With over 40 years of experience in building sound risk programs for food processors, bottlers and agribusinesses
The Alonso & Andrade professionals understand the intricacies of these industries, and how FSMA has impacted them since its introduction in 2011. Insurance programs for these companies must be structured differently than for typical companies, since their risk programs cannot only be taken off the shelf but need to be specially tailored to respond to the distinctive perils of these specialized industries. Our in-depth knowledge and experience in analyzing these type of risks helps our clients protect their brands, customers, employees and bottom lines.
Operating in the agribusiness, food and beverage industries can present countless problems beyond your control that can affect whether your year is successful or not. In agribusiness, weather related issues, such as high winds and early frosts generally don’t pose problems for traditional businesses, but for food growers, it can go far beyond profitability, and sometimes force a company into bankruptcy.
For food processors, contamination and product recall issues, liability of which are both assumed in supply contracts signed by companies, can create a whole different set of problems not seen in other industries. Securing insurance is not always the preferred method in which to deal with these unique exposures, but you at least owe it to yourself to know what is and what is not covered in your insurance contracts.
Recently, there have been several reports of contaminants found in bottled water. Tests conducted by a California nonprofit found high levels of arsenic in two brands of bottled water. The levels of arsenic in the bottles was found to be higher than the level in most tap waters. And while all packaging operations are important for bottling companies,none is more critical than proper capping, which can cause the product to leak, or damage the product by leaking air in when it is done improperly. In all these instances, bottling companies can be hit with significant losses due to the recall of hundreds or thousands of cases of product, which translates to high dollars, that could otherwise be insured at nominal costs.
Due to the unique exposure characteristics in these industries, crafting a comprehensive risk program can be a daunting task, even for the most seasoned insurance professional. Since securing the correct protection is more than just taking a policy off the shelf, your risk partner needs to understand your industry’s inherent hazards, along with the regulatory and HAACP compliance requirements.
Some of the operations that fall within these industry segments:
Commercial growers and packers of agricultural products
Dairy products manufacturers
Food processors and distributors
Food related service companies
Grain and field crop growers
Livestock auction barns
Produce growers & distributors
Restaurants & other related businesses
Vineyards, wineries or breweries
Many distributors have the misconception that their General Liability coverage will respond to the costs of a contamination and recall event, because their broker told them so! There cannot be anything further from the truth. General Liability policies, if endorsed with Products Liability coverage, will respond to claims where the food product caused Bodily Injury to someone, such as food poisoning or even worse, death. So, while many think Products Liability coverage will be a remedy for any type of a “product” related claim, it will provide no benefit to a contamination and subsequent recall expenses. Before getting into specifics regarding coverages afforded under a contamination and recall policy,
The standard big box grocery store chains were the first to come out with supply contracts associated with our food chain. While these standard agreements can run to well in excess of 30-40 pages, the supplier needs to focus on three specific sections of these contracts: Product Recall, Indemnification and Insurance. A standard big box store Product Recall policy wording reads as follows:
Product Contamination – Recall/Withdraw
In the event of any and all product recalls that are either (i) agreed upon between Vendor and XXXX, or (ii) that are required (either by law or in the commercially reasonable judgment of XXXX) because XXXX has reason to believe the Products are defective, dangerous, incomplete, infringe upon intellectual property rights, or are not in compliance with applicable laws or regulations, the Products will be returned to Vendor at Vendor’s expense, or otherwise disposed of as provided for in the XXXX Product Recall Procedures. This expense, unless otherwise agreed in writing between Vendor and XXXX, will be as set forth in attached Exhibit C – XXXX Billing Policy for Recalls and Withdrawals. The Purchase Order Terms and Conditions continue to apply to Products that have been recalled. Agreed upon returns of slow sellers, overstock, and product recalls that result from defective, dangerous or incomplete merchandise will be returned to Vendor at Vendor’s expense. This expense for the divisions serviced by a predetermined reclamation center, unless otherwise agreed, will include: 1) a 12% handling fee for product consolidation and 2) incoming and return freight charges. Any exceptions to this policy must be in writing and signed by the XXXX Representative prior to the return.
So, most of the above recall policy wording sounds reasonable, and according to the insurance section, it’s not until you dissect the insurance requirements, that you can then determine where the problem lies.
Vendor will protect, defend, indemnify and hold harmless XXXX, its subsidiaries and affiliates, and its and their directors, officers, employees, agents, contractors, successors and assigns from and against any and all claims and actions (including those in strict liability), demands, liabilities, losses, costs and expenses (including attorney’s fees,) including, without limitation, liabilities arising from any actual or alleged injury to or death of any person, damage to any property, and any other damage or loss, by whomsoever suffered, including Vendor’s or XXXX agents or employees, resulting or claimed to result, directly or indirectly, from 1) the Products, including XXXX purchase, use, shipment, storage, delivery, sale, offering for sale, or other handling of the Products, or 2) Vendor’s actual or alleged breach of any of the representations, warranties, guarantees or other terms and conditions contained herein, except as to 1) and 2) above, if such liability is caused by the sole negligence or willful misconduct of XXXX or its employees.
