Recalls of food believed to be contaminated can be massively expensive for the companies required to implement them, and the availability of insurance coverage for such expenses is often disputed.

One recent complaint to raise this issue is Employers Fire Insurance Company v. Basic Food Flavors, Inc., filed on July 7, 2010 in the United States District Court for the District of Nevada.  In that action, Employers Fire seeks a declaration that its policy “contain[s] certain terms, provisions, limits, conditions, exclusions and endorsements that limit or preclude coverage to Basic Food with respect to losses, costs or expenses incurred as a result of the HVP Recall.”  The HVP recall referenced is the FDA requested recall, based on possible salmonella contamination, of batches of hydrolyzed vegetable protein (“HVP”) manufactured by Basic Food. 

The complaint does not specify which “terms, provisions, limits, conditions, exclusions and endorsements” the carrier contends limit coverage.  The policy at issue (attached to the Complaint) does contend a “Spoilage and Contamination Coverage Extension,” which purports to pay for “direct physical loss of your ‘stock’” due to contamination, and to pay for “expenses you incur . . . to remove and dispose of the ‘stock.’”  There are, of course, exceptions to that obligation, which the carrier may contend are applicable.

The filing of this complaint highlights the importance for food manufacturers of understanding the scope of coverage they have for food contamination and resulting recalls.  Given that the market for recall coverage has expanded over the past year or so, insureds should continue to evaluate their options to find the coverage that best meets their needs.