Food Safety Regulation and Litigation: Minimizing the Risk of - PowerPoint PPT Presentation

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. 25

Produce Safety Rules  Proposed rule to establish science-based standards for growing, harvesting, packing and holding produce on domestic and foreign farms  FDA proposes to set 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 26

Comments to the Produce Safety Rules  The comments on these broad reaching rules were so extensive the dates to respond were rescheduled  Major issues relate to :  Confusion over the application to certain industries  Controversy over the exemption  Entry of the FDA into the regulation of environmental areas such as soil and water  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  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

Foreign Supplier Verification Program (FSMA § 301)  Importers required to perform “risk -based foreign supplier verification activities”  FDA required to determine content of program within 1 year  Importer: U.S. owner or consignee of food at the time of entry into U.S. or U.S. agent or representative of foreign owner or consignee 30

Voluntary Qualified Importer Program ( FSMA § 302)  FDA shall “provide for the expedited review and importation of food” for importers who participate voluntarily  Will require third-party certification  Importer: “the person that brings food, or causes food to be brought, from a foreign country into the customs territory of the United States” 31

Import Certifications ( FSMA § 302)  FDA may require third-party certification as a condition of import  FDA can create system of accreditation for auditors  Program may be funded through fees imposed on auditors 32

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 33

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 34

When to Involve Legal Counsel ?  Before inspection/investigation  Earliest possible juncture  Good lawyer will not escalate situation  Attorney-client communication may be protected 35

Appropriate Strategy & Relationship with FDA  Cooperative but firm  Understand communication is one-way  Understand and assert rights  Role-play during recall rehearsal 36

FDA Inspection Plan  Who will be involved?  Involve your attorney  Documents to be released and signed  If documents are going to be released, have a standard “FOIA Letter.” (No right to disclose trade documents)  Test results  Photographs  Interviews (who and review of legal counsel)  Plan protected by privilege? 37

Recalls Happen Our manufacturing process is cautiously and carefully monitored at all times to ensure a safe, clean, bacteria-controlled environment - from the selection of the finest source products, throughout production to testing of the finished product. We take quality and safety very seriously. Topps has steadily and attentively developed standards and procedures to make certain we manufacture a safe product. We are fully compliant with all USDA Good Manufacturing Practices, and we have fully adopted and closely follow a HACCP (Hazard Analysis and Critical Control Point) program. Topps Meat Company consistently employs technologically advanced equipment and our own safety innovations to create great tasting, quality products. 38

Recall Alone Can Be a Death Sentence After Extensive Beef Recall, Topps Goes Out of Business In a statement, Anthony D’Urso, the chief operating officer at Topps, in Elizabeth, N.J., said that the company “cannot overcome the reality of a recall this large.” He added, “This has been a shocking and sobering experience for everyone.” Executives at Topps, which made frozen hamburgers and other meat products for supermarkets and mass merchandisers, declined to discuss how and why the Workers leaving the Topps Meat plant in Elizabeth, N.J., on Friday. company collapsed so quickly, or whether they could The company, which opened in 1940, went out of business shortly after it issued a recall that expanded to 21.7 million pounds of ground beef. have taken steps earlier to protect consumers or to head off the plant’s closure. Source: http://www.nytimes.com/2007/10/06/us/06topps.html?_r=2 39

Potential Recall Event : What to Do  Follow recall plan that is in place  Log events, actions, and communications  Record all reported injuries  Document investigation  Institute litigation “hold” / retain all documents including electronic emails  Cooperate and communicate with government officials 40

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 41

Careful Review of Supplier/Vendor Agreement [Make sure they reflect your insurance coverage] Seller agrees to defend, indemnify and hold harmless Buyer [Indemnity only as strong as indemnitor] … for the recovery of damages… arising out of or alleged to have arisen out of (a) the delivery, sale, resale, labeling, use or consumption of any Product… 42

