse your recall, RFR and crisis management plans.
The FDA's Reportable Food Registry: Four Burning Questions
I authored the following article that appeared in the April 29, 2011 issue of Food Chemical News:
As the clock ticks on the FDA’s 24-hour deadline to report to the FDA’s Reportable Food Registry, a food retailer, manufacturer or supplier is forced to make snap decisions that can profoundly impact business and litigation.
Once a report is submitted, the FDA promptly alerts customers and suppliers of the "reasonable probability" that the product will result in "adverse health consequences or death." Even if a recall has not yet been issued, an RFR report often has the consequences of a Class I recall. While RFR reports can be amended or withdrawn based on new information, in the world of food products, the bell almost never can be unrung, food companies are now painfully aware.
But some burning questions regarding FDA’s RFR remain for the food industry, including if and how the agency will:
(1) use the RFR as an enforcement tool;
(2) move toward the concept of "control" and away from "possession" in interpreting one of the key exceptions to the RFR;
(3) address what it perceives as "out of control" undeclared allergen problems; and
(4) use the information obtained through the RFR to shape coming regulations on required preventive controls.
Let’s take a stab at answering some of these questions and a few others.
Will FDA Use RFR as an Enforcement Tool?
The RFR was created by Congress as part of the Food and Drug Administration Amendments Act of 2007 and is codified at 21 U.S.C. §350f. The RFR requires that "as soon as practicable, but in no case later than 24 hours after a responsible party determines that an article of food is a reportable food, the responsible party shall [] (A) submit a report to [FDA] ... and (B) investigate the cause of the adulteration if the adulteration of the article of food may have originated with the responsible party." 21 U.S.C. §350f(d)(1).
The reporting includes a "one step up and one step back" requirement. Food companies must identify their suppliers and customers to FDA through the web portal.
The FDA Food Safety Modernization Act (FSMA) tweaks the RFR and requires the FDA to promulgate new regulations requiring submission of "consumer-orientated information," including a description, product ID codes, contact information and anything else FDA deems necessary to enable consumers to accurately identify whether they are in possession of the reportable food.
The congressional intent behind the RFR is to provide the FDA with a mechanism to track patterns of adulterated product, essentially as an information gathering tool. Many in the industry fear that the FDA also will use the RFR as an enforcement tool. Even an unintentional failure to report in compliance with 21 U.S.C. §350f constitutes a criminal violation of the Food, Drug, and Cosmetic Act (FD&C Act).
It’s not clear if the FDA has initiated any enforcement action based on the RFR yet, but this should be monitored closely by the food industry.
Can You Take Advantage of Intra-Company Transfer Exception to Reporting Obligation?
21 U.S.C. § 350f(d)(2) provides an exception to the reporting obligation if:
The challenge with interpreting this exception centers on the term "transfer." The FDA's current draft guidance says: "A transfer to another person occurs when the responsible person releases the food to another person. 'Person' is defined in section 201(e) of the FD&C Act as including individuals, partnerships, corporations and associations. FDA does not consider an intra-company transfer in a vertically integrated company to be a 'transfer to another person,' where the company maintains continuous possession of the article of food."
The rub is that if the product is shipped to a third-party warehouse, but the responsible party maintains ownership and direct control over distribution, the product is reportable. The FDA’s draft guidance rationalizes that "'[p]erson is defined in section 201(e) of the FD&C Act (21 U.S.C. 321(e)) as including individuals, partnerships, corporations, and associations," and a "warehouse operator is a distinct legal person."
Another scenario under the 21 U.S.C. § 350f(d)(2) exception that is not addressed by the FDA's draft guidance arises if the product is subject to an intra-company transfer but the company uses a common carrier to transport the product. Under the FDA's rationale that use of a third-party warehouse takes a company out of the exception, a common carrier also could be considered a "distinct legal person" to which the product is transferred, eliminating the exception and requiring the company to report.
