Ask the expert: Seasonal products

For many years I’ve had the unpleasant task of explaining to a policyholder how their product liability claim failed because it related entirely to the removal or rectification of a defective product. Going back to the origins of product recall cover, when the scope of cover provided was limited to locating, withdrawing and destroying the product, there was no alternative solution. In the advent of significantly wider product recall/product defect and product contamination covers however, we can now offer the policyholder protection against those removal/rectification costs.

By far, the removal, replacement and rectification and business interruption costs are the main loss leaders when encountering a product recall event. There is no reason why product liability and product recall cover should not nicely dovetail. I frequently act for both product liability and product recall carriers advising on both scopes of cover which, if properly arranged, should not conflict. The policyholder’s first party business interruption and increased cost elements of the claim can often represent a lifeline to a business that would otherwise be in peril. This is due to the exposure faced due to longtail effects of a product recall event, such as loss of contracts, de-listing or lack of business continuity. 

Absolutely, where there is an increased volume of production for the time of year when a business is likely to generate the greatest revenue, a recall event can cause significant financial impact.  Companies will often back-stock to order for seasonal products, and in the event of contamination which necessitates the destruction of the stock holding, the lead time required to reproduce this stock can simply be too long for the required seasonal window.

Strictly speaking, it depends very much upon what risks the business faces in continuity terms and how resilient the business is to the impact of a recall event.

Smaller businesses may not have the resources, financial backing or indeed commercial presence to weather the storm.

Even the smallest business can supply a high volume that can create widespread physical and financial consequences throughout their customer supply chain.