Take the Risk out of Product Recalls

Insights and ideas to help your business grow Issue no. 27, January 2016

Take the Risk out of Product Recalls

In the past month, product recalls in this country have included 167,427 pounds of E. coli contaminated ground beef, 33,500 air conditioners prone to bursting into flames, 52,486 pounds of chicken wings with an "off odor," and some epinephrine injector pens that failed to deliver the proper dose of lifesaving medication to people experiencing severe allergic reactions.

For Tyson, the company with the smelly wings, losing 50,000 pounds of product barely registers. We're talking about a publicly traded company that goes through 41 million chickens per week. (If my math is correct, and it may not be, the recall accounts for 0.3% of Tyson's weekly wing output. That's not including the other edible parts of the chicken, or the additional 70% of Tyson's sales that come from beef, pork, and other non-chicken products.)

But for the majority of businesses, even a relatively small recall can be a big setback, and being insured against that eventuality might be the difference between swimming and sinking.

Who needs product liability and recall insurance?

Product liability insurance is only for manufacturers, right? Unfortunately, anyone who's part of the supply chain that stretches from product inception to consumer consumption shoulders some of the risk. In the case of, say, foul-smelling chicken wings, it's not just the poultry farm and the distributing company who may be liable. Most states follow the "stream of commerce" model of liability, meaning that if your company had any involvement in getting the product into that stream, you may be liable for any issues that crop up.

Depending on the nature of the problem and recall, there may be some responsibilities and repercussions for the slaughterhouse, processing plant, and grocery store, as well as anyone who helped design or manufacture the packaging. And don't forget the company that provides the instructions on the back of the package, the company that made the flour used to bread the wings or the spices used to flavor them, and the partners or affiliates of any of the above.

What does it cover?

Product liability insurance comes into play when a defective or malfunctioning product injures someone or causes property damage. Recall insurance, on the other hand, covers the costs of withdrawing the product from the market, canceling advertising campaigns, and loss of profit (for you or your client). There are generally three types of product liability suits:

Overall design defect - the architecture of the product causes damage or injury. For instance, if you make toys for very small children with little parts that break off easily and can be choked on.

Manufacturing or production flaws - the product was properly designed, but improperly put together. Think laxity at a slaughterhouse that allows good meat to be tainted with fecal bacteria, or car tires that are made with substandard rubber and leak, increasing the risk of road accidents.

Defective instructions or warnings - the product lacked the labeling and/or guidelines needed to make it safe for use. Have you ever gone to put some prepared food in the oven and been amused by the large label on the package exhorting you to "REMOVE FROM PLASTIC BEFORE COOKING!"? It may seem obvious to you, but it isn't to everyone. That's a deferred lawsuit right there.

That old trope that "all publicity is good publicity" is kinda bogus. You don't want an internet search for your company to come up with a listing on the federal government's recall inventory. And clearly, recall issues can impact businesses all along the supply chain. If you have any questions about the relevance of product liability and recall insurance for your organization, give us a call and we'll be happy to talk you through it. It may just save your bacon, be it off odor or E. coli-tainted.

Insuring Telecommuting Employees: What You Need to Know

Telecommuting, previously thought of as a work trend for freelancers in their 20s working from tony coffee shops, or for mothers with small children, is fast on the rise. In fact, according to a study from the Society for Human Resource Management, more employers were planning to offer telecommuting in 2014 than any other new perk. 3.7 million US employees now work from home at least half the time. And who is the average telecommuter? According to the Census Bureau, it's a 49-year-old man with at least a baccalaureate and an annual income of $58,000.

If your workers are telecommuting, they're still under the umbrella of your employ. But are they covered by your business insurance? The short answer is yes, generally...but not always. There are some gray areas, especially when it comes to worker's compensation. Here are some key things to think about.

There's no law requiring companies to provide each worker with an employee handbook, but it's generally a good idea for your staff to have a uniform understanding of your rules, policies, benefits, etc. And if you have telecommuting workers, the details about off site coverage should be spelled out in your handbook.

First of all, employee benefits like health insurance, 501c (3), etc. won't change merely because an employee starts working off site.

The business policy may cover transit and property such as files, documents or equipment specifically provided by the employer for the job. Coverage may vary for full time versus part time workers.

