Product recalls are a stressful demand on any business and a time when the company concerned looks to their insurance to help cover the many expenses involved. When this pet food production company had their initial product recall insurance claim denied on a technicality our claims advocacy team stepped in to resolve the issue.
Claim case: product recall support denied
The client was a family-owned and operated business specialising in the production of high-quality pet food products and ingredients. They submitted a claim to their insurer after being compelled to activate a product recall due to contamination of one of their products.
The insurer declined the claim on the grounds that the contamination resulted from a design flaw, which they argued was excluded under the policy.
The terms of the policy stipulated that any contamination must have been accidental and occurred during the production, preparation, manufacture, packaging or distribution of the recalled product.
To support this position, the insurer engaged a loss adjuster, who concluded that the "root cause of the contamination was the design of the insured product", and that the client's design process would "inevitably" result in product damage.
Resolution
The Gallagher claims team challenged the loss adjuster's conclusions due to a lack of specific expertise in manufacturing processes, which led to the cause of the issue being speculative and therefore unsuitable as evidence to decline indemnity.
Importantly, not all of the product was contaminated, which typically would be expected if the root cause was a design flaw.
Gallagher emphasised that our client had no intention of producing a product that could cause damage, harm their reputation or result in financial loss ‒ and that the contamination was accidental.
We then submitted a formal presentation to the insurer, outlining two key points:
- that the policy cover terms were, in fact, triggered
- and the design exclusion did not apply.
We also proposed that the client engage a suitably qualified manufacturing expert to prepare a causation report. The claims team collaborated closely with both the client and the expert to ensure a comprehensive overview of the circumstances leading to the contamination and to provide clear instructions for the report. The expert concluded that the contamination resulted from multiple process failures and not from a design flaw.
Gallagher then sought a second opinion from a local panel law firm, which independently agreed with our position.
After negotiation and thanks to the extensive work and persistence of the claims advocacy team, the insurer ultimately agreed to pay a settlement of $575,000.
The Gallagher difference
Our team's knowledge of the policy, situation and their attention to detail enabled the claims advocate to successfully argue the validity of the claim.
By leveraging the specialist's report and applying detailed understanding of the policy to support our client, we were able to overturn the initial rejection and have the claim accepted and paid by the insurer.