In addition to the foregoing, if any of the Products purchased or any part thereof is alleged or held to constitute infringement, Vendor, at its own expense, will either (i) procure for XXXX, its successors, assigns, and customers the right to continue using such Products, (ii) replace the Products with non-infringing items or (iii) only if options (i) and (ii) are impracticable, refund the purchase price for the Products and pay all related expenses.
For those not well-versed with the legalese of the supply contracts they have signed, the insurance sections of the supply contracts customarily only require suppliers to maintain General Liability,(including Product Liability), Workers’ Compensation, Commercial Auto Liability and frequently Umbrella Liability. And where the problem lies is that no mention is made of the requirement for the supplier to maintain Contamination and Product Recall/Withdraw coverage.
Even if you take the time to send the supply contract to your risk broker, they will often advise you that your company meets or exceeds all insurance requirements detailed in the Insurance section of the document. However, an experienced broker will know to go one step further by advising of the conflict within the Indemnification section wording.
Why should you consider partnering with Alonso & Andrade? It’s all about differentiation. If you are receiving professional risk advice from a provider that understands your business, our hat is off to you, because there are very few brokers that understand the complexities of your industry. Ask yourself the following:
When was the last time our risk provider reviewed the following topics with us?
Supply Contracts, including an analysis of if you are meeting your indemnification requirements
Supply Chain protection
Product Recall Program
Product Withdraw and Recall costs protection
Lost profits from
Lost profits from a Contamination event
Is Inventory Replacement lost to contamination covered on and off your premises
Product Tampering & Extortion
Content used in Private Labeling
Costs associated with Product Mislabeling
Spoilage coverage, with or without distance limitations
Government Recall and Adverse Publicity
Crisis Recall Response
What is the true cost of a recall other than cash flow?
Relationships! Recalls either severely strain the bonds or terminate relationships. And, they always destroy customers’ trust. Recalls hurt all relationships, long or short-term. Today, contracts have replaced handshakes and supply chain contracts specifically outline rights and duties when a recall strikes: liability for all losses, damages, costs, expenses and lost profits. Moreover, a recall is catastrophic when lost relationships terminate a business. However, you can reduce the impact of recalls and save strained relationships. Ask us how. Protect the brand and balance sheet.
Food Practice Group
The following includes an overview of our team’s internal functions, including our strategic partners, who help our clients reduce their contamination claim risks and associated costs. The two major sections are Pre-Loss Prevention and Post-Loss.
PRE-LOSS – UNDERWRITING & PREVENTION
Jess Alonso, CPCU – Managing Partner
Jess Alonso brings over 40 years of commercial risk brokerage and consulting experience to the middle market and Fortune 500 companies in the food and beverage industry. His experience includes over 20 years of working with two of the country’s top ten insurance brokerages firms, where he partnered with numerous companies involved in this area of commerce. As a partner of DC Insurers, Alonso & Andrade provides local representation with access to most global insurance markets.
Meredith Alonso Hay – Vice President
Meredith is an honor’s graduate of the Bob Schieffer College of Communication at Texas Christian University. Meredith has spent most of her working time after college in the insurance brokerage industry and is responsible for new business development food related activities of the firm.
Ed Huxel– Food Technologist & Engineer – Dallas, Texas
Ed Huxel has a BS degree in Food Technology from Ohio State University, an MS degree in Food Science from Oregon State University and an MS in Food Engineering from the University of California. He has spent his 45+ year food career working in quality control, research process engineering, plant operations, plant design, and project management; including over 20 years as an owner of two food processing companies. During this time, he developed numerous seminars in food and baking engineering and maintenance management. Ed is well-schooled in HACCP and has numerous patents in food processing machinery and food production processes.
This group will provide an analysis of your supply contracts to show you where you have coverage gaps, as well as providing you with a physical inspection of your operation by a food engineer, well versed in process operations.
ReposiTrak is the leading provider of Compliance Management and Track & Trace solutions for food safety in the US and is the exclusively endorsed risk program for the Food Marketing Institute, (FMI), and Retail Owned Food Distributors & Associates, (ROFDA). ReposiTrak users reduce their level of non-compliance for maintaining records such as Certificates of Liability, Hold Harmless Agreements, Letters of Continuing Guarantee and Third-Party Audits. ReposiTrak’s Compliance Management System does not only store documentation, but its dashboards and alerts provide users with visibility to missing or expired documents, as well as where specifications have not been met.
POST-LOSS – Claims Advocacy
We assist policyholders with domestic and international insurance coverage issues while maintaining a special focus on crisis management. These issues involve contamination and product recalls, reputational risk, trade, and supply chain disruptions, cyber and data breaches, political risk, kidnap and extortion, and other emerging issues. We partner with our clients when they secure insurance coverage through a Lloyds Contamination Program.
Crisis Management Team
In the event of a Product Recall incident or other emerging crisis, a prompt and decisive response is vital in mitigating the consequences of such an event. When Contamination and Recall/Withdraw coverage is secured through us, our team’s work is supplemented by a Crisis Response Management center that is open 24/7, with teams of experts ready to help with a contamination crisis, whenever one occurs. These experts can assist in resolving or reducing the effects of an incident with the least possible impact on a company’s operation and or reputation and will help get the company back up and running as soon as possible.
Given equal or fewer premium costs, it would be well worth your time and the survival of your company to meet with us for an evaluation of where your company stands relative to others in your industry.