Robert Adler

Product Recall and your Liability

Consider some of the biggest product recalls of recent years – baby formula laced with deadly Melamine, peanut butter tainted with salmonella, and Firestone’s faulty tires, not to mention more recent problems with Chinese beef and California fruit. These are massive, high-visibility cases outlined in Time magazine roundup, but look no further than the Consumer Product Safety Commission  for a list of recent recalls and read through the many types of violations that can spark a recall, and you’ll see just how many ways your company could be impacted by a single faulty product.

Eleven statues govern product safety in the U.S., and also impact what can be imported into the U.S. Still more regulations and laws protect consumers against “unreasonable risks of injury or death” from consumer products in categories that include everything from sports equipment to almost anything in the home, to fireworks and other flammables.

Ultimately, you’re responsible

If you’re a manufacturer of almost any kind of product, or if you process food, you are ultimately responsible for your product in the marketplace, from the smallest part to the product’s overall long-term performance. If a product you manufacture is recalled, you’ll immediately experience a series of problems:

  • You have to pull the product from shelves, accept returns from consumers, and find a way to either repair or destroy the product so it can cause no additional harm.
  • A lawsuit, or a series of them, will surely ensue, and you’ll need to enlist help from outside counsel to see your way through the suits.
  • You’ll need very good public relations representation quickly. Develop a plan with professionals and take their advice on what to do and say moving forward.
  • Fixing the initial problem may also become an issue. Whatever it was that caused your product to be recalled in the first place will have to be identified, dealt with, inspected, and OK’d before you can move forward with production.
  • Once you’ve fixed the initial problem, you’ll face the uphill battle of regaining trust with your salespeople, your clients, and consumers.

Covering costs during a recall

Having responses in place, ready to enact, if you ever face a product recall is critical. If you’ve thought through an action plan – good for you. Now consider the cost to your company if a product recall should ever occur. Legal fees, added public relations and marketing expenses, production and cleanup are just a few of the extra expenses you’ll face. Be sure you have enough cash in the slush fund to deal with a recall, or take a good look at the insurance that you carry for product recall and liability.

If you’re not comfortable with your coverage, and you think your exposure merits more coverage than you can purchase on the market, consider a captive. By creating captive insurance, you can create the kind of coverage you need in case of a product recall, and because you own the captive, you’ll be able to quickly access your coverage. If you have questions about how captives work, feel free to contact us.

photo credit: fred_v via photopin cc