Legal Definitions - recall exclusion

A recall exclusion is a common clause found in certain types of insurance policies, particularly product liability insurance. This clause states that the insurance company will not cover the costs a business incurs when it has to withdraw or recall its products from the market due to a defect, a potential defect, or a safety concern.

Essentially, while product liability insurance typically covers damages or injuries *caused* by a defective product, a recall exclusion prevents the policy from covering the significant expenses associated with the recall process itself. These expenses can include the cost of notifying customers, shipping and handling of returned products, disposal of defective items, and the administrative overhead of managing the recall.

Here are some examples to illustrate how a recall exclusion works:

• Example 1: Food Contamination

  A company that produces frozen meals discovers that one of its production lines was contaminated with a harmful bacteria, affecting a specific batch of its popular lasagna. To protect public health, the company initiates a voluntary recall of all lasagna products manufactured on that line during the affected period. The costs associated with this recall, such as advertising the recall, collecting the contaminated products from stores, and disposing of them, would typically *not* be covered by the company's product liability insurance if it contains a recall exclusion. The insurance would, however, likely cover claims from individuals who actually became ill from consuming the contaminated product.

• Example 2: Defective Electronic Component

  An electronics manufacturer supplies a critical circuit board to a company that builds smart thermostats. After several reports of the thermostats malfunctioning and causing minor electrical fires, the thermostat company identifies a flaw in the circuit board and issues a widespread recall of all affected units. The circuit board manufacturer's product liability insurance policy includes a recall exclusion. This means the insurer would not pay for the costs the manufacturer incurs related to the recall itself, such as the expense of shipping replacement circuit boards to the thermostat company, or the administrative costs of managing the recall process for their component.

• Example 3: Automotive Part Safety Issue

  A company manufactures brake calipers for various car models. A design flaw is later discovered in a batch of these calipers, which could potentially lead to reduced braking performance. The car manufacturers using these calipers issue a massive recall to replace the faulty parts. The brake caliper manufacturer's product liability insurance policy contains a recall exclusion. Consequently, the insurer would not reimburse the manufacturer for the expenses of producing and shipping the replacement calipers, nor for the logistical costs involved in getting the defective parts back from the car companies or their dealerships. The exclusion focuses on the preventative recall costs, not on any actual damage or injury that might have occurred before the recall.