Careful Review of Supplier/Vendor Agreement ( cont .) Seller’s insurance described herein shall be primary and not contributory with Buyer’s insurance. Buyer shall be named as an additional insured… waivers of subrogation 43

Insurance  Sufficient coverage  Products  Recall  Sufficient limits  Involve legal counsel and trusted broker who understands the industry and your business 44

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 45

Contact Information LEE N. SMITH WEINTRAUB | TOBIN 400 CAPITOL MALL, SUITE 1100 SACRAMENTO, CALIFORNIA 95814 916-558-6000 LNSMITH@WEINTRAUB.COM 46

Food Safety Claims: Products Liability Issues Mastering the Standards for Fault, Causation, and Damages in Foodborne Illness Litigation By Felicity A. McGrath fmcgrath@bonnerkiernan.com Bonner Kiernan Trebach & Crociata, LLP 1233 20 th Street, N.W., 8 th Floor Washington, DC 20036 (202) 712-7000 Phone (202) 712-7100 Fax

The Food Safety Products Liability Claim  Each year, roughly 1 in 6 people in the United States becomes ill from eating contaminated food MO MOST ST CO COMM MMON ON PAT PATHO HOGENS GENS E. Coli O157:H7 Campylobacter Salmonella 48

Number of E. Coli O157:H7 Illnesses by Vehicle TOTAL ILL: 3,319 (2005-2009) Chicken Tenders Unkown Ground Beef 32% 19% Cookie Dough Fruit/Vegitable Other Beef Products Chicken Tenders 2% Guacamole Cookie Dough 3% Lettuce/Salad/Spinach Fruit/Vegitable 1% Other Foods Milk Products 3% Other Beef Products 8% Milk Products Other Foods 6% Guacamole Unkown 4% Ground Beef Lettuce/Salad/Spinach 22% 49 *Foodborne Outbreak Online Database (FOOD); Center for Disease Control and Prevention http://wwwn.cdc.gov/foodborneoutbreaks/

Number of E.Coli Illnesses by Vehicle Excluding O157:H7 TOTAL ILL: 897 (2005-2009) Unkown Guacamole Salad 6% Sprouts 2% Fruit Unkown Milk 65% (unpasturized) 2% Cheese (pasturized) Milk (unpasturized) Cheese (pasturized) 15% Sprouts Fruit 1% Guacamole Salad 9% 50 *Foodborne Outbreak Online Database (FOOD); Center for Disease Control and Prevention http://wwwn.cdc.gov/foodborneoutbreaks/

Number of Campylobacter Illnesses by Vehicle TOTAL ILL: 3,809 (2005-2009) Unpasturized Cheese 6% Fruit/Vegitables Unkown Other Foods 12% Meat Shellfish 7% Shellfish Unpasturized Milk Unkown Meat 60% 9% Unpasturized Cheese Other Foods 2% Unpasturized Milk Fruit/Vegitables 4% 51 *Foodborne Outbreak Online Database (FOOD); Center for Disease Control and Prevention http://wwwn.cdc.gov/foodborneoutbreaks/

TOTAL ILL ANNUALLY: Number of Salmonella Illnesses by Vehicle 1,000,000 2004-2008 Vine Vegitables Other Poultry Fruits and Nuts 20% 13% Eggs Beef 8% Pork Beef Pork 12% Vegitables, Fruits, and Nuts Poultry Other 29% Eggs 18% 52 *Foodborne Outbreak Online Database (FOOD); Center for Disease Control and Prevention http://wwwn.cdc.gov/foodborneoutbreaks/

Number of Listeria Illnesses by Vehicle TOTAL ILL: 98 (2005-2009) Unkown 14% Cheese Cheese Tuna Salad 35% Chicken/Ham/Turkey 5% Taco/ Nacho Salad Milk 2% Sprouts Taco/Nacho Salad Tuna Salad Sprouts 20% Unkown Chicken/Ham/Turkey 19% Milk 5% 53 *Foodborne Outbreak Online Database (FOOD); Center for Disease Control and Prevention http://wwwn.cdc.gov/foodborneoutbreaks/

