brian todd, the food institute robert d. chesler, anderson ... · robert d. chesler, anderson kill...

Moderator:

Brian Todd, The Food Institute

Presenters:

Robert D. Chesler, Anderson Kill

Laura Marsella, AIG ,

This webinar is sponsored by:

H D i d C Harry Davis and Company

Harry Davis & Co. has over 60 years of auction and appraisal history in the D i F d B M hi T l C t ti d th j i d t i L t Dairy, Food, Beverage, Machine Tool, Construction and other major industries. Let us put three generations of experience to work for you. Contact: 412-765-1170 or [email protected] for more information.

Speakersp

Robert D. CheslerShareholder with Anderson Kill

Robert D. Chesler is a shareholder in Anderson Kill's Newark office. Mr. Chesler represents policyholders in a broad variety of coverage claims against their insurers

d d i i ith t t th i i M Ch l i l and advises companies with respect to their insurance programs. Mr. Chesler is also a member of Anderson Kill's Cyber Insurance Recovery group.A leading participant in the birth of modern insurance law in the early 1980s, Mr. Chesler has earned the reputation as "The Insurance Guru" for exceptional insurance coverage knowledge, and has emerged as a leader in such new areas of insurance coverage as cyber-Insurance, D&O, IP, privacy and "green" insurance.

Mr. Chesler has served as the attorney of record in more than 30 reported insurance decisions, representing clients including General Electric, Ingersoll-Rand, Westinghouse Schering Chrysler and Unilever as well as many small businesses Westinghouse, Schering, Chrysler, and Unilever, as well as many small businesses including gas stations and dry cleaners. He has received numerous professional accolades, including a top-tier ranking for Insurance Litigation: New Jersey in Chambers USA: American's Leading Lawyers for Business, which dubs him a "top-notch attorney" and "dominant force in coverage disputes." He is also listed in The Best Lawyers in America, Super Lawyers and Who's Who Legal in the Insurance and Reinsurance section of the publication.

Speakersp

Laura Marsella M.S., REHSRisk Consultant for AIG

With over 30 years of food safety, quality & regulatory compliance and with managerial experience, Laura brings hands-on knowledge and g p , g ginsight into foods, ingredients, and chemical manufacturing industries. Laura hold a bachelor’s degree in chemistry, a master’s in management science and a post graduate certificate in technology management. She also has numerous certificates in food safety and is a registered y genvironmental health specialist (REHS/RS). Other areas of proficiency include GFSI –SQF and HACCP implementation and auditing as well as issues in the Food and Beverage industry around OSHA & EPA/ DEP regulatory requirements and training. Laura is versed in timely and relevant food regulatory areas including the Food Safety Modernization Act directives, organic and NOP requirements and issues around California’s Safe Drinking Water and Toxic Enforcement Act (Prop. 65).

Upcoming Webinarp g

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Laura Marsella M S REHS

Food and Beverage Contamination Insurance

Laura Marsella, M.S., REHSAIG Casualty Risk ConsultingDecember 1, 2015

AIG is requesting confidential treatment and the information is being submitted pursuant to 12q g g pU.S.C. §1828(x). AIG further that it be notified pursuant to FRBNY policy if the FRBNY is requested to disclose any information that AIG has shared with the FRBNY in its capacity as banking regulator and requests that it be afforded an opportunity to object todisclosure.”

STRICLY CONFIDENTIAL AND PROPRIETARY, FOR INTERNAL USE ONLY

Food and Beverage The changingFood and Beverage-The changing landscape.

Industry of constantly changing regulatory environment

Ever more stringent regulations will result in more “contamination” incidents.

Social media driving behavior change; what once took days now takes minutes! y

2

Globalization and Food Manufacturing RisksGlobalization and Food Manufacturing Risks.

3

The costs associated with product contamination

Product Recall ExpensesContaminated Product

Product Recall & Redistribution

Business Interruption

Product Unavailability

Decontamination Downtime Product Recall & Redistribution

Product Destruction

Crisis Management Consultants

Government Action

Brand Damage

Loss of Contract

Product Contamination

3rd Party InjuryLegal fees

3rd Property Damageega ees

Medical bills

Lost wages

Repair or removal of product

Physical damage or loss of use

Financial loss

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Optional disclaimer area – i.e. FOR INTERNAL PURPOSES ONLY

Lost future earnings

Possible legal judgments

What is being Covered?

