Expert Recall

By Howard Aughinbaugh

When it comes to risk management, there are many steps consumers and companies alike can take to protect themselves. We often overlook the role insurance plays in matters of product safety. The recent Toyota recalls are another reminder of how important it can be to have the right coverage. In this particular situation, three types of insurance coverage play a role: car insurance, product liability insurance, and recall insurance.

When it comes to identifying hazards that might threaten driver safety, government regulators rely on consumer complaints and reports from manufacturers to identify potential risks. Consumer groups and manufacturers use their own databases to track emerging problems. So do insurance companies. According to news reports, State Farm alerted the National Highway Traffic Safety Administration way back in 2007 about a trend in “vehicle-caused accidents” involving Toyota cars.

And this is certainly not the first time insurance loss data have helped identify automotive safety concerns. Remember Firestone? Manufacturers need to monitor as many complaint databases as possible for the early warning signals of a possible recall situation.

In the Toyota case, once State Farm’s data were corroborated by information from NHTSA and Toyota’s own investigations, recalls were announced. Now lawsuits are being filed one after another. The issues at the heart of Toyota’s recalls, at least in part, may be covered by product liability insurance. As long as Toyota has ample product liability insurance, the company may be able to survive class action lawsuits and eventually return to business as usual. But Toyota likely won’t be the only defendant in these cases. Auto parts manufacturers who supplied possibly defective components may also feel the heat. As a manufacturer or retailer of consumer goods, it is critical you have appropriate product liability coverage to cover manufacturing or production flaws, design defect, or defective warnings or instructions. Are you covered?

Whether or not your insurance covers all litigation-related costs, you will likely face extraordinary costs during the recall process itself. Announcing a recall, notifying consignees and consumers, and retrieving or repairing the defective product all cost money. Sometimes big money. And that’s before you even get to the stage of defending legal claims. That’s where recall insurance comes in. In the wake of recent regulatory developments and massive recalls, the demand for recall insurance is growing. Likewise, with the number of international recalls on the rise, recall expenses are increasing. It is critical that you plan for these risks and manage them with recall insurance.

Companies can purchase recall insurance to help cover not only the costs of the recall execution itself, but also the communication and crisis management expertise needed to protect their brand and reputation. When shopping for recall insurance, be sure to note whether the coverage will pay for the recall experts and communications specialists who will be critical to the smooth execution of what is always a complicated process.

A string of recalls like those Toyota is facing reminds us that recalls, if handled poorly, can put even the largest and most powerful companies at risk. It is a great time to review your recall preparedness and insurance coverage. Will you be ready when a recall strikes?

Stericycle ExpertRECALL™ is the industry leader in recall logistics and regulatory compliance for consumer product, pharmaceutical, medical device, juvenile product, and food and beverage recalls. ExpertRECALL’s professionals are experts in recall management who can help you streamline the entire product recall process.