Many believe that the FDA (and the statute) could not intend that an otherwise unreportable food under 21 U.S.C. §350f(d)(2) become reportable for no reason other than that a company uses a third-party trucking company in an intra-company transfer. Many also question whether the FDA's current position on third-party warehouses is correct if the food company retains complete control over the product.
Neither of these policies reflects the reality of how many food companies operate. From a food safety policy perspective, many believe that food companies should not be forced into the business of trucking and warehousing.
Some believe that the FDA might be moving away from interpreting "transfer" through the lens of possession and broadening its view toward an interpretation based on issues of control. Control might reflect more accurately the reality of food production and promote more effectively food safety and the intent of the RFR. Whether the FDA will move toward a notion of control should be revealed in the FDA's expected amendments to its draft guidance and should be monitored closely by the industry.
In January 2011, the FDA issued its first annual report on the RFR, which provides statistics on the first full year of the RFR (2,240 entries, 229 "primary reports," a breakdown by hazards, etc.) (see FCN Jan. 28, Page 8). Beyond the statistics, companies should take particular note of the FDA’s focus on both allergen controls and creation of food safety plans.
The FDA reported that undeclared allergens/intolerances accounted for 34.9% of its primary reports. Industry experts assert that the FDA believes that the industry does not have good control over the issue of undeclared allergens. These experts believe that the FDA will give special attention to this issue in promulgating regulations under the FSMA's requirements for hazard analysis and preventive controls. In anticipation, manufacturers should consider now how they can change manufacturing processes to address the undeclared allergen issue.
Do You Have A Food Safety Plan? If So, Will It Be Sufficient Under FSMA?
In FDA’s report on its RFR results , FDA Deputy Commissioner for Foods Michael Taylor says “[s]everal key U.S. industries are already re-evaluating their hazard and preventive controls, core principles of the Food Safety Modernization Act recently passed by Congress. We also anticipate improved reporting as we continue our vigorous outreach to food facilities through federal, state, local and foreign agencies, to help us expand the positive effect of the RFR on the safety of the U.S. food supply.”
The RFR will be a guide for the FDA in risk assessment and writing regulations for preventive controls and what companies must include in their food safety plans. The new hazard analysis and preventive controls requirements in FSMA are not required to go into effect until July 4, 2012, 18 months from the date of enactment.
Deputy Commissioner Taylor's comments suggest that industry standards already might be moving in the same direction. To mitigate the risk of FDA enforcement actions, product liability claims, supply chain contract claims and recalls, food manufacturers should anticipate the FDA's eventual rule making, and update or create food safety plans that address the hazard analysis and preventive controls prescribed by the FSMA. One way to anticipate FDA's direction is to mine the information FDA has collected (and continues to collect) as part of the RFR.
(A) the adulteration originated with the responsible party;
(B) the responsible party detected the adulteration prior to any transfer to another person of such article of food; and
(C) the responsible party –
(i) corrected such adulteration; or
(ii) destroyed or caused the destruction of such article of food.
Listen on Demand to April 29, 2011 AON Webinar on the FSMA
A 60-minute webinar broadcast on April 29 on the Food Safety Modernization Act (and a short discussion of implications of the Japanese earthquake, tsunami and resulting nuclear disaster on food safety) is available for replay at this link. The webinar was sponsored by AON. My gratitude to AON for inviting me to participate. As always, I'm interested in your feedback and questions.
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FDA's Reportable Food Registry Makes a Profound Impact
Here is a link to my article, "FDA's Reportable Food Registry Profoundly Impacts Litigation and the Food Industry," posted this week by the American Bar Association's Litigation Section (Products Liability). The article is a follow-on to lively discussions over the litigation impacts of the federal Reportable Food Registry ("RFR") at the ABA’s recent Food & Supplements CLE at Coca-Cola World Headquarters in Atlanta. The RFR was created by Congress as part of the Food and Drug Administration ("FDA") Amendments Act of 2007 and requires that a company submit a report to the FDA within 24 hours of discovering reportable adulterated food.
