Food manufacturers face myriad risks every single day. With a greater focus on food safety and new regulations under the Food Safety Modernization Act (FSMA), the stakes are higher than ever.
Employees of food manufacturers risk injury every day as they work with dangerous equipment and machinery. Meanwhile, you rely on that machinery to function. If it is damaged or breaks down, the financial losses from ceased production and product spoilage can be devastating. You may lose revenue, be forced to dispose of product and inventory, or be sued by third parties who are harmed.
Spoilage, contamination, tampering and foodborne illnesses are serious – and deadly – concerns for food manufactures.
Product Recalls Cost Food Manufacturers Millions Every Year
Food manufacturing companies of all kinds frequently experience product recalls that cost them millions of dollars. According to a 2011 Ernst & Young survey of 34 major food companies:
- food companies rank the risk of a product recall as among their severest strategic threats, with 81 percent deeming this financial exposure as “significant” and “catastrophic.”
- 78 percent of food manufacturers purchased product recall insurance.
In some cases, it is not just one company that suffers from the effects of a product recall. In 2010, a recall of more than 500 million eggs cost the egg industry more than $100 million in lost income opportunity in one month alone. The recall came after nearly 2,500 illnesses were associated with the contaminated eggs.
Core Insurance Coverage for Food Manufacturers
Food manufacturers face spoilage, supply shortages, equipment breakdowns and recalls as well as many of the other property and liability risks that other types of manufacturers face. Every food manufacturer needs insurance policies that are tailored to their unique needs and the exposures that they have.
In general, food manufacturers may need to consider the following types of business insurance to protect property, customers, employees, vehicles and more from lawsuits, workplace injuries and other hazards that can be devastating.
Commercial property insurance helps protect your manufacturing facilities and their contents, from office equipment to heavy machinery, in the event of fire, weather events, theft, vandalism and other covered perils. In addition, you may need various other types of property coverage:
- Commercial property insurance policies usually include business interruption coverage, or business income coverage, which protects your earnings if your business is unable to operate because of damage caused by some type of covered disruption (fire, hail, wind, equipment breakdown). This coverage is invaluable if you are forced to close your doors for a period of time in order to make repairs. It pays for rent, employee salaries, lost income, relocation fees and more.
- You can expand your business income policy to include coverage for breakdowns in utility services (water, electrical) that force you to temporarily close your doors.
- Boiler and machinery, or equipment breakdown coverage, helps you repair or replace damaged machinery that is essential to keeping your production line working. This is invaluable protection for broken or damaged pressure cookers, storage tanks, electrical equipment, and other equipment that you need every day.
- Cargo and goods-in-transit coverage, including ocean marine coverage and/or inland marine coverage, protects your products as they are transported from place to place.
- Spoilage coverage offers financial protection for the costs of goods that spoil on site.
- Additional flood, windstorm or earthquake coverage may be necessary to protect your business property, depending upon your location.
- Employee theft and crime coverage can protect your businesses from the costs of theft, dishonesty and fraudulent acts committed by an individual employee or a group of employees.
Commercial general liability (CGL) insurance provides broad liability protection for bodily injury and property damage to third parties caused by your negligence. You should also consider the following types of additional liability coverage:
- Product liability insurance, including completed products coverage, helps you pay for losses or injuries to a user, buyer or bystander caused by a defect or malfunction of your product. Some product liability coverage is usually included in standard commercial general liability (CGL) policies, but this coverage may not be sufficient. You need an experienced agent to help you determine how much product liability exposure you have and how much and what type of coverage you need.
- Environmental practices, or pollution liability, coverage protects companies from the costs associated with liability claims stemming from damage caused by hazardous waste materials.
- Employment practices liability insurance provides coverage for violations of antidiscrimination regulations. It protects a business owner if a current or former employee sues based on discriminatory employment practices.
- Commercial auto coverage is necessary if your business owns and operates any vehicles. It covers your vehicle fleet and drivers in the event of an accident or other vehicle damage that occurs as you transport your product from place to place using owned vehicles. It provides coverage for property damage and bodily injury liability claims, vehicle damage, and medical bills, as well as any costs related to lawsuits due to auto accidents involving your vehicle fleet.
- Directors and officers (D&O) liability insurance provides protection for directors and officers of companies against legal judgments and costs arising from unlawful acts, erroneous investment decisions, failure to maintain property, releasing confidential information, hiring and firing decisions, conflicts of interest, gross negligence, and errors of many other types. It is recommended for directors and officers who are accountable to investors, shareholders, creditors, employees and customers.
- Excess liability coverage, or commercial umbrella coverage, provides liability protection above and beyond the liability coverage included in a commercial general liability and business auto policy. A commercial umbrella policy would pay when your other liability coverage has been exhausted.
Some of these can be purchased as endorsements to your CGL policy, while others might require a separate policy. All of these types of liability coverage can be tailored to the unique needs of your food manufacturing business.
Food manufacturers also need workers’ compensation insurance to protect employees from the costs associated with workplace injuries and illnesses. Your employees work in an inherently dangerous environment even if you have the most stringent safeguards in place. Your independent insurance agent can help you purchase the workers’ compensation insurance required by your state.
Focus on Product Recall Insurance
Product recalls are a risk for any manufacturer, and food manufacturers are no different. In recent years, food manufacturers are under increased scrutiny as the media and legislators have placed a great deal of attention on food safety. Product recall coverage is essential protection for food manufacturers.
If one of your products is recalled, the costs can be no less than disastrous. Some of the costs related to product recalls include these:
- Product removal costs (pulling the product from the marketplace)
- Product disposal costs
- Product replacement costs
- Communications costs, including detailing the recall to the public and government agencies, as well as continued public relations costs
- Legal fees, settlements and judgments
Product recall insurance can help you with many of these costs and perhaps even keep you from declaring bankruptcy or closing your doors. Product recall insurance typically reimburses a manufacturer for financial losses related to a product recall. For food manufacturers, this can be when a product is accidentally or maliciously contaminated and may cause bodily injury to a person who consumes it.
Product recall insurance reimburses you for these costs whether or not you were negligent in the contamination. Covered financial losses might include actual recall costs (product removal and disposal), loss of profit, product replacement, extra expenses and rehabilitation expenses.
Find Food Manufacturing Insurance Tailored to Your Business
There are numerous types of food manufacturers whose business models vary as much as their products do. For this reason, any company that engages in food manufacturing must enlist the help of an experienced, knowledgeable independent insurance agent who has experience working with businesses in the food industry. Your business faces far too many risks to entrust it to cookie-cutter coverage. You need a tailored food manufacturing insurance package that addresses your exposures with quality, comprehensive coverage from reputable insurance companies.
An independent insurance agent can work with numerous insurance companies until together you find the fight combination of coverage from a reliable company that you trust.