Risk Profiles: Product Recall

Any manufacturer has a host of risk exposures related to their products, and there should be formal and active program in place to mitigate those risks, and be prepared in the event they have to correct a deficiency or safety issue, and mishandling it could be costly.

In some cases, the solution may be to replace a component of the product.  Last year I purchase a snow blower from Home Depot, and this year it was flagged for a defective part, that require the consumer notify them and they would ship a replacement part to correct the deficiency.

In other cases involving safety, the solution may be a product recall, whether initiated by the manufacturer themselves, or in some cases by court of legal order.  The U.S. Consumer Product Safety Commission maintains a list of products that have been recalled in an effort to spread awareness to the general public.  The whole purpose of a product recall is to protect the public and avoid potential liabilities that could lead to litigation, in some cases class action litigation.

Some of the most famous product recalls involved the Ford Motor Company recalling 1.5 million Pinto’s in 1978 for fire risks, Tylenol’s 1982 recall of medication after product tampering led to 7 deaths in the Chicago area, and the 2006 recall of millions of cellphone and electronic device batteries for overheating by numerous companies.

For manufacturers, having a product recall plan in place is key, it will save time and capital to do so in the event a recall is required, and mitigate the risks.  For companies that have not yet developed a recall plan, there are resources available.

Along with other insurance coverages, manufactures need product liability coverage to transfer product risk through insurance, however an unendorsed standard liability policy will not contain coverage for product recall, without a special endorsement that cost would be bore by the company.  The decision to purchase product recall coverage may largely be driven by the exposure, where some manufacturing greeting cards on a regional level might not want to bear the expense of product recall coverage given the low nature of the risk, while someone manufacturing children toys on a national level would certainly want to make sure they had product recall coverage.

In any given year, there are 4000 to 5000 products recalls in the United States.  For manufacturer’s, mitigating the risk of recall starts with research and product development, and continues with active risk mitigation after products are delivered to markets.  If you are a manufacturer and would like to discuss the risk exposures and commercial insurance programs contact our office at (907) 274-4142, we currently work with a number of various manufacturers in Alaska and the western states region.