Insurance - Saving the Company

A frozen meal with $500 million in sales contained an ingredient made by our client. FDA advised our client it had received potentially contaminated raw materials from a supplier resulting in a recall of the last 12 months' production of the frozen meal. The company that supplied the potentially contaminated raw material to our client was insolvent and its officers were facing criminal charges. Although innocent, our client would have to bear the full cost of the $500 million recall under the terms of its supply agreement with the frozen meal's producer. Our client only had $2 million dollars of recall insurance and its bank was threatening to call in its loans and sell its assets because of the $500 million recall. The Food Lawyers® were asked what could be done to save the company.

We examined the client's sales for the past 18 months to see how much and how often it was delivering ingredients for use in the frozen entree. By working with throughput rates, The Food Lawyers® calculated the amount of frozen product being held by retailers was between $750,000 and one million dollars. This was well within our client's 2 million dollar recall insurance. Another important fact was that not a single member of the public had become ill from eating the frozen meal. From our experience handling food product recalls, we knew this meant almost none of the product would be returned by consumers for a refund. Given that there had no reports of illness, we knew that there would be no product liability claims by consumers.

The Food Lawyers® wrote a legal opinion letter to the client expressing our findings and stating that the total loss would be less than 1 million dollars -- -- well within the limits of the recall insurance policy. We told the client to send our opinion letter to its bank, which it did. The bank considered The Food Lawyers'® letter and decided not to call in the client's loans or otherwise change its credit standing. The company was saved.


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