Risk Management
Product Recall
At Easter 2007, Cadbury Schweppes had recalled a range of chocolate eggs because the packaging did not contain the correct nut allergy labelling. This follows a highly publicised episode last year in which Cadbury recalled a million chocolate bars due to the risk of salmonella contamination.
One recent view suggests that product recall in the consumer sector has increased by as much as 20% in the past years.
Businesses are becoming increasingly concerned by the damage that faulty products can do their reputation and the potential of such incidents have to result in litigation.
Product liability can be traced back at least as far as an evening in August 1928, when May McAllister allegedly found a decomposed snail in a ginger beer bought by her friend in Wellmeadow Café, Paisley.
If releasing to market an unsafe product results in potential liabilities to consumers, it follows that one means of limiting such liabilities is to attempt to recall the product.
Since the Consumer Protection Act 1987, consumers have not needed to show negligence on the part of manufactures of defective products.
The underlying objective of the regulations is to ensure that consumer products placed on the market are safe.
Producers are obligated to adopt measures that enable them to take appropriate action to avoid the risks their products might pose, including, where necessary, withdrawal, adequately and effectively warning to consumers as to the risks or, as a last resort, recall. Distributors are under a general duty to help ensure compliance with applicable safety requirements, and to participate in the monitoring of the safety of products placed on the market; for example, producing and maintaining the documentation required for tracing the origins of those products.
The enforcement authorities' powers now include the power to order mandatory recalls.
The experience of Cadbury following the salmonella scare last year is likely to have encouraged producers to lean even more on the side of caution under the new regime.
- In August 2006, Cadbury announced lost sales of £5m
- Recall costs had amounted to some £13m
- The share price fell 1.1% over one month
Recall Insurance
The London market has historically been at the forefront of pioneering broader covers, under which not only the costs of public withdrawal, announcing withdrawal, as well as shipping and disposal or losses for product tampering are covered, but also consequential loss of profits and additional costs incurred in mitigating losses, by both the manufacturer and their customers.
As well as considering product recall options, companies should work towards putting a product recall strategy in place. A plan will help any company become more prepared to get a product out of the supply chain as quickly as possible, deal with public relations, additional product testing, planning and execution of the recall as well as third party claims.
October 2007