Industry groups’ call for corrections to EU’s MDR prompts questions about the need for additional guidelines for products marketed to children

August 8, 2023

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Last month, the European Academy of Paediatrics and 22 other medical associations wrote a letter to the EU Health Commissioner, urging the correction of the new EU Medical Devices Regulation (MDR). They warned that the regulation has led to a shortage of medical devices for children and those with rare diseases. The academy underscored the urgency of the problem, saying that, “this will result in an avoidable risk of death and serious injury, not as a consequence of unsafe medical devices, but as a consequence of disappearance of devices due to unforeseen effects of the EU Medical Devices Regulation.” The Academy underscored the severity of the problem, noting that a catheter needed for life-saving operations for children and patients with rare diseases has already disappeared from the market.

Medical device shortage

The shortages are a result of several factors, including the scarcity of notified bodies to certify medical devices and the inability of many smaller medical device manufacturers to afford costs associated with the new compliance process. The increased costs may be, in part, a result of the lack of notified bodies available to certify devices. Despite an extension to the deadline for manufacturers to comply with MDR, costs to certify or recertify products are still disproportionately high. One company attempting to recertify a product said it had to pay 800,000 euros, more than 150 times the cost of the equivalent U.S. process for the same device.

Regulatory trends

By contrast, the introduction of regulations or non-binding guidelines specific to products marketed for children has been an ongoing focus of U.S. regulators and lawmakers. Recent regulatory activity includes safety warnings by the U.S. Food and Drug Administration (FDA) and the U.S. Consumer Product Safety Commission (CPSC) regarding neck floats marketed for infants and toddlers. The National Highway Traffic Safety Administration (NHTSA) also recently added new testing requirements for child safety seats.

These regulations make it clear that the United States is prioritising providing specific protections for children. Considering the increased pressure from groups like the European Academy of Paediatrics and the growing regulatory trend to provide additional safety protections for children, the EU may follow suit with specific regulations for medical devices marketed for children.

The EU does have existing regulations governing other industries that are aimed specifically at protecting children. Article 8 of the General Data Protection Regulation (GDPR) outlines specific protections for the data of children 16 and under. Article 8 states that, “where the child is below the age of 16 years, such processing shall be lawful only if and to the extent that consent is given or authorised by the holder of parental responsibility over the child.” Following the UK’s example, the EU also recently announced it would explore the creation and implementation of an Age Appropriate Design Code, further evidence of the EU’s child-specific regulation of the technology industry.

Recommendations for companies

As medical device manufacturers in the EU work to comply with MDR, and as industry associations call for additional rules, companies should take additional steps to ensure they fully understand their regulatory obligations. Changes to regulations also means the potential for new compliance processes and an increased risk for product recall.

Trusted by the world’s leading brands, Sedgwick brand protection has managed more than 5,000 of the most time-critical and sensitive product recalls in 100+ countries and 50+ languages, over 25 years. To find out more about our product recall and remediation solutions, visit our website here.

European product recalls continue to rise as regulatory scrutiny increases across sectors

June 7, 2023

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European product recalls increased 6.1% in the first quarter of 2023, according to Sedgwick brand protection’s latest European recall index report. In total, the European automotive, consumer product, food and beverage, pharmaceutical, and medical device sectors reported 2,914 recalls in Q1.

The recall index report goes beyond the recall data to provide an in-depth look at regulatory developments, and emerging risks facing these industries, across the EU and UK. We also include insights and analysis from our strategic partners at top law firms to help industry stakeholders navigate the regulatory environment, product recalls, and other in-market challenges.

Q1 product recall trends in review

The increase in product recalls was driven by the consumer product, medical device, and food and beverage sectors, which experienced uplifts of 18.4%, 6.8%, and 2.9% respectively. Conversely, automotive recalls fell by 2.6% and pharmaceutical recalls by 17.3% in the first quarter of 2023.

A key focus of regulators in the first quarter was environmental concerns, ranging from green claims in several product categories, reducing emissions, and enforcing extended producer responsibilities for waste disposal and packaging materials. Protecting consumers when online was another key focus of regulators, who are working to establish safeguards to prevent sales of counterfeit products in e-commerce marketplaces, as well as develop regulations to make online gaming safer. It remains to be seen whether these regulations will be able to keep pace with technology.

