How food product companies can mitigate and manage losses from a food safety crisis

A contamination event involving listeria, salmonella, or E. coli or another major food safety event can have immediate and far-reaching impacts for produce companies. Beyond the immediate threat to public health, businesses face costly recalls, reputational damage, regulatory scrutiny, and potential litigation. If not properly managed, a single event could have devastating financial consequences.

A well-defined response plan and understanding of the role of insurance are key to minimizing the fallout for potential food safety crises. Here are the essential steps produce companies should take to effectively manage risk and expedite recovery.

1. Immediate response and containment

Once you become aware of an event, activate your food safety and crisis response plan. It’s critical to have a crisis management program in place — with pre-vetted public relations partners, including crisis management consultants — before an event occurs.

A crisis management plan should identify a dedicated crisis team and include contact information, communication/process protocols, and procedures for handling various crisis scenarios, and should address activation, deactivation, and business continuity considerations. Regular desktop exercises and simulations that incorporate lessons learned from past events can help you train your team and refine your response strategy.

Identify any affected product lots, halt associated production lines, and isolated affected product, immediately removing it from the supply chain. And notify downstream partners that could be affected, including distributors, retailers, and foodservice clients.

2. Communication and regulatory notification

It’s important to quickly notify relevant regulatory authorities, including the Food and Drug Administration and U.S. Department of Agriculture as required. It’s also vital to be transparent with business partners, internal teams, and crisis management consultants, who should be notified of an event as soon as possible.

Avoid the temptation to stay silent — failing to address a crisis can damage public trust and lead to speculation. Proactive, accurate communication is always better than “no comment.” If a contamination event — and potential subsequent recall — affects consumers directly, work with your communications and legal teams to issue a press release or make a public statement.

3. Traceability and root cause investigation

Conduct a full trace-back analysis using lot codes, supplier records, and production logs. Determine the source of contamination — for example, supplier error, facility sanitation failure, or packaging flaw. Document your findings thoroughly to be shared with regulators, customers, and insurers.

4. Recall execution and recovery

Follow documented procedures to swiftly execute a recall plan. Collect, dispose of, or quarantine affected products as appropriate, and record volumes, locations, and disposal procedures for claim documentation.

5. Business continuity and interruption management

Assess how long operations will be disrupted and identify alternate production lines or co-packers. Communicate with customers about order delays or substitutions. And begin a business impact analysis to project financial loss.

6. Legal review and risk transfer

Consult your legal counsel on liability, customer contracts, and claims from downstream partners. Evaluate contractual indemnity obligations and suppliers’ insurance coverage.

7. Post-event analysis and risk improvement

Review your incident response to identify gaps or breakdowns in protocol. Based on lessons you learn from an event you can update your food safety plan, hazard analysis critical control point procedures, and supplier qualification processes. And you can introduce new measures to help reduce the likelihood and severity of future food safety incidents, improve your resilience, and reduce your dependency on insurance payouts. These include:

• Rigorous verification and audits of suppliers for food safety compliance.

• Robust sanitation and environmental monitoring, including frequent pathogen testing in facilities.

• Regular employee training on hygiene practices, cross-contamination prevention, and recall procedures, along with mock recall simulations.

• Redundancy and contingency planning, including maintaining backup suppliers, alternate production sites, and redundant inventory tracking systems.

• Traceability technology, such as barcoding or blockchain systems to enhance visibility and response speed across the supply chain.

9. Insurance considerations

Having the right insurance coverage in place can help fund your response, protect your balance sheet, and reduce liability exposure. Key areas to evaluate include:

• Product recall/contamination insurance, which covers recall costs, including disposal, transportation, and loss of inventory, loss of gross profits, replacement and cleanup, investigative testing, and third-party recall liability.

• Business interruption insurance, which covers lost income and extra expenses due to operational shutdowns.

• General liability and product liability, which protects against third-party injury or property damage claims.

• Crisis management services, which are included in some policies, and can provide public relations support and regulatory response assistance.

• Traceability costs, for which policyholders may be reimbursed under certain endorsements.

• Defense costs, which many liability policies cover.

Work closely with your insurance broker to review limits, exclusions, and endorsements regularly, especially after an incident.

Ensuring your readiness for a crisis event

A food safety crisis can be a defining moment for a produce company. Acting quickly, maintaining clear communication, and having the right protections in place are critical to managing the loss and restoring confidence. Preparedness — including the use of public relations professionals, desktop simulations, and a robust crisis management program — helps ensure a coordinated, confident response.

For support in building or reviewing your crisis response plan and coverage, contact your Lockton risk advisor or insurance broker.