When Is Food Product Recall Insurance Coverage Triggered?

It seems like another food recall makes headlines just about every day. As food recalls are often expensive, businesses in the food industry may depend on food product recall insurance to control costs and transfer risk. However, if you don’t understand when food recall insurance is triggered and when it provides coverage for contamination-related incidents, you may lack coverage when you need it.

Food Recall Insurance Basics

In July 2024, Boar’s Head announced it was recalling 7 million pounds of ready-to-eat meat and poultry products. According to AP News, this recall followed an earlier one of approximately 200,000 pounds of sliced deli poultry and meat. The recall was due to the food being linked to a deadly listeria outbreak.

A recall of this magnitude is massively expensive, but even smaller recalls are often costly. Food recall insurance provides coverage for costs associated with a food recall, such as consumer notification and the collection, disposal, and replacement of the product. Since food recalls are common, this is an important coverage for businesses in the food industry.

Common Exclusions in Food Recall Insurance

Many policies have provisions that exclude coverage for recalls related to temperature or humidity. This exclusion is problematic for many food businesses because these factors are common causes of spoilage in seafood, meat, and produce.

Exclusions for recalls caused by contamination are even more problematic. When purchasing food recall insurance, look for a policy that includes contamination product recall coverage to ensure you have adequate coverage.

Food Traceability Requirements and Coverage

Many food items go through a long – and sometimes complex – supply chain before reaching consumers’ plates. This means there are many opportunities for contamination. When something goes wrong, pinpointing the source of the problem is often challenging. For example, if salmonella is found in a deli salad product that includes meat, cheese, and egg, tracing the source of the salmonella will require an investigation.

Good records help. In fact, a new final rule from the FMSA requires additional food traceability records for certain foods. Under the rule, companies that manufacture, process, pack, or hold foods included on the Food Traceability List must adhere to additional requirements that go beyond previously existing regulations. This includes tracking Key Data Elements (KDEs) associated with Critical Tracking Events (CTEs) across the supply chain. The Food Traceability List includes a wide range of cheese, meat, seafood, egg, nut butter, and produce items as well as other foods. See the complete Food Traceability List for details.

Preparing for the Food Traceability Rule

As a result of the new FMSA rule, companies like Walmart are requiring suppliers to provide information including Traceability Lot Code, Traceability Lot Code Source, or Source Reference. Suppliers may see other changes involving case barcodes and related procedures.

Meeting these new requirements may necessitate additional resources. However, in addition to meaning you comply with the new rule, this will improve consumer safety and foster trust. A 2024 Gallup poll found that 53% of Americans have avoided buying certain brands or foods due to recalls and that trust in food safety has declined.

In addition to complying with the new rule, companies in the food industry should review their insurance coverage: some specialty carriers provide coverage for food traceability services, which saves businesses time and money during a recall. Otherwise, you may need to hire a consultant to provide traceability services.

Do You Have the Food Recall Insurance You Need?

• Review the exclusions in your policy. Since product recall claims are often triggered by temperature, humidity, and contamination, having coverage for these events is important, especially in the seafood, meat, and produce sectors. Also determine whether you have coverage for malicious product tampering and extortion and accidental contamination. Most policies provide this.
• Identify any additional coverages you have. For example, do you have coverage for food traceability services? What about pre-claim consultation funds to help you manage risks?
• Determine whether you need additional coverage. Don’t wait until you’re facing a recall with uncovered losses.

Propel’s food and beverage practice has the resources and industry connections to help your company manage its risks. We also provide financial help to clients who are working on improving their food traceability practices using pre-claim consultation funds provided within custom-designed insurance programs. This could eliminate duplicate expenses if you are paying for these services through a third party. Contact us for a complimentary coverage review.