Horsemeat scandal – lessons learned

Deborah Polden, Mary Kelly, Andrew Terry and Simon Brooks

Eversheds LLP

3 October 2013

#thinkfoodlaw

Horsemeat scandal – Lessons learned

Product Recall

Deborah Polden

Partner

Eversheds LLP

Horsemeat - Background

• January 2013 – survey by FSA Ireland

• Products from 3 processing plants contained horse and pig DNA

• FSA advise no food safety risk (however bute ...)

• Contaminated meat discovered in France, sourced from Romania

Horsemeat - Developing crisis

• Police investigation – operations suspended at 2 UK plants

• Industry-wide tests conducted

• Tens of millions of product withdrawn from sale

• Widespread media coverage for several weeks

Lessons learned – Supply chain

• No food business is immune from risk of recall

• Can’t test for all possible contaminants

However :

• Understand your supply chain

• Increased focus on transparency /traceability

• More complex the supply chain, greater the risk

• Revisit specifications and terms and conditions

• Audit your suppliers

Lessons learned – Contingency planning

• Companies with existing contingency plans react more quickly and effectively

• Need recall plan, but keep strategy flexible

• Protect your brand – but may not be able to recover all costs !

• Importance of clarity around test methods and reporting obligations

Lessons learned - Communication

• Communication is key to stay ahead of crisis

• Media training for spokesperson

• Clear channels of communication with suppliers, customers and FSA

• Consider extent of information provided to customers – think ahead !

• Involvement of MPs/journalists – FOIA Requests

Lessons learned - Response

• Maintain record of steps taken and rationale

• Keep contemporaneous file (e-mails, costs, etc)

• Monitor impact of actions (units of product etc)

• Update FSA as appropriate

• Document management – investigations, testing, privilege

• Take early legal advice – extent of legal obligations, naming of suppliers

Looking to the future

• Increased testing being undertaken...

• More claims about provenance of food...

• Increased consumer awareness...

• Where will the next crisis come from ?

Food and Drink Seminar

Supply Chain Contracting: Lessons Learned

Mary Kelly

Senior Associate

Eversheds LLP

Introduction

• Characteristics of supply chain contracting

• Issues arising in the horsemeat scandal

• Future proofing supply chain contracts

• Other considerations

Supply chain contracting

• Consumer at the end of every supply chain

• Brand risk and legal risk

• End to end process

• Many points of potential failure

• Lack of control of remote suppliers

Characteristics

Supply chain contracting

• Complex web of contractual relationships

• Who is responsible?

• What can be recovered?

– loss of profits

– logistics and storage costs

– marketing and advertising expenditure

– changes to testing, packaging and labelling

– reputational loss

• Traceability

• Specifications

• Enforcement of inspection and audit rights

Issues arising in horsemeat scandal

Supply chain contracting

• Identify critical remote suppliers

• Approved suppliers

• Systematic vetting and inspection

• Flow down of contract terms

• Third party benefit terms

• Collateral warranties from approved remote suppliers

• Quantify risks up front

Future proofing contracts

Supply chain contracting

• Holistic view of the supply chain

• Risk management

• Risk reporting and early warning systems

• Documented responsibilities and allocation of risk

...don’t just rely on the contract

Other considerations

Horsemeat scandal – lessons learned

Brand protection

Andrew Terry

Partner

Eversheds LLP

Brand protection

• Case studies

– What worked well and what didn’t?

– Findus and Iceland

– Tesco and Waitrose

• Reputation management

• Lessons learned

Overview

Brand protection

Findus - a “labelling issue”?

Brand protection

• 50 years in UK, global sales of £1billion

• Of 18 beef products tested, 11 contained 60-100% horsemeat

• Sorry for “any inconvenience caused”

• Initial withdrawal based on “labelling issues”

• No “food safety or health issues”

• Website and social media out of date or inactive

Findus – what happened?

Brand protection

Iceland - denying the issue?

Brand protection

Iceland - denying the issue?

Brand protection and reputation management

Tesco – formal response

Brand protection and reputation management

• “The problem we’ve had with some of our meat lately is about more than burgers and Bolognese. It’s about some of the ways we get meat to your dinner table. It’s about the whole food industry.”

Tesco – ASA challenge

Brand protection

Tesco – social media response

Brand protection

Open letter

Waitrose

Brand protection

• Consider your legal rights

– Defamation – relatively easy to threaten a claim (pending the new Defamation Act?)

– Privacy – injunctive relief an option

– PCC / Ofcom complaints

• What can you achieve?

