)
Nestle India, which announced the recall of Maggi noodles after states reported dangerous levels of monosodium glutamate (MSG) and lead in samples, had taken a commercial general liability (CGL) insurance cover.
Hence, the FMCG major may not get insurance claims unless bodily injury is proved, since the cover usually only pays for those damages.
Hence, the FMCG major may not get insurance claims unless bodily injury is proved, since the cover usually only pays for those damages.
Read more from our special coverage on "NESTLE MAGGI CONTROVERSY"
The CGL policy is a standard insurance policy issued to business organizations to protect them against liability arising from any bodily injury, property damage or personal injury liability. However, in this case only reported higher levels of some elements have been found and no injury has occurred.
"Unless there is any physical damage to any individual or any health ailments that are discovered after consumption of the product, compensation or claim is paid by the insurance company. Here, only the food regulatory authorities have found lead in some samples, which has not even been found nationally," said a senior general insurance executive.
An email sent to Nestle India did not elicit any response till the time of going to press. Nestle India today said it has approached the Bombay High Court to seek a judicial review of food safety regulator FSSAI's order over quality of its instant noodles.
No legal proceedings have been initiated against Nestle India till now. However, even if there is compensation sought from it, industry sources said that the insurance cover would not automatically pay for it.
A product recall cover that compensates for losses when a company is required to recall a product for the market would have covered the costs in this case. However, the company has only taken a CGL cover for product and premise liability. This cover does not provide claims for recalling a product.
"Even large MNCs have not taken product recall covers and have opted only for general liability covers. Here, even there is a case seeking damages by the concerned authorities, the claim may not be paid unless an individual has faced adverse medical conditions due to the product consumption," said the head of claims at a large private general insurer.
General insurance companies offer insurance for product recalls by manufacturers. It covers product recall expenses, including advertising, as well as shipping costs and legal liability for recall. The premium for this cover depends on the size of the vehicle or product, brand and segment.
Product recall occurs if there is some defect in its design or operation that could cause harm/danger to the person(s) using it. It could also be performance related, pertaining to the fuel efficiency, braking or acceleration. This would also impact the warranty offered to these products.
If an auto company has taken a cover against recalls, the insurance company pays all the costs associated with the recall. If there is a large number of vehicles that are recalled and on regular intervals, the insurance company suffers a big loss owing to regular payment of these related claims.
For FMCG companies, the product is recalled if there are any health hazards that are discovered due to faulty packaging or weather-related damages to the product that makes it unfit for human consumption.
