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An Apple a Day Keeps the Doctor Away

06 Sep

Where does that phrase come from, anyway?  It appears that there is no definite answer to that question.  One writer believed it came from an ancient Roman proverb and that the Romans believed that apples had magical powers to cure illnesses.  Another source believes the phrase first appeared in a magazine published in Wales:  Notes and Queries.  The article referred to a Pembrokeshire proverb that read ‘Eat an apple on going to bed, and you’ll keep the doctor from earning his bread.”

Apple fruit

Just when you thought you were making a healthy choice, U. S. A. Today reported on 8/10/12:

“Sliced apples distributed to fast-food and grocery chains nationwide are among packaged products being recalled due to possible listeria contamination. No illnesses have been reported, but listeria was found on equipment used to produce apple products by Missa Bay LLC, owned by Ready Pac Foods Inc. of Swedesboro, N.J.  Packaged apple slices distributed to McDonald’s and Burger King in some states are included in the recall as are packaged food containing apples distributed to Wawa convenience store and Wegman’s grocery chains and some “Ready Pac” products.  Recalled products have use-by dates of July 8 through Aug. 20.  Missa Bay announced the voluntary recall on Friday, saying the food went to 36 states and the District of Columbia.

So, the salient point – who pays the cost for this?  Wawa, Wegman’s or McDonald’s?  Believe me, when you know the incredible costs of recalling a product, everyone is going to be running for the exit.  Suddenly, the purchase orders are checked by all of the various parties.  Knowledgeable retailers have distribution contracts with either the manufacturer directly or with the distributor.  Because they often receive so many products, the issues of hold harmless agreements, including recall costs, often goes unaddressed.  Ultimately, the original manufacturer will be held responsible, but if that has not been made clear between retailer, wholesaler and manufacturer, it could be happy times for the lawyers.  The reason the manufacturer will be held responsible goes back to the implied warranty inherent in product liability:  the product will be fit for its intended use.  The courts view this obligation through the lens of strict liability, which requires no negligence to be proved.  Res ipsa loquitor:  the thing speaks for itself.  If the product is received by the distributor from a non-U. S. company, the distributor will “step into the shoes” of the manufacturer.

So, what is involved in recall?  First, the product, including unit or lot number must be identified at all retail locations.  Next, the product must be removed from all consumer access.  The product must then be returned to the responsible party for testing and then either distributed back to the marketplace or destroyed.  Of course, this step also involves the cost of transportation and storage as well as the actual cost of destruction.  Clearly this involves significant payroll expenses and can also result in loss of revenue for the entire stream of distribution.  All of these costs and loss of income will be sent to the manufacturer for payment.
Notice that the question does not ask about insurance.  That is because the majority of retailers, wholesalers and manufacturers do not have any coverage for these types of expenses and loss of product.  The general liability policy does NOT respond for any of this.  The only solution available is a Product Recall policy.  Too bad that this coverage is not understood, translated to the client in a coverage offer with facts and costs included.  Since this insurance coverage is not widely distributed, the premiums remain high.  Creating a broadened marketplace, fostering competition and thereby driving down the cost of the insurance is driven by the sales of a product by producers.  Historically there has been a lot of adverse selection in this area of insurance and that will continue to keep prices high for this insurance coverage.  For any producer out there – this can be an area to have a serious discussion of risk exposure with your client.  Review their contracts and find out if there is either a transfer of risk, acceptance of risk or if there is simply nothing in the contracts about this issue.  Determine if your client is the position of reducing their risk of loss, transferring it to someone else, implementing loss control or funding the risk protection with insurance.  Bear in mind, the bad press that results from this is challenging for everyone involved and can adversely affect the company for months or years to come.  This is particularly true with food borne illness.  For the food industry, the coverage for the extra expense of advertising as well as the resultant loss of income has an extremely narrow marketplace, but there is coverage for brand restoration available.  Part of these costs can be picked up in a broad product recall policy as well.

Now that I have to be extra cautious eating apples I decided to google an alternative—french fries and vodka to see if they have had recalls or lawsuits alleging they were dangerous to your health (other than the obvious).  And to my surprise, both french fries and vodka have had their share of law suits.  So I guess the choice is ours.

Written By:

Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center
and
Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR
President Segale Consulting Services, LLC

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