American Cheese Society Conference
I attended the American Cheese Society conference in Montreal earlier in the month. The conference was attended by cheese producers and suppliers from around the world. At the conference I presented a PowerPoint on Food Safety Modernization Act (FSMA) . There were several talks on Food Safety and clearly, the industry is concerned about the new provisions where cheese in particular has been identified as one of the high-risk foods that will be subject to some of the more stringent new regulations.
Because of the conferences’ location, FSMA’s features related to import and export certifications and foreign inspections were of particular interest (see below). It is clear that imported food will garner additional attention under FSMA. This is particularly true given accounts of food safety issues in China involving vinegar, meat and bread.
FSMA IMPORT REQUIREMENTS
1. The FDA has a stepped up their foreign facility inspection program to be carried out in a manner to be negotiated with the relevant foreign authority. If inspections are not allowed within 24 hours of the request, a ban on the importation from that facility is authorized.
2. FSMA contains a new section (sec. 808) that requires the FDA to create a system for the accreditation of third party auditors for certification of eligible foreign facilities. The certification in turn will be used for the Foreign Voluntary Qualified Importer Program (see below) to provide assurance for food imports and to target foreign inspection resources. There are express requirements for auditors and certifications set out in this statute.
3. The Foreign Supplier Verification Program (sec. 805) requires every United States importer to perform risk-based reviews of foreign suppliers to verify that the food they import is produced in compliance with the Food and Drug Administration (FDA) standards (produce and hazard analysis and preventive controls) and is not altered or misbranded. In January 2012, the FDA is required to issue regulations specifying the contents of the specific verification programs. Each importer is required to perform foreign supply verification activities which may include monitoring records, inspections or annual on site inspections. It may also require reviewing the hazard prevention programs for foreign suppliers, periodic sampling and testing of shipments.
4. The law has clarified the definition of inspection to include: An “importer,” for this program, is defined as the United States owner or consignee of the article of food at the time of entry of such articles into the United States, or, if there is no United States owner or consignee, the importer is defined as the United States agent or representative of a foreign owner or consignee of the article of food at the time of entry into the United States. (Note that FDA seafood and juice facilities subject to Hazard Analysis and Critical Control Points (HACCP) or low-acid canned food requirements are exempt.)
5. In January 2012, the FDA is required to issue a guidance document to assist importers in developing their foreign verification program.
6. Each importer is required to maintain records related to the Foreign Supplier Verification program for at least two years.
7. The FDA is required to maintain on its website a current list of the names, locations and other information deemed necessary by the importers in compliance with Section 2805 exemptions.
8. There is also a Foreign Voluntary Qualified Importer Program (FVQIP) (sec. 806) which requires the FDA to establish in consultation with the Department of Homeland Security a “voluntary” program to expedite movement of materials through the process. Under this program, an “importer” is defined as the person that brings food, or causes the food to be brought from a foreign country into the United States. This is an important distinction from the definition under FSVP because it could mean that foreign manufacturers may be allowed to participate in this program. The deciding factors will not be known until the final regulations are issued. FVQIP regulations are not required to be finalized by the U.S. FDA until July 2013. In July 2012, the FDA is required to issue a guidance document regarding participation, revocation, reinstatement compliance of the qualified importer program. To be eligible the importer must be importing food from its facility that has been certified by a third party auditor that year.
9. The FDA is authorized to require as a condition to granting admission to an article of food imported or offered for export to certification or such other assurances FDA deems appropriate.
In short, the following is the relevant time table:
| January 2011 | Authority to require import certification. |
| July 2011 | Require importers to notify the FDAof any country tot which food was denied access. |
| January 2012 | FDA to publish guidance AND regulations for the Foreign Supplier Verification Program. |
| July 2012 | Establish program for Voluntary Qualified Importer Program. |
| January 2013 | Effective date for Foreign Supplier Verification Program. |
More on Reducing the Risk of Failure - Focus on Shifting Liability For Consumer Claims
Food Safety Magazine ran an interesting piece by Aaron Krauss titled “Reducing the Risk of Failure.” The article was part of the magazine’s focus on limiting liability for food companies. Mr. Krauss includes a good discussion of the pros and cons of indemnities and disclaimers of warranty and liability as ways to shift or reduce liability for claims within the supply chain. Yet, the article does not discuss how to shift liability for claims from outside the supply chain, i.e., consumer claims.
