Food Safety Regulation and Litigation: Minimizing the Risk ...media.straffordpub.com/products/food-safety-regulation-and-litigation... · two most significant for food processors,

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Presenting a live 90-minute webinar with interactive Q&A

Food Safety Regulation and Litigation:

Minimizing the Risk of Product Liability Claims Mastering the Standards for Fault, Causation and Damages in Foodborne Illness Litigation

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, FEBRUARY 22, 2017

James F. Neale, Partner, McGuireWoods, Charlottesville, Va.

Lee N. Smith, Partner, Coleman & Horowitt, Fresno/Sacramento, Calif.

W. Hunter Winstead, Partner, Gilbert, Washington, D.C.

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F R E S N O V I S A L I A B A K E R S F I E L D L O S A N G E L E S S A C R A M E N T O

5

Food Safety Modernization Act Prop 65 Effects On Food Liability

Abstract

In January 2011, President Obama signed the Food Safety

Modernization Act to provide greater security, safety and

accountability of food products in our supply chain. The new law

involved many new requirements for industries which handle,

process, package, and distribute food products.

Since 2011, the more significant rules have been promulgated. The

two most significant for food processors, the Preventive Controls

for Food Facilities and the Produce Safety Rule, were circulated for

comment in early 2013, and published in final in the Federal

Register in 2015 and 2016 respectively.

Many of these rules could impact Food Liability Law by changing

industry standards and driving new contract requirements.

6

Agenda

Food Safety Modernization Act (“FSMA”) changed the status quo with respect to:

FSMA Statute

Effect on Food Liability

What You Can Do to Manage Your Operations Better Under the Act

---------------------------------------

Proposition 65

7

Food Safety Modernization Act

(H.R. 2751)

Passed in 2011, the MOST expansive

changes in food safety since the 1938 Act

Sweeping new enforcement authorities

Exacting new food import requirements

Major new program activities for FDA/with

corresponding budgetary issues

Most of the required regulations under the

statute are final, and effective.

8

Significant FSMA Provisions

Stronger Records Access Authority (FSMA § 101)

Mandatory Recall Authority (FSMA § 206)

Increased Frequency of Inspections (FSMA § 201)

Whistleblower Protection (FSMA § 402)

Foreign Facilities and Refusal of Inspection

(FSMA § 306)

Changes to Administrative Detention Standard (FSMA § 207)

9

Additional Changes

Amendments to the Reportable Food Registry (requiring more information and additional disclosure) (FSMA § 211)

Suspension of Registration (FSMA § 102)

Preventative Controls (FSMA § 103)

Produce Safety Rules (FSMA § 105)

FDA Lab Accreditation (FSMA § 202)

Traceability (FSMA § 204)

Major Changes to Regulation of Imports (FSMA §§ 301,302)

Prevention of Adulteration

Identification of High Risk Foods

10

Stronger Records Access Authority

(FSMA § 101)

When “reasonable probability” of

“serious adverse health

consequences”

Now, includes records of other

food affected in similar manner

24 Hour Notice to review Records

Proper credentials and written

notice

Must produce them at the time of

the Inspection electronically or in

hard copy

11

Mandatory Recall Authority (FSMA § 206)

Mandatory recall can be ordered by the FDA if there is

a “reasonable probability” that an article of food is:

Adulterated under section 402 or misbranded under

section 403(w) and;

Use of or exposure to such article will cause serious

adverse health consequences or death to humans or

animals.