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Recent Significant Outbreaks E. E. COLI LI O15 157:H7 7:H7 ( 2013 2013 ) Re Read ady to E o Eat at S Sal alad ads (Glass Onion Catering, California)  33 people infected with outbreak strain from 4 states  7 hospitalizations and two ill persons developed HUS  Ready to Eat Salads containing chicken, STECO157:H7 PFGE pattern new to to Pulsenet database. Unclear what product caused illness. SA SALMONELL LMONELLA A HEIDELBE EIDELBERG RG ( 2013 2013 ) Chicken (Fo Ch en (Foster ter Fa Farms ms, Ca Califor orni nia) a)  Outbreak in 25 states affecting 524 people, 37% hospitalized  Antibiotic resistant strains LI LISTERIA STERIA ( 2011 2011 ) Ca Cant ntal alou oupe pe (Jensen Farms of Colorado)  Outbreak in 28 States affecting 143 people  33 reported deaths 56

Enterohemorrhagic E. coli H7 E. E. c col oli 01 0157 57: H7 Def efin init itio ion One of over 180 types of E. coli. Causes Diarrhea, and Hemolytic Uremic Syndrome Com ommo mon n Rou oute te of of Tr Transmi ansmission ssion Foodborne/waterborne Person to person Sym ymptoms ptoms Mild Diarrhea to severe stomach cramping, watery stool followed by bloody diarrhea In Incub ubati ation on Per eriod iod 1-9 days Com ommu municabil nicabilit ity Peri eriod od While culture positive Tr Trans ansmi mission ssion Cattle, undercooked contaminated ground beef, apple cider, recreational water supply, raw milk, mayonnaise, person-to- person transmission (i.e. day care centers or nursing homes), soil, chickens, lamb, pork, lettuce, salami, beef jerky, radish sprouts, alfalfa sprouts, cantaloupe, and fresh potatoes Dia iagn gnos osis is in in Pe Peop ople le Stool culture 57

Campylobacter Cam ampylob pylobact acterios eriosis is De Defini nition on A bacteria best known for causing diarrhea Co Comm mmon on Ro Rout ute o e of Foodborne/waterborne person to person Tr Tran ansmi smiss ssion on Sy Symp mptoms oms Most common symptoms: nausea and vomiting Only 1/3 with diarrhea Of those with Diarrhea only, 1/3 experience vomiting and abdominal cramps Inc ncub ubat ation on Pe Period od 1-10 days Co Comm mmun unicab cability Pe ty Period od While culture positive Tr Tran ansmi smiss ssion on Food (chicken, beef), milk, water, person-to- person, contact with dogs Diag Di agno nosis s in n Pe Peop ople Stool culture 58

Salmonella Sal Salmone monellosis losis (B (Bacteria) acteria) Definition finition Common bacterial cause of diarrhea. May lead to sepsis, and arthritis Common mmon Route ute of f Foodborne/waterborne Person to person Tr Transmission nsmission Symptoms ptoms Nausea, vomiting, fatigue, cramps, loss of appetite, diarrhea (may be bloody), chills, fever In Incubation cubation Pe Period riod 6-72 hours Communicability mmunicability Period iod Days to months while stool positive Tr Transmission nsmission Beef, pork, poultry, eggs, dairy products, fish, potato salad, water, tomatoes, sprouts, cantaloupe, dogs, cats, pet turtles, lizards, and orange juice Diagnosis agnosis in People ople Stool culture 59

