Businesses that operate within the food industry on an ongoing basis, such as restaurants, concessions, caterers, food trucks, groceries, and schools, are well aware of the need for additional coverage for food spoilage or food contamination. However, businesses with only an incidental exposure to food risk may not be fully aware that the standard property policy may not provide coverage for this exposure. For example, a small antique shop that has a coffee bar and sells homemade pastries; or an insured who takes in local farmers' tomatoes for packaging before being distributed to grocers. Those insureds who deal with food manufacturing, processing, preparation, packaging, delivery, distribution, storage, or sale have exposure to food contamination. Food contamination incidents are common, as food may be contaminated with bugs, parasites, chemicals, bacteria or virus, any of which can cause illness, and food products can become contaminated at any stage, even when they are simply being stored or during delivery.
The Food and Drug Administration (FDA) oversees most of the nation's food supply, and it regulates all domestic and imported foods except meat, poultry and eggs (these are overseen by the U.S. Department of Agriculture). The Food Safety Modernization Act gives the FDA the power to prevent and respond to foodborne illnesses, with broad authority in its oversight extending to mandating comprehensive controls across the food supply, inspecting food producers and processors, and requiring food recalls, among other things.
A food contamination incident can impact businesses in a number of ways leading to financial or reputational loss. This may include costs to destroy or dispose of contaminated products, costs associated with the recall of products that may already be sold, required shut-downs of operations, or third-party injury claims from individuals who have been injured or become ill, or claims from businesses who used a contaminated product in another product. When a business has a contamination incident it will more than likely lead to people being wary of continuing with this business for months or even years to come, leading to substantial business income loss and enormous costs to restore consumer confidence.
For businesses with food exposures, the BOP offers endorsement BP 04 31, the Food Contamination Endorsement. This endorsement provides an additional coverage for food contamination. If the insured business is ordered closed by the Board of Health or any other governmental authority as a result of the discovery or suspicion of food contamination, the current edition of this form will pay the expense to clean equipment, the cost to replace contaminated or suspected to be contaminated food, medical tests of vaccinations for potentially infected employees, the loss of business income if operations are suspended, and additional advertising expenses incurred to restore the insured's reputation.
A limit of $10,000 is provided, except for advertising expenses, which carries a $3,000 limit. Higher limits can be purchased and indicated in the schedule. Fines and penalties levied by the Board of Health or other governmental agencies are not covered. The virus or bacteria exclusion does not apply to this endorsement.
From a product liability perspective, if the named insured's product causes damage to a customer's equipment, the product exclusion would not be applicable to this claim since the exclusion applies only to damage to the named insured's product, not damage that the product causes to another's property.
The recall exclusion and the impaired property exclusion are both applicable. The recall exclusion applies to damages claimed for any loss, cost or expense incurred by others for the replacement or removal of the named insured's product if that product is withdrawn from use due to a defect or deficiency. For example, if an insured's fruit pies were accidentally made with contaminated fruit and as a result the insured had to recall all of the pies that had been distributed to businesses, there would be no coverage for the expense those businesses incurred to remove the insured's contaminated pies and replace them with a replacement product.
The impaired property exclusion is applicable since it applies to property damage to property that has not been physically injured arising out of a defect or deficiency in the named insured's product. The same example would apply to this exclusion, as there is no physical damage to the insured's pies. Therefore, both of these exclusions are going to prevent coverage for this particular damage claim.
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