July 2021
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Executive Summary
Risk is Rising On All Sides – Are Food Processors Ready?
Survey reveals troublesome gaps in preparation for increasing food-safety claims, workplace disruption
Facing mounting food-safety claims, food-processing leaders appear largely unprepared to protect their organizations – only one-third consider themselves very prepared, many lack adequate internal teams and most aren’t getting guidance from outside counsel on critical risk-management questions.
Still, the food processors express confidence in their rigorous food-safety standards. If that confidence is justified, it could buy them the time they need to bolster their defenses against the rising tide of food-safety claims.
Those are among the key findings of a survey of food processing executives conducted in the first half of 2021 by Lathrop GPM. The survey finds food processors reflecting on a perilous year in which they struggled to sustain production while guarding against the spread of COVID-19 on production floors.
Uncertainty – And Risk – Ahead
Even with rising vaccination levels bringing an end to the pandemic into sight, uncertainty remains on the horizon; just a little more than half (53 percent) of survey respondents expect a return to pre-pandemic operating practices.
Perhaps adding to the sense of uncertainty, two-thirds of respondents foresee food-safety claims rising in the next year. Those claims may be driven by shifts in food production and technology and the threat of foodborne illness – the two greatest concerns among the executives we surveyed.
In that scenario, we might expect to see processors girding themselves by strengthening internal risk management teams, retaining knowledgeable outside counsel and carefully reviewing insurance coverage. Indeed, more than 80 percent of survey respondents say they are prepared for an increase in food-safety claims.
But the survey results reveal troublesome gaps in that preparation. Fewer than half (47 percent) are evaluating their business processes with outside counsel. And while 71 percent are confident that they have adequate insurance coverage and know how to use it to mitigate risk, barely half (57 percent) review their policies annually – only 43 percent say they have internal risk management teams in place to handle insurance issues.
“We’ve known for a long time that many businesses don’t have the resources to maintain a deep bench of risk-management talent,” says Kim Winter, partner and Insurance Recovery & Counseling practice group leader at Lathrop GPM. “In an environment where food-safety claims are rising and change is coming fast and from virtually every direction, business leaders should consider investing in dedicated risk-management professionals, or at minimum, making sure that someone inside the company is designated to know what coverage they have, when policies renew, and what types of policies and requirements for giving notice are in place. These seemingly mundane details could be the difference between millions of dollars in coverage, and zero coverage.”
So it may not be surprising that while nearly half (46 percent) of respondents have filed more than 10 insurance claims in the past year, 36 percent have taken no steps to pursue coverage when claims were denied. And 29 percent say they rely on internal resources to dispute denials of coverage – a perfectly prudent approach if their internal teams are adequately staffed and knowledgeable.
Relying on Brokers, Not Counsel
When food processors don’t have the internal resources to pursue insurance recoveries,
and aren’t receiving guidance from outside counsel, it likely means they are relying on their insurance brokers for advice; 23 percent say they have used brokers to dispute coverage denials. That’s a common practice, but a risky one. Brokers may offer claims departments, or even legal departments, but because they generate revenue through commissions paid by insurers, they should not be viewed as advocates for insureds.
More than a third (37 percent) of respondents have called on outside counsel for help in challenging denied insurance claims. But most say they are not receiving counsel’s guidance on issues they consider important, including insurance claim resolution, environmental practices and regulations, risks related to contaminants and food-safety matters.
More than a third (37 percent) of respondents have called on outside counsel for help in challenging denied insurance claims. But most say they are not receiving counsel’s guidance on issues they consider important, including insurance claim resolution, environmental practices and regulations, risks related to contaminants and food-safety matters.
“Outside counsel may not be crucial on every insurance claim, but there are certainly instances in food processing where obtaining coverage can be viewed as a fiduciary duty, such as with mass food- safety matters,” says Nancy Sher Cohen, a partner and leader in Lathrop GPM’s Insurance Recovery & Counseling group. “In those cases, processors need not only guidance but also staunch, skilled advocacy – something they cannot get from their brokers.”
Processors may also be unprepared to manage risk related to their workforce, especially in light of the past year’s disruptions. Three-quarters (76 percent) of respondents say the pandemic systematically impacted their approach to worker safety, an indicator of the plethora of measures food processors took to prevent the spread of COVID-19 in their workplaces. And two- thirds (67 percent) say state and local guidelines have the greatest impact on the workplace safety procedures they follow, far more than the Joint Meat Processing Guidance issued by the CDC and OSHA. Rapidly shifting rules and regulations at every level of government combined with the upheaval caused by COVID-19 could spell trouble for the more than half of processors who say they are not reviewing their business practices with outside counsel.