How Q1 2023 recalls compared to the previous quarter

  • Automotive recalls decreased 2.6%, from 195 in Q4 2022 to 190 in Q1 2023. While ‘Injuries’ remained the leading cause, ‘Environmental’ concerns experienced the greatest uplift, rising by 80% from the previous quarter. The UK issued the greatest share of recall notification with 83, followed by Germany with 63.
  • Recalls in the European food and beverage sector increased slightly, from 1,121 in Q4 2022 to 1,154 in Q1 2023. Events caused by ‘Contamination – Other’ (i.e. non-bacterial) increased 25.6% from the previous quarter, making it the leading cause of recalls in Q1 with 486 events.
  • There were 86 pharmaceutical recalls in Q1 2023, a 17.3% decrease from the 104 recalls recorded in Q4 2022. Concerns related to ‘Safety’ were the leading cause of recalls with 31 events, followed by ‘Foreign materials/contamination’ with 12, and ‘Mislabelling’ with 11.
  • Medical device recalls increased 6.8% in Q1 2023, from 740 in Q4 2022 to 790 events. As it has been for the past six quarters, ‘Software’ was the leading cause of recalls with 115 events. This was followed by ‘Safety’ concerns with 97 events, and ‘Device failures’ with 89 events.
  • Recalls of consumer electronics rose 11.5% to 87 events in Q1 2023. Lighting chains were the most recalled product, cited in 17 events – a dramatic increase from five recalls in Q4 2022. Accounting for almost half (47.1%) of all events, ‘Electric shock’ was the leading cause of recall activity.
  • European toy recalls fell by nearly a third (31.3%) in Q1 2023, from 217 events in Q4 2022 to 149. ‘Chemical’ was cited as the leading cause of recall activity (with 60 events), followed by Choking (with 49) which had been the leading cause throughout the second half of 2022.
  • There were 77 clothing recalls in Q1 2023, increasing just 2.7% from the 75 in Q4 2022. ‘Injuries’ dominated with 25 events alone, and 41 when combined with other causes such as ‘Strangulation’. Child and Infant clothing accounted for the greatest share of recall activity with 55 events (or 71.4% of all events).

What’s ahead in 2023

Regulatory changes that aim to modernise the existing regulatory framework are expected for both the medical device and pharmaceutical sectors. Businesses that operate in the UK and the EU will also face uncertainty around the UK’s Retained EU Law (Revocation and Reform) Bill, or “Brexit Freedoms Bill,” even with the removal of the sunset clause. Additionally, the EU’s proposed restriction on perfluoroalkyl and polyfluoroalkyl substances (PFAS) has the potential to significantly impact companies across multiple industries.

Despite having different regulatory regimes, regulators in both the EU and the UK have plans to address similar issues in 2023. Businesses across Europe should ensure they are closely monitoring the regulatory environment and make a regular effort to shore up their existing product recall, crisis, and communications plans.

The European recall index is published every quarter by Sedgwick’s brand protection experts. It is the only report that aggregates and tracks recall data across the UK and EU to help industry stakeholders navigate the regulatory environment, product recalls, and other in-market challenges.

Learn more > To download the latest recall index report, click here.

Getting ahead of marine liability risks

March 29, 2023

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When goods and machinery are produced on one side of the world and shipped to another, challenges arise.

After a loss, there are documents to review, shipping regulations to navigate and liability issues to uncover. Whether a company is shipping perishable goods from Peru to the Netherlands or steel throughout Europe, there are laws and compliance requirements to consider. The supply chain has not fully recovered from years of factory closures, border restrictions and overcrowded ports — making it even more challenging to conduct business as usual post-loss and determine liability.

Valuable and vulnerable loads

Imagine a company is dealing with particularly valuable and/or vulnerable loads. During transportation of these goods, there are several touchpoints that often require a second set of eyes before determining possible liability. On behalf of customers, we frequently review the handling process of these goods to inspect their condition and verify lashing/securing measures, as well as subsequent loading/unloading methods. By playing a role in the supply chain, the state of the goods is clear before any potential risk or transfer of responsibility takes place.

After all, at various touchpoints, different handlers with different agreements are in progress. Confirming that all goods are in proper order before they are transferred to the next party in the chain can make a significant difference during a potential claim in the future — saving time and money. Assessing the condition at various ports before, during and after shipping is key to identifying any losses or damages that may have occurred.

Bulk goods

The role we have in this point of the supply chain is unique, as usually only loading or unloading surveys tend to be carried out. Consider the example of common practices with bulk goods. At Sedgwick, we have expertise to carry out surveys at various stages of the supply chain, as well as for very different loads such as breakbulk goods, containers and air cargo. Our vast network is ready at a moment’s notice to arrive at terminals and take part in each requested transfer stage. If goods are damaged when they arrive, our experienced colleagues quickly assess the damages on site and assist with mitigation. To calculate the exact loss, it is crucial for our team to understand how the goods are processed, the state of the goods after production, the intended end product and where it is marketed.