Opportunity for voluntary recall within FDA appropriate

timing

Hearing within two days of the order’s issuance

12

Increased Frequency of Inspections

(FSMA § 201)

Immediate increased frequency of inspections

Once every 7, 5, 3 years

Risk-based, high-risk facilities first

The higher the risk, the more inspections

13

Reportable Food Registry (RFR)

“Reportable Food”

“Reasonable probability” of “serious adverse

health consequences to humans or animals”

“Responsible Party”

FDA-registered facility where product is

“manufactured, processed, packed or held”

“Requirement”

Report to FDA portal within 24 hours

14

Amendments to RFR (FSMA § 211)

New “critical information” required

FDA require “consumer-oriented

information” including

Description

Product ID codes

Contact information

Anything else FDA deems

necessary to enable a consumer

to accurately identify whether

such consumer is in possession

of the reportable food

15

Revisions to the Registration Rule

Among other things, the changes will require:

Email addresses from registrants;

Registration renewals every two years on even-

numbered years;

Assurance that FDA can inspect food facilities

according to federal law; permit electronic

records submission by January 2020, and

Require unique food facility identifiers by 2020.

16

Suspension of Registration

If FDA determines “reasonable probability” of food causing “serious adverse health consequences,” it may suspend registration

Facilities that are “responsible” and those that knew or had reason to know are in jeopardy

Informal hearing within two days

FDA to consider corrective plans within 14 days

17

Preventative Controls For Human Food

(FSMA § 103)

Regulations require

that:

Hazards be identified

Preventative controls

be enacted for:

Sanitation

Training

Environmental controls

Allergen controls

A recall contingency

plan

GMPs

Supplier verification

activities

Monitor controls

Correction actions

18

Requirement for Preventive Rules

Covered facilities must establish and implement a food safety system that includes an analysis of hazards and risk-based preventive controls. The rule sets requirements for a written food safety plan.

19

Food Safety Plan

1)Hazard Analysis

2) Preventive Controls

3) Oversight and management of preventive controls

A) Monitoring

B) Corrective Action and Corrections

C) Verifications

20

Time for Compliance

This rule went into effect in 2016.

Because of overlapping requirements of the produce some of the compliance dates have been pushed out to 2018 to match the timing under that rule.

21

Produce Safety Rule FSMA Section 105

Section 105 of the Food Safety

Modernization Act (FSMA) directs

FDA to set science-based standards

for the safe production and harvesting

of fruits and vegetables that the Agency

determines minimize the risk of serious adverse

health consequences or death.

22

Produce Safety Rules

Rule establishes science-based standards for growing,

harvesting, packing and holding produce on domestic

and foreign farms.

FDA sets standards associated with identified routes of

microbial contamination of produce, including:

(1) Agricultural water

(2) Biological soil amendments of animal origin

(3) Health and hygiene

(4) Animals in the growing area, and

(5) Equipment, tools, and buildings

23

Exemptions

The rule does not apply to produce that is not a raw agricultural commodity (A raw agricultural commodity is any food in its raw or natural state) which include:

asparagus; black beans, great Northern beans, kidney beans, lima beans, navy beans, and pinto beans; garden beets (roots and tops) and sugar beets; cashews; sour cherries; chickpeas; cocoa beans; coffee beans; collards; sweet corn; cranberries; dates; dill (seeds and weed); eggplants; figs; horseradish; hazelnuts; lentils; okra; peanuts; pecans; peppermint; potatoes; pumpkins; winter squash; sweet potatoes; and water chestnuts.

24

Other Exemptions

Food grains, including barley, dent- or flint-corn, sorghum, oats, rice, rye, wheat, amaranth, quinoa, buckwheat, and oilseeds (e.g. cotton seed, flax seed, rapeseed, soybean, and sunflower seed)

Produce that is used for personal or on-farm consumption

Farms that have an average annual value of produce sold during the previous three-year period of $25,000 or less

25

Exemption for Produce that is Commercially Processed

The rule provides an exemption for produce that receives commercial processing that adequately reduces the presence of microorganisms of public health significance, under certain conditions.

