Tag Archives: insurance

Rise in Food Contamination Calls for Proactive Risk Management in 2013

By Jonathan M. Cohen and Emily P. Grim

Despite improvements in food safety over the last two decades, 2012 saw no shortage of recalls due to food contamination.  For example, one Indiana farm recalled all cantaloupes from its 2012 growing season after the fruit was linked to an outbreak of salmonella that killed three and sickened hundreds.  Another salmonella outbreak caused health officials to shut down the Vancouver, Washington branch of a popular Mexican restaurant.

The outbreaks of 2012 were not an anomaly.  Recent studies show that foodborne illness may be on the rise.  According to the Center for Disease Control, approximately 48 million Americans fall ill, 128,000 are hospitalized, and 3,000 die each year due to food contamination.  That means that 15% of Americans can expect to have a foodborne illness annually.  And, a recent study by the U.S. Public Interest Research Group estimates that the number of Americans falling ill or dying from eating tainted food has increased 44% since 2011.

Several new incidents in the last month suggest that this trend will continue in 2013.  In December, the Food and Drug Administration discovered salmonella contamination at the same Indiana farm linked to the August outbreak.  Last week, a national restaurant chain issued a recall of a smoked salmon product after its supplier notified the company of a potential bacteria threat.

This trend highlights the importance of careful risk mitigation plans for food companies at all levels of the supply chain.  To procure the best risk management portfolio for its needs, a company should begin by evaluating its potential exposure with as much specificity as possible.  A company with foreign manufacturers, for example, should not identify its risk merely as “concerns about the supply chain” or “concerns about exposure from foreign manufacturing,” but should break its concern into more specific and detailed aspects of its concerns, such as “concern about shipping interruptions due to weather,” “concerns about interruptions or liabilities arising from pandemics,” or “uncertainty regarding quality control, storage, and expiration dates.”  The more a company breaks down risk into specific and detailed concerns, the better that company can evaluate the protections the company has to avoid or pay for those risks.

Next, companies must identify the best way to transfer their risk, whether via insurance coverage, indemnities, or other mechanisms.  For example, a food manufacturer might seek one or more policies designed to cover the cost of testing and destroying the product, cleaning contaminated equipment, notifying third parties of the recall, and damage to the manufacturer’s reputation.  Depending on their position in the supply chain, certain companies might also seek third-party coverage for potential lawsuits by supermarkets for economic losses or claims by customers sickened by contaminated food.

An effective risk evaluation also should identify legal hurdles that could impede a company from accessing coverage.  Some policies, for instance, contain contamination or microbe exclusions that insurers likely would assert bar coverage for many recall events.  Food companies should be on the look-out for other potential coverage limitations as well, such as limits of liability that could cap a policyholder’s recovery or deductibles that could reduce or eliminate coverage for the types of problems that a food company might confront.  Even in the face of such exclusions or limitations, though, many policyholders may have strong arguments that these provisions do not apply to the specific types of risks or liabilities the company has.  A thorough knowledge of the fast-evolving legal landscape of liability, property, and recall coverage will enable companies to draft the best possible coverage language.

Food contamination may be on the rise, but by performing a comprehensive analysis of risk exposure and potential coverage options, companies can ensure that they have the right protection.


Companies Need to Review Their Insurance as FDA Announces First Rules Under FSMA

By Jonathan M. Cohen

On January 4, 2013, the Food and Drug Administration (“FDA”) issued the first two rules that will put into effect the Food Safety Modernization Act (“FSMA”), a law passed by Congress in 2011 that is designed to prevent food-borne illness on a nationwide basis.  The FDA has said that both FSMA and its rules are intended to constitute a proactive rather than a reactive approach to food-borne illness.  Both rules will be subject to a 120-day public comment period before they can take effect.

The first proposed rule, the Preventive Controls for Human Food Rule, would require food companies – whether they manufacture, process, pack or store food – to develop formal plans to prevent their products from causing food-borne illness through contamination.

The second proposed rule, the Produce Safety Rule, would require farms that grow, harvest, pack or hold fruits and vegetables to follow science- and risk-based standards for the production and harvesting of produce on farms.  These standards are aimed at preventing contamination in the growing, harvesting, packing, and holding processes.

Although these two new proposed rules are the first ones that the FDA has proposed to implement FSMA, they likely are not the last.  FSMA, which runs for 1,200 pages, covers a wide range of food-related issues.  It provides specific controls and hazards that companies must address.  Although the FDA had not met the deadlines for rolling out rules that FSMA set out, FSMA has many provisions that require FDA rules or regulations for implementation.  In a press release also issued on January 4, 2013, the FDA stated that it soon would propose additional rules, including rules regarding the overseas growth and processing of food products.

