Issues: Food Safety

InsuranceSummary

Insurance Summary

When foodborne illness outbreaks occur in the fresh produce industry, PMA members sometimes ask what their options/liabilities and responsibilities are when product gets recalled. Here is a general overview from PMA legal counsel Keller and Heckman LLP. The information provided below is of a general nature and should not be relied upon as legal advice.

Insurance

Recall Insurance -- In the event that product is voluntarily recalled but is later determined not to have been adulterated, a recall insurance policy might cover those losses. There are two types of recall insurance policies, based on the wording of the policy and/or the insurer's interpretation of the wording. Under some recall policies, there is no coverage if it is subsequently determined that the product was not adulterated. Under other policies, however, there may be coverage if the company reasonably believed, at the time the recall decision was made, that the product might be adulterated. This type of insurance usually includes coverage for the company's crisis management costs.
Comprehensive General Liability Insurance -- This insurance covers claims for bodily injury, death, or other damages arising from the consumption of food. The property insurance component covers physical damage to a companies "covered property" and, depending on its terms, might cover the company's business interruption costs as well.
File a claim -- To preserve rights under your policies, companies should file an insurance claim even if it is uncertain whether there is coverage.

Alternative Dispute Resolution

Alternative dispute resolution may be agreed upon by parties in a dispute, or may be required under the terms of a prior contract between the parties.
Arbitration -- Arbitration is the referral of a dispute to one or more impartial persons for a decision which is usually final and binding, depending on the terms of the agreement. Arbitrations are private, confidential, relatively quick, and less costly than litigation. The parties may agree to expedited arbitration procedures, including a deadline for the decision. The American Arbitration Association (AAA) also has special procedures for large disputes (if the claim of any party is at least $500,000).
Mediation -- Mediation involves meetings among disputing parties and a neutral third party (mediator) in an attempt to settle a dispute. The mediator assists the parties in discussing issues, goals and settlement options, including meeting with each party separately to address the likelihood of success on the merits. Importantly, the mediator does not issue a decision; instead the parties try to agree on a resolution of the dispute.

PACA

PACA -- creates a statutory "trust" for perishable agricultural commodity (PAC) proceeds in favor of unpaid PAC suppliers, triggered by a PAC supplier giving written notice to a commission merchant, dealer, or broker, and filing within the statutory time period.
The PACA trust, if applicable, is given priority over other security interests.
Due to inconsistent court decisions and different factual situations, it is not clear whether PACA would apply. In general, one line of cases may limit protection for suppliers through reliance on trust law principles, while another line of cases may expand protection for suppliers by increasing the types of commercial buyers subject to the trust.

Due to conflicting court to IV
CONTRACTS

Contract clauses including continuing food guarantees, force majeure (an occurrence due to forces of nature), insurance or indemnification may be applicable. Companies should also check to see if they have "additional insured" status to avail themselves of potential additional insurance coverage.