July 16, 2015 Articles

Insurance for Product Recall Expenses

By Syed Ahmad, Kyle Sampson, and Patrick McDermott

The risk of product recalls is a fact of life for many businesses. Recalls entail numerous expenses and disruptions to business operations. Obtaining insurance coverage for those expenses and related exposures is critical for businesses that may face the unwelcome prospect of recalling a company product.

Recalls can reach into nearly every corner of the economy, from food, drugs, and medical devices to motor vehicles, child safety seats, toys, and household chemicals. In the United States, numerous federal agencies—including the Food and Drug Administration, the Consumer Product Safety Commission, and the National Highway Traffic Safety Administration—have authority either to formally order a mandatory recall of products that violate regulatory standards or to informally “recommend” that regulated firms launch a voluntary recall. Recent examples include a recall of tens of millions of vehicles with defective safety equipment and the massive recall of ice cream products due to listeria contamination.

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