Producers and importers of goods now have increased exposure because of the safety monitoring and product recall provisions of the Consumer Protection Act.
The National Consumer Commission is required to promote industry-wide codes of practice and provide for systems to receive consumer complaints and reports regarding product failure, defects or hazards, and resulting personal injury and damage to property. The Commission will investigate and notify consumers of the nature, causes, extent and agreed risk to the public pertaining to deferred goods. If the goods are unsafe, the goods must be recalled for repair, replacement or refund.
More significantly, if the Commission has reasonable grounds to believe that any goods may be unsafe or that there is a potential risk to the public posed by the continued use of or exposure to those goods and the producer or importer has not taken any of the steps required by an industry code by a written notice will require the producer to:
- conduct an investigation; or
- carry out a recall programme on any terms required by the Commission.
Draft regulations pertaining to safety monitoring and recall have been published for comment but final regulations are still awaited. Publication of guidelines for industry-wide codes are also awaited.
The Consumer Protection Act increases product recall exposure and provides an expanded market to any brave product recall insurer which will need, to investigate the risks properly, having regard to under the Consumer Protection Act and the nature of the business to be insured.
Appropriate risk management includes ascertaining that the insured is aware of the increased risk exposure created by the Consumer Protection Act, ensuring that the insured has appropriate complaints, monitoring procedures, safety monitoring and product recall protocols in place, and where applicable, it engages the relevant industry role-players to achieve the development, adoption and application of an industry-wide code of practice in respect of safety monitoring and recall.
Product recall insurers should review their relevant underwriting guidelines, and product recall wording.
In a recent case, the insured was a processor and marketer of food products. The relevant health agency had found 14 meat slicers at the insured’s facility that tested positive for a bacteria which constituted a health risk. A health hazards alert was issued, warning that certain products of the insured may be contaminated and should not be consumed because of the bacteria. The bacteria could lead to an illness which resulted in sickness or death.
The insured voluntarily withdrew the products from the market with retailers being instructed to destroy products which had been distributed. Undistributed products were destroyed but others were tested and found to be negative for the bacteria.
The insured sought indemnity under its policy for the costs incurred in withdrawing the product from the market.
The cover extended to accidental product contamination which included “unintentional contamination, impairment or mislabelling … during the manufacture, blending, mixing, compounding, packaging, labelling, preparation, production or processing of the insured’s product”. With the proviso that “… the consumption or use of the insured’s contaminated product has, within 120 days of such consumption or use, either resulted or may likely result, in: physical symptoms of bodily injury, sickness or disease; or death of any person …”
The insurer argued that the meat slicers were contaminated but not the product and that there was no evidence that injury, sickness, disease or death was likely or probable if the product had not been recalled or destroyed.
The court found that:
- the product had been “impaired”. There was policy coverage both in respect of impairment of the product, in addition to, and in contradistinction to cover for contamination of the product;
- accordingly, the parties must have intended to cover losses resulting from impairment that “may likely” result in sickness, whether or not as a result of actual contamination of the product.
The policy wording was broad enough to provide cover for impairment to meat products caused by the products coming into contact with machinery contaminated by the bacteria and therefore becoming inedible pursuant to the direction of the relevant health authority.
The proviso did not specify when the likelihood of resulting sickness had to be assessed. The court said that the time of the loss was at the time of the recall order. At that time, the health authority had concluded, that certain of the insured’s products may be contaminated and those products might cause sickness or disease. It was the possibility that consumption might lead to sickness that prompted the recall notice. If such disease did occur, it was likely to occur within 120 days of consumption of the product.
The policy was required to respond.
Insurers need to be unambiguous in recall cover provided to avoid any unpleasant surprises.
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