If you operate a business that prepares and serves food to the public, you know how important it is to prevent food contamination. It’s critical to the health and safety of your customers to ensure a manufactured food item is free from allergens and other contaminants.
However, accidents can happen. Equipment can break during the manufacturing process, allowing foreign contaminants to enter the production line. Errors can lead to allergens being introduced. Or, a simple copy reviewing mistake can leave an allergen warning off a label.
Each of these could lead to serious illness, injuries, or even death.
Packaging errors, marketing mistakes, and ingredient recalls all carry the potential to become liability claims. To protect your business, you need product liability insurance that covers food contamination and recalls.
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What is product liability insurance?
Product liability insurance is designed to protect your business from claims that someone was injured by one of your products. This can be harm from eating a contaminated food item, or it can be harm caused by improper labeling or instructions.
Product liability insurance will help to cover legal costs associated with contaminated food claims. Without this form of insurance coverage, a business would likely have to cover these costs out of pocket, which could be extremely costly.
If your food manufacturing business makes a product or ingredient used in another company’s food manufacturing business, you will likely need to provide evidence that you carry product liability insurance.
What type of product liability insurance do I need as a food manufacturer?
Food manufacturers need coverage that is typically called food and beverage liability insurance, sometimes also called food product liability insurance or food and beverage manufacturers insurance.
This is usually additional coverage, purchased in addition to a business’s general liability insurance coverage—but some insurers will bundle product liability insurance as part of a Business Owners Policy.
What types of food manufacturing businesses need product liability insurance?
Any business that makes food destined for consumption needs some form of product liability insurance coverage. This applies to a small, home-based cookie baking business all the way up to a factory that processes, packages, and ships food—and everything in between, like food trucks. Even small businesses that set up a booth at a local farmer’s market need some form of product liability insurance.
Each of these examples poses different risks, so premium costs can vary dramatically.
A business that offers baked goods like cookies, which generally do not require temperature-controlled refrigeration to stay safe to eat, will have a lower risk for foodborne illness than a food truck that sells burgers and sandwiches, which must be kept at very specific temperatures to prevent spoilage and bacteria growth.
The potential for food poisoning isn’t the only risk. Even a cookie can become a liability risk if allergens are not clearly labeled. Dairy, soy, and nut allergies can be serious or even fatal, so product labels are another area of potential risk.
So, regardless of the size or type of food manufacturing business you have, you will need food product liability insurance coverage.
What factors determine food product liability insurance premium costs?
Like other forms of insurance, premiums for food manufacturing product liability insurance will depend on your business’s risk factors. Here are just some of the factors considered:
- Size of the business
- Annual revenue
- Number of employees
- Supply chain dependencies and associated industries (if your food product relies on an ingredient provided by another food business (or the reverse, you provide an ingredient used in another food product), for example)
- Type of food business (e.g., home-based, food truck, factory)
- To whom are you selling: business to business, or directly to consumers?
- Location and state regulations
- Food type—baby food manufacturers face different risks than potato chip manufacturers, for example
There are many factors involved in determining premium costs—these are just a handful of examples of the types of questions your insurance agent may ask when estimating your rate.
What isn’t covered by food product manufacturers liability insurance?
If you are a food manufacturer that also sells alcohol, you will probably need separate liquor liability coverage for the additional risks that accompany liquor sales. Most states have additional regulations and require licensing for those who sell alcohol.
Food manufacturers will typically also want to carry product recall insurance. It can be very expensive to issue a product recall, and without this coverage, a food manufacturer will have to pay for all associated costs out of pocket, up to and including the possible destruction of an affected batch of product.
While some insurers offer this as part of their food and beverage product liability insurance, not all do. You may need to purchase this as a separate endorsement to your coverage.
Want to learn more?
The ingredients that go into determining how much product liability insurance a food manufacturing business needs can be varied and complex.
If you want to learn more about which insurance products will best cover your food and beverage business, contact the experts at Rate Insurance. With access to a wide range of commercial insurers, they can help to find the right coverage at the right price to protect your business.
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All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Rate Insurance does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Rate Insurance. Rate Insurance, its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