Conclusion
Taken together, the survey results point to an industry that largely remains in reactive mode – where the majority of food processors have not invested in internal risk-management or engaged outside counsel in anticipation of encroaching risk on food safety, workplace rules and other mission-critical issues.
Those that haven’t prepared will at best risk leaving money on the table, in the form of uncollected insurance claims. At worst, they could be putting the business at risk, particularly in an era of shifting consumer tastes and rapidly advancing technology.
Last year, we saw the agribusiness sector quickly pivot and make incredible changes to manufacturing, production and nearly every other aspect of their businesses,” said Jay Felton, partner at Lathrop GPM and leader of the firm’s Agribusiness & Food industry group. “Now, with the end of the pandemic in sight, industry leaders also need to refocus on the risks that lie beyond.”
It’s not too late for those food processing executives to make the investments that could protect their organizations from devastating legal or regulatory matters. As the business world begins returning to a closer semblance of normalcy, this is the time to put the proper risk-management and legal teams in place.
Survey Data: Key Findings
Businesses Challenged to Return to Pre-Pandemic Operations
Only 53 percent of food-processing executives believe their businesses will return to pre- pandemic operating environments once vaccines have been widely administered. Though given the sweeping upheaval wrought by COVID-19, it may be surprising that even half expect a return to business-as-usual.
Likelihood that Business Will Return to a Pre-Pandemic Operating Environment
Food-Safety Claims Rising – and Preparation Lags
Sixty percent of processors believe the industry has seen increased food-safety claims since the pandemic began in the first quarter of 2020 – and 65 percent expect claims to keep rising in the year ahead. Meanwhile, only 34 percent say they are “very prepared” to manage the rise in claims.
Food-Safety Claims
Level of Preparedness in Managing an Increase in Food Safety-Related Claims
Shifting consumer tastes and preferences is driving changes to the technology and production processes across the food industry – and the risks those changes create top the list of executives’ concerns. That’s followed closely by the perpetual risk of foodborne illness.
Most Concerning Food Safety Risks
High Confidence in Food-Safety Standards Exists
Nearly three-quarters (72 percent) of food-processing executives display high confidence in their organizations’ food-safety standards. That’s the response we would hope to see in an industry where failure to meet those standards creates existential risk.
Confidence in Food-Safety Standards
Guidance from Outside Counsel Lacking on Critical Issues
Food processing leaders consider all of these issues important, but on all but one (food safety) fewer than one-third are receiving guidance from outside counsel. Given their belief that food-safety claims will rise, and the bevy of food-safety related issues they’re concerned about, it’s concerning that food processors aren’t receiving guidance from outside counsel on these issues.
More than 90 percent believe that contaminant-related risks are important to their businesses – but only one-third are receiving guidance from outside counsel on those risks.
“It’s good to see that contaminants are top of mind – especially given the rise in litigation related to PFAS, which has been used for decades in everything from nonstick cookware to stain-resistant fabrics,” says Mara Cohara, partner and leader of the Environmental and Tort Practice Group at Lathrop GPM. “PFAS will be a major focus for regulators this year – and as a result there will likely be increased litigation. Business leaders should seek guidance on contaminants before they find themselves defending their companies against such claims.”
Importance of Specific Guidance
Take Steps to Protect Against Risks
Food processing executives say they are taking many steps to manage risks in their organizations. More than three-quarters are establishing best practices and training employees. Two-thirds are reviewing compliance against federal, state and local regulations. But only half are working with business partners on best practices. And most concerning, fewer than half are evaluating business practices with outside counsel.
Organizational Status
Insurance Coverage in Place – But Processes & Resources May Be Lacking
A strong majority (71 percent) food processing leaders are confident that they have adequate insurance coverage and that they understand how to leverage it to mitigate risk. However, fewer than half (43 percent) say they have internal teams in place to handle insurance claims – a concerning gap given the rise in food-safety matters and the multitude of challenges in the marketplace.
Of further concern, only a little more than half say they review their insurance policies annually – a critical best practice for maintaining adequate risk mitigation. Fully 10 percent either don’t know how often they review insurance policies or never review them.
Insurance Coverage and Oversight
Frequency of Insurance Policy Review
Insurance Claims Are Flowing – And Most Respondents Dispute Coverage Denials
Demonstrating the value of insurance coverage, nearly half (46 percent) of food processors filed more than 10 insurance claims last year. And 70 percent filed at least one claim. When claims were denied, more than a third (36 percent) of processors simply accepted the denials without challenge, while the same number (37 percent) challenged the denials with guidance from outside counsel. Twenty-nine percent challenged claims using internal resources – though given that half say they don’t have staff in place to handle insurance claims, it’s fair to speculate that the success rate may have been low.