Documentation and awareness

In addition to being present on the ground to assess the condition of goods, our team can investigate the stream of information and documentation that is involved. This way, we can detect possible hick-ups in the supply chain before they get the chance to develop into full blown delays or other inconveniences that might lead to monetary losses. Moreover, we intend to generate awareness for all parties involved about the consequences that might result from the manner in which documentation is being drawn up. In the unfortunate event of damage to goods, there’s potential to complicate or hinder effective resolutions if documentation is not completed properly. Maximizing the chances to successfully recover from a financial loss is a key area of focus when investigating the stream of information and documentation.

Carrying out surveys

No matter the type of cargo or complexity of a marine liability claim, a comprehensive survey should be completed. Many shipping agreements are made via email or telephone and there is a chance that contract details are missed. Reviewing all documents, agreements and regulations, and generating a thorough report helps support the claims resolution process. Beyond the loading survey of goods, having a partner to assist with the investigation ensures smooth supply chain operations that can just as easily be carried out at other stages of transport, storage or handling.

In an unpredictable environment, companies must anticipate future challenges and be prepared to take early action. Before supply chain disruptions occur, make sure your organization has a clear plan in place and a partner they can trust. Whether you need support with determining liability during shipment, tracking the production process, assisting with forwarding issues, reviewing packaging requirements, investigating thefts or identifying issues involving perishables — Sedgwick’s global team can support. For more information, please contact us at [email protected] or [email protected].

Eye drops become latest OTC product impacted by recalls

March 28, 2023

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The healthcare industry is changing to accommodate more modern demands, particularly those of patients who choose to self-treat.

Over-the-counter (OTC) medications have risen in popularity recently, as patients increasingly seek more flexibility to take charge of their own health. For years, the U.S. Food and Drug Administration (FDA) has collaborated with pharmaceutical developers and producers to draft rules that would increase public access to OTC medications. These developments help all parties involved in the medicine supply chain, but they can also occasionally hurt patients.

Product safety and quality concerns

Eye drops are a common OTC drug used to treat a number of eye disorders including allergies, infections and dry eyes. Yet, the FDA has already recalled four eye drop products so far this year due to issues with product safety and quality. In February 2023, the Centers for Disease Control (CDC) announced it had identified 55 patients in 12 states who had been impacted by a rare strain of the drug-resistant Pseudomonas aeruginosa bacteria. These infections caused permanent vision loss resulting from a corneal infection, hospitalization and even one death.

These cases were due to an artificial tear product meant to hydrate dry eyes which result from conditions like aging, allergies, side effects of other medications, or other health conditions. The FDA recommended this recall due to the company’s current Good Manufacturing Practice (cGMP) violations, including lack of appropriate microbial testing, formulation issues, and a lack of proper controls concerning tamper-evident packaging. The FDA is already collaborating with the CDC and state and local health departments to investigate whether more people have been affected by issues with this manufacturer and/or other OTC eye drops.

Recall notices

Due to potential sterility issues that could result in significant eye infections, injuries or visual impairments, the FDA has now added two additional eye drop products to its recall list. These companies did not face civil penalties (in contrast to the previous recall) because there have been no reports of illnesses or injuries linked to the use of their products.

One recall was initiated because the lids on some of the bottles have developed fractures, which might allow bacteria, fungi or other microbes to contaminate the eye drops. The other recall was initiated because the product was found to be non-sterile, meaning it may contain harmful contaminants that could cause eye infections or damage.

Best practices for manufacturers

As we mentioned in our 2023 State of the Nation Recall Index report, regulatory agencies like the FDA are becoming more aggressive when it comes to recalling products that might endanger consumers. The FDA has issued several notices due to potential contamination, so manufacturers need to make sure their facilities are in compliance with all relevant health codes. Companies should closely monitor changes to their legal and compliance obligations to make sure the FDA and CDC don’t have any reason to scrutinize their products.

Trusted by the world’s leading brands, Sedgwick brand protection has managed more than 5,000 of the most time-critical and sensitive product recalls in over 100 countries and 50 languages. To find out more about our experience with recall planning, simulations, and live event execution, visit sedgwick.com/brandprotection.

Spotlight: The proposed Product Liability Directive and AI Liability Directive

January 13, 2023

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By guest author: Stefan Lohn

Foreword by Chris Occleshaw, international product recall consultant at Sedgwick:

Welcome to the latest edition of Spotlight. Spotlight is our way of sharing insights and perspectives from our strategic partners – lawyers, insurers, risk managers and crisis communications experts across industries – on issues that have the potential to influence a company’s view on in-market incidents and crisis management. In this edition, we are joined by Dr. Stefan Lohn, Counsel at Clifford Chance, who shares his thoughts on the European Commission’s proposals to revise the framework for product liability and artificial intelligence (AI) civil liability.

