Navigating pet food recalls: insurance strategies for manufacturers
Pet food recalls may not always dominate headlines in the same way as recalls involving other products often do. But they can pose serious risks to manufacturers, including financial losses and reputational damage. That makes it vital for pet food producers to understand how insurance may apply, including the limitations of dedicated product recall insurance policies and how to minimize potential coverage gaps.
Potentially costly events
As of Dec. 2, the Food and Drug Administration (FDA) has announced 16 pet food product recalls (opens a new window) this year. The FDA announced 17 such recalls in both 2024 and 2023. Frequently cited reasons for recalls in recent years include:
The confirmed or potential presence of salmonella and listeria.
Elevated or deficient nutrient levels — for example, vitamin D, copper, magnesium, sodium, calcium, phosphorus, and aflatoxin.
The presence of foreign materials, including particulate matter and metal.
Health risks involving livestock used in food production, including cattle, chickens, and pigs.
For any manufacturer, a product recall or contamination event represents not only an operational disruption but a reputational risk event that could result in significant financial loss. For food manufacturers, the risk is particularly acute, as even a single event could damage or destroy brand loyalty among health-conscious consumers, including parents.
This risk extends to pet food manufacturers, as pet owners — who often think of themselves as “pet parents” — may be similarly inclined to change brands after an event. That’s why it’s so important that manufacturers have the right insurance coverage in place before a recall.
Product recall vs. general liability
Product recall insurance can provide an invaluable safety net for manufacturers, helping them manage commonly incurred recall expenses. These include costs associated with the retrieval, transportation, disposal, and replacement of products, and the costs to investigate or address threatened and suspected tampering.
But manufacturers must also consider how general liability (GL) insurance may apply. In the context of recalls, the two policies theoretically could work together. Product recall insurance typically covers first-party expenses, with an element of third-party recall liability coverage. GL policies, on the other hand, are designed to respond to third-party bodily injury or property damage claims.
But some events may not fall neatly into one category or the other. And without the right policy language and structures, manufacturers could face critical challenges — including situations in which neither policy will respond, leaving them on the hook for potentially costly expenses.
Consider, for example, a manufacturer facing a recall due to small fragments of foreign matter in its pet food. The contamination is discovered before the product is distributed, meaning no third-party damage occurred. The GL policy doesn’t respond, and the recall policy doesn’t trigger because the contamination doesn’t meet the FDA’s threshold for bodily harm[NM1] . In addition, quality product defect coverage is not typically included in product recall policies, although there at least one U.S. insurer offers it via endorsement.
In another instance, a meat processing company inadvertently applied an antimicrobial solution to beef obtained from a supplier, not realizing that the supplier had already tenderized the meat; the microbial solution is intended for use on unadulterated meat products. The FDA did not order or recommend a recall, and the company concluded the product did not pose a health hazard. The meat processor’s product recall insurer denied the company’s claim, stating that:
Any loss from the incident was not the result of the accidental contamination or defect of insured products as defined under the policy.
There was no resultant bodily injury or recall.
The supplier did not intentionally impair the ingredients it provided to the processing company.
Closing gaps
To avoid gaps in coverage, manufacturers must ensure their GL and product recall policies are aligned. Specifically, manufacturers should work with their insurance brokers to manuscript policies and ensure they have the right language to meet their needs. Among other things, policyholders and their brokers should also focus on:
Endorsements for foreign body extraneous matter contamination and quality product defects that do not meet regulatory thresholds for contamination. Quality product defect coverage is intended to pick up negligence — by act, error, or omission — on the part of an insured or its contract manufacturer that alters an insured product and the presence of unwanted substances or defects — such as chemicals, microbiological agents, pests, foreign materials, or inadequate packaging — arising from errors in production, preparation, manufacturing, packaging, storage, labeling, or distribution. Coverage for both foreign body extraneous matter and quality product defect are offered by select U.S. carriers.
Potential coverage triggers. Insureds and their brokers should consider adding coverage for Class III FDA recalls (opens a new window), which involve products that are not expected to cause health problems. Standard product recall policies generally provide coverage for Class I and II recalls, which involve products that could cause temporary or reversible health issues or pose a reasonable risk of serious health issues or death. Coverage for Class III recalls is included under the foreign body extraneous matter or quality product defect endorsement.
Sublimits and excess layers. These should be structured to align with an insured’s risk profile.
Choice of insurer is also key, as coverage options can vary significantly by carrier. In addition to varying premium costs, individual insurers may offer vastly different limits in product recall policies and sublimits in GL policies, ranging from as little as $100,000 to as much as $1 million. However, GL sublimits are generally limited to the cost of recalling products, if offering 1st party coverage at all. GL policies placed in the U.S. generally do not extend coverage to events outside of the U.S., U.S. territories, and Canada.
Manufacturers can better position themselves for favorable outcomes during upcoming renewals by taking steps to improve their risk profiles. Companies, for example, can strengthen their traceability programs by identifying dedicated response teams conducting mock recall drills. Manufacturers should also highlight any efforts to audit key suppliers, as this can help prevent the occurrence of recalls and contamination events, and facilitate response actions during such events.
A recall event can be devastating to a pet food manufacturer. But by understanding the nuances of insurance coverage and proactively managing risk, companies can protect their bottom line and maintain consumer trust.
