In 2023, Crave Better Foods, the company behind the nostalgic Chipwich ice cream sandwich, faced a chilling challenge. A listeria-related product recall led to over $4.5 million in losses, exposing a costly gap in their risk strategy: a lack of product recall insurance.
This real-world case is an example for food manufacturers, distributors, and any business that puts products in consumers’ hands. Insurance is more than a legal requirement, it’s a business continuity strategy against disruption and financial loss.
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What Happened In the Chipwich Recall Case?
Crave Better Foods issued a voluntary recall of its Chipwich products after a supplier flagged potential listeria contamination, which is a serious concern in the food industry. Although no illnesses were reported, the company chose to act quickly and responsibly.
What followed was a domino effect of expenses: destroyed inventory, halted production, distribution disruptions, and reputational damage. Total losses topped $4.5 million.
Unfortunately, the business did not have product recall insurance in place as their risk profile evolved, leaving them to absorb the financial hit. This kind of situation underscores how essential specialized coverage is when it comes to protecting both revenue and reputation.
Why Didn’t General Liability Insurance Cover the Recall?
A common misconception among business owners is that general liability insurance automatically covers everything, including recalls. In reality, general liability insurance often excludes recall-related costs, especially if there’s no bodily harm or third-party lawsuit involved. Check out our guide on what you need to know about product liability insurance.
Crave Better Foods discovered this the hard way. Their general liability policy didn’t cover the cost of removing products from stores, halting production, or managing the PR fallout. These policies are built to address property damage or bodily harm, and not voluntary recalls.
Without product recall insurance, Crave Better had to manage millions in unplanned expenses. That included destroying inventory, lost sales, legal advice, and brand damage control. For food manufacturers, those costs can be devastating.
What Does Product Recall Insurance Typically Cover?
Product recall insurance is a specialized policy designed to protect businesses from the fallout of contamination, manufacturing defects, or regulatory issues that force them to pull a product from the market.
Most product recall policies cover:
- Recall Execution: Logistics for removing, collecting, and disposing of defective or contaminated products.
- Lost Revenue: Compensation for downtime or reduced sales during the recall.
- Product Replacement: The cost to produce or substitute safe inventory.
- Reputation Repair: Public relations campaigns, crisis communications, and media handling.
- Legal Expenses: Defense costs and potential settlements from lawsuits filed by customers or commercial partners.
According to Allianz, the average cost of a large food and beverage recall is $9.5 million—more than double what Crave Better lost. That’s a figure many companies can’t afford to absorb without proper coverage.
How Can Businesses Prevent Coverage Gaps?
Preventing coverage gaps starts with building a proactive risk management plan, not just a policy. Here’s how that partnership should work:
- Schedule regular policy reviews, especially after key business milestones like new product launches, expanded operations, or supplier changes.
- Work with brokers who specialize in your industry and ask questions about scenario-based risks, including recalls, supply chain disruption, and regulatory shutdowns.
- Document and update operational risks in detail. What seemed low-risk at $500K in revenue may become critical at $5 million.
- Implement safety standards like HACCP and third-party audits, which not only prevent incidents but can reduce insurance premiums and improve underwriting.
One study revealed that over half of food and beverage companies lacked recall insurance, relying solely on general liability. That statistic is alarming because when a recall happens, it’s already too late to fill the gap.
Risk management strategies should be layered and thorough, covering everything from crisis response plans to waivers of subrogation, which can influence who’s ultimately responsible when multiple insurers or vendors are involved.
Don’t Wait for a Recall to Realize You’re Underinsured
Even established brands can fall vulnerable when coverage doesn’t keep up with business growth. Whether you’re a national food distributor or a regional bakery, your insurance should evolve and adapt alongside your business.
At Biscayne Risk, we specialize in tailored coverage for food and beverage businesses. Let’s sit down and work together to identify gaps, assess your real risk profile, and ensure you’re covered before the unexpected strikes. Please contact us today to schedule a policy review and protect your business from the inside out.