Listeria Li Listerio teriosis sis Definition finition An invasive bacterial infection spreading beyond gastrointestinal tract with varied symptoms Common mmon Route ute of Tr f Transmi ansmission ssion Foodborne, waterborne; Person to person Multiplies in refrigerated contaminated foods Symptoms ptoms Fever, muscle aches, diarrhea, nausea, vomiting, meningeal irritation, lesions at infection site Host dependent manifestations affected by age, immune system, pregnancy, etc. In Incubation ubation Period riod Extremely variable period ranging from 3-70 days, but averages 21 days Communicability mmunicability Period iod Several months in positive stool; 7-10 days in post- delivery mother ’ s urine and discharge Tr Transmission nsmission Raw or unpasteurized milk products, cantaloupe, raw vegetables, raw deli meats, hot dogs, bologna, fish, etc. Diagnosis agnosis in People ople Stool culture 60

Norovirus Nor orovirus ovirus Definition finition An invasive bacterial infection spreading beyond gastrointestinal tract with varied symptoms Common mmon Route ute of Tr f Transmi ansmission ssion Foodborne; Person to person, remains on surfaces touched by infected persons Symptoms ptoms Diarrhea, nausea, vomiting, Fever, muscle aches, stomach pain. Incubation In cubation Pe Period riod 24 to 48 hours after first exposure to the virus. Communicability mmunicability Period iod While ill with the virus and for up to three days after recovery. Tr Transmission nsmission Contaminated food and water, (leafy greens, fresh fruit, shellfish), person to person, touching contaminated surface Diagnosis agnosis in People ople Symptoms and Stool culture 61

FoodNet  Foodborne Disease Active Surveillance Network (Foodnet)  Multi-state/agency collaborative project involving the CDC, 10 states, the USDA, and the FDA since 1995  Conducts surveillance on Campylobacter, STECs, Listeria, Salmonella, Shigella, Cryptosporidium, Cyclospora, Vibrio and Yersinia Pestis  Performs studies for infection risk reduction, disease prevention, disease response  Enhance scope of knowledge available to officials and the general public on foodborne illness  Publishes data on laboratory confirmed infections, illness outbreaks, comparative trends in illness rates, vehicle of contraction, and other pertinent information 62

PulseNet Detects foodborne illness by using pulsed-field gel electrophoresis (PFGE)  Developed in the wake of the 1993 E. coli O157:H7 outbreak originating from  the Jack in the Box restaurant chain Compares PFGE patterns of bacteria isolated from afflicted persons to  determine similarities and to rapidly identify outbreaks Stores collected local data in a shared national database to determine  geographical patterns of illness and identify cause and source of illness much faster than previous methods of detection Reduces misclassification and error at each level of reporting (local, regional,  national) Provides surveillance of foodborne illness data  63

Other Foodborne Illness Surveillance NARMS (National Antimicrobial Resistance Monitoring System) Monitors antimicrobial resistance in intestinal bacteria isolated from humans,  retail meats and food animals CDCs primary role is to track and report antibiotic resistance in enteric bacteria  isolated from people who have infections caused by Salmonella, Campylobacter, E.Coli O157:H7, Shigella or Vibrio species. CaliciNet (National Electronic Norovirus Outbreak Network) Links norovirus clusters to outbreaks with common food source. Allows public  health agencies to determine which samples part of outbreak Begun in 2009, currently has 25 states participating. Linked to National  Outbreak Reporting System. 64

USDA ’ s “ Big Six ” Regulation  Establishes illegality of selling raw beef products contaminated with E.Coli strains 026, O45; O103; O111; O121; and O145 ( O104:H4, responsible for the German outbreak not included )  Rule applies to ground beef, beef trims and scraps, machine and needle tenderized steaks, and others USDA food inspection to launch program that tests for and detects the 6 strains in products entering commerce; designed as a preventive, not reactive, program. Food Safety Modernization Act (FSMA)  Inspection and Compliance •FDA classifies fresh produce generally as “high risk” product for purposes of inspection priority.  Response  Enhanced Partnerships Foreign supplier verification program Preventive controls for animal feed facilities Preventive controls for food facilities Produce safety regulations (standards for growing practices on the farm) 65

Identifying Outbreaks  Consumption of contaminated food  Doctor ’ s visit or hospital visit  Stool culture  Testing for appropriate pathogens  Positive finding reported to the health department  Health department investigation 66

