As a food manufacturer, you have so many details to manage: creating a marketable product, maintaining quality control, managing distribution methods, handling customer service, and ensuring your products are safe and enjoyable.
The last thing that may be on your mind is insurance—but it’s not as intimidating as it sounds!
1. Is Product Liability Insurance Different Than Food Manufacturers Insurance?
The simple answer is no; there is no difference between product liability and food manufacturing liability insurance. Let’s start with the easy stuff: how is food manufacturers insurance different from product liability insurance?
Product liability insurance protects businesses that sell products in the event that one of their products causes injuries or other damages to a third party. Insurance for food manufacturing is simply product liability insurance for businesses that make food products.
Now that we have that cleared up, let’s discuss some common questions that come up for food manufacturing liability insurance, such as:
- What may disqualify you from coverage
- Common claim types for food manufacturers
- Endorsements you can use to help protect your business
2. What Types Of Products Are Excluded From Food Manufacturer Insurance?
It is not so much that products will be excluded, it is more about defining eligibility for the insurance policy. A large aspect is seeing if the insurance carrier will be willing to write the liability coverage on products you produce, sell, or distribute.
If you manufacture a product that a carrier is unwilling to cover, or use ingredients they are not willing to cover, they will most likely deny your application for coverage.
Some carriers may expressly exclude certain product types or ingredients, causing them to only insure some of your products but not all. This is done through a form called the Designated Products Exclusion.
Types of food products or ingredients that are hard to find coverage for include:
- Products containing CBD (although we have coverage specifically for CBD products)
- Baby or children food
- Energy drinks
- Imported Dairy, Produce, or Meat
- Chicken, Poultry, and related products (fresh, frozen, or canned)
- Seafood products (fresh, frozen, or canned)
- Businesses preparing food for industrial use (such as airlines or cafeterias)
The reason they may not be willing to accept the liability on these types of products is due to their propensity for loss. These types of products have a high likelihood of causing a claim, the intended audience has a higher exposure rate, or the claims history may be much more severe than others.
3. Common Claims Food Manufacturing Liability Insurance May Help With
As a food manufacturer, you are responsible for making and distributing products that are safe. In the event that your product injures someone, you could be held liable. Some common food manufacturing liability insurance claims are:
Mislabeling – Mistakes happen even with the strictest quality control procedures. Leaving out a seemingly innocuous ingredient, not clearly stating allergy considerations, or providing clear preparation instructions can result in severe allergic reactions, food-borne illnesses, or death.
Tampering or adulteration – It is unfortunate that people with malicious intent may tamper with your product after it is out of your control, such as during shipment or even when it is on a retailer’s shelf.
Faulty Product – Even the best products can fail regardless of the amount of testing and design put into making it. As a food manufacturer, there are several inherent risks to think about. Perhaps your product is packaged but the packaging is faulty, or the product is contaminated in some fashion during production and causes illness. The bodily injury damages can be expensive and potentially include multiple claimants, costing businesses thousands of dollars to remedy the incurred losses.
A unique food manufacturer’s insurance claim example we recently handled involved a Kombucha manufacturer.
This insured made several types of Kombucha. For those that may not be familiar, this is a fermented non-alcoholic beverage that has become popular due to perceived gut health-related benefits. This company followed all packaging instructions to their knowledge and industry standards.
The claim occurred when a box of Kombucha was dropped and exploded under the pressure caused by the natural fermentation of the product. It is not the same as carbonation but similar in that it builds up pressure in the packaging.
When this product exploded, a shard of glass went into the claimant’s eye, causing severe bodily injury. What further compounded this claim is the claimant was already visually impaired in the other eye. This unfortunate occurrence essentially left the claimant completely visually impaired, all just a few days before his wedding.
This claim ended up totaling $1 Million dollars and is a really good example of a situation where everything is “done correctly,” but still a really unfortunate situation occurs and causes severe bodily injury.
Most businesses could not afford to pay out $1 Million dollars due to liability, so it is a good thing they had food manufacturing liability insurance.
4. Important Coverages For Food Manufacturers Insurance
Now let’s discuss some endorsements, also known as additional coverages, that are important for product liability insurance or insurance for food manufacturing.
An endorsement is a part of an insurance policy that alters the base policy. An endorsement can add or remove coverages and you as insured should read those carefully.
Insurance policies can seem overwhelming at times, and that is where a licensed and trained agent can help you make sure you are protected.
Two of the most common endorsements for food manufacturers insurance include:
Additional Insured: One way to manage your risk is to request businesses you conduct business with or receive products from to add your company as an additional insured. That way, you can transfer the risk associated with their products back to them.
For instance, if you purchase products from a supplier and one of those products is found defective or not safe, you could be held liable if a product you manufacture incorporates that defective product and thereby causes harm to someone. If you are named as an additional insured on their product, you are better protected from that liability.
An example of this is a packaging supplier. If your products are packaged in their cans or bottles for instance, and something is defective with that can or bottle, then it could cause damage like the explosion mentioned above or just render the product unsafe for consumption.
If you did not have your business named as an additional insured, you could be held liable. If you practice proper risk management and obtain a certificate of insurance naming your business as an additional insured, then you are better protected.
Product Recall/Product Withdrawal: One type of risk all food manufacturers face is the risk your products are deemed unsafe after they are already on the shelves. In this instance, you would need to recall or withdraw your products.
There are costs associated with this necessary action. A typical product liability insurance policy would not have this coverage however it can be added to the base policy in an endorsement or can be purchased separately depending on your business needs.
There are several other types of endorsements that can be added to your base policy to provide a comprehensive insurance solution. Since there are so many, we encourage you to seek the guidance of an experienced, licensed agent.