Insurance Issues: Crisis Response Hotlines and PRCI Policies

Insurers offer the service and encourage early intervention by professionals in a food safety event to reduce or eliminate damage.

By Ed Rhone of Parker, Smith & Feek

The insurance industry is very mindful of food safety, especially in light of the various insurance products issued to protect the businesses in the food production chain of commerce. This article discusses the effective use of the Crisis Response hotlines in the Products Recall and Contamination Insurance (PRCI) policy.

Sometimes referred as Recall, Products Withdrawal, Products Contamination or Product Adulteration coverage, these insurance policies have been developed to financially protect businesses in the food commerce chain. Most PRCI policies provide protection from accidental contamination, malicious product tampering or extortion. The policy usually provides reimbursement for the following types of expenses involved in a recall/products contamination event:

  • The cost of the recall itself
  • Income replacement to both you and your customers
  • Increased expenses Overtime
  • Testing and destruction costs
  • Media, advertising, brand rehabilitation, and public relations

However, often overlooked is one of the most powerful protections of the PRCI policy. That protection is the policy’s “crisis hotline.” This hotline connects the policyholder to specialists chosen by the insurer to provide professional guidance to an insured that has or believes to have suffered a product contamination event.

The crisis professionals are experts in testing protocols, food borne pathogens and illnesses, as well as dealing with the FDA. The crisis response team will assist an insured through the process to notify customers and suppliers up and down the food chain, as appropriate. They can assist in communications with regulatory authorities, strategize on the best approach to minimize the recall and help identify possible sources of the contaminants, which protects evidence and hopefully ends in successful recovery from the at-fault party, if any.

Often underwriters will provide premium incentives for insureds to have their crisis group preemptively review recall plans and conduct audits or mock recalls, all with the eye towards loss prevention and mitigation.

The reasons the crisis hotline is overlooked can be varied, however, one of the most prevalent reason is insureds thinking the PRCI policy has a significant self-insured retention (SIR), or deductible. Not utilizing the crisis management built into the policy because of the SIR can be a costly mistake.

The insurers want early intervention by professionals in an event to reduce or eliminate the event, which limits the insurance company’s financial responsibility. Generally, these crisis response resources are not subject to the deductible or SIR. The insurer encourages policyholders to use crisis response in the policy. As an incentive, most insurers do not apply the deductible to the use of the crisis response, as long as the policyholder uses the professionals provided by the crisis hotline. Insurance companies have determined early intervention in a contamination event greatly reduces the policyholder’s exposure.

A recent claim example may help illustrate. A food distributor had transported a product to a cold storage facility, awaiting its final shipment to the distributor’s customer in the southern part of the U.S. The product had a short sell-by date. Unfortunately, the cold storage facility experienced an ammonia leak while the product was in storage. Our client advised us of the event and we referred them to the crisis hotline in the client’s PRCI policy.

The crisis group engaged immediately, providing access to specialists in ammonia contamination and providing instruction to the policyholder on how to interact with the state and the FDA. While the other products in that cold storage had to be destroyed, our client’s product only needed to replace the outer shell packaging of the product.

The crisis responders were able to provide the best testing experts and assisted the client in presenting to the FDA, which allowed the product to be repackaged versus destroyed. The client saved not only the cost to replace its product, but eliminated reputational damage with its customer for failure to deliver.

In summary, policyholders of PRCI should look for and locate the crisis hotline phone number in their insurance policy. The hotline should be made known to the stakeholders that maybe involved in a contamination event, and to utilize that number at the early outset of an event.

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