Damages owed from illness and death claims resulting from actual or alleged food and beverage contamination, along with the cost of recalls of potentially contaminated products, present serious financial risk to companies involved in the manufacture or sale of food products. After a contamination event, all companies in the food supply chain — from farm to supermarket — may unexpectedly find themselves in the crosshairs, regardless of the ultimate source of the contamination. Moreover, even in cases where a business recalls its products before any injuries occur, a recall event may result in millions of dollars in lost profits, reputational damages, and claims by thirdparties in the food production chain.

Paradoxically, the recently enacted Food Safety Modernization Act (the FSMA), which President Obama signed into law last year, may increase the frequency of costly recall events. The FSMA grants the U.S. Food and Drug Administration (the FDA) expansive powers to protect the nation’s food supply, shifting the FDA’s regulatory focus from reacting to food contamination to preventing it in the first place. The new act creates incentives for food companies to order prophylactic recalls before determining whether their products are actually contaminated — in essence, voluntary recalls — which could increase the frequency of product recall losses. Although many insurers offer product recall and contamination coverage — either as add-ons to commercial general liability (CGL) policies or as stand-alone products to fill gaps in CGL and first-party property coverage — in some instances these recall policies have not kept pace with the heightened recall risks faced by the food industry following passage of the FSMA, and they often contain hidden exclusions in definitions that insurers rely upon to deny coverage. Recent case law also shows that at least some courts are strictly construing these coverages in ways that may be at odds with policyholders’ expectations.