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| 1 minute read

Insurance Coverage for Product Recalls

Recalling products can be expensive. Product recalls, both voluntary (where a manufacturer notices a defect or issue with a product and recalls it without a legal mandate) and involuntary (where government regulators require businesses to recall certain products due to health or safety concerns such as contamination), are common and on the rise due to more stringent product quality requirements. Some of the most common product recalls are for devices, cosmetics, food, medication, toys and vehicles. For instance, Quaker Oats recently recalled certain products and Tesla recently recalled two million automobiles

Product recalls can be extremely expensive. “The average cost of a recall to a food company is $10M in direct costs, in addition to brand damage and lost sales," according to a joint industry study by the Food Marketing Institute and the Grocery Manufacturers Association.” 

Insurance may cover the costs of recalling a product from the market. Product liability insurance, included in commercial general liability policies, helps cover product liability claims, but not product recall costs, including allegations of design, production or manufacturing defects, damages caused by product malfunctions during normal use, or failure to warn claims.

Product recall insurance typically is purchased by manufacturers as an endorsement under a business insurance policy. It is triggered by actual or imminent bodily injury or property damage. It covers first- and third-party losses associated with a product recall. It covers expenses involved with recalling a product. It covers things ranging from media notifications, reputation management, customer notification, and expenses like shipping, extra storage space, transportation, disposal, replacement, and restocking costs. It also covers loss of revenue. A product recall policy also can protect third parties, like companies that distribute another company’s products, covering expenses to remove the affected product from the shelves, replacement of the product, cost to rehabilitate the brand of the third party and business interruption of lost incomes suffered by the third party. 

Food manufacturers may purchase a product contamination policy, a more comprehensive policy providing coverage upon discovery a product has been contaminated, even in production. These policies cover accidental and malicious contamination, as well as extortion, pre-recall (such as laboratory expenses to determine which products have been contaminated), recall and third-party recall expenses. 


insurance coverage, product recalls