A Guide to Managing Product Recalls

Manufacturers of consumer products may be subject to product recalls that are either mandated by a government regulatory body or voluntarily initiated by the manufacturer. A manufacturer may initiate voluntary recalls to quickly remove unsafe products from the marketplace regardless of whether they are subject to recall legislation. These types of recalls are typically initiated to protect the health and safety of users of products, and often, to preserve brand reputation and avoid or mitigate litigation. Regardless of whether it is mandated or voluntary, all parties in the chain of distribution, from manufacturers to consumers, are impacted by a product recall.

The scope of a recall, whether voluntarily initiated or mandated, may vary depending on the product and set of facts. If your client is faced with a mandatory recall or they are thinking of voluntarily initiating one, the days following the report of an initial incident tend to follow a pattern and require immediate attention. For that reason, it is worthwhile to have a checklist in place prior to the rise of potential recall issues.

Practice Tips

• Assemble a recall management team in advance of a recall. Encourage your client to set up a recall team in advance of a potential recall. The team should be comprised of senior management, personnel responsible for product design, quality control, compliance and marketing, as well as legal counsel.
• Get engaged from the outset. While many manufacturers have legal departments that can manage these situations in-house, it is important for external counsel to get involved right at the outset, in order to provide guidance on strategy and expertise on determining what processes and procedures must be complied with. Counsel should identify the relevant regulators, certification bodies and other entities that require notice of an incident with a manufactured product, and further, connect the client with key support teams, including regulatory counsel, PR professionals, insurance coverage counsel, cross-border counsel and independent experts.
• Accumulate all information giving rise to the recall, including:
  • in how many and in which markets the product is sold;
  • where the products are located (this can range anywhere from products in production at the time of the incident to those sitting on shelves at retail stores);
  • how many distributors and consumers of the product must be notified;
  • what standards and marks, if any, apply to the product;
  • how many such incidents have occurred to date;
  • how best to locate and communicate the recall to the distributors and consumers;
  • how much it will cost; and
  • who should communicate the product recall.
• Notify the Relevant Regulatory Body. Depending on the jurisdiction, there are specific reporting requirements and timelines with which manufacturers are to comply when dealing with a recall. Generally speaking, manufacturers of consumer goods are responsible for reporting all incidents involving consumer products that resulted, or may reasonably have been expected to result, in an individual’s death or in serious adverse effects on their health, including a serious injury. Specialized external legal counsel can assist with understanding these reporting requirements and ensuring that the manufacturer is in compliance.
• Notify the insurer. Ensure that your client has notified its insurer as soon as the safety issue has been identified and a product recall has been mandated or voluntarily initiated in order to determine what, if any, coverage applies. Product recall insurance can help to safeguard your client’s business from the financial impact of a recall, specifically those potential costs associated with identifying and addressing the safety issue, conducting the recall and keeping the business operational.
• Prepare the recall notice. This should include:
  • a clear description as to what products are impacted by the recall;
  • a clear description as to the potential risk posed by the product;
  • what steps must be taken by consumers, distributors or retailers;
  • how best the manufacturer can be contacted with questions; and
  • what the consequences are if the recommended recall procedures are not followed.
• Notify those affected. Confirm that you client maintains accurate and complete records of any advice given, offers made and actions taken to track and deal with customer complaints and concerns. Persons to notify may include:
  • suppliers;
  • certifying agencies;
  • regulators;
  • distributors/dealers/sales agents;
  • employees;
  • customers/purchasers; and
  • insurance brokers or insurers.
• Record and document all losses and expenses incurred as a result of the recall. Ensure that your client keeps track of all expenses, which may include replacement products sent to consumers, repair costs and costs of testing. If there is some coverage, these costs can be presented to an insurer. If litigation ensues, this information may become evidence against others for reimbursement, contribution, or indemnity.