Depending on the specific policy, contamination

What is being Covered?

p g p p yinsurance will reimburse the insured for its loss, including business interruption, recall expenses, rehabilitation expenses consultant and advisor costs caused orexpenses, consultant and advisor costs caused or resulting from any of the following insured events of,

• Accidental Contamination• Malicious Tampering• Product Extortion

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Accidental Contamination

• Accidental or unintentional contamination, or mislabeling

Accidental Contamination

g[...] or any adverse publicity [if purchased]

• Occurring during manufacturing processing storage or• Occurring during manufacturing, processing, storage or distribution.

• Provided that use or consumption would result in clear, identifiable, internal or external, visible physical symptoms of bodily injury, sickness, disease or death y p y j ywithin 365 days following such use or consumption [or would cause physical damage to tangible property].

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Malicious Product Tampering• Actual, alleged or threatened • Intentional, malicious and wrongful alteration or

contaminationcontamination• Caused by anyone including employees• Renders product unfit or dangerous for use or p g

consumption or creates this impression with the general public

P d t E t tiProduct Extortion• Threat or series of threats to commit malicious product

tamperingtampering• For the purpose of demanding ransom monies• Must be communicated to the insured

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Third Party Recall Expenses• Extends coverage to costs beyond the insured’s own costs• Provides coverage only for recall costs incurred by the

y p

insured’s customer• Insurer pays the insured for a customer’s recall costs not to

exceed the recall costs the insured would have incurredexceed the recall costs the insured would have incurred • Third party recall costs are limited to the insured’s costs and

not retail costs• Triggers

• Recall, removal, recovery of possession or control, withdrawal or disposal of, purposeful destruction of insured product from or by a distributor, purchaser,

t il h l l f i d d tretailer, wholesaler, or user of insured product• Use or consumption resulting in bodily injury [or property damage] or• Use or consumption thereof poses actual or imminent danger of resulting in bodily

injury [or property damage]

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injury [or property damage].

Examples of Third Party Expenses• Costs to notify others including print, radio, television and

internet

Examples of Third Party Expenses

internet• Costs to transport products from purchaser, distributor

back to insuredC t t di f d t i d d t l• Costs to dispose of or destroy insured product less salvage

• Costs to rent additional warehouse or storage space• Costs to utilize personnel other than employees• Costs for overtime wages to regular employees for work

devoted to covered incidentdevoted to covered incident• Incidental costs incurred by such personnel and

employees in connection with covered incident

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Third Party Liability• Extends coverage to damages that the insured is required to pay a

distributor, purchaser or user because of a contractual relationship.• Covers insured’s defense costs• Customer’s damages including, but not limited to:

• Business interruption• RehabilitationRehabilitation• Consultant costs

• Triggers for Third Party Liability• Recall removal recovery of possession or control withdrawal or disposal of• Recall, removal, recovery of possession or control, withdrawal or disposal of,

purposeful destruction of insured product from or by a distributor, purchaser, retailer, wholesaler, or user of insured product.

• Use or consumption has resulted in bodily injury or property damage orU ti th f t l i i t d f lti i b dil• Use or consumption thereof poses actual or imminent danger of resulting in bodily injury or property damage.

• Property damage means physical injury to or destruction to tangible property other than insured product.

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Intentionally Impaired IngredientsEndorsements Intentionally Impaired Ingredients

Covers the contamination or impairment of an insured product which occurs due to an ingredient supplied to the insured where such contamination or impairment was intentional and wrongful, but not malicious.

Product RefusalProtects against the refusal of an insured product during a scheduled delivery because of a report to the public that product could cause bodily injury or because of bodily injury that has been caused by a similar product.y p

Impaired Property Endorsement• Important coverage if you are a component or ingredient manufacturer. • Impaired property is a third party's product that cannot be used or is less useful because it p p p y p y p

incorporates your component or ingredient that is known or thought to be deficient and can be restored by repair, replacement, adjustment or removal of your component or ingredient.

• Trigger for Impaired Property is that your ingredient or component potentially has made another product less useful (coverage offered ONLY if your ingredient can be removed)another product less useful (coverage offered ONLY if your ingredient can be removed).

Government RecallCovers a recall due to a government mandated or suggested recall even in the absence of actual contamination.

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Third Party Recall Expenses &Third Party Recall Liability

And of course…the Exclusions!

• In many forms - carcinogens GMOs BSE/TSE BPAIn many forms carcinogens, GMOs, BSE/TSE,BPA• Intentional acts or omissions that insured knew or

should have known could lead to a covered incident • Decomposition decay or transformation of chemical• Decomposition, decay or transformation of chemical

structure of insured product• Dishonest, willful, fraudulent or criminal or malicious act,

error or omissionerror or omission• Pre-existing condition prior to inception of policy• Government fines or penalties

C t t d i d i d t i• Costs to design or redesign product or processing

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Where’s the beef? Horse meat substituted for beef. Food fraud

And the reported incidents!

scandal in Europe. A single manufacturers claim exceeds $10 M.

