Product Recall — Produce Supplier
A produce supplier recalled an ingredient after a foreign object was discovered. Because the ingredient had already been distributed to approximately 20 food manufacturer customers, the recall moved quickly beyond the company's own operations.
The professionals of RT Forensic Accountants were engaged to quantify the first-party recall costs and to gather, evaluate and compile the third-party claims brought by affected customers, which ultimately totaled roughly ten times the first-party loss.
- Industry
- Food & beverage manufacturing
- Peril
- Foreign object contamination
- Coverage
- Product contamination & general liability
- Scale
- Product distributed to approximately 20 customers; third-party claims roughly 10× the first-party loss
The Loss
First-party costs included replacement costs, freight, product destruction and incremental overtime. The larger exposure extended downstream, as approximately 20 customers had incorporated the recalled ingredient into their own products, resulting in recall costs and related losses that became claims against the company.
The Process
We worked closely with the company’s accounting, operations, and risk management teams to document the first-party costs and trace each recalled lot from production through final disposition, whether disposed of on site, sold and returned, sold and destroyed by the customer, or sold and consumed. That traceability anchored the claim. We then built a consistent framework for receiving, reviewing and quantifying each customer's claim, so that claimed costs were reasonably supported and both the first-party and third-party claims were appropriately quantified.
The Results
Once the traceability work established the complete picture, the first-party claim was straightforward, supported internally by bills of materials and payroll reports and externally by vendor invoices, bills of lading and certificates of destruction. The general liability claims were organized, evaluated and presented to insurers on a consistent, structured basis. Working directly with the customers streamlined document gathering and the claim process for our client and its customers alike.