26

Comments to the Produce Safety Rules

Even after comments were addressed there are still

issues related to:

Confusion over the application to certain industries

Controversy over the exemptions

Entry of the FDA into the regulation of environmental

areas such as soil and water/interference with other

regulatory requirements

Practicality Cost

Additional regulatory/financial burdens

27

Routine Environmental/Product Test Results Submitted to FDA (FSMA § 202)

FDA accredited labs

W/30 months

Testing by FDA

accredited labs

mandated

Results sent directly to

FDA – makes developing

a strategy or re-testing

more difficult

28

Traceability (FSMA § 204)

Traceability – Pilot studies are ongoing

Although the Statute states that the FDA cannot

require:

A full pedigree or a record of the complete previous

distribution history of the food from the point of origin of

such food

Records of recipients of a food beyond the immediate

subsequent recipient of such food

Product tracking to the case level by persons subject to

such requirements

29

Companies Trying to Get Ahead of the Traceability Curve

Starbucks has implemented a product traceability program that enables the company to trace 100 percent of the raw materials in a particular product within four hours.

Darden Restaurants has implemented full product traceability for shelf life management and food safety crisis management with leading supply chain standards organization GS1.

Hormel Foods and Maple Leaf Farms have implemented pork product traceability back to the individual hog.

30

More Companies

Wal-Mart mandated certification by GFSI and Safe Quality Food (SQF) for all suppliers and uses meat traceability systems.

Costco manages suppliers and factory audits through its Traqtion system. Through its membership database, Costco can contact every customer who has purchased a recalled product.

Sysco, the country’s largest food service supplier, implemented an audit system for its ready-to-eat produce customers. It also has a GS1 Standards Initiative that enables the tracing back to all raw materials.

31

FSMA Summary

In summary, the FSMA statute contains

significant changes to the Food Safety

Law and required the FDA to promulgate

numerous regulations and policies, many

of which have yet to be finalized, as

indicated the Produce Safety Rule and

the Preventative Control Rules

32

How do these Issues Effect Food Liability

New statutory Standards of Care Identification of High Risk Foods

Increased reporting standards

More information in the public record Including recalls and testing results

Heightened public awareness

Increased Contractual/Indemnity Requirements

Increased Scrutiny of Insurance

Lower Thresholds for Recall

Reporting to the Registry

Detentions

33

More on How to Reduce Risk

Separate ownership of farm / retail / wholesale

Supplier agreements

To warrant, FSMA compliance - be specific

Make sure you have access to their records and

audits

Indemnification – unambiguous

Insurance – product, CGL, recall, AI, audit, cyber-

insurance, class action, chain insurance

34

Insurance

Sufficient coverage

Products

Recall

Sufficient limits

Involve legal counsel and

trusted broker who

understands the industry

and your business

35

Action Steps

Review and amend Supplier agreements (indemnification, insurance, compliance

with FSMA)

Insurance coverage (re-examine recall coverage)

Prepare for import compliance

Prepare for Inspections

Work with state/local officials on “friendly” food safety compliance

Recall plan and rehearsal

FDA inspection plan

Comment on rulemaking

36

Proposition 65

37

Warnings

Proposition 65 originated as an initiative approved by the people of California in 1986 to provide warning to consumers and employees, and essentially requires manufacturers to label products, or areas that contain these chemicals at levels that exceed certain thresholds.

.

38

Recent Cases

The cases seem to go through phases. The current of which include:

Seafood alleged to contain lead

Baby Food/ Fruits Juices alleged to contain lead.

Various vinyl products, aprons, purses and shoe alleged to contain phalates, tool handles

Restaurants-Alcohol and Smoke

Rice Products-Lead and Arsenic

Amazon

39

The Operative Language

Section 25249.6 California Health and Safety:

No person in the course of doing business shall knowingly and intentionally expose any individual to a chemical known to the state to cause cancer or reproductive toxicity without first giving clear and reasonable warning to such individual. Except as provided in Section 25249.10.