Delineating Fault PR PRODUCTS ODUCTS LIA IABI BILIT ITY 1. On Only y issu ssues s to to b be d deci cided are ca causa satio tion and d damages Are you the manufacturer or retailer?  Was the product contaminated or unsafe?  Did the product cause injury?  2. Wa Was t s this s an o outb tbreak k or a s single gle iso sola late ted occ ccurre rrence nce? Outbreak: Defined as 2 or more people getting sick from the same source around the  same time 67

Delineating Fault Single Isolated Occurrence:  Individual claims they ate your product or ate at your restaurant and became ill  Even though it is a product liability theory you can bring in everything that you did to prevent illness when arguing causation 68

Delineating Fault WHY THE ILLNESS WAS NOT CAUSED BY YOUR FOOD PRODUCT  Go up the chain of distribution to the point of sale to prove wholesomeness (from farm to fork).  It is important that you not only show why the illness was not caused by your product but also what the most likely source was The most likely source can be, but does  not have to be, a food source: - Person-to-person transfer - Recreational water - Petting zoos - Other meals, etc. 69

Outbreaks SEVERAL DIFFERENT WAYS TO APPROACH THE DEFENSE Questioning the source of the outbreak  DNA fingerprinting through:  1. PFGE (Pulsed Field Gel Electrophoresis) 2. MLVA (Multiple-Locus Variable Number Tandem Repeat Analysis) CULTURE POSITIVE?  Claimants that were treated and have a positive stool culture  Claimants that were treated but have no stool culture  Claimants that were not treated and have no stool culture 70

Delineating Fault OT OTHER ER POT POTENT ENTIAL IAL SOURCES SOURCES NEW EW JERSE ERSEY TACO ACO BE BELL LL E. E. COLI LI LI LITIGA IGATIO TION  Great Lakes Cheese and Ready Pac lettuce  Cheese was pasteurized  Cheese came from two different distribution chains with different sources for the product 71

Delineating Fault OTHER SOURCES OF FAULT Jensen Farms – Cantaloupe Listeria Outbreak Listeriosis Monocytogenes  First documented listeriosis outbreak associated with whole fruit or vegetable raw agricultural commodity. Liability Picture  Jensen Farms – bankrupt  Bio – Food Safety – 3 rd party audit – bankrupt  Primus Labs  Packing Equipment Maker – Pepper Equip Corp.  Broker/Shippers  Retailers 72

How To Best Position the Litigation CL CLAS ASS S AC ACTI TION ON  - CAFA - FRCP 23 ST STAT ATE E CO CONS NSOL OLIDA DATI TION ON  MDL MDL  - 28 USC Sec. 1407 - Judicial Panel on Multi-District Litigation - In Re ConAgra Peanut Butter Products Liability Litigation, MDL No. 1845 - In Re Pet Food Products Liability Litigation, MDL No. 1950 - In Re McDonald's French Fries Litigation, MDL 1784 - Consolidation in one Federal District Court - For purposes of discovery - Tagalongs 73

How To Best Position the Litigation SETTLEMENT Contacting claimants first  Matrix settlement  Resolve entire case load wholesale  Only culture positives  Settle as a class  - Prevents other claims unless opted out 74

How To Best Position the Litigation STRATEGIES TO AVOID PUBLICITY At ou t outset tset in an outbreak tbreak – can ’ t t be avoided oided  - There is a public interest in learning about the outbreak In In single ngle isolated olated occurrence currence – negat gative ive publi blicity city can n be minimi nimized zed  - Get your message out - Be positive and confident - Reassure your customers - Investigate early and determine if your product made the claimant sick A. If the answer is “ yes ” – get the case settled B. If the answer is “ no ” – you still have to do what is best to protect your brand 75