What is the purpose of the proposed Product Liability Directive and AI Liability Directive?

The European Commission adopted the proposed Product Liability Directive (P-PLD) and proposed AI Liability Directive (P-AILD) on 28 September 2022. The proposals were released as a package to update civil liability rules for the digital age. Together, the documents cover specific challenges that artificial intelligence (AI) systems pose and different aspects of non-contractual liability. Moreover, they expand the existing product and AI civil liability framework to reflect advancements in information technology.

If adopted as expected by the European Parliament, the proposed directives will require businesses and enterprises to reassess their liability risks and how they manage documentation and information, particularly with regard to disclosure obligations.

What are the main features of the P-PLD?

The P-PLD governs non-contractual civil liability for defective products. The revised P-PLD maintains several important features of the existing Product Liability Directive (PLD). However, it also addresses shortcomings created by evolving definitions and concepts of products since the earlier PLD was introduced in 1985 and updates them where necessary.

The proposal notes that the framework of the existing PLD may no longer be suitable for some products in the modern digital economy and circular economy, including software, smart devices and autonomous vehicles.

The P-PLD changes the terminology in the current PLD from “producer” to “manufacturer.” It also assigns strict liability to manufacturers and importers for damages caused by a product or its component. However, the P-PLD aligns its terminology with the existing framework of the Decision 768/2008/EC regarding the marketing of products.

Familiar elements such as the possible liability of multiple economic actors continue to be a part of the P-PLD. However, the group of potentially liable economic actors is extended to include service providers that warehouse, package, address and dispatch products if at least two of these services are rendered. This may give rise to a potential liability for distributors, online platforms offering a product and fulfilment service providers who may believe they are exempt from the existing PLD.

Moreover, intangibles, such as software integrated in a product, are deemed to be a component of that product. That means software developers are subject to the same potential liability as conventional product manufacturers. Hence, software providers and providers of digital services, such as satellite navigation service in an autonomous vehicle, are also subject to the new PLD.

In addition, AI systems and AI-enabled goods fall within the scope of the P-PLD, thus enabling an injured person to obtain compensation without having to prove fault if a defective AI system or enabled product causes damage.

The P-PLD aims to further alleviate the burden of proof for injured persons in complex matters, including cases involving AI systems or when products fail to comply with safety requirements.

The P-PLD also expands the definition of damage to include loss and corruption of data. Furthermore, it asserts that manufacturers will be liable for changes to products already placed on the market, including, but not limited to, changes by means of software updates or machine learning.

Finally, the P-PLD disposes of prior limitations on the minimum and maximum amount recoverable. The general limitation term remains unchanged, but the proposal extends the absolute time limit for personal injury claims under the PLD from 10 to 15 years if an injured person had a latent personal injury and could not assert a claim in the 10-year period.

What are the main features of the P-AILD?

The P-AILD concerns non-contractual damage claims against providers of AI systems and aims to lay down uniform requirements for damage caused by the use of AI systems. In this context, an AI system includes software that employs machine learning, inductive programming and statistical approaches.

The P-AILD is intended to apply to non-contractual civil law claims for damages caused by an AI system, including claims related to a fault-based civil liability process. According to the proposal, a harmed person seeking recourse for a damage caused by an AI system shall be furnished with effective substantive and procedural means to identify potentially liable persons and respective evidence relevant to the respective claim.

There are two main components of the P-AILD. First, the P-AILD enables courts to order the disclosure of relevant evidence about the AI system that is suspected of having caused the damage. The disclosure obligation is addressed to the provider of an AI system as well as a person who is subject to the provider’s obligations as set out the AI Act or a user pursuant to the AI Act.

The disclosure obligation is complemented by procedural means to preserve evidence, but also includes provisions to safeguard the proportionality of disclosing the evidence. This framework ensures a balance between the justified interests of the party seeking disclosure with the interests of the disclosing party in its trade secrets or otherwise confidential information. Finally, the P-AILD introduces a presumption of a violation of a duty of care if the defendant fails to comply with a disclosure obligation, though the defendant can rebut this assertion.

The second component is the establishment of a presumption of causation between the fault of the defendant and the output produced by the AI system or the failure of the AI system to produce such output. The claimant must be able to meet three criteria: 1) demonstrate the fault of the defendant, 2) show the fault is reasonably likely to have been influenced by the output of the AI system and 3) demonstrate a causal link between the output, or non-output, of the AI system and the damage.

This presumption of causality is designed to ensure a level of protection for an injured person similar to situations where AI is not involved. The defendants are given the opportunity to rebut these allegations of causation.

What’s next?

The two proposals from the Commission now must pass through the European Parliament and the Council. Once the P-PLD and the P-AILD have been adopted, member states will then need to follow through with adoption of the directives.

