know your suppliers slides your suppliers slides.pdf · 11/27/2015 · fda food safety...

Copyright © 2016 | www.khlaw.com Keller and Heckman LLP 2

Know Your Food Suppliers –New FSMA Responsibility,

Liability, and Insurance

Christopher Van GundyPartner

San Francisco, CA Office

Frederick A. StearnsPartner

Washington, DC Office

Arthur S. Garrett IIIPartner

Washington, DC Office


Strict Liability

Indemnity Agreements

• Good for adjoining link

• But still can be “jerked” in the chain

Strict Liability In The Food Chain


Supply Chain Liability Example


Traditional Supply Chain Liability AndObligations

• FDA Warning Letters

• California’s Proposition 65

• Indemnity/Warranty Disputes

• “Voluntary” Recalls

• FTC Warning Letters/Administrative Actions

• NAD Actions

• Consumer Class Action Injury Lawsuits

Traditional Supply Chain Liability


New Supply Chain Liability andObligations

• FDA/FSMA – Foreign Supplier VerificationProgram

• Consumer Class Actions in “Food Court”

• Food Fraud/Food Contamination

• Recalls/Criminal Enforcement

• Competitor Lawsuits

• State Attorneys General

New Supply Chain Liability (cont’d)


New Supply Chain Liability

Why Increased Scrutiny?

• Recalls/illness outbreaks almost weekly

• More government scrutiny/sophistication

• Rise of the “Food Court” – Hungry Lawyers


New Supply Chain Obligations

FDA Food Safety Modernization Act(FSMA)

“The FDA Food Safety Modernization Act(FSMA), the most sweeping reform of ourfood safety laws in more than 70 years . . .aims to ensure the U.S. food supply issafe by shifting the focusfrom responding tocontamination topreventing it.”


New Obligations For Importers

• Foreign Supplier Verification Program

– Processing consistent with U.S.food safety laws

– This means preventative controls

– Risk-based assessmentof hazards

– Like HACCP

New Supply Chain Obligations (cont’d)


FSMA Background

Shifts regulatory focus from responding tocontamination to preventing it; new requirementsrelated to:

• Record inspection

• Hazard Analysis and Risk-based PreventiveControls (HARPC)

• Intentional adulteration

• Sanitary transportation of food

• Foreign Supplier Verification Program (FSVP)


Final FSVP Rule

Published on November 27, 2015

• 80 Fed. Reg. 74226

Importation of food if importer does not

implement FSVP is a prohibited act (FD&C Act

§ 301(zz))

Rules affect both domestic importers and

foreign suppliers to the U.S. market


Who really needs to comply?

Trigger for FSVP compliance is importation of food intothe U.S.

Food defined broadly to include raw materials,ingredients, and finished food

“Importer” is defined as the U.S. owner or consignee ofthe article of food• Where there is no such entity at the time of entry, the importer

is the U.S. agent or representative of the foreign owner orconsignee as confirmed in signed statement of consent

Definition intended to ensure that entity with a financialinterest in the food, and with knowledge about thesupply chain, is responsible for FSVP compliance


Who is exempt?

Food subject to seafood, juice, and LACF HACCPrequirements

• For LACF facilities, exemption applies only with respectto microbiological hazards

Food imported for R&D purposes or for personal use

Alcoholic beverages imported from certain foreign suppliers

Food transshipped or imported for processing and export

Food returned to the U.S. without further processing in aforeign country

Certain meat, poultry, and egg products under USDAjurisdiction

Importers that are HARPC-compliant facilities


Who is exempt? (cont’d) Importers of fruits and vegetables subject to Produce Safety

rule• Exempt from requirement to determine whether there are any

biological hazards that require a control

Foods for which hazard analysis identifies no hazardsrequiring a control

Imported food that cannot be consumed unless the hazardis controlled or for which the hazard is not controlled untilafter importation

Importers of dietary supplements subject to (and compliantwith) certain supplement GMP requirements

Very small importers and importers of food from certainsmall foreign suppliers

Food imported from a country with an officially recognizedU.S.-equivalent safety system


FSVP Elements

Conduct analysis of hazards reasonably likely to causeillness or injury with respect to an imported food

Evaluate and approve foreign suppliers based on thathazard analysis, as well as other factors

Conduct supplier verification activities

Take corrective actions when appropriate to control ahazard

Maintain records of FSVP activities

All FSVP activities must be conducted by a “qualifiedindividual”• Must have “training, education, or experience” (or some

combination) necessary to develop the FSVP

• Must not have any financial conflicts of interest that influenceresults of verification activities


How to Achieve Compliance

Importers comply with FSVP when they:

1. Comply with most of the HARPC supplychain provisions

2. Implement HARPC under the regulationsfor the hazards in the food they import

3. Are not required to implement HARPCunder certain provisions (e.g., food thatcannot be consumed without theapplication of a PC)


Hazard Analysis

Similar to HARPC framework, importers mustdocument and conduct a hazard analysis for all knownor reasonably foreseeable hazards to determinewhether there is a need to implement any measures tocontrol those hazards

Final rule permits an importer to review another entity’shazard analysis, provided that a qualified individualconducts the analysis and the importer documents itsreview and assessment of that analysis


Hazard Analysis (cont’d)

Hazards• Biological, chemical, radiological, physical• Naturally occurring, unintentionally introduced or

intentionally introduced for economic gain

Factors to consider when evaluating hazardsinclude:• Formulation of the food• Conditions of the establishment that produces the

food• Transportation practices• Packaging and labeling activities• Intended use of the food


Foreign Supplier Evaluation

Food must be imported from foreign suppliersthat have been evaluated and approved

• May be evaluated by the importer or another entity

Foreign supplier includes establishment thatmanufactures or processes food or grows foodexported to U.S. without further manufacturingor processing by another establishment

• Does not include entities involved with de minimisactivity (e.g., holding or labeling)


Foreign Supplier Evaluation (cont’d)

Evaluation must take into account:• Hazard analysis

• Entities responsible for controlling hazards orverifying controls

– Could be foreign supplier or another entity

• Foreign supplier’s food safety performance history

• Foreign supplier’s food safety protocols andprocedures

• Foreign supplier’s compliance status under FDA orforeign regulations

Importers must reevaluate their foreignsuppliers at least once every three years


Foreign Supplier Verification

Establish and follow written procedures that verify food isonly imported from approved suppliers and that hazardsidentified in imported food are appropriately controlled

Appropriate verification activities may include:

• Onsite audits of foreign suppliers

– Must be conducted by qualified auditor (may be governmentemployee)

– Consider applicable FDA food safety regulations or countrywith comparable system

– Substitute results from FDA inspector or food safetyauthority in comparable system

• Sampling and testing of food

• Review of foreign supplier’s relevant food safety records


Foreign Supplier Verification (cont’d)

Importer permitted to review another entity’sverification activities provided that:

• Qualified individual conducted the verification; and

• Importer documents its review and assessment ofthat verification

May use unapproved suppliers on temporarybasis when subject food to verification


Corrective Actions

Take corrective actions if it is determined that

• Foreign supplier is producing food in a manner thatdoes not provide the same level of public healthprotection as food in compliance with the HARPC orproduce safety requirements, or

• Imported food is otherwise adulterated ormisbranded


Special Circumstances

Foreign supplier approval and verification notneeded in two cases:

1. Food cannot be consumed without application ofcontrol (e.g., coffee beans)

2. Hazard controlled by importer’s customer orsubsequent entity in U.S. distribution• Disclosure statement – “not processed to control

[identified hazard]”

• Written assurance from customer annually

• Other system to ensure control of hazard applied atsubsequent distribution step (disclosure to and writtenassurance from customer’s customer)


FSVP Records

Importers must maintain related records for atleast two years and provide records to FDA onrequest

• Can be stored in offsite location

• Do not need to be in English, but must provideEnglish translation within a “reasonable time” uponFDA’s request

– Time would depend on volume of records requested

– “should not be so long as to impair the Agency’s ability toconduct record reviews and follow-up enforcement activities”


What does compliance mean?

