Product Refusal of Coverage: What Is It and Why Is It Important?September 17, 2019
By David Fiske, Senior Vice President, and Lori Hunter, Executive Vice President
Businesses that manufacture goods or grow food products may already be familiar with product recall insurance and how it can help them cover costs (such as those for customer notification, shipping and disposal) when a company’s own product is being recalled.
What they may not know is that most product recall policies don’t pay for damages when the same type of product being recalled is grown, produced or shipped by another company.
Product refusal of coverage is an endorsement that provides financial protection for recalls — whether voluntary or mandated — caused by a similar product from another company. It pays for a company’s recall costs if buyers refuse to accept the product or ask that it be removed from the market due to health safety concerns. The coverage does not require that the recall be caused by the policyholder’s own product.
Expenses covered under the product refusal of coverage endorsement:
- Costs to remove the product from the marketplace and destroy / replace the product
- Marketing and public relations expenses incurred to protect and recover the reputation of the retailer and the grower, including consultants to evaluate how to best handle the recall
- Cost to hire additional staff to take phone calls and document potential recall issues
- Expenses associated with the disposal of products that can’t be sold
From lettuce to cantaloupes, the total number of food recalls in the U.S. increased by 10% between 2013 and 2018, with the majority of recalls ordered on a precautionary basis and not due to consumers actually becoming ill, according to FDA data.
Worldwide Facilities can help your clients mitigate the financial impact of a product recall event with market access to product recall insurance that includes the product refusal of coverage endorsement. To view real-life examples and read more about the refusal of coverage endorsement, see our informational product sheet: Product Refusal of Coverage: Are Your Clients Covered?