Last week President Obama signed the National Bioengineered Food Disclosure Standard into federal law. The law mandates disclosure of genetically modified organisms (“GMO”) on food labels. The law directs the U.S. Department of Agriculture (“USDA”) to establish, within two years, a nationwide mandatory disclosure standard for bioengineered foods and the labeling procedures. This means that the law itself does not define the standard, but instead gives the USDA significant discretion to define and implement the required disclosure.
Below are some things manufacturers should know about the law:
- Preemption of State Laws. The new law specifically preempts all state and local labeling requirements applicable to genetically engineered (“GE”) foods that do not mirror the language in the law. This would even apply to state laws already passed, including Vermont where mandatory GMO labeling went into effect in July.
- Defining Bioengineered Food. The law defines bioengineered food as food that contains genetic material “that has been modified through in vitro recombinant deoxyribonucleic acid (DNA) techniques” and “for which the modification could not otherwise be obtained through conventional breeding or found in nature.” This definition could be interpreted as quite restrictive, so it will be important to watch the rule-making process to see how the law is interpreted.
- Labeling Requirements. The law does not specify GMO labeling standards, this is left up to the USDA to determine. However, the law does state the methods to disclose GMOs in food, such as text on the packaging, a USDA-created symbol, or an electronic or digital link (such as a QR code) selected by the manufacturer. Small food manufacturers are provided the additional flexibility to disclose GMO ingredients either by listing a toll free number or link to website containing the disclosure on their labels. The purpose of the law was to disclose GMO ingredients on food labels so consumers searching grocery store aisles could make informed decisions, but law effectively fails to achieve its purpose because “disclosure” can be a link to somewhere else, not on the label itself.
- You Aren’t What You Eat. Meat from animals that consume bioengineered food are exempt from disclosure. Specifically, the law prohibits the USDA from considering any food primarily derived from an animal because “the animal consumed feed produced from, containing, or consisting of a bioengineered substance.” So, for example, you go into a store to buy some beef for a family barbecue and, because of your concern about the safety of GE foods, you want to purchase a GMO free product. You’re aware that most cows slated for consumption are fed a diet containing mostly corn, a majority of which is bioengineered. The label doesn’t disclose GMO ingredients, so you think you’re safe. Think again. Even if the cow eats nothing else but bioengineered corn its entire life, the meat is not considered GE under the new law. Thus, Congress is betting that consumers will be uniformed about the provisions in the law and think their meat is non-GMO, even if its arguably not.
Many food businesses, after conducting a risk assessment, will purchase some form of recall insurance (commonly referred to as product contamination insurance). These recall policies typically provide coverage for “actual” contamination, meaning for coverage to kick in the consumption or use of the product must have resulted in bodily injury and/or property damage. To date, recalls were voluntary and initiated by the company. However, earlier this year the final rules were issued under the Food Safety Modernization Act (FSMA), which provide FDA with the authority to mandate recalls for food products if there is a “reasonable probability” that the food product is adulterated or misbranded and the use and/or exposure to the product would cause serious health consequences or death.
The FDA’s mandatory recall authority under FSMA may put food businesses at risk because many insurance policies don’t provide coverage for government recalls without an “actual” contamination. The direct and indirect costs associated with these recalls can be substantial. It is important to know if your damages are covered by your policy and, if so, to what extent.
While many insurers have yet to address FSMA, some insurers have altered their basic form or issue an endorsement for “government recall”. However, not all “government recall” clauses are created equal, so careful attention should be spent when reviewing or negotiating the policy to ensure proper coverage, especially since every business is different and are faced with different risks.
In order to better understand their insurance requirements, businesses should perform a comprehensive risk analysis. The risk analysis should not only include the business’s products and operations, but also the operations of their suppliers’ and an analysis of the quality of the ingredients included in the business’s final products. Often overlooked in the analysis process is the risks assumed in purchase and sale agreements and vendor contracts. Businesses should review these agreements to identify and determine which risks can and/or should be insured. Many contracts in the food industry are written in favor of the buyer, so in the event of a recall, the seller (policyholder) is responsible for associated costs. The effects of a recall to a seller without proper coverage could be devastating.
When discussing recall coverage with your broker, the following are a list ofitems you may want to address:
- Direct Product Damage – Many policies cover the contaminated product in the field or warehouse, but some only cover product in the field.
- Publicity – Publicity coverage is not always included in a basic policy, but when it is the most important feature of this coverage is that it can result from “an actual or alleged contamination, where the Named Insured’s Product(s) and the Named Insured must be specifically named.” If a business supplies an ingredient used by a buyer in a finished product and the buyer’s product is recalled (in most cases only the finished product is identified in the recall), then is this scenario the policy won’t provide coverage.
- Lost Gross Profit/Extra Expense (LGP) – If the policyholder loses an account due to a recall event, this pays for a year or more of LGP. For many food businesses, a large account could represent a significant portion of their total revenue. Extra Expenses may arise when it is necessary to engage another processor and new processing costs exceed the businesses normal processing costs.
- Rehabilitation Expenses – This coverage pays for the rehabilitation of the brand in the marketplace. Many businesses overlook the importance of obtaining this coverage because one food safety incident can destroy a brand that a business has spent years building.
- Crisis Response/Consultant Expenses – Coverage for these expenses can be very important and largely address the costs involving specialized attorneys and public relations/crisis response specialists.
If you have questions about coverage under your insurance policy, please contact our attorneys at Morsel Law.