For the P-PLD, the Commission proposes a maximum period of 12 months for the implementation by member states. A maximum period of two years has been proposed for the P-AILD.

Download a copy of this Spotlight feature.

About our guest author, Dr. Stefan Lohn

Dr. Lohn specialises in commercial arbitration and litigation and advises on supply chain compliance and risk. His practice focuses on international and domestic warranty and product liability matters including automotive, capital goods and electronics, as well as commercial contracts.

Dr. Lohn is a member of the German Institute of Arbitration (DIS), as well as Clifford Chance’s Automotive, Capital Goods, and Product Liability sector focus groups. He publishes frequently on supply chain compliance and risk as well as product liability issues.

Spotlight: Supply chain claims in product recalls: Maximize your recovery of losses

October 13, 2022

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By guest author: David Kidman

Foreword by Julie Ross, international business development director at Sedgwick:

Welcome to the latest edition of Spotlight. Spotlight is our way of sharing insights and perspectives from our strategic partners – lawyers, insurers, risk managers and crisis communications experts across industries – on issues that have the potential to influence a company’s view on in-market incidents and crisis management. In this edition, we are joined by David Kidman, Partner at Simmons & Simmons who shares his thoughts on supply chain claims in product recalls, and provides tips for companies to maximize their recovery of losses.

After a product recall is announced, when should companies be thinking about recovering damages along the supply chain?

When a product is recalled, manufacturers’ top priority is how to protect consumers and conduct the recall safely and effectively. However, in parallel they should consider how to mitigate damage to their reputation and determine whether parties in the supply chain may have contributed to circumstances around the recall. The earlier a company thinks about recovery, the better its chances of minimising financial exposure and ensuring that those responsible for the recall are held to account. Often, initial steps can be taken on day one.

What is the first step companies should take in determining responsibility?

The most important thing actually happens before the recall. Companies should have a Product Safety Management Plan (PSMP) and a Product Safety Incident Plan (PSIP) in place before a crisis hits. The British Standards Institution published guidance on how to devise a PSMP and a PSIP, available here. These plans will help companies engage with their supply chain partners quickly when the worst happens and help them understand the relative responsibilities of each party. Ideally these plans should be tested at least once a year.

How important are legal concerns when assessing responsibility?

Very important. Companies need to locate, safeguard and carefully catalogue affected products. They must fully understand the relevant contract terms with other parties in the supply chain such as commercial customers and commercial suppliers. Does the contract require that the supplier comply with strict product specifications or express terms regarding the quality or safety of the products? Or is it implied that the products will be of satisfactory quality but not expressly stated? Effective contract terms that seek to limit a company’s own liability, secure an indemnity for loss from others and compel disclosure of key information from others are a great aid in supply chain claims and bring a degree of certainty to the likely legal outcome.

Should you always assume the worst from your supply chain partners?

Absolutely not, especially if these are companies with whom you’ve had a long relationship. Where possible, make others in the supply chain complicit in any decision to take corrective action, or at least give them the opportunity to object. Looping them in early makes it harder for the supplier to argue that corrective action was not justified. Pay attention to what the suppliers say about the safety of the product and the potential reasons for failure. To maintain a good collaboration, give supply chain partners an opportunity to see the draft recall notice so they are aware of what is about to be said to consumers and the public. However, remember that your own free-standing obligations under relevant regulations means that you must independently assess risk and take action. Decision-making should be informed, but not dictated by, the views of others in the supply chain.

Furthermore, you should take a pragmatic approach to the recovery of loss. Is there a positive commercial relationship between the parties that makes it likely that some negotiation may be possible to preserve future trading? Is the supplier based in a remote jurisdiction? If so, it is important to have a network of local experts in that region who can promptly and cost-effectively determine whether the target has significant assets, and whether the target may try to liquidate or move those assets to make them inaccessible.

What actions should you expect from other companies involved?

Others in the supply chain rarely admit liability expressly. Be prepared to set out the legal basis of your claim and the extent of your loss in formal terms. It might be beneficial to engage an independent expert witness early in the process to help determine the root cause of why particular products have failed. That expert can give you authoritative expert opinion that can help persuade another party in the supply chain of your position.

What is the threshold that requires a recall?

It is a common refrain that a supplier will point to pre-release regulatory compliance of a product as evidence that the products were not defective, while wilfully ignoring multiple failures in actual use. It is important to recognise that the threshold that obliges a company to commence a recall can be lower than the threshold required to establish that a product is defective. In fact, case law in England provides a strong indication that the fact of a recall is not itself determinative of there being a defect. The actual defect must still be proven, on balance of probabilities.

