The general definition of a recall that is covered by recall insurance is “the recovery of products from the market or users after public announcement of the recall for the reason that product defects have caused personal injury or property damage to third parties or a reasonable determination that there is a high probability that such injury or damage will be caused.”
The details of indemnification provided by recall insurance vary by the insurer and insurance policy, but the general details of indemnification are as follows. Of the expenses indicated below, only the portion specially incurred as a result of the recall is covered.
- Expenses for replacement, repair, or re-acquisition of defective products, whichever is least expensive
- Advertising expenses
- Communications and administrative expenses
- Labor cost
- Cost for subcontractors and temporary workers
- Shipping and packaging expenses
- Warehouse and storage cost
- Disposal cost
The exclusions that are generally not covered by insurance benefits are as follows.
- Intentional and bad-faith conduct by the policyholder or insured
- False labeling regarding product durability, effectiveness, or quality or violations of laws and regulations
- Incidents occurring after the valid period or use deadline
- Natural wear and tear, deterioration, and corrosion
- Incidents resulting from matters known or that should have been known prior to the commencement of insurance coverage
- Expenses relating to maintenance or recovery of market share, credit worthiness, reputation, or profits
- Decreased product sales caused by the results of announcement of the recall
- Fines or penalties imposed by governmental agencies, punitive damages, or double indemnification
In addition, it is generally necessary to set a deductible or reduced compensation rate (the percentage of damage that exceeds the amount of the deductible covered by insurance benefits).
Based on interviews with customers and independent research conducted by Marsh, we understand the risks relating to recalls and are able to design tailor-made recall insurance.
