Lloyd’s Reminds Companies on Importance of Recall Coverage

January 4, 2006

A bulletin on the Lloyd’s Web site (www.lloyds.com) reminds companies of the importance of having sufficient coverage in force to handle potential recalls of the consumer products they sell.

Lloyd’s interviewed Mark Kendall, a lawyer with Reynolds Porter Chamberlain (RPC), who stressed that “companies should make sure that they have appropriate insurance in place to cover all circumstances. He warned that when a recall is not essential on health and safety grounds the costs associated may not be covered by insurance. But, some policies give a broad coverage and in circumstances where this is not the case, brand protection cover can be bought as an extension.”

David Constable, active underwriter of Lloyd’s syndicate 386, noted that companies are becoming increasingly concerned about the image associated with their brands. He cited a recent U.K. case involving the recall of Wallace & Gromit coffee mugs, which were supposed to change color but didn’t. The recall is unusual because it was made on non-performance, rather than health and safety grounds.

Research by RPC found that product recalls in the UK rose 16 percent over the last year, with 166 product recalls recorded in the year to October 2005, compared to 143 in 2004.

Kendall commented: “This dramatic rise in product recalls is caused, in part, by the increasingly litigious environment in which businesses now operate. Whereas product recalls were once seen as the absolute last resort, the fear of becoming involved in any crippling compensation claims is leading firms to recall products where there is only the slightest chance of there being a liability.”

He also noted that although recalls can be costly, they are usually less expensive, both financially and in reputational terms, than compensation claims that might result if the product is proved to be dangerous and the company negligent.

He added that the number of product recalls could be set to rise further due to new regulations – specifically the “Product Safety and Food Labelling Regulations,” which are expected to “greatly increase the burden on manufacturers.” Continuing, Kendall observed: “They now have to be able to source all the ingredients that go into their products and list even the tiniest amounts of allergens that may be in them. The Government also now has the power to force a firm to recall one of its products if it believes there is a health and safety risk.”

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