Most concerning, 23 percent relied on their insurance brokers to challenge coverage denials. While many brokers offer assistance in disputing claim denials, processors should consider where the brokerage’s loyalties lie – given that its revenue comes from the insurer, not the insured.
Claims Filed with Insurers in Last 12 Months
Steps Taken in the Last 12 Months to Receive Coverage for a Denied Claim
Workplace Safety: An Evolving Landscape
Two-thirds of food processors say state and local guidelines have the greatest impact on workplace-safety procedures. That’s far more than feel the greatest impact from federal guidelines or their own rules. And not surprisingly, 80 percent of the executives we surveyed say the pandemic impacted their approach to worker safety. In an industry that experienced well-publicized challenges with COVID-19 outbreaks, it’s if anything surprising that the percentage who agree isn’t.
Greatest Impact on Safety Procedures
The Pandemic Systematically Impacted Our Approach to Worker Safety
Guidance: Insurance Recovery
In the face of rising food-safety claims, food-processing leaders should move quickly to make sure their organizations are protected. Understanding their insurance coverage is among the first of those moves. Lathrop GPM’s Kim Winter, partner and Insurance Recovery & Counseling practice group leader, offers the following suggestions.
What steps should business leaders take to be sure they have coverage in place?
Only 53 percent of food-processing executives believe their businesses will return to pre-pandemic operating environments once vaccines have been widely administered. Though given the sweeping upheaval wrought by COVID-19, it may be surprising that even half expect a return to business-as-usual.
What internal resources should the organization have in place?
Ideally, a designated risk manager. But at the very least, every organization needs to have someone who is responsible for knowing what insurance the company has, what it covers generally, when it renews and the process for making claims when they arise.
That process is critical – most policies have a notice period in which to file a claim, and missing it can be cost millions of dollars in lost coverage. The best way to avoid that is to make sure someone in the company knows when coverage may have been triggered, how to file a claim and when it must be filed.
What external resources should it have in place?
A broker who knows your industry and your business so that they will understand the particular risks and coverage issues you face.
However, even the most knowledgeable broker isn’t likely to get into the nuanced ways you should customize your polices to protect your company based on your unique mix of products and markets. This is where you need insurance counsel – to ensure that policies line up precisely with the risks you face, including food-safety claims. Part of that is knowing how the courts have interpreted specific policy language, which will crucial when disputes over coverage arise.
Guidance: Contaminants
In addition to rising food-safety claims, most food-processing leaders can anticipate rising litigation and regulatory scrutiny around per- and polyfluoroalkyl substances (PFAS), as well as other contaminants. As lawmakers and regulators turn up the heat on PFAS, now is the time to take steps to protect against future issues. Mara Cohara, partner and leader of the Environmental and Tort Practice Group at Lathrop GPM, offers the following suggestions.
What can leaders do to understand their PFAS exposure?
Only 53 percent of food-processing executives believe their businesses will return to pre-pandemic operating environments once vaccines have been widely administered. Though given the sweeping upheaval wrought by COVID-19, it may be surprising that even half expect a return to business-as-usual.
Once they confirm or learn they have PFAS exposure, what next?
Once you know you have PFAS or other contaminants in your product, whether in the product itself, the packaging or any other element, you’ll want to understand exactly how it got to be there and at what levels the contaminant is present.
- How did the contaminant get into the product? Did it come from the packaging? From production equipment? From a supplier or vendor?
- At what levels is it present in your products?
- How long have your products been exposed to PFAS? These chemicals came into widespread use in the 1940s, so exposure could go back decades. Be sure to preserve any historical documents related to PFAS at your organization.
- How have you disposed of PFAS waste?
Each of these questions will help you understand your exposure. Then you can start to understand how you might mitigate it before claims arise. Taking steps to mitigate will weigh heavily in the organization’s favor when litigating or negotiating with regulators – and failure to mitigate after you’ve learned of PFAS exposure will similarly be very damaging in any subsequent proceedings.
What external resources should organizations have in place?
Outside counsel is vital because PFAS lawsuits and regulatory actions are becoming almost inevitable.
For companies that believe they have some exposure to PFAS, environmental consultants can help understand the levels present in your products and the steps you might be able to take to reduce those levels.
Methodology
In February 2021, Lathrop GPM surveyed 100 agribusiness decision makers who play are active in litigation and risk management issues affecting their companies. These individuals were recruited through an online panel. Respondents included CEOs, CFOs, COOs, CLOs and a range of in-house counsel roles, including General Counsel. To qualify, the respondent’s company had to be active in food processing.
Demographics
Roles
Company Size (Total Employees)
Estimated 2020 Revenues
Where They Were Based
Respondents came from 36 states. Top states by number of respondents: