5 insurance mistakes food manufacturers make
Five mistakes food makers commonly make: assuming liability coverage pays for a recall, taking a supplier's word instead of proof, signing a buyer's agreement before checking it against your policy, leaving last year's products on the policy, and understating sales or payroll. Each can leave a bill your policy was never set up to pay.
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- Many liability policies leave out the cost of pulling your own product back. Ask your agent to show you the recall exclusion in yours.
- Show your agent a buyer's insurance section before you sign it, and tell your agent about every new product before it ships.
- A supplier's certificate is a summary, not their policy. Check the dates, the limits and whether your plant is named.
Which five insurance mistakes do food makers make?
They are mostly mistakes of assumption: that a policy covers something it can leave out, or that someone else has it handled. Each one is cheap to fix before a loss and expensive after. Our list of coverage gaps is separate.
| Mistake | What it can cost | The fix |
|---|---|---|
| 1. Assuming liability pays for a recall | Your own pull, test and destroy bill | Ask where recall cover is written |
| 2. Taking a supplier's word | A claim with nobody behind the promise | Get the certificate and check it |
| 3. Signing before checking | A contract your policy does not match | Send the insurance section first |
| 4. A policy that describes last year | An argument over a product the insurer never saw | Report new lines before they ship |
| 5. Understating sales or payroll | A bill at the year-end review | Update the estimate during the year |
Does my liability policy pay to pull my own product off the shelf?
Often not. Many liability policies leave out the cost of pulling your own product back, so that cost may need separate recall coverage.
Picture Dana, who runs a sauce plant. A lab test finds a bad lot after 40 pallets have shipped to three distributors. She calls her agent expecting liability coverage to pay for the retrieval, testing and destruction. She may find the retrieval bill is hers.
Many liability policies have an exclusion for recalling your own product, and a separate contaminated products policy is the usual way to cover recall costs. (Source: International Risk Management Institute glossary) Policy forms differ, so ask your agent to show you the recall exclusion in yours. Product liability coverage responds when someone is made sick or hurt by your food. See the product liability page. A recall is a different bill, even when nobody is hurt.
The fix. Ask your agent to show you where recall cover is written, what it pays for and what the limit is. Our guide to recall and contamination insurance explains what that cover usually pays.
Is a supplier's promise of insurance enough?
No. Ask for proof, and read it. A supplier who says they are covered has told you nothing you can check.
Picture Marcus, who owns a bakery plant. His flour supplier says over the phone that they carry insurance, and he moves on. Months later a bad ingredient lot forces a recall, and he learns the supplier's policy ended the month before, so nobody is paying for the supplier's share of the loss. Insurers also look at records like these, as our guide to why food manufacturing is hard to insure explains.
A certificate of insuranceCertificate of Insurance (COI) A one-page proof of your coverage, showing the insurer, policy number, and limits, that you hand to a landlord or client. Insurers call it a certificate of insurance. more → is a one-page proof of a policy: the insurer, the policy number, the limits and the dates. Treat it as a summary of the policy on one day, not the policy itself. See how a certificate works.
The fix. For every ingredient supplier and every co-packer, a business that makes food for other brands, keep a current certificate on file. Check four things: the end date, the limits, the insurer's name and whether your business is named where your contracts need it. Put the renewal date in a calendar and ask for the next certificate before it passes.
Should my agent read a retailer or co-packing agreement before I sign it?
Yes, always. The insurance section of an agreement can ask for limits, wording and recall promises that your policy does not have.
Picture Priya, who makes frozen dumplings. A regional chain sends a vendor agreement, and her sales lead signs it to win the shelf space. The insurance exhibit asks for a larger limit than her policy carries and asks that the chain be named on her policy. She calls her agent afterward. She may already be in breach on day one, a question for her attorney.
These agreements commonly ask for a stated limit per incident and per year, a named buyer on your liability policy, and a promise to pay the buyer's losses that sits apart from insurance. An agreement may let an umbrella policy, which is extra liability limit on top of the others, count toward its limit. Each line needs a matching line in your policy.
The fix. Send the insurance section to your agent before you sign, and ask for each line: where is it in my policy, and what would it cost to add? For a co-packing contract, also ask who pays if a recall is needed. Our guide to co-packer contracts goes deeper.
What if my policy still describes last year's products?
Then a new line may sit outside what the insurer priced. Insurers rate a policy on the products you told them about, so a new category, a new allergen or new co-packing work belongs on the policy before it ships.
Picture Tom, whose bakery makes bread. In spring he adds a granola with tree nuts and starts packing for another brand. The renewal still lists bread. If a customer reacts to the granola, the insurer may ask why it was not told, and whether the product was the one it priced. The claim may take longer and bring a dispute he never expected.
FDA lists nine major food allergens and has not set a safe level for any of them. (Source: FDA) So a single new ingredient can change your risk. Our guide to allergen cross-contact and insurance covers the details.
The fix. Call your agent when a new product is planned, not when it ships. List every product category, allergen and brand you pack for, and read that list again at each renewal.
What happens if I understate my sales or payroll?
You usually get a bill later. Your premium starts as an estimate, and after the year the insurer checks it against what actually happened.
Picture Lena, whose plant adds a second shift in March. She renews on last year's payroll and forgets to update it. At the year-end review the insurer counts the real payroll and sales and sends a bill for the difference.
A premium audit is that review: the insurer checks your payroll, sales or other numbers and adjusts what you owe. Workers' comp is priced per $100 of payroll, and the rate depends on the type of work. A plant floor, a warehouse and an office can each carry a different rate. Read how a premium audit works and how workers' comp is priced.
The fix. Give your agent honest estimates. Update them when you add a shift, a line or a customer, and keep payroll records split by type of work so the audit has nothing to guess at.
Common questions about food manufacturer insurance mistakes
Take the five headings in this guide to your agent and ask where each is addressed: the recall wording, the certificates you hold, the contract exhibits, the product list and the payroll estimate.
Often not. An umbrella generally follows the policies underneath it, so an exclusion there can carry up. Ask your agent to show you the wording.
Before. Tell your agent while the product is still planned, so the policy matches what you sell on the first day.
Check your food manufacturing policy against these five mistakes
Send us your current policy and a buyer's agreement with a quote request.