Together, FSMA and the two new proposed rules (as well as future rules) can have a significant effect on food companies’ liability risk should a food-borne contamination or recall occur.  Companies at all levels of the food supply chain thus should be aware that FSMA and related rules could change the effectiveness of their current risk management and mitigation strategies.  Because food companies still have time before these two proposed rules will become effective, and before the FDA proposes other rules, now is the time that companies need to review their risk mitigation strategies, including by reviewing their insurance and indemnification agreements, to ensure that they protect themselves in this evolving legal environment.

Mold, Asbestos, and Raw Sewage – The Toxic Stew that Sandy Left Behind

By Jonathan Cohen and Aisha Cassis

Superstorm Sandy wreaked havoc across the Eastern Seaboard and is predicted to be one of the costliest natural disasters in U.S. history.  New York’s Governor Cuomo estimates that the storm may have had a $50 billion impact on the northeastern states in damage and economic loss.  Particularly because a major Nor’easter followed right on Sandy’s heals, businesses throughout the region suffered significant property damage and lengthy business interruptions.

But Sandy’s wrath may not have ended there.  If Hurricane Katrina is a good model, Sandy’s direct property damage and business interruptions may be exacerbated by future environmental harms that will require costly environmental cleanup well after the flood waters subside.  Companies should be aware they may be able to rely on existing insurance policies to cover these costs.

Secondary hazards from Superstorm Sandy may remain for months after the flood waters have been pumped out.  Numerous communities reported that Sandy caused thousands of gallons of raw sewage to pour out from overwhelmed treatment plans into the Long Island Sound.  The storm also may have affected open-air impoundments that store millions of gallons of toxic fracking waste and sludge.  The humid conditions that Sandy left in many buildings could result in the growth of mold or other environmental risks.  And, asbestos, which previously had been encapsulated in building materials, may deteriorate if the encapsulating materials became wet, causing deterioration that could allow asbestos to become friable and requiring environmental redress.

Companies may have coverage for these costly hazards under one or more of their commercial insurance policies.  These policies may provide coverage for, among other things, the costs of cleaning up the environmental impacts, and/or property damage and business interruption resulting from those impacts.  Companies also may have coverage under general liability or other policies for third-party claims alleging tort liability for environmentally-related property damage.

But watch out – these policies may contain exclusions for certain or all of these hazards, including express and broad exclusions for damage arising from mold, bacteria, and asbestos.  As Sandy is expected to provoke four times the number of insurance claims as last year’s Hurricane Irene, policyholders reasonably should expect that insurers will try to invoke all possible exclusions.  Policyholders should prepare now to counter the insurers’ likely coverage defenses, and they should recognize where they have strong counterarguments.  For example, multiple causes of an accident may trigger coverage even if one of the causes is excluded.  Companies should review their policies carefully, with insurance counsel if needed, and take steps to preserve and pursue all available coverage.

For more information, click here for our alert on Sandy-related coverage issues, or contact Jonathan Cohen at cohenj@gotofirm.com or at (202) 772-2259.

Jonathan Cohen to Speak at GMA Litigation Webinar on December 5th

Developed by GMA experts, this webinar,  Current Issues and Trends in Social Media, Supply Chain Litigation and Foodborne
Illness Outbreaks, will address current litigation “hot topics” in the food, beverage, and CPG industry. Attendees will gain valuable insights on social media and how it relates to litigation, supply chain risks and litigation, and will receive an update on foodborne illness outbreaks. Jonathan Cohen will host a discussion on The Weakest Link: Supply Chain Resilience, Risk and Litigation.  He will dicuss how companies can address changing supply chain risks and the availability of insurance and other financial products to address those risks.  the webinar will take place on December 5, 2012.  For more information, or to register for this webinar, please click here.

What Gilbert LLP Wants You To Know About Insurance Coverage For Superstorm Sandy

Insurance coverage may be available for companies both within and outside of the directly-affected area.

Superstorm Sandy no doubt will go down in history as one of the Nation’s most costly natural disasters.  Some experts already have estimated that property damage alone could be measured in the tens of billions of dollars, and companies both inside and outside of the directly affected area may sustain costly business interruptions or may be unable to obtain the supplies they need to keep their businesses operating.  Many companies, both in the directly-affected area and those whose supply chains or customers have been disrupted, may be able to recover insurance to help them rebuild, even if those companies have not actually sustained any property damage.

If you have sustained direct property damage, Gilbert LLP wants you to know . . . click here for more.