Two hot-button issues discussed at the ABA CLE (and in the ABA article) were whether the FDA (1) intends to use the RFR as an enforcement as well as an informational tool, and (2) will move toward the concept of "control" and away from "possession" in interpreting one of the key exceptions to the reporting requirement.
Looking for Information and Presentations on FSMA, Recalls and The RFR? Look No Further.
I’ll be speaking at several events over the next two months on the Food Safety Modernization Act (FSMA) and how this comprehensive and far reaching legislation affects the status quo for food companies. Two of these events are free, and all promise to address relevant and critical issues for those involved in the food industry.
a. May 24 at Parker Smith Feek's offices in Bellevue for a discussion of the new FSMA, the Reportable Food Registry and how to survive a food product recall (event was rescheduled from March 22). Registration is free and coming soon. Contact me if you’re interested and I’ll get a spot reserved.
b. April 29 webinar sponsored by AON on FSMA. Link to the free registration is here.
c. May 12-14 Northwest Food Processors Association’s Executive Business Retreat in Coeur d'Alene, Idaho.
d. June 15-16 ACI Food Safety Regulatory Compliance Summit in Chicago. I'll be speaking specifically on "Curtailing Downstream Liability Arising Out of On-Site Inspections: How to Prepare and What to Do Should the Government Come Knocking." If you register by April 15, I can arrange for a discount. Just let me know.
If you can't make these events or would like a customized in-house presentation on FSMA, the Reportable Food Registry, recalls or other food liability topics, please let me know. Also, stay tuned for new blog entries addressing such topics as the Reportable Food Registry (RFR), restaurant menu labeling, and strategies to defeat food marketing/labeling putative class claims.
How Regulatory Changes Affect Litigation Risks
On February 24, 2011, Lee Smith and I presented "How Regulatory Changes Affect Litigation Risks" to the Grocery Manufacturers Association's food litigation conference. A link to the slide-deck can be found here.
We discussed ways that the Reportable Food Registry (RFR) and the Food Safety Modernization Act (FSMA) are affecting litigation now and can be expected to affect litigation in the near term.
In particular, we discussed:
- Ongoing and pending changes to the RFR
- FSMA’s grant of records access to FDA
- Mandatory recall authority and how this may delay certain recalls
- Suspension of FDA registration
- Hazard analysis and preventative controls: What are they? How do they differ from HAACP? How they will be effective with or without FDA rulemaking
- Regulation of chemicals under FSMA (and under proposed changes to TSCA and Proposition 65 in California)
- Specific things that food sellers should consider now to reduce risk
Let me know if your business is interested in an in-house, customized presentation or training on the RFR and FSMA.
Beyond Statistics: What the FDA's RFR Report Means for Food Manufacturers
Last week, the FDA issued its first annual report on the Reportable Food Registry (RFR). The report provides statistics on the first year of the RFR (2240 entries, 229 "primary reports," a breakdown of the report by hazards, etc.).
Beyond the statistics, the FDA report should be noted by food companies for two reasons:
- Food Safety Plans
FDA Deputy Commissioner for Foods Michael Taylor says that “[s]everal key U.S. industries are already re-evaluating their hazard and preventive controls, core principles of the Food Safety Modernization Act recently passed by Congress. We also anticipate improved reporting as we continue our vigorous outreach to food facilities through federal, state, local and foreign agencies, to help us expand the positive effect of the RFR on the safety of the U.S. food supply.”
The new hazard analysis and preventative controls requirements in the Food Safety Modernization Act (FSMA) are not effective for 18 months following passage. Deputy Commissioner Taylor's comments suggest that industry standards may already be moving in that direction . To mitigate exposure and risk, FDA enforcement actions, product liability claims, supply chain contract claims and recalls, food manufacturers may want to consider updating and/or creating food safety plans that address the hazard analysis and preventative controls prescribed by the FSMA.
