Over the last few weeks, the phrase “the product was recalled” has become almost daily vocabulary for many South Africans. But what does this actually mean? We have all noticed a void in the refrigerator section of our local grocery stores. A void that we attribute to this product recall. But what is a product recall really? And who pays for it?
In broad commercial terms, a product recall occurs where a product, which has already permeated the market, shows potential to cause harm to consumers and potentially lead to legal consequences for the supplier of the product. A request is then issued for all the products to be returned to the supplier.
In South Africa, the National Consumer Commission (“the Commission”) has published Consumer Product Safety Recall Guidelines (“the Guidelines”) which detail the steps a supplier must take when a product is recalled. In terms of the Guidelines, a recall may either be initiated by the supplier independently or in discussion with the Commission. Alternatively, and only as a last resort, the Commission may order a compulsory recall in terms of the Consumer Protection Act, No 68 of 2008.
On the face of it, it may seem that a product recall would bring about dire commercial consequences for the supplier of potentially harmful products and it certainly cannot be disputed that the reputational damage may be far-reaching. Fortunately, from a purely financial point of view, insurance is not known as the “handmaiden of commerce” for nothing.
Product Recall cover is available within the General Liability space. It covers the costs incurred in recalling the insured’s products where those products are likely to cause harm to people or their property for which the insured may become legally liable. Although this is not liability insurance, it covers costs which prevent future liability claims.
As soon as a recall is initiated, it is important to ensure that all customers are notified effectively and timeously. The policy would cover the cost of all reasonable and necessary media communication and correspondence.
Products which have been returned by the customers will either need to be transported back to the manufacturer or destroyed. The policy will pay out for the cost of that transport or the cost of destroying the goods if that is the more practical solution.
It is worth noting that the Product Recall section will not pay the cost of repairing or replacing the product (where possible) and this would need to be covered under Product Guarantee.
For more information on this product, please feel free to contact us.