Controlling the Aftermath Working out strategies with Plaintiff ’ s counsel  - Example: press conference on courthouse steps Private Trial   Incentives for Plaintiffs - High/Low Agreement - Finality – No Appeals - Early Resolution Agreements to remove information about the outbreak from Plaintiff ’ s  counsel ’ s website Confidential settlement agreements and sealing the file  76

Controlling the Aftermath RECALLS Must plan for ahead of time  - During an outbreak is NOT the time to develop a recall plan - Have a crisis team in place - Have a call center plan - Have sample responses prepared for people answering customer complaints - Can be outsourced or use your third-party administrator Have sample recall notices and websites set up  Work with a company that specializes in recalls to help you through the  process 77

Food Safety Claims: Products Liability Issues Mastering the Standards for Fault, Causation, and Damages in Foodborne Illness Litigation By Felicity A. McGrath fmcgrath@bonnerkiernan.com Bonner Kiernan Trebach & Crociata, LLP 1233 20 th Street, N.W., 8 th Floor Washington, DC 20036 (202) 712-7000 Phone (202) 712-7100 Fax

HOW TO PAY FOR THE LOSSES RESULTING FROM A FOOD SAFETY PROBLEM By W. Hunter Winstead Gilbert LLP Washington, DC winsteadh@gotofirm.com (202) 772-2344

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 80

IDENTIFICATION OF RISK • Risks inherent in business versus risks voluntarily taken • Catastrophic events versus accumulated smaller risks • Company-specific risks versus supply chain risks 81

DETAILS, DETAILS, DETAILS • “I do business in China, and I’m worried about my supply chain.” • Versus : “I am concerned about: − Uncertainty of quality control, storage, and expiration dates; − Uncertainty of shipping disruptions (weather, pandemic, piracy); − Uncertainty from poor working conditions or worker health; − Uncertainty of chemical/radiation exposure; − Uncertainty of business practices (FCPA).” 82

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 83

PROTECTING AGAINST RECOGNIZED RISK  The Four Corners of a risk control and risk transfer plan: __________________ Compliance and CrisisPreparation Quality Control __________________________ Contract-based Insurance Protections 84

THE RISK TRANSFER MOSAIC TORT THIRD FIRST PARTY SPECIALITY PARTY INSURANCE INSURANCE INSURANCE INSURANCE INDEMNITIES PROCUREMENT FINANCIAL ADDITIONAL REQUIREMENTS INSTRUMENTS INSURED 85

INDEMNITIES • Which risks are covered • How to draft and negotiate indemnities • Enforceability issues • Practical considerations 86

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 87

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 88

INSURANCE ISSUES • Who is covered? • What is covered? • Exclusions – Pollution/contamination/microbe – Recall/sistership – Crime, fraud, and intent-based exclusions 89

CONTAMINATION & RECALL POLICIES Two components: 1. Insurance Coverage 2. Claim prevention and response services 90

CONTAMINATION & RECALL POLICIES • Insuring Agreement : “the Company agrees . . . to reimburse the Insured for all or any Loss arising out of Insured Events . . . .” (XL form) 91

CONTAMINATION & RECALL POLICIES 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) 92

CONTAMINATION & RECALL POLICIES 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 93

CONTAMINATION & RECALL POLICIES 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 94

CONTAMINATION & RECALL POLICIES Key insured events: • Other triggering events – Governmental action (impact of FSMA on triggers) – Adverse publicity (what of industry-wide adverse publicity?) – Impaired ingredient – Others 95

CONTAMINATION & RECALL POLICIES • Categories of first party loss – Recall costs – Rehabilitation costs – Lost profits (how calculated?) – Preventative and testing costs – Investigations 96

CONTAMINATION & RECALL POLICIES • Other important terms – Third party loss – Sublimits – Calculating and tracking loss 97

CONTAMINATION & RECALL POLICIES • 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) 98

CONTAMINATION & RECALL POLICIES • Preventative and Crisis Response Provisions – What is covered? – Typically, no deductible applies – Mandatory or voluntary – When is this useful? 99

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 100