What records should companies be mindful to keep during a recall?

It is important to retain a representative sample of recalled products for potential future testing, particularly if others in the supply chain are unwilling to admit that the product was defective or that corrective action was justified. In addition, isolate and retain any products that have been returned to you where a civil claim may be pursued by the consumer. This would include incidents where the consumer has complained of injury or damage of property. What constitutes a “representative” sample depends on the number of returned products, whether there are potential differences between batches, the size of the product, the cost of storing it and the seriousness of harm alleged.

In addition, you should record and retain evidence of your loss, as it unfolds. It may be an unwelcome additional task during a crisis, but it will be far less time consuming and much more accurate to track your loss in real-time, compared to a few weeks or months later. Some losses, such as storage costs or postage and packaging to write to affected customers, are easy to quantify. But other losses, such as management time devoted to an incident or loss of future sales due to reputational damage, are much more difficult to determine. Forensic accountancy evidence may be needed to determine damages. That requires consideration of whether to incur the cost of such expert evidence.

What should be considered in terms of consumer compensation?

Companies should implement a clear and consistent plan for compensation to affected consumers. In many cases, goodwill gestures of refunds, gift vouchers, replacements and/or compensation are criticised by suppliers as having been unnecessary, and not recoverable. However, such measures are typically effective in mitigating loss, both in terms of reducing the number of matters that escalate into formal claims and by reducing damage to reputation. However, being overly generous and/or inconsistent with goodwill gestures can lead to irrecoverable loss.

How should companies plan for consequential loss?

“Consequential’’ loss, defined as loss that is relatively unusual and not always predictable or within the supplier’s knowledge, is often more difficult to recover. It is sometimes subject to express exclusion under contract terms. For example, the recalled product may have been the central product in a new brand launch. However, the recall might have irreparably damaged consumers’ trust such that the whole brand must be terminated. The anticipated loss of future sales of not just the recalled product but other current and future products could be said to be consequential loss, and more difficult to recover. Understanding which types of loss you wish to seriously recover, and the value and merit of recovering each of them will help set expectations of recovery and make for an easier settlement.

What role does insurance play?

That largely depends on your coverage. Companies should regularly review their insurance program. Do you have product recall insurance? Which types of loss are covered? What assistance will your insurer provide in terms of crisis management and legal advice related to effectively conducting the recall, collating evidence of loss, mitigating loss and pursuing others in the supply chain? The greater the pay out the insurer makes to you, the more interested it will be in pursuing a subrogated recovery of its own loss against others in the supply chain.

The path to recovery is seldom straightforward and gathering the necessary evidence and initiating a claim can be time consuming. However, pervasively thinking about recovery throughout the recall process can greatly help reduce your own exposure and test the co-operation of others in your supply chain through difficult times.

Download a copy of this spotlight feature here.

About our guest author

Mr. Kidman is a Partner in Simmons & Simmons’ London office where he specialises in resolving product liability disputes and advising on product recalls. He is experienced in handling recovery claims both domestically and internationally as well as regulatory investigations, compliance matters, insurance policy claims, group litigation and jurisdictional disputes.

He is ranked in Chambers & Partners and Legal 500 for Product Liability: Defendant work. He has particular expertise advising producers, distributors, retailers and their insurers in the life sciences, technology, food & drink and retail sectors, but has also counseled on automobiles, toys, electrical goods and other product categories. He is experienced in robustly defending claims and navigating complex expert evidence, while upholding the reputation of his clients and finding commercially sensible outcomes.

Product recall claim costs: Is there a true standard?

August 15, 2022

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By Jillian Pancott, senior manager, forensic advisory services, Australia

Product recalls impact thousands of companies each year — putting people and brands at risk. The consequences to a company’s reputation, market share and bottom line can be devastating. While the cause behind recalls can vary widely — from salmonella cases to quality control issues — one common concern is the complexity of assessing the financial components of a loss.

Financial elements

Costs associated with removing product from the market can quickly increase following a recall — from labour to shipping, handling and disposal costs. Not to mention, there could be manufacturing costs to consider and time spent on additional review processes if the recalled product requires remanufacture. Lost profit claims for relevant parties involved may include the manufacturer and retail customers, all of which adds to the potential exposure of the Insured and Insurer.

The basis of most claims

Most product recall claims are submitted with the product valued at ‘standard cost’. This encompasses the business’ cost of the product, including raw material costs, labour hours and associated costs, along with allocations of other manufacturing and overhead costs (both direct and indirect). However, the indemnifiable insurance costs can vary dramatically from the claimed standard costs reported by the insured and/or claimant.

