An Interview with Jeffrey Weinstein by Teresa Zink
Jeffrey Weinstein Esq. is a partner at Mound, Cotton, Wollan & Greengrass in New York and has more than 20 years experience in insurance, reinsurance, commercial, tort, contract, corporate and multi-district litigation and arbitrations. He will speak on Food Product Liability Insurance at BVR Legal’s “The Insurance Industry’s Top 10 Risks & Opportunities Conference” being held Dec. 8 and 9 in Philadelphia.
Food contamination and product recalls make for good headlines, but often result in headaches for the companies affected, and their insurers.
There are two basic kinds of policies that cover losses arising out of food product recalls: contaminated product insurance policies, which cover accidental contamination or product tampering incidents, and product recall insurance.
However, the scope of what is covered by these policies can be misunderstood or misinterpreted, warns Mound Cotton Wollan & Greengrass’s Jeffrey Weinstein who will speak on the topic Dec. 8 in Philadelphia at BVR Legal’s conference on The Insurance Industry’s Top 10 Risks and Opportunities.
First, a little background. Weinstein explains that the main difference between contaminated products policies and food product recall policies is the triggering event. “Under contaminated product policies, the main trigger for coverage it that there is a contamination of the product, whether accidental or malicious,” Weinstein explains. “However, with product recall insurance, the trigger is when there is an actual recall of the product, not necessarily the occurrence of the contamination itself.”
In addition, he notes “recall coverage has both first and third party indemnity elements to it, whereas the contamination coverage policy is really simply a first party indemnity policy covering such things as recall expenses, rehabilitation costs, and other related costs.”
Weinstein points to three important aspects of these policies that he says are important for insurers and policyholders to understand.
Insured’s Own Product
First, he explains, it is important to remember that the coverage offered under these policies “is limited to contamination of the insured’s own product.”
“In a lot of these more media-driven frenzies that we have had,” for example the recent spinach recalls, pet food recall and others, “the companies that are associated with these products lose tremendous sums of money,” says Weinstein. “But sometimes, the company’s product itself is not part of the contamination. For instance, with the pet food situation last year, people stopped serving store bought pet food to their pets, regardless of where that pet food came from, and that was a significant issue.”
According to Weinstein, “these policies have specific provisions so that business interruption-type losses are only payable if in fact your product suffered the contamination. So these media driven or other economic factors that potentially bear on your profitability as a result of these incidents… those are not covered under these policies.”
Level of Harm
Second, and somewhat related, is the measure of harm caused by the contamination, according to Weinstein. “The type of contamination that occurs has to cause harm to a person or an animal and the question that arises very often is: ‘What is harmful?’ or ‘How harmful does it have to be?’”
In situations where there is, for example, listeria or salmonella “it’s pretty obvious that you have something that is going to cause harm to somebody.” However, there are other situations “that are far less cut and dried,” Weinstein says. For instance, he noted a case from several years ago where “very very low levels of benzene ended up in carbon dioxide gas that was used in a soft drink. What we tried to establish was that the amount of benzene in the CO2 would not harm anybody. Now, of course the insured’s response to that is, there shouldn’t be any benzene in the CO2 and how do you reconcile that? It became an issue.”
As another example, he said there was a case involving bioengineered corn, that was “potentially not harmful but it became a regulatory issue that it shouldn’t have been sold.” In another case, he said, “We had a situation involving low levels of nitrites in tuna fish that would only affect people who ate tons of tuna fish on a daily basis.” So the question is whether the “harm” must be to anyone or to everyone.”
The third area of concern arises out of situations involving malicious product tampering. “These have not, thankfully, been a very big issue in this country in recent years, but have created issues worldwide,” according to Weinstein. The key to coverage in these cases is to determine whether the contamination was done “maliciously.” According to Weinstein, “The definition of malice is something that is different in different states and under different circumstances. So we will get a little bit into how the policies respond in the situation where the claim arises out of malicious tampering rather than an accidental product contamination situation.”
Weinstein says these issues are important because insurers and policyholders need to understand the risks being covered. “These policies have limits, they have philosophical limits as to what is supposed to be covered, but these issues are going to test those limits.”
For example, he said, going back to the spinach example, “there was never an intention to cover situations where people stop buying spinach because spinach has been recalled nationwide. People altered their lifestyles and stopped purchasing spinach and restaurants stopped serving it when in fact the actual spinach that was recalled was of a very limited nature,” Weinstein explains. However, “once it gets reported by the newspapers it becomes a sort of national hysteria.”
Other Affected Parties
These policies, he explains, “were not meant to cover situations where you happen to be a spinach bagger, for instance, whose product had no part in this incident, but you were affected by the fact that nobody buys spinach anymore. And the question is should they get coverage under this policy if they have such a policy? And philosophically, the answer is ‘no,’ because your product was not itself contaminated.”
According to Weinstein, “the question from the insurance company standpoint is: ‘How we can establish that?’ and ‘How we can rely on that exclusion?’” The answers to these questions become important as insureds seek to test the limits of these exclusions.
Insurers are stepping up and developing products that could potentially cover these “falling-through-the-cracks situations,” according to Weinstein. Soon policyholders might be able to purchase an additional endorsement that would expand the scope of the coverage, but they would, of course, have to pay an additional premium for that coverage.
Copyright 2008 BVR Legal November 12, 2008