- Allergen Controls
The FDA reports undeclared allergens/intolerances accounted for 34.9 percent of the primary reports. Industry experts assert that the FDA believes that the industry does not in general have good control over the issue of undeclared allergens. These experts believe that the FDA will give special attention to the issue of undeclared allergens/intolerances in promulgating regulations under the FSMA's requirements for hazard analysis and preventative controls (see point 1 above). In anticipation of the FDA's concern, manufacturers should consider now how they can change manufacturing processes to address the undeclared allergen issue.
A Reportable Food Registry Toolkit
This article was first published on August 27, 2010 in Food Chemical News as part of its "On the Front Burner" series.
In its first year, the FDA’s Reportable Food Registry has proven itself to be a high-stakes game changer. The ticking of the RFR's 24-hour reporting deadline forces a company to make snap decisions that might affect its entire business (not to mention the health of its customers). Once a report is submitted, FDA will promptly alert your customers of the "reasonable probability" that your product will result in "adverse health consequences or death." While RFR reports can be amended or withdrawn based on new information, in the world of food products, the bell can almost never be unrung.
On the other hand, the civil and criminal consequences of failing to report when obligated to do so can be devastating. Companies that fail to comply with RFR requirements (even without intention not to comply) can be charged with felonies, and subject to fines and jail time for their executives. Those violating the RFR with intent are subject to greater penalties.
Assuming your company is a "responsible party" (meaning an "owner, operator, or agent in charge of a domestic or foreign facility" required to register under 415(a) of the FD&C Act) and already follows a HACCP plan, a GMP, GAPs, etc., what else can it do to prepare for and, if possible, prevent an RFR report? The answer is a lot. At minimum, here's what should be in any food company's RFR toolkit/standard operating procedures (SOPs):
1. Identify the right personnel authorized to report before the event occurs
The first thing a food company that is a "responsible party" needs to do is to identify the personnel responsible for reporting under the RFR. FDA permits a responsible party to authorize an employee or agent "to report an instance of reportable food on their behalf through the Reportable Food electronic portal."
Best practices dictate that personnel authorized should be:
- Trained food scientists and/or epidemiologists. All food companies should have competent and experienced food scientists in house or consultants on retainer who are food safety experts. Without proper food safety staff, compliance with a HACCP, a GMP or GAPs is impossible. Without the right staff, problems from food-borne illness, foreign objects and allergens are inevitable rather than avoidable. Without the right staff, unavoidable food-borne illness and other problems may easily destroy a company.
- Intimately familiar with the company, its products and its quality and with supply chain personnel and practices. More than well-trained and competent, food safety personnel authorized to report should be as familiar as possible with the company, its products, personnel, SOPs, suppliers, etc. Food products are often complex, involving multiple ingredients, suppliers, customers, formulations, etc. As with any crisis concerning the company’s products, no one can fully grasp the scope of the problem, formulate a response or provide regulators with required information without all the information. The time of crisis is not the time to familiarize your experts with your company and your products.
For companies with multiple facilities required to register under the FD&C Act, clear identification of personnel responsible for reporting is critical to avoid multiple and inconsistent reports concerning the same product.
2. Train personnel to understand the RFR, the portal and legal requirements
The web-based RFR Portal is relatively straightforward and user friendly. The easy part is learning to use the software. More challenging is understanding when a report is required.
For example, personnel must be able to determine what constitutes a "reportable food" under the law and what does not. Section 417 of the FD&C Act defines "reportable food" as "an article of food (other than infant formula) for which there is a reasonable probability that the use of, or exposure to, such article of food will cause serious adverse health consequences or death to humans or animals." FDA in its guidance documents says that "reportable food" includes "those foods that would meet the definition of a Class I recall situation. A Class I recall situation is one in which there is a reasonable probability that the use of, or exposure to, a violative product will cause serious adverse health consequences or death."