40

The Prop 65 List of Chemicals

Broad Range of Chemicals (over 850)

Includes a Number of Common Chemicals

Includes chemicals that are commonly

found in food and beverages

41

No Warning Requirement if the Levels are less than the NSRL and NOEL

(c) An exposure which… poses No Significant Risk [NSRL] assuming lifetime

exposure at the level in question for substances known to the state to cause cancer, (1 in 100,000 cancer risk)

and that the exposure will have No Observable Effect [NOEL] assuming exposure at one thousand (1000) times the level in question for substances known to the state to cause reproductive toxicity….based on evidence and standards of comparable scientific validity to the evidence and standards which form the scientific basis for the listing…The MADL Max Allowable Dose Level is determined from the NOEL.

In any action brought to enforce Section 25249.6, the burden of showing that an exposure meets the criteria of this subdivision shall be on the defendant.

42

Do You Need A Warning

How do you know whether you need a warning

Need to know what is in you product

Need to know whether under the dosage situation Whether you exceed the NOEL or in the case of reproductive

effects the MADL.

If there is no MADL or NSRL you need an Expert to Provide you with that opinion

What if you are over

Provide the appropriate warning

Or if you can find out what is causing the levels and reduce them, change or eliminate the ingredients.

Example Sports Drink.

43

Clear and Reasonable

A warning is considered “clear and reasonable” within the meaning of Section 25249.6 of the Act if it complies with all of the applicable requirements of the article.

The text of a warning must include the name(s) of the listed chemicals in the consumer product or affected area for which the warning is provided. If a warning for more than one endpoint is required, the name of all the chemicals for each endpoint must be included in the warning. The exception is where a listed chemical is known to cause both cancer and reproductive toxicity and this information has

been included in the warning.

44

Citizen Suit

Under Prop 65 Citizen Plaintiff obtains the right to proceed in the “Public Interest”.

It also obtains the right to seek penalties. 75% of which would go to the state and 25% to Plaintiff.

45

Summary Of New Regulations

In summary, there is new safe harbor language, a new website for consumers, and attempts to clarify liability as between manufacturers and retailers. The new regulations go into effect on August 30, 2018, new labels can however be used before that time. The language required by Consent Judgments is considered within safe harbor. The new labels contain language that requires the identification of at least one of the Proposition 65 chemicals in the product. The language for each of the types of warnings (i.e. environmental vs. product) has changed.

The emphasis is for liability to the manufacturer; along with additional duties toward vendors.

There is new web Proposition 65 site sponsored by OEHHA.

There are new symbols required on the safe harbor labels.

46

Safe Harbor Warnings

In order to avoid confusion the DTSC issued regulations that include the so-called safe harbor warnings that if used are presumptively sufficient.

Implicit Safe Harbor Language (and safe harbor exposure levels ) are also created by the language used in consent decrees.

47

Recent Changes to Warning Requirements

Overview Clarifies responsibilities to provide warnings Retains “safe harbor” approach for warnings to provide flexibility

for businesses. Includes changes to warning methods and content Provides for more specificity and clarity in warnings Added “tailored” warnings for specific kinds of exposure.

Examples: Food dental care, furniture, diesel engines, automobiles, recreational vessels, amusement parks.

48

New Label Requirements

Warnings are compliant only if they use one or more of the transmissions methods identified in 25602 and includes ALL of the following elements:

A symbol consisting of a black exclamation point in a yellow equilateral triangle with a bold black outline. Where the sign, label or shelf tag for the product is not printed using the color yellow, the symbol may be printed in black and white. The symbol shall be placed to the left of the text of the warning, in a size no smaller than the height of the word “WARNING.”

49

New Requirements. Cancer Cont.

The world “WARNING” in all capital letters and bold print; and:

The following sentence must be used for exposures to listed carcinogens:”

WARNING

This product can expose you to chemicals including [name of one or more chemicals], which is [are] known to the State of California to cause cancer. For more information go to www.P65Warnings.ca.gov.”

50

http://www.p65warnings.ca.gov/

New Requirements. Reproductive Harm Cont.

The following sentence must be used for exposures to listed reproductive toxicants:”

WARNING

This product can expose you to chemicals including [name of one or more chemicals], which is [are] known to the State of California to cause birth defects or other reproductive harm. For more information go to www.P65Warnings.ca.gov.”