A common reason for this difference is that standard costs are typically set by a business at the start of its financial year, based on its expected manufacturing output and quantities produced over the course of the year. The expected manufacturing costs are then converted to a standard cost-per-unit based on the expected output.

Possible factors

The standard cost is typically created after reviewing historical costs adjusted for some future production planning; it is a prediction of what the cost-per-unit will be during the upcoming year. However, the output and costs which eventuate can vary considerably from what was planned. For example:

  • Costs may change due to global supply/demand.
  • Production output may fall short or exceed targets depending on customer requirements, operational efficiencies, mechanical and manufacturing capabilities.
  • Operational changes in the business impact actual costs, such as changes to the number of manufacturing shifts or employees rostered on.

Potential scenarios

Any of these factors can result in a manufacturing cost that is higher or lower than the standard cost — requiring an adjustment to a claim prepared based on standard costs. For example:

  • Variable costs per unit have increased due to global shortages, increasing total variable costs by $650,000
  • The business was able to run more continuous shifts, making the output greater than expected by 150,000 units
  • Due to a new EBA, labour costs increased by $100,000 over the year

Loss assessment guidance

As forensic accountants, our team in Australia and around the world are skilled in identifying factors that may impact the standard cost following a product recall. We ensure that costs not directly attributable to the manufacture of the affected product do not form part of the claim. This means:

  • Overhead cost allocations are identified and excluded.
  • Adjustments are made to account for actual cost, including adjustments for manufacturing variances unrelated to the Insured event.
  • Cost of the insured’s product or componentry in finished goods is excluded (subject to policy exclusions).
  • Cost of product is calculated in alignment with gross profit definitions.

Sedgwick’s forensic advisory experts establish the actual losses sustained — subject to the relevant policy wording — giving those involved peace of mind that the losses have been indemnified accurately. Our team of product recall and product liability loss quantification specialists have extensive experience in assessing product recall and product liability claims across many industries. For more information about our liability services related to product recall, read the brochure or contact [email protected].

This blog is the first installment in a series where our experts explore current themes and share insights on liability claims — ranging from trip and slip personal injuries to multimillion dollar product recall and professional indemnity claims. No matter the focus, our team in Australia and around the world is committed to working closely with specialty areas of our business, including forensic accountants, chartered engineers and building consultants to create synergies. Stay tuned for the second blog, which is coming soon.

Rise in deaths linked to children’s products renews push for safety disclosure law

April 27, 2022

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By Jeremy Schutz

Following a steady increase in reported deaths caused by faulty children’s products, the Consumer Product Safety Commission (CPSC) is under pressure to act more aggressively in pushing companies to recall products that pose a risk to children and toddlers.

In 2021, the U.S. saw the second-highest number of reported deaths related to children’s products in the past 10 years. And the trend seems to be continuing. Not only have deaths increased this past year, but the number of injuries and incidents are higher too. This month, Kids In Danger (KID) released its annual report, Tracking Trends: Children’s Product Recalls in 2021, analyzing the children’s products recalled by the CPSC. In 2021, there were 14 deaths, 136 injuries and 6,058 incidents prior to recall — compared to 2020 in which there were no deaths, nine injuries and 704 incidents. These reported issues not only occurred with children’s products, but with general products such as magnets and vitamins as well.

Our 2022 State of the Nation report found similar trends when looking at the consumer products industry as a whole. Children’s toys, for example, were one of the most actively recalled product categories.

Sunshine in Product Safety Act

“We can and must fix this. The CPSC needs the power to decide when and how to communicate vital health and safety information about potentially dangerous products to consumers, and recalling companies need to work with CPSC to prioritize recall speed and effectiveness,” Rep. Jan Schakowsky, Chair of the U.S. House Subcommittee on Consumer Protection and Commerce, said recently after reviewing the statistics. “I look forward to addressing these issues in my subcommittee, ideally in a bipartisan manner, including by passing the Sunshine in Product Safety Act to ensure that the CPSC can swiftly alert the public to potentially dangerous products.”

If Congress passes the act into law, it will empower the CPSC to issue product warnings and mandate recalls without giving manufacturers a voice in how, when, and even where information is disclosed. In fact, the CPSC, among other regulators, is already leveraging social media to broadcast recall notices to increase their reach to parents and other consumers.

Recommendations

Because of rising consumer awareness and the resulting pressure on Congress and the CPSC, manufacturers need to more readily report any issues that may threaten the safety of children. It is also important that manufacturers of children’s toys, clothing, and other products build and maintain clear communication channels with both the CPSC and consumers so they are seen to be cooperative with regulators and foster greater trust among consumer advocates.

Businesses, especially those making and selling children’s products, must prioritize their recall readiness so they can respond quickly and effectively when product failures occur, guard against product-liability litigation, and protect their reputations at a time when scrutiny of their industry is at an all-time high.