But what would FDA consider a "reasonable probability"? What if one lot of product tests positive for a food-borne illness but other lots do not? The nuances are significant.
Another example of a nuance-laced provision of the RFR that personnel need to understand in advance of a crisis relates to product transfer. The RFR might not require your company to report if your product is still in the field or in the possession of a third party. On the other hand, product not yet owned by your company but located on your company's premises might be reportable.
An exception in the RFR states that a responsible party is not required to submit a report for a reportable food if all of the following conditions apply:
- The adulteration “originated” within the responsible party;
- The responsible party detected the “adulteration” prior to any “transfer” to another person of such article of food; and
- The responsible party either corrected such adulteration, or destroyed or caused the destruction of such article of food.
3. Revamp recordkeeping policies
In addition to the reporting provision itself, the RFR imposes new recordkeeping requirements and FDA inspection authority. FDA instructs that "the responsible party shall maintain records related to each report received, notification made, and report submitted to the FDA under section 417 of the FD&C Act for two years."
In addition to revamping document destruction/retention, companies should consider SOPs that define and segregate documents "related to" an RFR report. Both the document maintenance provision and the FDA's current authority to demand documents are limited to those "related to" an RFR report.
For those documents that are provided to FDA, companies should take precautions to prevent disclosure of confidential and proprietary business information and trade secrets. Documents turned over to the FDA will be subject to Freedom of Information Act (FOIA). However, a FOIA exception exists for "certain information, including but not limited to trade secrets and confidential commercial or financial information." One SOP a food company should consider is including a standard cover letter with any documents provided to FDA explaining that the company considers some or all of the information exempt from FOIA disclosure.
4. Revisit supply contracts and reconsider timing/location of product testing
As discussed above, in the context of the RFR, possession is more than 9/10, it is everything when it comes to reporting responsibilities. A supply contract that does not transfer ownership of the product until after sampling does not relieve the purchaser from reporting if the product is held in a truck on the purchaser's premises. A company may be required to report product owned by another party if the product happens to be located at the non-owner's facility.
FDA describes this scenario in a Q and A format in its draft industry guidance:
QUESTION: Our manufacturing facility receives bulk trailer shipments of ingredients from our suppliers. A truck driver brings a trailer full of bulk ingredients onto our property, drops off the trailer, and drives away. However, as company policy, we do not off-load the trailers that are delivered to our facility or take ownership of the food in the trailers until after we test a sample of the food and determine that the food is acceptable. If we “reject” a shipment, i.e., return the food to the supplier, because the sample results indicate that the food is a reportable food, are we required to submit a reportable food report?
FDA’s ANSWER: Yes, provided that you are a facility required to register with FDA under section 415(a) of the FD&C Act, you must submit a report for the food you determined to be a reportable food, even though you returned the food to your supplier. FDA considers that your facility “held” the reportable food because the trailers were no longer in transit once they were dropped off on your property. Thus, you are a responsible party with regard to the reportable food. Provided that the adulteration did not originate with you, you do not meet the criteria for the exemption from reporting in section 417(d)(2).
One solution to prevent the potentially awkward situation of having to report product not yet purchased is to require product testing prior to arrival on premises. Aside from requiring test results before shipment or arrival, supplier agreements should be amended to require at minimum that the supplier provide its food safety SOPs, plant inspection reports and, if possible, identities of other parties supplied. Personnel authorized or involved with the RFR reporting should make regular inspections and be familiar with the supplier’s facilities.
5. Know what to do when FDA inspectors arrive
A report submitted to the registry will likely result in a visit and inspection from the FDA. While FDA's current statutory inspection powers are technically limited under current law, the reality is that companies should almost always cooperate with FDA's request. The more difficult a company makes it for the FDA, the more difficult FDA will make it for the company. FDA has both the bully-pulpit and enforcement powers available if it feels that it’s not getting the cooperation it needs and public health is at risk.