51


Warning for Cancer and Reproductive

The following sentence must be used for exposures to both listed carcinogens and reproductive toxicants: “

WARNING This product can expose you to chemicals including [name of one or more chemicals], which is [are] known to the State of California to cause cancer, and [name of one or more chemicals], which is [are] known to the State of California to cause birth defects or other reproductive harm. For more information go to www.P65Warnings.ca.gov.”

52


Label Requirements

If the warning addresses a single chemical, the worlds “chemicals including” can be deleted from the above mandatory sentences.

(b)An on-product warning should use all of the following elements:

(1) The symbol requirements in subsection (a) (1)

(2) The word “WARNING” in all capital letters and in bold print.

(A) The warning for consumer products which cause exposure to a listed carcinogens must include the wording “Cancer – www.P65Warnings.ca.gov.”

53


Cont.Requirements

Warning symbol

Phase In:

Two-year phase-in period.

Effective date of regulation: August 30, 2018.

Consumer products manufactured prior to the effective date will not require new warnings if they meet existing safe harbor requirements.

Court-approved warnings expressly recognized and considered “clear and reasonable” for parties to litigation.

Tailored Warnings; in addition to the specific warnings listed above, the code has modified the warnings for the following categories:

54

Tailored Warnings

Environmental Exposure Occupational Exposure Specific Product, Chemical and Area Exposure Warnings Food Alcoholic Beverages Food and Non-Alcoholic Beverages Prescription Drug Exposure and Emergency Medical or Dental Care Exposure Dental Care Raw Wood Products Furniture Products Diesel Engines Vehicles Recreational Vessels Enclosed Parking Facilities Amusement Parks Petroleum Products Service Station and Vehicle Repair Designated Smoking Areas

55

Food Warnings

25607.1 Food Exposure Warnings - Methods of Transmission (a) Except as provided in subsection (b), a warning for food exposures, including dietary supplements, meets the requirements of this sub article if it complies with the content requirements in Section 25607.2 and is provided using one or more of the methods required in Section 25602.

56

Food Warnings

§ 25607.2 Food Exposure Warnings - Content (a) A warning for food exposures, including dietary supplements, meets the requirements of this sub article if it is provided via one or more of the methods specified in Section 25607.1 and includes all the following elements: (1) The word “WARNING” in all capital letters and bold print. (2) For exposure to a listed carcinogen, the words, “Consuming this product can expose you to chemicals including [name of one or more chemicals], which is [are] known to the State of California to cause cancer. For more information go to www.P65Warnings.ca.gov/food.” (3) For exposure to a listed reproductive toxicant, the words, “Consuming this product can expose you to chemicals including [name of one or more chemicals], which is [are] known to the State of California to cause birth defects or other reproductive harm. For more information go to www.P65Warnings.ca.gov/food.”

57

Alcohol

§ 25607.4 Alcoholic Beverage Exposure Warnings – Content (a) A warning for alcoholic beverages, including beer, malt beverages, wine and distilled spirits, complies with this sub article if it is provided using one or more of the methods required in Section 25607.3 and includes all the following elements: (1) The word “WARNING” in all capital letters and bold print. (2) The words, “Drinking distilled spirits, beer, coolers, wine and other alcoholic beverages may increase cancer risk, and, during pregnancy, can cause birth defects. For more information go to www.P65Warnings.ca.gov/alcohol.”

58

BPA/Used to Seal Can Seams and Plastic Containers

California's Office of Environmental Health Hazard Assessment (Oehha) has adopted a rule to extend Proposition 65 BPA warning provisions for canned and bottled food products through to the end of next year.

Warning for exposure to BPA has been required since 11 May, 2016 But Oehha enacted an emergency regulation on 19 April, 2016 to temporarily allow canned and bottled food and drink products to comply through uniform point-of-sale signs, in lieu of traditional product-specific warnings.

59

https://chemicalwatch.com/23784/




BPA Final Compliance Date

In December extended the final compliance date to December of 2017. Oehha included a new provision that will require manufactures using point-of-sale warnings to give the agency a list of products where BPA is intentionally added, to be published on the lead agency website.

60


Defenses: Naturally Occurring

No duty relative to the exposure if caused by chemicals that naturally occur in the food product.

Is a defense only to the extent you can prove that the chemical is naturally occurring by expert testimony- there can no man-made component.

May require extensive research going back to the place where it is grown.

Expensive and difficult to prove.

61

Defenses: Naturally Occurring

People ex rel. Edmund G. Brown Jr. v. Tri-

Union Seafoods, LLC, 171 Cal. App. 4th 1549

(2009)

Court found that the mercury that was in tuna

was naturally occurring, although the Court did

leave the door open for additional evidence

otherwise.

62

Environmental Law Foundation v. Beech-Nut et al (Alameda Superior Court 2013)

Recent case with respect to food and fruit juice with alleged lead levels

Court found:

No Federal Preemption

Insufficient Proof that the lead was Naturally Occurring

Did find that the Exposure Assessment was done correctly and allowed the use of average dosages over time, rather than looking at acute exposure

63

Examples of Listed Chemicals Relevant to Food

Products

Acrylamide- French fries, coffee, popcorn, cereals

PhiP- cooked or grilled chicken

Phthalates- handbags, shoes, exercise equipment, crafts, tools

Cadmium- jewelry, fertilizer, artist paint

Lead- handbags, shoes, jewelry, tools, juice, honey, supplements,

photo albums, paints

Arsenic- water filter systems, supplements

64

Attempt to Amend Prop 65

There is ongoing legislation in response to case law, and challenges to the lead threshold that would set statutory “naturally occurring” levels for lead in various types of food, to give industry a target level rather than having to prove it each time. Also attempts to clarify the

averaging dosage issue.

65

Prop 65 Conclusion

Know what is in your product

Make sure you have upstream indemnities from suppliers

Get insurance if you can

Cases are generally settled based on business decisions.

66

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F R E S N O V I S A L I A B A K E R S F I E L D L O S A N G E L E S S A C R A M E N T O

Contact Information

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www.mcguirewoods.com

Click to edit Master title style


FOOD BORNE ILLNESS CLAIMS

Jim Neale

McGuireWoods LLP

(434) 977-2582

[email protected]

McGuireWoods | 69 CONFIDENTIAL

TOPICS

I. Introduction to the Science of FBI Claims

II. Who’s Exposed to FBI Claims

III. Causes of Action and Defenses

IV. Establishing Causation in FBI Claims

V. Class Actions

McGuireWoods LLP | 70 CONFIDENTIAL

INTRODUCTION TO SCIENCE OF FBI CLAIMS

PATHOGENS (Bacterial, Fungal and Viral)

Incubation Period Symptomology

E.Coli 1-3 Days GI Symptoms/HUS

Salmonella 6-72 Hours GI Symptoms

Listeria 1-8 Weeks GI Symptoms

Staph 1-6 Hours GI Symptoms

Hepatitis 2-6 Weeks Jaundice/Liver Disease

Shigella 12-Hours to 6 Days GI Symptoms


VARIABLES AFFECTING VICTIMS

• Infectious Dose

• Host’s Immune System

– Age

– Piror Antibodies

– Pregnancy

– Infirmity

• HIV

• Steroid Use

• Acid Reflux/GERD

• Not Every Consumer Will Be Affected Identically


CAUSES OF ACTION

• STRICT LIABILITY

– § 402 Restatement

– Not Universally Recognized

• STATE PRODUCT LIABILITY LAWS

• NEGLIGENCE/NEGLIGENCE PER SE

• BREACH OF WARRANTIES

– Express Warranties

– Implied Warranties

• Merchantability

• Fitness for Human Consumption


POTENTIALLY RESPONSIBLE PARTIES

• MANUFACTURER

– Watch for “Open Box”/Cross Contaminant Defense

• DISTRIBUTOR

– Watch for Indemnity/Insurance Defense/Cross-Claims

• RETAILER

– Watch for Innocent Retailer Defense

• AUDITOR LIABILITY

– Primus Labs Cases


ESTABLISHING CAUSATION

• Patient Testing

– At Time of Illness

• Tissue (Blood) or Waste (Urine/Stool)

