The Scrumptious Bar Company (Scrumptious) manufactures and sells breakfast bars to supermarkets, convenience stores and fast food outlets. It was the company’s best line and a range of new season bars were about to be rolled out.
Scrumptious’ latest sales report indicated an abrupt slow down and upon investigation found the packaging discoloured after a short shelf life.
Testing of the packaging revealed leaching of a plastic chemical from the wrapper giving the bars a bitter flavour. While insignificant to cause long term major illness in adults it may have created longer or sustained impairment to the elderly, infirm or children.
Scrumptious notified the packaging supplier and instigated a major recall of all affected products.
The supplier, after performing their own testing, provided new packaging some 6 months later. By then Scrumptious had to win back its lost shelf space and perform a gradual product replacement, hiring a temporary sales team.
The Property loss included testing of the product and the stock loss as a result of the damage, including the cost of the packaging.
The Economic Loss included the loss of Gross Profit while the product was not available and until sales returned to pre loss levels and delayed launch of new product lines. Additional costs of the recall included resources for the return of product, storage costs, additional staff to notify retailers and restock shelves, and advertising the recall.
To avoid further negative publicity Scrumptious paid the medical bills of affected customers.
All losses were claimed under Scruptious’ Broadform Public & Product Liability cover. They did not have an extension for, or separate, Product Recall cover.
The loss adjuster recommended the medical costs be paid and advised that the cover was inadequate to meet the costs of the recall, testing and economic losses.
This was because the cover specifically excluded the costs of the recall, repair and replacement of Scrumptious’ product. It also specifically excluded the costs of investigation.
A claim was made against the packaging supplier however this took several years to resolve and at considerable further cost.
We have been involved in many claims that rely on the defective supplier’s insurance. If there is adequate insurance cover in the first instance it is more likely a claim will progress with the support of the company’s own insurer and be resolved earlier.
Author
Claim Solutions Pty Ltd.
Insurance Policy
Country: - All
Policy Description: - Broadform Public & Product Liability & Product Recall
Insurer: - Various
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