Any FDA inspection should be shadowed by company personnel. Photos taken by FDA officials also should be taken by company personnel. The company should request from the FDA split samples if it decides to swab the plant or test product. As discussed above, the company should segregate in advance records related to the reportable food and those unrelated. Records unrelated to the reportable food need not be provided for inspection. The company also should provide a letter to the FDA indicating that all photos and documents are confidential and proprietary, and should be exempted from FOIA disclosure.
6. Appreciate that attorney-client privilege will not protect plant records from disclosure
The company's records and communications (including emails) do not necessarily become privileged (and therefore protected from disclosure to FDA or other parties) because they are transmitted to or "through" the company's lawyer. Company personnel should not assume that emails to counsel will be shielded unless they clearly relate directly to the provision of confidential legal advice provided to the company. Even when provided for the explicit purpose of legal advice, "facts" or "business records" will still not be shielded from discovery. Many courts appreciate that in-house counsel provide both legal and business advice and presume that communications are not privileged unless it is very clear that the communication was strictly in the nature of legal counsel.
Updated RFR Guidance from FDA: Possession Is More Than 9/10ths
FDA recently released updates to its Draft Industry Guidance for the Reportable Food Registry (“RFR”). The RFR, not rolled out until the fall of 2009, is still new to many companies. FDA, overwhelmed by the information coming through the RFR, is still trying to determine how to use the information submitted to the RFR and how to advise industry.
Among the more interesting clarifications in the May updates is the importance FDA puts on the possession of reportable food as a trigger for obligations under the RFR. For example, if produce is still in the field (contracted but not owned by a food seller) and tests positive for a pathogen, no reporting obligation accrues.
FDA’s hypothetical:
[F]ood facility that contracted with the farmer and tested the produce in the field is not required to submit a reportable food report, provided that the facility did not manufacture, process, pack, or hold the produce and therefore never became a responsible party with respect to the produce. However, if the field had been harvested and the contaminated produce had been moved to the food facility, the facility would have become a responsible party because it “held” the food and would be required to submit a reportable food report.
On the other hand, if the same contaminated produce is received on a company’s premises, stays in the trailer, tests positive and is rejected, a reporting obligation is triggered (even though the company did not take ownership of the product).
FDA’s description of this scenario in a Q and A format:
Q: Our manufacturing facility receives bulk trailer shipments of ingredients from our suppliers. A truck driver brings a trailer full of bulk ingredients onto our property, drops off the trailer, and drives away. However, as company policy, we do not off-load the trailers that are delivered to our facility or take ownership of the food in the trailers until after we test a sample of the food and determine that the food is acceptable. If we “reject” a shipment, i.e., return the food to the supplier, because the sample results indicate that the food is a reportable food, are we required to submit a reportable food report?
A: Yes, provided that you are a facility required to register with FDA under section 415(a) of the FD&C Act, you must submit a report for the food you determined to be a reportable food, even though you returned the food to your supplier. FDA considers that your facility “held” the reportable food because the trailers were no longer in transit once they were dropped off on your property. Thus, you are a responsible party with regard to the reportable food. Provided that the adulteration did not originate with you, you do not meet the criteria for the exemption from reporting in section 417(d)(2) (see Question E.3).
TAKE AWAY: If a company can set up a system to do its micro-biological testing before the product arrives on its premises or at its warehouse (public or private), it should. If faced with a reportable event, the reporting requires notification to FDA of one step forward and one step back in the supply chain even if the product is never distributed. Once a report is submitted to the RFR, a company should expect that the FDA will notify the company’s customers of the reportable event despite the fact that the customer never received product. FDA notification means the customer will be told that its vendor had contaminated product that rises to the level of class I recall though this may not actually be true. Food sellers and manufacturers, therefore, would be wise to take steps to avoid being “stuck” with RFR obligations for contaminated product it does not own.