Not that hot! Salmonella found in a pepper sold to food manufacturers Total claim exceeds $40 Mmanufacturers. Total claim exceeds $40 M.

Too much fat. Heating oil from chocolate kettle contaminates chocolate sold to a third party manufacturer. Loss exceeds $10 M.

Some plastic with those fries? Golf balls contaminate french fries. Claim exceeds $5 M.

If Omega 3 is good for you why not this? Banned antibiotic found in imported seafoodIf Omega 3 is good for you, why not this? Banned antibiotic found in imported seafoodfrom China. Claim exceeds $2 M.

Get my Epi pen…quick! Undeclared allergen in snack food. Claim exceeds $1 M..Extra iron, please? Metal particulate found in processed milk. Claim exceeds $5 M.

The downside of long shelf life…spores germinate in juice boxes, millions of units

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g p g j ,recalled; production line closed for 3 weeks. Loss exceeds $10 M.

Buying Insurance: frequency or severity

$

Risk transfer or Risk Management

G l ti

Severity

General operating expenses

Frequency

www.aig.com/novi

Product Recall Checklist

Does your recall plan actually explain how you will remove products from stores – amazingly many don't! Are all the contact details in your recall plan up-to-date? Ensure your plan is tested during 2015 in a recall simulation (not just a

traceability test). Can you trace your products, ingredients and components forwards and

backwards giving 100% reconciliation within a matter of hours.g g Check that your consumer care line is aware of the escalation process for

serious and product safety related complaints. Does your plan include a system for placing ads in newspapers, client calls,

consumer calls - media buying.consumer calls media buying. Check that your own or contract laboratories are accredited to carry out tests

to detect your most likely contaminants. Make sure you understand the impact social media may have on your

business during a product recallbusiness during a product recall. Ensure your recall team or supporting personnel understand risk assessment

to ensure appropriate and proportionate decisions are made. Do you know about the official reporting requirements in countries outside

your own?

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your own?

American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries and jurisdictions. AIG companies serve commercial, surplus institutional and individual customers through one of the most extensive worldwide property‐casualty networks of any insurer In addition AIG companies are leading providers of life insuranceinstitutional, and individual customers through one of the most extensive worldwide property casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.

AIG is the marketing name for the worldwide property‐casualty, life and retirement, and general insurance operations of American International Group, Inc. Products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Not all products and services are available in every jurisdiction, and insurance coverage is governed by actual policy American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property‐casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.

THE FOOD INSTITUTE WEBINAR

D b 1 2015December 1, 20151:00 PM ‐ 2:00 PM EST

Insurance to Protect Your Food Business Presenter:Your Food Business Presenter:

Robert D. Chesler, [email protected]

Di l iDisclaimerThe views expressed by the participants in this program are not those of the participants’ employers, their clients, or any other organization. The opinions expressed do not

tit t l l d i i k t d i Thconstitute legal advice, or risk management advice. The views discussed are for educational purposes only, and provided only for use during this sessionprovided only for use during this session.

21058271v1 © 2015 Anderson Kill P.C. All Rights Reserved.

Speaker

Robert D. Chesler, Esq.Anderson Kill PCAnderson Kill, P.C.973‐642‐5864

[email protected]


1 NOTICE1. NOTICE Give notice early and broadly Give notice early and broadly Give notice of anything that even smells like it might

be a claim Late notice can be fatal!!!! General liability (occurrence) vs. specialty policies General liability (occurrence) vs. specialty policies

(claims‐made)


2 D t t D f d2. Duty to Defend Unlimited in general liability policy — defense costs Unlimited in general liability policy defense costs

are outside of limit. Generally triggered by a suity gg y On claims‐made policies, attorneys' fees normally

erode limit Settle quickly Reservation of Rightsg


3 Li it f li bilit3. Limits of liability Are they high enough? Are they high enough? Damages are rising in food contamination cases Are you sharing your policy with additional insureds? Are you sharing your policy with additional insureds?


4 R l f i t ti4. Rules of insurance construction Ordinary meaning Ordinary meaning Exclusions are construed narrowly Ambiguities — construed in favor of coverage Ambiguities construed in favor of coverage Objectively reasonable expectation


5 B k li bilit5. Broker liability Brokers make mistakes Brokers make mistakes If you don't have coverage, is broker at fault? Broker

liability law changes dramatically from one state to y g yanother.


