Product recalls are on the rise in many industries. As regulatory and consumer protection standards are getting tougher, product supply chains are becoming more complex. This increases the risk of errors, defects and contamination at all levels of operation. Too often, these problems do not manifest themselves until after a product hits the market. All of this can lead to staggering expenses for food and product manufacturers facing the risks and realities of product recalls.
Last February, a Pennsylvania federal court ordered rescission of an accidental contamination and government recall insurance policy issued to the H.J. Heinz Company after Heinz sought $25 million from its insurer for its business interruption losses sustained due to lead in its baby cereal. The district court based the rescission on findings that Heinz materially misrepresented its claim history when it purchased the policy. Heinz claimed the incorrect information was an inadvertent error by its new Global Insurance Director. Although a jury agreed that Heinz’s errors were unintentional, the district court found that even unintentional material misrepresentations were sufficient to void the contract.