Board of Directors

Product Recall: Potential Liability for Board of Directors

October 11, 2019

David Fiske, Senior Vice President
Lori Hunter, Executive Vice President

If your clients operate with a board of directors, those who serve on it could be held personally liable for the company’s negligence in the event of a product recall. In certain situations, directors and officers can be held personally liable.

One way this can happen is for board members to be named as defendants in claims related to the negligence of the companies they oversee. Here are some examples:

The Blue Bell Listeria Outbreak

The 2015 listeria outbreak traced to Blue Bell, one of the nation’s largest ice cream manufacturers, illustrates how a product recall can affect directors and officers. As litigation against the company commenced, charges against the company’s management and board of directors soon followed.

According to a recent article by Food Safety News, one of Blue Bell’s shareholders sued the company’s management and board of directors, alleging the board failed to adopt or implement any system to monitor the company’s food safety compliance programs, and therefore breached its duty of loyalty. Unfortunately, the board wasn’t made aware of any food safety issues at any of the company’s plants until after the outbreak.

A suit involving claims against members of the board at Caremark International Inc. is an important case that presents the board of directors’ duty of care. It outlines the potential liability for a breach of duty by a board member who fails to bring proper attention to a potential situation he or she knew (or should have known) of. This includes knowledge of possible employee violations, failure to attempt prevention of a violation, and lack of action in a violation that has become the proximate cause of the damages. This rule of law states that those who serve on a board of directors must make a good faith effort to oversee the company’s operations. Failure to do so breaches the duty of loyalty and exposes a director to liability. In Blue Bell’s case, there was no established committee to oversee and address food safety issues, and no procedure in place to alert and advise the board of such issues.

Mitigating the Risk

If you have clients who operate food companies, it’s critical that they have an established process to report any suspected food safety issues to the board of directors. However, as the Blue Bell recall and other similar recall events have shown, it can be difficult to ensure 100% compliance with regulatory standards. Mitigating the impact that a recall can have on an organization’s board of directors and management is just another good reason to have product recall insurance.

Product recalls can be difficult to recover from. The experts at Worldwide Facilities can help you select the best product recall insurance coverage possible to protect your clients.

For more information, please contact David Fiske at 312-465-5305 or dfiske@wwfi.com, or Lori Hunter at 213-236-4585 or lhunter@wwfi.com.

 

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