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What Is Product Recall Insurance – and Does My Company Need It?

Posted by Eric Anderson | Sep 27, 2019 | 0 Comments

According to the United States Department of Agriculture, food manufacturers recalled more than 21 million pounds of product in 2015, while auto manufacturers recalled 51 million cars. If you own a business and have to recall even a single product, it's going to cost you.

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In addition to the expense of regaining control of any defective products, your company will have to cover the cost of repairing and replacing those items. If serious injuries resulted, you could also have one or more product liability suits on your hands, which could result in bad press and a further dip in revenue as once-loyal customers turn to your competitors.

The best way to prevent a financially devastating recall is to produce quality products; however, some steps in the manufacturing process may be out of your control. If that is the case, you may still be able to cushion your company's bottom line with product recall insurance.

What Is Product Recall Insurance?

Product recall insurance is coverage that compensates for the costs associated with pulling a defective product from the market. If you own a business that produces and sells tangible products, your business lawyer may encourage you to get a product recall policy.

It is important to remember that product recall insurance is separate from product liability insurance, which will not cover your costs in the event of a recall. Product liability insurance typically covers losses that occur as a result of a product causing an injury or damage, but it will not cover any losses associated with a recalled product that did not cause an injury or damage. These losses can add up quickly and might include shipping fees, remediation expenses, and public relation strategists' fees.

Who Needs Product Recall Insurance?

There are two main kinds of product recall insurance: first-party coverage and third-party coverage. Every policy is different, but first-party coverage generally covers the business expenses of conducting a recall.

This might include the cost of notifying customers, as well as storing or disposing of the defective products. Depending on the provider, first-party coverage may also take care of the costs associated with rehabilitating your brand following the recall.

Third-party coverage, on the other hand, is for manufacturers who produce components or ingredients that are part of another manufacturer's product. It will take care of any losses your customers incur as a result of your product's recall. In some case, third-party insurance also covers the cost of providing your clients with a temporary replacement until you have resolved the issue.

If you provide products to other manufacturers and not directly to consumers, there may already be an indemnification clause in your customer contract that requires you to cover any losses associated with a recall of your contribution to the final product.

Commercial attorney Eric D. Anderson Law, LTD can review any contracts that you currently have and advise if you should get first-party or third-party coverage. Call 909-283-5494 today to speak with a Redlands business lawyer.

About the Author

Eric Anderson

Through his experience on both sides of the courtroom, Eric understands that any legal issue can be intimidating to those who do not know the law. Today he uses that experience to defend those in need of a champion. A former prosecutor and Deputy County Counsel, Mr. Anderson began his career w...

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