Label Reviews Are Critical For Food Importers

I previously posted a similar article discussing the importance of label reviews for domestic produced products here. But a recent event reminded me to reiterate the importance of accurate labeling, especially for food importers. Non-compliant labels can cost you time, money and even your relationship with customers.

A few weeks ago, JFC International Inc. issued a voluntary recall for rice seasoning products shipped to the United States. Apparently, the recall was initiated after the company discovered the product was not labeled in English, which is required under U.S. law. Also, because the label was not in English, it is deemed to have failed to disclose allergens contained in the ingredients. Important to point out is that this isn’t JFC International Inc.’s first time being involved with a recall event; they issued a similar recall in 2016 for failing to label in English and undeclared allergens.

This event is an important illustration of how important it is to review your labels prior to shipping your products to the United States. First, one of the most common misbranding mistakes for imports is failure to label in English. This seems like a simple fix, but you would be surprised how often this occurs. Importers should require the shipper to forward a copy of the label prior to shipping to confirm compliance with U.S. law. Now this won’t stop mistakes by workers at the warehouse who load the EU labeled products onto a pallet instead of the U.S. bound product, but if you include language in your contract that makes the shipper responsible for all costs to correct the misbranding in the event the wrong product labels are attached, they will quickly change their quality control practices. This is especially true for shippers who have had to foot the bill after a container is stopped by U.S. Customs.

Second, does a voluntary recall trigger coverage under your product recall insurance policy? Generally, coverage isn’t triggered unless there is an “actual” contamination, which is usually proved by product testing or other evidence. For JCF International, if the recall was initiated for misbranding due to failure to label their products in English, the coverage would be denied. However, because the product contained “actual” allergens, then coverage would probably be triggered. But if the product didn’t contain allergens, then coverage would be denied. Even if the product didn’t contain allergens the company would still need to recall the product because it is still considered misbranded and in violation of the FDC Act, but the recall would potentially result is significant non-reimbursable expenses.

Most food label misbranding violations can be prevented through quality control measures. Importers should, if they have not already, institute best practices to minimize the risk of a potential violation that result in having to respond to FDA Notice of Action letter. These practices should also address who bears the cost and burden to deal with a misbranding violation. Prior planning can help ensure your business identifies and minimizes potential risks commonly associated with the food import industry.

If you have questions about labeling, contact our attorneys at Morsel Law.

Food Recalls: Does Your Insurance Policy Cover “Reasonable Probability” of Contamination?

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.

Food Safety Incidents Can Destroy Businesses

Spring is finally here and summer is just around the corner. As a kid this was my favorite time of the year, besides school ending for summer vacation, it was the season of BBQ’s and ice cream. Who doesn’t like ice cream? The average American consumes 48 pints of the delicious treat each year and they consume more ice cream during the summer months than the rest of the year combined.

It is also the favorite time of the year for ice cream makers as they watch their products fly off the shelves. However, not all ice cream makers will be experiencing happiness this summer as some recently were forced to pull their inventories from store shelves. Blue Bell Creameries LP, the maker of Blue Bell Ice Cream, and Jeni’s Splendid Ice Creams LLC both recently found traces of Listeria bacteria in their products. In addition to pulling products, both companies have temporarily shut down their plants until they can identify and remedy the problem. These recalls follow fellow Washington based ice cream maker, Snoqualmie Gourmet Ice Cream Inc., who last year removed all its ice creams, gelatos, custards and sorbets from retailers’ shelves after health officials linked two listeria cases at a hospital to tubs of its ice cream.

Listeria is not a laughing matter, in fact it is one of the deadliest food borne pathogens. Listeria is a virulent pathogen that thrives in cool, wet environments, and has previously prompted food companies to shut plants since it is difficult to eradicate even through plant cleanings.

For food producers, a food safety incident can be catastrophic. Not only is it a financial strain on the company, but it can destroy their reputation as consumers lose confidence in their business. A perfect example is the 1993 E. coli outbreak that damaged Jack in the Box’s reputation for many years from which they may never fully recover. Plaintiff’s lawyers also pick up on food safety incidents like sharks sniffing out blood in the ocean, leading to countless of lawsuits filed on behalf of consumers allegedly injured by the contaminated products.

These incidents demonstrate why food producers must take preventative measures to put place and enforce food safety procedures in their facilities. It is not enough to just have safety procedures in place for the manufacturing process, companies must also address transportation and storage of their products. This is no longer an option as the proposed rules under the Food Safety Modernization Act (FSMA) focus on the storage and transportation of products, including loading and unloading operations, transportation, packaging and bacterial testing.

There are many producers, both domestically and abroad, that are not yet prepared for FSMA’s requirements to take effect or for the audits that will be required. Training and preparation for audits and inspections will be the key to success of any program. FSMA is a game changer as this training must be targeted at all levels, from the corporate offices to floor managers. If your food company hasn’t already begun the process of implementing the processes and procedures under FSMA it should consider doing so now. The final rules are scheduled to be issued later this year.