• Specificity

– Speciation/Grouping/Serotyping

– PFGE/WGS

– Post Illness Titre Testing

• Product Testing

– Not suitable for all products

– Culture v. PCR


PATIENT TESTING RESULTS

1. Wrong Serotype/Group/Bug

2. Negative Results

3. Missing Results

4. No Culture/Titre/Widal Taken

5. Titre/Widal Positive

6. Culture Postive, No Group, No Serotype

7. Culture Positive Grouped but no Serotype

8. Culture Positive and Serotyped

9. PFGE Match

10.PFGE Match plus Exposure

Salmonella

Salmonella Group C-1

Salmonella Tennessee

PFGE:

JNXX01.0010

JNXX01.0011

JNXX01.0026


Patient Testing (Wrong Bug)


Patient Testing (Negative Culture)


Patient Testing (Missing Results)


Patient Testing (Titre Positive)


Patient Testing (Culture Positive

Ungrouped/Unserotyped)


Patient Testing (Culture Positive and Serotyped)


PLASIBILITY OF CLAIM

Determine Temporal Plausibility

• Symptom Onset Consistent with Epi-

Curve?

• Symptom Onset Consistent with

Product Manufacture Date?


Incubation Period?


Recall Date?


SECONDARY METHODS OF ESTABLISHING

CAUSATION

• EXPERT OPINIONS

– CDC Probable Case Definition

– “Epi-Curve” Conformance

• INSPECTION RESULTS

– FDA Form 483

• INDUSTRY SELF REPORTING

– Reportable Food Registry

– USDA Rule 34-12

• COMMON EXPOSURE/ILLNESS

• RECALL

• ADVERSE APPEARANCE/SMELL/TASTE


CLASS ACTIONS

• COMMON IN

– Consumer Fraud Labeling

– Mass Outbreak Settlements

– Medical Monitoring

• EXCEPTION THOUGH IN

PERSONAL INJURY CASES

– Rule 23 Requirements

– Amchem

– ConAgra Peanut Butter MDL


Thank You


©2013 McGuireWoods LLP

HOW TO PAY FOR THE LOSSES

RESULTING FROM A

FOOD SAFETY PROBLEM

By

W. Hunter Winstead

Gilbert LLP

Washington, DC

[email protected]

(202) 772-2344

87

GOALS

• Identify common ways that companies

lose money due to food-related recalls

and claims

• Match losses with sources of recovery

• Suggest steps you can take now –

before a crisis hits

88

IDENTIFICATION OF RISK

• Risks inherent in business versus risks

voluntarily taken

•Catastrophic events versus accumulated

smaller risks

•Company-specific risks versus supply

chain risks

89

COMMON LOSSES & COSTS

• Costs of risk prevention

• Investigation costs

• Recall costs, including brand rehabilitation

• Damage to your own property

• Third party bodily injury and property damage

• Business interruption

• Downstream and supply chain claims

• Market fallout and shareholder claims

90

PROTECTING AGAINST RECOGNIZED RISK

The Four Corners of a risk control and risk transfer plan:

