Product Recall Liability coverage (which is separate from General Liability coverage) is designed to protect the legal and financial responsibility a company faces when it is forced to recall a defective or unsafe product. Recalls are usually triggered by safety hazards, regulatory non-compliance, or consumer complaints.
Who needs Product Recall coverage? Many relate this risk to larger corporations, but that’s not true. Small and mid-sized companies have just as much exposure and can be more vulnerable with fewer resources to absorb these unexpected hits. Some examples of industries with the greatest risks include Food and Beverage, Automotive, Children’s Toys and Products, and Pharmaceuticals.
When a recall makes headlines, most people think about the inconvenience for the customers, but the impact can be much greater for businesses. Here are some of the key risks a business can face:
- Legal Claims and Lawsuits: Damages or injuries from the defective product can result in potentially large class action lawsuits.
- Regulatory Penalties: Consumer Product Safety Commission (CPSC) can impose fines for failure to report or act quickly.
- Financial Losses: Costs can include notifying consumers, shipping and disposal of the product, repair/replacement, and public relations efforts.
- Reputational Harm: This one is obvious, but it can be the most impactful. If the loss is severe enough to tarnish the brand, future sales will undoubtedly be affected.
Here are some very well-known, real-life claim examples and their ramifications:
- Peanut Corporation of America (2008): A Salmonella outbreak linked to their products resulted in one of the largest food recalls in U.S. history, leading to bankruptcy and criminal charges.
- Samsung Galaxy Note 7 (2016): Battery defects caused phones to overheat and explode, costing the company an estimated $5.3 billion.
- Toyota (2010): Faulty accelerator pedals resulted in a recall of over 9 million vehicles globally, along with a damaged brand image and massive regulatory fines.
In an era where news and outrage spread rapidly on social media, the damage can spiral out of control quickly and become detrimental to the company. But with proper controls in place and a robust Product Recall Liability policy, the effects of a recall can be minimized.
Is your business prepared for the unexpected? Don’t wait until it’s too late. Reach out to our team today to learn how Product Recall Liability coverage can safeguard your business from legal, financial, and reputational damage.
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