– Prevent publication and/or shape story

– Helps prevent unchallenged stories becoming “fact”

– Apology or correction

– Damages

Dealing with unfair or inaccurate coverage

Brand protection

• Communicate quickly, regularly and consistently – don’t forget social media

• Monitor coverage

• Get the tone right - human touch

• Acknowledge problem and accept blame when appropriate

• Apologise openly

• Be transparent - communicate steps being taken

• Put a communications team and strategy in place before a crisis

• Take action against unfair or inaccurate publicity

Lessons for the business

Horsemeat Scandal

Insurance Issues

Simon Brooks, Head of Insurance Eversheds LLP

Horsemeat Scandal

• Product Liability Insurance

• Product Recall Insurance

• Other Insurance Products

Insurance Issues

Product Liability Insurance

Policies provide an indemnity “in respect of all sums that the Policyholder shall become legally liable to pay as Compensation arising out of accidental

1. Bodily Injury to any person

2. Damage to material property not belonging to or in the custody or under the control of the Policyholder or any Employee occurring during the Period of Insurance in connection with the Business within the Geographical Limits”

Product Liability Insurance

• Bodily Injury trigger?

– “This is a matter of food fraud not food safety” Tonig Borg, EC Commissioner for Health and Consumers

– Phenylbutazone or ‘Bute’

• Property Damage trigger?

– The Lasagne theory - Supply of horsemeat for incorporation into other “beef” products – is the “beef product” damaged property?

Product Liability Insurance

What is Damage?

“ An unwanted physical change in the relevant subject matter even if the change was not permanent or irreparable provided that it did impair the value or usefulness of the subject. ”

Mr Justice Langley in Tioxide Europe Ltd v. CGU

Product Liability Insurance

What is Damage?

• Bacardi – Martini

“The mix of concentrate and water ceased to exist and the finished product came into existence at the moment of such admixture; what resulted was not damaged concentrate and water but a defective new product; the mix of concentrate and water was never intended to retain its identity and the more natural description of events is simply that a defective product resulted leading to an overall economic loss suffered through recall.”

• Economic loss from a defective product, but not a physically damaged product.

Product Recall Insurance

• The insurer agrees to “… reimburse the Insured for … any Loss arising out of Insured Events” and to “…pay the Insured for Crisis Response fees incurred in the rendering of crisis management services in response to an Insured Event”.

• “Loss” is recall expenses, third party recall expenses, loss of gross profit, rehabilitation of product expenses, increased cost of working and product extortion demands.

• Insured Events - Accidental Contamination, Malicious Contamination, Product Extortion, Government Recall

Product Recall Insurance

• Accidental Contamination -

an error in manufacturing of an insured product, or the introduction of an ingredient that is contaminated or unfit for purpose, or an error in storage/distribution, provided that the subsequent use of the insured product has led or would lead to bodily injury, sickness, disease or death, or physical damage to property.

Product Recall Insurance

• Malicious Contamination

the “actual, alleged or threatened intentional malicious and illegal alteration or adulteration of an insured product (or adverse publicity in this regard) so as to give the Insured/the public reasonable cause to believe that the product has been or is likely to be rendered dangerous or unfit for intended use”.

• Product Extortion

A threat to carry out Malicious Contamination followed by payment of a demand.

Product Recall Insurance

• Government Recall

• An error in the manufacture, production, preparation, assembly etc of and insured product or the introduction of an ingredient that is contaminated or unfit for purpose

• PROVIDED THAT –

– the product has been determined by a competent authority to be injurious to health or unfit for human consumption AND

– the insured has a regulatory obligation to recall or withdraw the product

“

Product Recall Insurance

• ”Unfit for human consumption”

• Article 14.5 of the European Regulation provides that “in determining whether any food is unfit for human consumption, regard shall be had as to whether the food is acceptable for human consumption according to its intended use.”

No Government Recall

• “People who have bought any Findus beef lasagne products are advised not to eat them and return them to the shop they bought them from”.

• “In the particular cases of the Findus lasagne and the Tesco burgers, they have been withdrawn from sale. Anyone who has them in their freezer should return them to retailers as a precaution”.

• “the Food Standards Agency recommends that any retailers or producers that have sourced beef products from the French company Comigel should conduct a precautionary withdrawal of product”.

No Government Recall

• “If caterers have any doubts about the provenance of their product, they should seek assurance from their suppliers. Any recalled products should not be used or sold”.

• “In addition to the widespread testing we are doing, we’ve instructed the industry to urgently carry out its own tests on processed beef products to see whether horsemeat is present”.

Product Recall Insurance

• Crisis Response Costs Cover

– fees and expenses incurred by the insurers’ approved crisis management consultancy in responding to an Insured Event; or

– fees and expenses incurred for immediate assistance to the Insured, even if coverage for any loss yet to be been confirmed.

Insurance Market Response

• Reliance on Bodily Injury or Property Damage Triggers

• Adverse Publicity Coverage

– Insured Event – reporting in the media of actual or alleged accidental contamination in which the insured’s products are named

– Cost

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