Lockton's Innovative Insurance Solution to Major Product Recall Coverage Gap

Unique Lockton and XL wording paves the way for market-wide solution

Jun 29, 2010, 12:35 ET from Lockton

LONDON, June 29 /PRNewswire/ -- Two high-profile US food contamination incidents last year highlighted a serious gap in product contamination and recall coverage.

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Supply chain contamination incidents involving the Peanut Corporation of America (PCA) and the Plainview Milk Products Cooperative both triggered major product recalls of food processed using these key ingredients.

The Food and Drug Administration (FDA) 'strongly advised' customers of both PCA and Plainview to conduct precautionary recalls. But when these firms tried to claim for the costs involved, insurers generally have declined to pay on the basis that there was no evidence that the insured firms' own products had or would have caused bodily injury to anyone consuming them.

"The issue continues to come up on a regular basis, most recently with Basic Industries supply of HVP, a key additive in many processed foods," said Ian Harrison, executive director of Lockton's Global Risks team and a specialist in product recall.  "The FDA therefore seems increasingly minded to favour an approach based on an abundance of caution."  The HVP case impacted 177 specific products.  

A proposed new law, The Food Safety Improvement Act, is only likely to increase the scale of the problem for food manufacturers and processors – giving new powers to the FDA and other regulatory bodies to require precautionary recalls.

Many food processors caught up in the PCA and Plainview recalls may therefore find that they have no insurance cover to compensate them for serious losses. Lockton has been able to identify and respond to this emerging challenge.

The Lockton Global Casualty team worked with XL to design a unique policy extension enhancement - based on a trial project undertaken with Lockton and the American Frozen Food Institute (AFFI) underpinned by research of members' needs - that offers a sub-limit for product contamination and recall cover without requiring proof of actual or potential bodily harm. This includes both 'suggested' and 'mandatory' – Class I and Class II - recalls.

To meet the overwhelming market demand for a solution to this growing problem XL will now offer this valuable extension to address the market issues faced by firms over PCA, HVP, and Plainview ingredient driven recalls.

"Lockton is pleased to announce this policy coverage enhancement as proof of Lockton's ability to create solutions for emerging issues in the product contamination and recall arena," said Harrison.  "It clearly underlines the wealth of expertise and client-focus we can offer in this area of the US food manufacturing sector."

Another positive is that Lockton can now offer this original unique endorsement to all Lockton clients, not just those who are members of the American Frozen Food Institute scheme recently launched with XL. That said, even following the launch of a wider wording to other brokers, the AFFI scheme will continue to retain a number of unique covers and benefits.

Access to the enhanced policy wording offered by XL will clearly benefit many US food industry firms who could otherwise have found themselves exposed to major uninsured costs.

"Lockton's unique knowledge and understanding of this specialist area of cover has enabled us to provide an effective solution and one that we believe is quite innovative," said Harrison.  

About Lockton

More than 3,800 professionals at Lockton provide more than 15,000 clients around the world with insurance, benefits, surety and risk management services, offering an uncommon level of client service. From its founding in 1966 in Kansas City, Missouri, USA, Lockton has grown to become the largest privately held insurance broker in the world and 10th largest overall. You can learn more at www.lockton.com.

SOURCE Lockton