Increasingly, more and more food companies are purchasing recall insurance. This is a smart strategy in the food industry, as most companies will, eventually, find themselves navigating a recall scenario. Having good insurance in place, with the appropriate levels of coverage, is absolutely critical.

But, what is “good” recall insurance?

Well, for starters, “good” recall insurance is recall insurance that will actually cover the recall (or product withdrawal) of your products when faced with a food safety or significant quality issue. Unfortunately, however, while the best recall insurance policies will have broad coverage triggers, policies are increasingly being written to limit the scope of coverage to only certain scenarios. These policies will, in many cases, attempt to limit coverage to circumstances that would amount to a Class I or Class II recall, excluding coverage for circumstances that would amount to a Class III recall only.

Generally speaking, once initiated, recalls are classified by FDA and/or USDA into one of three distinct classes: A “Class I” recall involves a situation in which “there is a reasonable probability that the use of, or exposure to, a violative product will cause serious adverse health consequences or death.” A “Class II” recall involves a situation in which “the use of, or exposure to, a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote.” And, finally, a “Class III” recall involves a situation in which “the use of, or exposure to, a violative product is not likely to cause adverse health consequences.” In addition to recalls, companies will sometimes initiate a market withdrawal of a product for a problem which arguably involves a minor quality or similar violation that would not be materially subject to legal action by the FDA.

These distinctions can be very important if a recall scenario arises. Imagine, for instance, a scenario involving a small number of miniscule pieces or fibers of polypropylene in 50-pound bags of salt. The salt was used to produce countless numbers of other food products and distributed nationwide. And, let’s imagine, further, that FDA discovered the issue, and demanded a recall of the salt and downstream finished product.

The losses in this scenario could easily amount to millions of dollars. Notwithstanding the cost, the insurance company could very well argue in this scenario that, if the recall is most appropriately characterized as a “Class III” recall, coverage is not triggered and the insurance company is off the hook.

So, when sourcing insurance, it is always critically important to know what coverage you are purchasing, and to make sure it’s right for you and your company. At the end of the day, there are many reasons that would trigger a Class III recall — so, make sure you’re covered for each of them!

Make Sure Your Class III recalls are covered

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