If a Hollywood screenwriter was shopping around a script called“Eating Dangerously in America,” you might associate it with a newreality TV show. Sadly, however, that title can be used toillustrate a new reality for many businesses feeling the effects ofthe massive international recall of peanuts last year.

The result was one of the largestfood recalls this country has ever experienced–prompted by thediscovery of salmonella linked to products from Peanut Corp. ofAmerica. Those peanuts are alleged to have sickened more than 690people in 46 states, killed nine, and resulted in the recall ofnearly 3,900 peanut products.

While the enormity of this recall is striking in terms of thewidespread effect it had on people and businesses, even more so isthe fact that PCA supplied a mere 1 percent of the nation's peanutproducts. Conservative estimates place recall costs for the foodindustry at well over $1 billion.

While the damage caused by these tainted products sickenedpeople and wreaked havoc on the nation's food supply system, italso had detrimental effects on global food supply chains.

Following closely on the heels of the PCA recall was the morerecent Setton Farms pistachio recall. Companies that used SettonFarm's pistachios in manufacturing their products will also have toconduct voluntary recalls.

In addition, like the PCA fiasco, the Setton Farms recall isalso international in scope, since potentially contaminatedproducts were exported to other countries.

It's important to understand that a recall affects far moreproducts than it might seem at first glance. There are thousands ofpeanut-related products, many of which are staples in the diets ofaverage Americans.

Big companies are not the only ones troubled by these recalls,as companies in food-related industries of all sizes risk grievousharm to their reputation, brand equity and their bottom line.

Unfortunately for some companies dealing with potentiallytainted food products, it will be their last recall because theywill use all their financial resources in dealing with such acrisis.

However, whether a company dealing with the recall is a nationalproducer of food products or a local caterer, each is at risk inthe context of the global food supply chain.

There are many potential reasonsfor the increase in food-related product recalls and the expandedscope of their impact on the local, national and global food supplychain. It's no wonder local food producers are experiencingbusiness and profitability challenges.

Given the globalization and complexity associated with the foodsupply chain, the centralization of food manufacturing anddistribution processes, and the increased appetite for processedand raw foods, small businesses have a particularly difficult timenavigating the food system.

Even with the resources that larger companies have, there aremany hurdles and challenges to consider–such as the presence ofpharmaceuticals in the water, global warming and evolvedpathogens.

Companies large and small find these challenges and theirfinancial impact particularly difficult to swallow.

The costs involved in cases of food-borne contamination, forexample, are staggering. Food-borne diseases cause an estimated 76million illnesses, 325,000 hospitalizations and 5,000 deaths eachyear in the United States. The U.S. Agriculture Department'sEconomic Research Service estimates the annual cost due tofood-borne pathogens is in the range of $6.6-to-$37.1 billion.

Another related cost to the food industry is product liabilitylitigation. Indeed, over the past several years, there has been asteady increase in the number and variety of product liabilitylawsuits.

The risk of such lawsuits is present not only for companiesinvolved in the food industry but also for firms that source andsupply goods within the United States and around the world. Intoday's global economy, products purchased by Americans are oftenfully supplied or contain components grown, packaged ormanufactured in locations around the world.

And the inherent risks and quality controls required to manageglobal supply chains are numerous. Fully identifying these risksand understanding how they impact a company's supply chain controlsshould be a top priority of management and include feedback andbuy-in from all levels of the organization.

While risk profiles vary greatly, based upon a company's overallproduct mix, distribution channels and strategies, all companiesneed to put quality control-procedures in to place.

Some key factors to consider when establishing an effectivequality control process include:

o Planning and strategy (proactive preparation)

o Contracts, enforceability by jurisdiction, records retentionand documentation

o Recall process (a formal written plan, widelydisseminated)

o Incident investigation

o Crisis response and process management

o Media communication

o Employee communication

o Regulatory notification

o Broad and tailored insurance coverage

Companies that develop and implement various aspects of thequality-control process should consider establishing across-functional team, including individuals with specializedexpertise and a range of responsibilities.

These individuals should include representatives from thefollowing corporate functions: product procurement, distributionmanagement, legal, risk management, treasury, human resources andaccounting, as well as corporate communications.

Members of the cross-functional team should be positioned todiscuss exposures, required controls, standards,regulatory/compliance, available resources and contractualprotections.

A key aspect of the proactive risk management of productliabilities is the management of contractual relationships andpurchasing appropriate levels of insurance coverage andcapacity.

Understanding and verifying contractual obligations betweensuppliers, distributors and end users can be confusing for anorganization. The ability to verify the certification of adequateand appropriate insurance coverage can often be achieved withU.S.-based companies, but foreign firms may be challenged and oftenstruggle to meet these standards.

Vendors or additional insured coverage grants are oftenunavailable. Indemnification agreement language varies widely andoften is unenforceable in many jurisdictions.

Most often the strongest contractual protection available issimply securing the insurance coverage. (See the accompanyinginfographic for the various insurance coverages firms shouldconsider.)

However, it is important to recognize that not all insurancepolicies and insurance companies are created equal. An importantconsideration is the financial stability of the insurance providerand partners in the supply chain.

Product liability claims can arise over a broad period oftime–therefore the long-term financial strength of the insurancecarrier is critical.

Standard general liability contracts include coverage for thefirst named insured's product liability exposures. It is important,however, to understand the level of coverage provided and wherepotential gaps in coverage may exist, based on a company's internalassessment of risk factors.

The breadth of insurance coverage available in the market todayvaries greatly from one insurance carrier to the next. Companiesshould seek to understand this diversity and partner with insurancecarriers with strong underwriting, claims and risk controlexpertise.

In conclusion, the continued expansion of the global economy andsupply chain requires all companies, whether large or small, toremain vigilant in their efforts to understand their exposures torisk and proactively manage it.

There are many activities companies can undertake to minimizeand mitigate these risks. For risks that cannot be fully mitigated,the risk must be assumed or transferred by way of insurancecoverage.

An important next step for those companies interested intransferring the risk is to wisely select the insurance broker andcarrier that can best meet their needs.

Joseph F. Bermudez is an attorney with CozenO'Connor and a member of the Global Insurance Group. He leads theFood Contamination and Product Recall Coverage Practice Area.Mitchell Schmidt is senior vice president, customcasualty for ACE USA, based in Philadelphia, Pa.