Natural Products Insider

MAR-APR 2019

INSIDER is the leading information source for marketers, manufacturers and formulators of dietary supplements, healthy foods and cosmeceuticals. Since 1997, INSIDER has been serving the needs of the global nutrition industry.

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48 INSIDER March/April 2019 with another spokesperson or appoint two spokespeople to handle different elements; for instance, one person can handle supplier questions, and the other can handle investor outreach. If that's the case, be sure to try to speak with one "script," so the messages to all audiences are in sync. Questions from consumers and the media should be directed to a centralized corporate response center to ensure current and accurate information is communicated. Employees should be instructed not to communicate with the press, but to immediately refer all inquiries to a designated media relations offi cial. CEO: Any suggestions on how we can get up to speed on this front? Lawyer: Tasty should work with its PR consultants with experience in regulatory matters to develop a library of reference materials regarding the company and its products, as well as a list of spokesperson and media relations guidelines, and drafts of press statements for potential recalls that can be quickly edited to address a specifi c situation. CEO: What would we say? Lawyer: Some lawyers are overly cautious and steer their clients toward a "no comment." I'm not a fan of that approach. I prefer my clients aggressively address the situation and let their customers know they're concerned about their welfare. If the facts warrant, you should stress Tasty's concern for any harm or inconvenience and talk about how Tasty will address the problem. It's essential to keep the public informed as you do everything you can to correct the problem and ensure the safety of your product. Of course, any statement should be reviewed by counsel since it can be used later by an adversary if a lawsuit develops. CEO: If we prepare a press release in advance, what should it include? Lawyer: You should have a press release prepared, so you can fi ll in the details when necessary. It should provide a clear and detailed description of the product, including things like lot number, production date and pictures; as well as a concise explanation of the action the company is taking and the potential health hazards. You should also include directions on handling or disposing of the product, the company's refund policy, and the contact information for representatives at Tasty who can provide more information. On refunds, you want to communicate a convenient procedure for consumers, but in a way that avoids fraudulent refund claims from people who didn't purchase the product. CEO: I can only imagine we would be under attack on social media! Lawyer: That's possible. Building a proactive social media plan is an essential part of the recall strategy. You've done a phenomenal job promoting your brand on social media, but you can't retreat from it when your product is under attack. You might want to consider implementing a social media monitoring tool that can track postings and possibly tip you off about a problem with your product. Documentation Management CEO: Contamination can originate in ingredients from our suppliers. Should you be reviewing our purchase and sale contracts? Lawyer: Defi nitely. Certain provisions should be in your supplier contracts. For example, you should require suppliers to assume the liability for their products in case of a recall. Let's also require suppliers to add your business to their insurance policies as an additional insured party. And, you may want to disclaim certain warranties to help minimize losses from negligence or liability claims. Costs and Insurance CEO: How is this going to impact my bottom line? Lawyer: Well-publicized product recalls have cost companies tens or even hundreds of millions of dollars in lost sales, goodwill and reputational damage. Direct costs can include the value of the tainted product, notifi cation costs, product transportation and destruction, and additional labor and space to deal with destroying the product. Indirect costs can include lost sales, including potential loss of customers, business interruption and legal liability, especially if consumers suffer physical injury from contamination or mislabeling. I hate to add this, but some have even resulted in criminal prosecution. C EO: This sounds scary and expensive. Should I also look at our insurance coverage? Lawyer: Yes. A standard commercial general liability policy will hopefully provide a defense and indemnity for lawsuits brought by consumers alleging physical sickness from your products. To trigger coverage, there would probably have to be actual physical injury alleged by the plaintiff. The mere risk of future bodily injury will generally not trigger coverage. Moreover, your general liability policy probably doesn't cover damage to your own product and would not cover Tasty's economic losses associated with a recall. CEO: Is there special recall insurance? Lawyer: Yes. Most recall policies do not require actual bodily injury to trigger coverage. Rather, depending on the wording, it is suffi ciently triggered if the contamination would likely result in bodily injury within a certain time after consumption, which could be up to one year. That's important because a recall could be required in the absence of direct contamination or actual bodily injury. Policies cover recall and replacement expenses, such as the cost to pull the product from store shelves and replace it; lost profi ts; investigative costs to determine the cause of the contamination; and crisis management expenses. I would start by talking to your insurance broker about your current coverage and possible additional coverage in these areas. Ronald J. Levine is an independent consultant with EAS Consulting Group (easconsultinggroup. com) and serves as general counsel of Herrick, Feinstein LLP ( Levine has 40 years of experience advising consumer products companies in complex commercial matters. Building a proactive social media plan is an essential part of the recall strategy. Legal Insights

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