Compliance is likely to mean different things todifferent entities in the supply chain

There is no “one size fits all” approach tocomplying with FSVP or other FSMArequirements

Compliance must be tailored to individualfoods and facilities

Common element = qualified individuals mustimplement compliance strategies acrossfacilities


Compliance Deadlines

Revised GMPs & HARPC: September 19,2016

FSVP: May 29, 2017

• Food imported from a supplier subject to HARPC orproduce safety regulations must be in compliancewith FSVP requirements 6 months after the foreignsupplier of the food is required to comply withapplicable regulatory framework


New Supply Chain Liability andObligations

• FDA/FSMA – Foreign Supplier VerificationProgram

• Consumer Class Actions in “Food Court”

• Food Fraud/Food Contamination

• Recalls/Criminal Enforcement

• Competitor Lawsuits

• State Attorneys General

New Supply Chain Liability



Consumer Class Actions in “The Food Court”

Consumer Deception

• “Natural”

• “GMO”

• “PHO”

• “Organic”



Food Court

• Hundreds of Cases

– Federal courts in San Francisco|and Los Angeles

• Purported Class Actions

– Rapidly developingarea of the law

– Unique to food

– Few appellate decisions

– Some big settlements


Food Contamination/Fraud

• Cumin

• “Extra virgin” olive oil

• Peanuts/spinach/cantaloupe

Recalls Today

• Lost property, profits, goodwill

• Injured consumer liability

• Criminal liability/Park Doctrine



Competitor Lawsuits

• Consumer deception

• Copycat consumer lawsuits

State Attorneys General

• Consent orders

• No warnings

• Shaky science



Insurance Overview

Coverage will depend on the type of liability:

• Lanham Act Claim (false designation of origin,false description)

• California CLRA Claim (deceptive advertising)

• Breach of Contract Claim (economic loss)

• Bodily Injury Claim (consumer injured)

• Property Damage Claim (fraudulent foodingredient “inextricably intertwined” in foodproduct)


Insurance Policies

Third-Party Liability Policies• CGL Policy

• D&O Policy

• E&O (media)/ProfessionalLiability Policy

First-Party Policies• Property Insurance

• Specialized Recall Policy(Product Contamination Insurance)


Competitor Claim

Lanham Act - False Advertising Claim

• CGL Policy

Coverage for “Advertising Injury”

• Misappropriation of Advertising Idea• Infringement of Another’s Slogan• Disparagement of Another Product

Exclusions(nonconformity,violation of statute)

• D&O

• E&O (media)


California Consumer Claim

CGL Policy• Coverage for “Advertising Injury”

– Misappropriation of Advertising Idea

– Infringement of Another’s Slogan

– Disparagement of Another Product

– Exclusions (nonconformity, violation of statute,

knowledge of falsity)

D&O – “wrongful act”

E&O (media) – coverage for errors andomissions in “content”


Breach/Contract (Economic Loss)

• CGL Policy– Has to be Bodily Injury or Property

Damage

– Does not Cover Breach of Contract–Exclusions (recall exclusion, warranty

exclusion)

• D&O/E&O

• Recall Policy

– 3rd-Party Liability


Bodily Injury Claim

BI Claim – Injury due to ingestion ofcumin cut with almonds or melamine inbaby food.

• CGL Policy

– Defense and Indemnity

–May not coveremotional distress

• D&O/E&O (BI exclusions)


Property Damage Claim

PD Claim - Fraudulent food ingredient“inextricably intertwined” in food product.

• CGL Policy(defense and indemnity)

• Property Policy(first-party)– contaminated “stock”


Washington, DC • Brussels • San Francisco • Shanghai • Paris

Keller and Heckman LLP

Christopher Van GundyPartner

+1 [email protected]

Frederick A. StearnsPartner


Arthur S. Garrett IIIPartner


THANK YOU

know your suppliers slides your suppliers slides.pdf · 11/27/2015 · fda food safety...

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