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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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L E E N . S M I T H
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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
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
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
L E E N . S M I T H
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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
67
www.mcguirewoods.com
Click to edit Master title style
www.mcguirewoods.com
FOOD BORNE ILLNESS CLAIMS
Jim Neale
McGuireWoods LLP
(434) 977-2582
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
McGuireWoods LLP | 71 CONFIDENTIAL
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
McGuireWoods | 72 CONFIDENTIAL
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
McGuireWoods LLP | 73 CONFIDENTIAL
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
McGuireWoods | 74 CONFIDENTIAL
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
McGuireWoods | 75 CONFIDENTIAL
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
McGuireWoods | 76 CONFIDENTIAL
Patient Testing (Wrong Bug)
McGuireWoods | 77 CONFIDENTIAL
Patient Testing (Negative Culture)
McGuireWoods | 78 CONFIDENTIAL
Patient Testing (Missing Results)
McGuireWoods | 79 CONFIDENTIAL
Patient Testing (Titre Positive)
McGuireWoods | 80 CONFIDENTIAL
Patient Testing (Culture Positive
Ungrouped/Unserotyped)
McGuireWoods | 81 CONFIDENTIAL
Patient Testing (Culture Positive and Serotyped)
McGuireWoods | 82 CONFIDENTIAL
PLASIBILITY OF CLAIM
Determine Temporal Plausibility
• Symptom Onset Consistent with Epi-
Curve?
• Symptom Onset Consistent with
Product Manufacture Date?
• Symptom Onset Consistent with
Incubation Period?
• Symptom Onset Consistent with
Recall Date?
McGuireWoods | 83 CONFIDENTIAL
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
McGuireWoods | 84 CONFIDENTIAL
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
McGuireWoods LLP | 85 CONFIDENTIAL
Thank You
www.mcguirewoods.com
©2013 McGuireWoods LLP
HOW TO PAY FOR THE LOSSES
RESULTING FROM A
FOOD SAFETY PROBLEM
By
W. Hunter Winstead
Gilbert LLP
Washington, DC
(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
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THE RISK TRANSFER MOSAIC
TORT
THIRD PARTY
INSURANCE
SPECIALITY INSURANCE
FIRST PARTY INSURANCE
INSURANCE PROCUREMENT REQUIREMENTS
ADDITIONAL
INSURED
FINANCIAL
INSTRUMENTS
INDEMNITIES
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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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CONTAMINATION & RECALL POLICIES
• 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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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)
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
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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
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CONTAMINATION & RECALL POLICIES
• Categories of first party loss
– Recall costs
– Rehabilitation costs
– Lost profits (how calculated?)
– Preventative and testing costs
– Investigations
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CONTAMINATION & RECALL POLICIES
• Other important terms
– Third party loss
– Sublimits
– Calculating and tracking loss
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)
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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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