Product Recall Insurance

What Is Product Recall Insurance?

Product recall insurance is coverage for the cost of getting a defective product back under the control of the manufacturer or merchandiser that would be responsible for possible bodily injury (BI) or property damage (PD) from its continued use or existence.

What Is A Product Recall?

A product recall is a request from a manufacturer or government agency to return, exchange, or replace a product after the discovery of a defect that could hinder performance, harm consumers, or produce legal issues for the producers.

Important Takeaways:
What Does Product Recall Coverage Cover?

Who Should Purchase Product Recall Coverage?

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Manufacturers

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Importers

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Suppliers

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Distributors

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Wholesalers

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Retailers

Any business that plays a role in getting a product on the market can be named liable in a lawsuit and asked to recall a product. It can cost a lot to halt production, issue notices to customers, set up a recall processing system, ship products from stores back to warehouses, and destroy or repair the damaged products. Investing in product recall insurance may help you cover some of these expenses.

Why Is Product Recall Insurance Coverage Important?

Product recall insurance is an important coverage to have because it may help you lower or eliminate the cost to remove a product. Think of it like a product recall expense coverage—it might save your business thousands of dollars and keep you from going bankrupt.

Product Recall vs Product Liability

Product recall is the action of pulling a product from the market, whereas product liability is the risk you carry for the injuries or damages a product may cause.

Both deal with isolated incidents involving an interaction between an individual and the product, however product recall means the liability of a product could be unsafe for a large portion of users and needs to be removed.

Product recall insurance coverage is not included in product liability insurance, but can be added on to your plan as an optional additional policy.

Examples of Product Recall

Product defects:

Sometimes the design of a product may be faulty, leading to broken pieces that cause cuts or damage to someone’s property. Let’s say the handle on a teapot isn’t able to withstand the weight of the teapot full of liquid. If it breaks, sharp pieces could cut someone’s hand, or hot liquid could burn skin. It could also stain clothing or carpets.

Toxic or harmful ingredients:

If your product contains a toxic substance, and that substance is accidentally inhaled, ingested, or touches skin, a customer could sustain illnesses, rashes, chemical burns, or allergic reactions. Components such as batteries, cleaning products, and nutraceuticals run the risk of containing toxic or harmful chemicals and ingredients that need to be handled with care.

Bacterial contamination:

When it comes to making something like a beauty or food product, you run the risk of raw materials, ingredients, or water used in the production process becoming contaminated. This can lead to skin irritation, illnesses, allergic reactions, and more. For example, the meat used in frozen meals has been found to carry salmonella. Or, the water used to produce a facial mist tested positive for E. coli.

Manufacturing recall:

In some instances, a product may contain parts from another manufacturer. If an outside component of your product is recalled, such as a container, locking mechanism, or food ingredient, it can mean your product may need to be recalled as well until the problem can be resolved and your product is deemed safe to use.

Mislabeling or failure to provide warnings:

There are times when a product may be produced in the same building as another product, and cross contamination could occur. This could be dangerous for people with allergies. If you fail to provide a warning on your packaging, and they are injured as a result, you could be at fault. You also need to be sure you are accurately displaying all ingredients, instructions, and advertising materials on your product. False advertising or unclear instructions could lead to lawsuits and recalls until the matter is resolved. 

Additional Resources:

  • Insurance Information Institute: Product Liability Recall
  • Investopedia: Product Recall Insurance

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