For example, Mr. Krauss advocates that if members of the supply chain limited liability between themselves to the purchase price of the product, this might reduce or eliminate litigation. Mr. Krauss points out that “if everyone in the ‘peanut butter food chain’ had limited their liability, a store might not bother suing, since it could only recover its purchase price.”
Limitation of liability clauses, while effective to reduce exposure between members of the supply chain, will have no limiting effect on consumer claims. Unless a food seller can invoke a “passive retailer” defense, each member of the supply chain will be strictly liable for injuries to consumers caused by the food product.
The only ways for a food seller to shift consumer liability is through either supplier indemnity or insurance. Mr. Krauss is correct that indemnities by suppliers may be hard to secure and harder to enforce. And, claims defended by the seller’s own carrier will invariably result in higher premiums.
Because insureds will generally be penalized through premiums for invoking their own insurance, the best insurance is somebody else’s insurance. Even a food seller that might not have the leverage with its supplier to receive indemnification may be able to secure “additional insurance.” Naming a vendor as an additional insured frequently costs the supplier nothing in added premiums. If seller specifies that this insurance is to be “primary and noncontributory,” the supplier’s insurance may be the first line of defense for claims involving the supplier’s products.
If a supplier will provide additional insurance, follow-through is essential. The seller needs to (1) verify that the supplier has, in fact, named the seller as an additional insured and (2) review the operative language of the additional insured endorsement and/or policy language to ensure that it does not include unacceptable conditions or exclusions.
Five New Year's Resolutions
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Unfortunately, 2009 does not promise to be any easier than 2008 in protecting your business against food liability claims. Many argue that threats will only increase in the new year. Here are five things you can do to reduce exposure in the coming year:
1. Review Insurance Coverage and Limits Carefully – Both the variety and size of claims are escalating fast. For example, just a couple of years ago consumer claims from non-O157 E. coli, melamine, diacetyl or organic labeling seemed far-fetched, but all are now a grave reality. Federal, state and local governments will continue improving detection techniques since the rash of large, national food-borne illness outbreaks in 2006-08. The Obama administration will likely make increased funding in this area a priority. The odds that your company will be targeted in a nationwide outbreak resulting in claims in the hundreds of millions of dollars are increasing. Because of the exposure, insurance companies now more than ever will be looking for ways to reduce their coverage.
2. Review and Revise Supply Chain Agreements – Aside from insurance, one of the most effective ways to reduce, spread and mitigate risk is to ensure that those in your supply chain provide adequate insurance and indemnity for problems related to their products. But just because your supply agreement happens to mention insurance and indemnity does not necessarily mean those clauses will help when you need them. The only way to ensure that they will be honored and enforced is to ensure that your legal team (experienced in litigating these clauses) drafts these carefully.
3. Reassess Suppliers – Your choice of suppliers may be key to avoiding or reducing risk. Even if you demand sufficient insurance and indemnity from a supplier, a supplier of sufficient size may not be able to access insurance or have assets available to satisfy indemnity obligations. As important as your food safety, HAACP and other programs may be, they are really only as strong as your suppliers’ programs. Careful audit and assessment of your suppliers’ food safety programs is important.
4. Increase Scrutiny Against Fraudulent Imports – Melamine, tainted rice and now “laundered honey” are all good examples of how fraud in the global food chain can dramatically affect unsuspecting U.S. food sellers. [add more advice here?]
5. Review, Update and Rehearse Crisis Management Plans – How your company is prepared to respond to a crisis is a good predictor of how your company will weather the crisis. With the stakes increasing, you need to be prepared to face the worst. Continual review, updating and rehearsal of your crisis management plan is key. Everybody on the crisis management team needs to understand his or her role and be ready for different scenarios.