6. The insurance company is not your f i dfriend

Duty to cooperate Duty to cooperate Insurance company is looking for reasons to deny

coverageg


7. General Liability Policy: What is d?Covered?

Bodily injury Bodily injury Property damage Personal and advertising injury (disparagement Personal and advertising injury (disparagement,

copyright infringement, invasion of privacy, et al.) Does not cover economic loss Does not cover economic loss


8. General liability policy vs. product i i licontamination policy

Tangible damage vs. economic loss Tangible damage vs. economic loss


9 Wh t i P t D ?9. What is Property Damage? Glorybee and Sokol Glorybee and Sokol

– Sokol — individually wrapped packages of peanut butter placed in cookie mix boxp

– Glorybee — peanuts incorporated into candy– Shade Foods – splinters in cereal boxesShade Foods splinters in cereal boxes


PBM Nutritionals v. Lexington Ins. Co., No. 09‐5289 (Va. Supreme. Ct. April 20, 2012)

No coverage for product contamination No coverage for product contamination Leaking valve sent contaminated water to infant

formula ingredientsg No coverage — very broad pollution exclusion. Original policy would have provided coverage, but a Original policy would have provided coverage, but a

pollution exclusion endorsement negated it


P t I C t i tiProperty Insurance ‐ ContaminationLeprino Foods Co. v. Factory Mut. Ins. Co., Nos.Leprino Foods Co. v. Factory Mut. Ins. Co., Nos.09‐1262, 09‐1287, 2011 U.S. App. (10th Cir.2011): Contamination Exclusion — was there2011): Contamination Exclusion was therethird party damage to trigger property damagecoveragecoverage. Contamination of cheese in warehouse Only covered if caused by 'other physical damage' Only covered if caused by 'other physical damage' Damaged fruit in warehouse contaminated cheese


10. Foster Poultry Farms v. Certain d i l dUnderwriters at Lloyds

Accidental Contamination — "error in the Accidental Contamination error in the production... use or consumption would lead to bodily injury...."

Error—failure to comply with Federal sanitation requirements

Foster's chicken products actually contaminated with organisms that cause illness and death. Reasonable

b l f d h llpossibility of death or illness


F h E B lFresh Express v. BeazleyThe appellate court found that coverage only existed if there e appe a e cou ou d a co e age o y e s ed e ewas an “insured event.” An insured event was "accidental contamination," which was defined in part as an “error” by h i d i h “ f i ithe insured in the “manufacture, processing, preparation assembly, blending, mixing, compounding, packaging or labeling of any Insured Product” that would cause the insuredlabeling of any Insured Product that would cause the insured to have a “reasonable cause to believe” that its product would lead to illness. The appellate court found that the recall was not the result of any error by Fresh Express, but by the general FDA advisory on contamination of spinach


Littl L dLittle Lady In Little Lady, the insured’s product tested positive for listeria.

f f l l l fOut of seven strains of listeria, only one is toxic. As a result of the test result, the company could not ship 57,000 cases of burritos until further testing demonstrated that the listeria in the product was not the strain that could cause illness Littlethe product was not the strain that could cause illness. Little Lady sought coverage, arguing that it incurred expense because it was “likely” that the burritos would cause illness.

The court disagreed. It found that since the burritos in fact did not contain the toxic strain, it was not “likely” that the product could cause illness The court reasoned that while there was acould cause illness. The court reasoned that while there was a likelihood that the product was contaminated, there was not a likelihood that the contaminant was dangerous.


C dill S dCaudill Seed This case involved two recalls. The first recall was because

peanuts that it purchased turned out to be contaminated, so that it had to recall its product that contained the peanuts. This case involves one of numerous recalls necessitated by contaminated peanuts sold by Peanut Corporation of America.

However the policy only provided coverage if the However, the policy only provided coverage if the contamination took place during the manufacture and preparation of the product. As a result, the court held that the policy did not apply to the pre existing contamination in anpolicy did not apply to the pre‐existing contamination in an ingredient. Once again, this is more of a gray area than a bright line.


Hot Stuff Foods v. Houston Casualty Co., i ( k )Civ. 11‐4055‐KES (D.S.Dak.2012) Hot Stuff had "contaminated food" policy which provided p y p

coverage if food product 'may likely' cause bodily injury. Hot Stuff recalled 193,507 cases of sausage breakfast

sandwiches because they were mislabeled and failed tosandwiches because they were mislabeled and failed to identify MSG as ingredient.

Insurer's expert argued only a de minimis possibility that unlabeled MSG could cause bodily injury.

Trial court found “may likely’ to be ambiguous. A ll t C t f d f t i t h th MSG Appellate Court found fact issue as to whether MSG may

likely ‘cause bodily injury.”


Thank You

Robert D. Chesler, Esq.Anderson Kill, P.C.Anderson Kill, P.C.973‐642‐5864

[email protected]


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