Much can go wrong in the food business. Food can be contaminated at any point along the entire food distribution chain: from the farmer, to the distributor, to the end user including restaurants, grocery stores, and home cooks. Contaminated food can cause foodborne illnesses which can result in criminal liability (not the subject of this post) and civil legal liability. To read more about legal causes of action for foodborne illness related injuries, check out this past post.
Although no farmer likes to think about the worst-case scenario —the food you grew or produced making people ill—every farmer should consider whether he or she has adequate insurance coverage if a foodborne illness is found to be caused by the farm’s products. A farmer should begin by assessing his or her existing insurance coverage and asking the insurance carrier about what is covered for a foodborne illness incident. If a farmer only has commercial general liability (CGL) insurance, purchasing product liability insurance which protects farmers and others in the chain of distribution from the costs associated with producing a faulty product (in this case, contaminated food), may be necessary.
According to an article in Food Safety Magazine, the following are typical gaps in coverage to consider when assessing insurance coverage for contaminated food:
1. A mold/bacteria/fungi/contaminant exclusion. This exclusion means an insured may not be covered if food contains any of the listed contaminants. If your CGL policy has this exclusion, consider the possible contaminants which could affect the food in your chain of distribution—from the farm to the end user—and ensure that your CGL policy protects against it. This can include contamination from E. Coli, listeria, salmonella, parasites, and general mold or other toxins that grow on food.
2. A single occurrence vs. multiple occurrences. Understand how your insurance policy defines a contamination occurrence and the impact of coverage limitations for a single occurrence vs. the total or aggregate number occurrences. For example, if a farmer has insurance coverage of $1 million for a single occurrence and $5 million of aggregate coverage, and produces a contaminated lot of produce which causes multiple consumers to fall ill, what is the occurrence? Is growing the lot of produce a single occurrence or is the distribution to each consumer a separate occurrence? If growing the lot of produce is considered the single occurrence, the single occurrence coverage may not adequately cover legal damages brought by multiple injured parties.
3. Exclusion of your farm’s negligence. Make sure to ask your insurer whether you are covered for injuries caused by your farm’s negligence. Some insurance policies exclude injuries caused by the holder’s operational negligence (referred to as a “your work” exclusion). This means if your farm’s negligence caused the contamination, you may not be covered.
4. Understand your coverage in a recall. Ask your insurance company about what, if any, insurance coverage is available during a recall. In some instances neither CGL nor product liability policies will cover the costs of a food recall. Make sure you consider not only the direct costs of recalling food products but also the indirect costs. For example, do you have any coverage for business interruption? If you do have coverage for a recall of your farm’s products, make sure you understand the notice which must be given to the insurance company. Understanding how and when notice must be given to an insurance carrier is vital to receiving full coverage.
Insurance is an important risk management tool. Just like any risk management tool, however, it must be customized for each operation to ensure it adequately reduces risk and serves its intended purpose. Discuss your insurance coverage with both your insurance agent and attorney to be sure you are properly covered for injuries caused by foodborne illness.