__

________________

__________________________

Compliance and Quality Control CrisisPreparation

Insurance Contract-based Protections

91

THE RISK TRANSFER MOSAIC

TORT

THIRD PARTY

INSURANCE

SPECIALITY INSURANCE

FIRST PARTY INSURANCE

INSURANCE PROCUREMENT REQUIREMENTS

ADDITIONAL

INSURED

FINANCIAL

INSTRUMENTS

INDEMNITIES

92

INDEMNITIES

• Which risks are covered

• How to draft and negotiate indemnities

• Enforceability issues

• Practical considerations

INSURANCE PROCUREMENT &

ADDITIONAL INSURED PROVISIONS

• Which risks are covered

• Proof of compliance (certificates of insurance)

• How additional insured provisions work

– Three different kinds of provisions

– Order of payments

– Subrogation and other potential problems

– Enforceability

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YOUR OWN INSURANCE PORTFOLIO

Types of Insurance:

• General Liability

• First Party Property

• Business Interruption/Contingent Business Interruption

• Contamination/Recall

• Directors and Officers/Errors and Omissions

• Other

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INSURANCE ISSUES

• Who is covered?

• What is covered?

• Exclusions

– Pollution/contamination/microbe

– Recall/sistership

– Crime, fraud, and intent-based exclusions

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CONTAMINATION & RECALL POLICIES

Two components:

1. Insurance Coverage

2. Claim prevention and response services

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• Insuring Agreement: “the Company agrees . . . to

reimburse the Insured for all or any Loss arising out of

Insured Events . . . .”

(XL form)

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Key Insured Events:

• Accidental Contamination:

“Accidental Contamination shall be: Error in the manufacture, production, processing,

preparation, assembly, blending, mixing, compounding, packaging or labeling (including

instructions for use) of any Insured Products; or

the introduction into an Insured Product of an ingredient or component that is, unknown to the

Insured, contaminated or unfit for its intended purpose; or

error by the Insured in the storage or distribution of any Insured Products while in the care or

custody of the Insured provided that the use or consumption of such Insured Products has led to

or would lead to:

i) bodily injury, sickness, disease or death of any person(s) or animals(s) physically manifesting

itself within three hundred sixty-five (365) days of use or consumption; or

ii) physical damage to or destruction of tangible property (other than the Insured Products

themselves).”

(XL Form)


Accidental Contamination – Key Issues:

• What is contamination?

• Link to bodily injury and property damage (Hot

Stuff and Little Lady)

• Recall or contamination as triggering event

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Key Insured Events:

• Malicious Contamination

– Definition: “The actual, alleged or threatened, intentional,

malicious and illegal alteration or adulteration of any Insured

Products, or the creation of Adverse Publicity implying such

alteration or adulteration, so as to give the Insured and/or the

public reasonable cause to believe that the Insured Products

have been or are likely to be rendered dangerous or unfit for the

use for which they were intended by the Insured.” (XL Form)

– Actual contamination versus extortion

– Terrorism versus extortion

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• Categories of first party loss

– Recall costs

– Rehabilitation costs

– Lost profits (how calculated?)

– Preventative and testing costs

– Investigations

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• Other important terms

– Third party loss

– Sublimits

– Calculating and tracking loss


• Some key exclusions and limitations

– GMO and specialized causes of loss

– Crime and misconduct exclusions

– Unidentified products and new product lines

• Other issues

– Limits, deductibles, and response costs

– Timing of claim (claims-made coverage)

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WHAT TO DO NOW

1. Immediate steps:

• Conduct risk and insurance audit using outside counsel and/or

independent broker

• Implement cost-tracking procedures

• Put insurance and indemnity requirements into response plan

And, most importantly, clarify goals to ensure preventative and

response procedures meet business objectives

2. If a crisis happens:

• Early decisions matter (notice, cooperation, counsel selection, etc.)

• Immediate and effective coordination of defense and insurance

strategy

• Working with insurers effectively

• Resolving disputes with insurers and within supply chain

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THANK YOU

W. Hunter Winstead

Gilbert LLP

Washington, DC

[email protected]

(202) 772-2344

Documents

Food Safety Regulation and Litigation: Minimizing the Risk ...media.straffordpub.com/products/food-safety-regulation-and-litigation... · two most significant for food processors,