If accidents or injuries occur while employees are working from a remote location--whether it's their home or their favorite coffee shop--they are still covered by workers comp as long as that additional work location is mentioned in the policy.

Claims by telecommuting workers are subject to the same scrutiny as regular worksite claims. Did the accident occur while the person was performing work duties or while they were 'off the clock'? In most of those cases, the onus would be on the employee to prove the injury was work-related. Setting fixed work and break hours for your telecommuters can take most of the guesswork out of it.

Telecommuting can be an excellent arrangement for you and your staff as it can save money, boost productivity, reduce absenteeism costs, and help your employees achieve a happy work-life balance. If you already have telecommuters on your company team, or you're considering the possibility, talk with your agent. We'll be happy to discuss the insurance issues and make sure your offsite workers understand where their coverage begins and ends.

Common Insurance Gaps Leave Businesses Exposed

A friend of ours recently bought a spiffy new pickup truck. He'd been driving an old Toyota Corolla for years, and while it was great for getting around town, it was useless for his roofing work, so he traded it in each morning for a company truck. It pleased him no end to finally be able to use his comfortable personal vehicle on the job.

Three weeks later, he was driving between worksites, swerved to avoid hitting a deer...and crashed into the wall of a concrete underpass. He walked away with only bruises and whiplash, but that was the end of his shiny new truck. He called his personal insurer to file a claim, only to be told that he wasn't covered because the truck was primarily for business use. He called his commercial insurer, and was told that he wasn't covered because the business auto policy had a narrow scope and didn't cover personally-owned vehicles. And then he went back to driving the Corolla.

Any changes to your business--growth, shrinkage, new property, new equipment, new products--warrant a look at your insurance package for two reasons. You want to make sure you're not paying for coverage you don't need; on the flipside, you don't want any new exposures. And even if your operation is static, there's the possibility that you could benefit from some additional coverage. We've put together a few of the most common insurance gaps to give you some ideas about what to look for.

Cyber liability

A study conducted by the Ponemon Institute reported that a whopping 43% of US companies had at least one data breach last year, and over a quarter of them were caught entirely unprepared. If you have any confidential information stored on any electronic device--credit card numbers, medical records, social security numbers, alarm system passwords, personnel files--then you may want to protect it with cyber liability coverage.

Employment practices liability insurance (EPLI)

Did you know that you're three times more likely to be sued by an employee than to have a fire at your business? Or that the Equal Employment Opportunity Commission handled 88,788 workplace discrimination claims last year? EPLI covers your operation in the event of employee claims of discrimination (any perceived bias based on race, religion, gender and gender identity, disability status, sexual preference, nationality or ethnic origin, age, or pregnancy), harassment (sexual or otherwise), wrongful termination, failure to hire or promote, retaliation or wrongful discipline, and breach of contract.

Industry-specific coverage

Many industries require their own special coverage. That's part of the beauty of insurance; after all, why should a retail clothing store pay for, say, liquor liability or medical malpractice? It's not a restaurant or a hospital. It behooves you to know the basics about insuring your particular business class, but you're probably not an insurance expert. And anyway, that's our job. Working with an agent who's really familiar with your industry is the best way to ensure that you're covered beyond the basics. For example:

Tool and equipment breakdown insurance for repair shops. Of course, this protects you if any company-owned equipment breaks, but since employees often use tools they've purchased themselves, tool insurance will keep your workers happy and protected. If a valuable employee breaks a valuable tool and can't continue to do his valuable work, both he and the business lose out.

Food-borne illness coverage for restaurants. Since July, fast casual chain Chipotle has been hit with repeated flare-ups of three bugs--salmonella, E. coli, and norovirus--thought to be spread by contaminated food from their kitchens. Seven customers have already filed lawsuits alleging that they fell ill after eating there, and internet chatter has not been kind Chipotle. Neither have investors.

No matter how careful your food safety practices, all it takes is one coughing restaurant employee or one supplier failing to wash their hands to spread an infection. But rest assured, food-borne illness insurance will cover the fallout.

If you're concerned that there may be a disparity between the coverage you have and the coverage you need, check in with your agent. We can make sure that there's no chance of your business falling between the gaps.

All content � 2015 Professional Marketing Associates, Inc. This newsletter is not intended to provide specific legal or insurance advice. Please consult your individual agent for further information on the topics covered.