Are there sparks ahead for electrical OEMs?

January 10, 2022

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By Mark Buckingham, recall advisor

As electrical OEMs congratulate themselves on a bumper year for sales, many remain cautious about what 2022 holds in store as new right to repair regulations start to bite.

In some respects, 2021 has been a good year for electrical appliance manufacturers. COVID has brought more investment in homes and created a boom in online purchasing. The market for home appliances grew by 8%, setting a new record in global sales volume. However, as devices and usage grow, the electrical industry is being pushed further into the environmental spotlight. Pressure is on to reduce energy and material consumption, as well as ensure longer product life.

In March 2021, the European Commission introduced its new Ecodesign Measures, a set of regulations to help encourage a more circular and sustainable economy. This calls on manufacturers to make products that are more durable and easier to repair. As a result of the new requirements, manufacturers of washing machines, dishwashers, refrigerators, televisions and displays must make spare parts and repair documentation more readily available to professional third-party repairers. Spare parts must be available within 15 business days and manufacturers must continue providing them for seven to ten years, depending on product type.

In July, similar rules were introduced in the UK. In both instances, manufacturers must incorporate “repairability” into designs, manufacturing and processes. If they fail to comply, their product lines may be restricted from sale or subjected to recall.

The start of a bigger journey to broader sustainability.

Access by consumers to information on product durability, repairability and even upgradability at the point of sale is considered by some as the appropriate next step. France has become the first EU country to introduce a “repairability index”, designed to encourage consumers to purchase more durable goods and manufacturers to produce more repairable products. If it is successful, the European Commission could contemplate the implementation of a similar repairability index that would be valid across the EU.

In Germany, the federal government is pushing to strengthen its right to repair laws even further — promoting the implementation of legislation relating to smartphones and tablets. This would require manufacturers to provide reasonably priced spare parts and to make security updates available for seven years. It also hopes to convince the EU to follow suit.

In 2022, manufacturers may face recalls of products that are not deemed to be sufficiently repairable.

It is not yet clear how the continuing issues of semi-conductor shortages and COVID supply chain disruptions will impact future availability of parts and products. To help them overcome the challenges, OEMs will have to look at their recall processes with fresh eyes and update and retest their remedial, insurance and recall plans as appropriate.

As the right to repair takes force, manufacturers must also look beyond product compliance to issues that will be thrown up in the field. For example, how to mitigate the product safety and liability risk that comes with consumers opting to repair products on their own rather than soliciting help from an expert. Without doing so, they could see sparks fly with an increase in product liability claims, excessive recalls and more corrective action required.

To learn more about the rise and fall of recall trends and to acquire knowledge about how to plan for one, download the latest edition of our European recall index report.

Sedgwick acquires recall, remediation and retention solutions business from Stericycle

December 2, 2020

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MEMPHIS, Tenn., Dec. 2, 2020 – Sedgwick, a leading global provider of technology-enabled risk, benefits and integrated business solutions, today announced its acquisition of Stericycle’s Expert Solutions service line, the market leader in helping companies protect their consumers and brand reputations by managing a wide range of in-market business and product risks.

This strategic transaction brings to Sedgwick market-leading expertise and specialization in the complexities associated with end-to-end product recall, remediation and retention, thus expanding the company’s offerings in this arena. While Sedgwick has a long tradition of helping clients with product liability claims, bringing this business in-house enables the company to provide a comprehensive solution for managing global risk, recall and remediation—including the retrieval of in-market product, processing and tracking returns, working with governing regulatory agencies and more.

“The addition of Stericycle’s Expert Solutions service line, along with their talented team, brings tremendous value to Sedgwick,” said Mike Arbour, CEO of Sedgwick. “We look forward to offering best-in-class recall, remediation and retention solutions on a global scale under the Sedgwick banner to clients in the automotive, food and beverage, medical devices, retail, pharmaceuticals and consumer products industries and beyond. This acquisition enhances our suite of integrated offerings in the benefits, claims and resolution space, and we are excited to combine our resources and expertise for the benefit of our clients.”

As part of the transaction, Sedgwick gains more than 300 new colleagues from Stericycle’s Expert Solutions service line in the U.S., Canada and Europe. Bringing recall, remediation and retention solutions under the banner of Sedgwick’s specialty operations presents opportunities for the company to better serve clients by offering a more robust range of services that address and resolve in-market challenges.

“With a 25-year track record of managing some of the most sensitive and time-critical business and product crises, we know what it takes to resolve in-market challenges and uphold client commitments to customers, supply chain partners, industry groups and regulators,” said Ken Edwards, senior vice president and general manager at Expert Solutions.