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Specialty Recall Insurance Coverage

By Marialuisa S. Gallozzi and Suzan F. Charlton
February 27, 2012

With the cost and frequency of product recalls on the rise, many companies are considering purchasing specialty policies to cover certain recall-related losses that are often excluded from general liability and property policies. Specialty coverage first appeared in the late 1980s to fill this niche. Although these policies are also frequently referred to as “product recall” insurance, they provide coverage for recall-related losses only when those losses are caused by specific triggering events, typically accidental contamination and malicious product tampering.

When Lloyd's of London and Chartis (formerly known as AIG) began offering specialty coverage in the late 1980s, as a result of the much-publicized Tylenol' tampering incident, they had little competition or loss experience. Since that time, the market for specialty coverage has grown to $350 million to $550 million in premiums annually.

The language of specialty policies varies considerably. As explained below, few cases provide guidance about how such policies will be interpreted and applied by the courts, but some recent decisions highlight limitations on their scope of coverage.

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