While there has been widespread outrage at the revelation that horse meat has been found in many beef products sold in Europe, and many large retailers have withdrawn the products, few insurance policies are likely to be triggered because no consumers have yet fallen ill.
And while there is a slim chance that a horse painkiller, phenylbutazone, may be present in some horse meat, it would have to be in large enough quantities to put human health at risk.
But the scandal will prompt companies to review their supply chains and potential damage to their reputations, and may prompt insurers to devise new products to fill coverage gaps, experts say.
The events have “shone a spotlight on the supply chain,” said Jon Miller, an associate in Jardine Lloyd Thompson Group P.L.C.'s food and agriculture practice in Birmingham, England.
Fears about horse meat in beef products surfaced in January, when horse DNA was found in beef burgers in the United Kingdom and Ireland. Leading retailers withdrew the products from sale.
In February, the U.K. Food Standards Agency said tests showed that frozen lasagna sold by Luxembourg-based Findus Group in the United Kingdom contained up to 100% horse meat. Findus, which withdrew the product from sale, later said it contained no phenylbutazone.
The lasagna supplier, Metz, France-based Comigel S.A., withdrew all products sourced from Castelnaudary, France-based Spanghero S.A., which supplied the meat. Spanghero said it would sue the Romanian meat producer that is its supplier.
Meanwhile, Swedish firms withdrew frozen lasagna meals and supermarkets in France, the Netherlands and Switzerland pulled many ready-made meals as a precaution.
French officials said horse meat had been found in frozen meals, and traces of horse meat also were reported in frozen meals sold in Austria, Belgium, Denmark, Finland, Germany, Norway, Sweden and Switzerland.
Last week, Vevey, Switzerland-based food giant Nestlé S.A. withdrew pasta meals from Italy and Spain because they contained horse meat.
Richard Parkinson, a supply chain expert at London law firm Pinsent Masons L.L.P., said all the companies involved will look at their contracts to assess their ability to recoup costs incurred with the recalls.
But the fact that no consumers had fallen ill because of horse meat contamination likely means companies that have withdrawn products will have little recourse to tap insurance.
“There is not much insurance that would respond, because this is a very particular set of circumstances,” said one industry source who asked not to be named. “It would be very tricky to prove that the product is defective.”
Under public liability policies, it typically is necessary to prove that claims were foreseeable, he said.
“Typically, product liability coverage will not respond to contractual claims unless the insured company has supplied a product which has caused physical injury or damage to property,” said Richard Matthews, a partner at Eversheds L.L.P. in Leeds, England.
“Where it can be established that a "contaminated supply' was mixed with unaffected sources of beef which contaminated the entirety of the intermingled product at a meat processing plant, then there may be scope for argument over the insurance position,” Mr. Matthews said.
While some companies may have purchased contaminated product insurance to cover recall costs and lost profits, “whether these policies are triggered might depend on whether phenylbutazone is found in the horse meat, or some other evidence of risk of injury from consumption of the affected products is found.”
The contamination must be shown to be harmful to human health to trigger the coverage, said JLT's Mr. Miller. If it can be shown that food was incorrectly labeled, errors and omissions policies may respond, but food retailers typically do not buy such coverage, he said.
The insurance market is exploring developing coverage that might respond to an event such as the horse meat scandal, Mr. Miller said.
“The insurance industry needs to take note of this type of event,” Tom Teixeira, life sciences practice leader at Willis Group Holdings P.L.C. in London, said in a blog post. “The ability to identify products that would add real protection for such an event will help increase awareness and ultimately help to raise standards across the supply chain as well as provide adequate protection for quality issues.”
Demand for product recall coverage is likely to increase during the next decade, said Connie Germano, Zurich-based regional casualty manager, middle market and life sciences, for Ace Ltd. in Continental Europe.
“Maintaining brand reputation and market position after a recall event, in particular, is crucial — but the potentially huge costs involved are not usually covered by standard liability policies,” said Ms. Germano. “A serious accidental contamination or malicious tampering incident can, therefore, put a company out of business if they are not adequately prepared.”
Risk managers can play an important role in making a risk assessment of a company's supply chain and validating the systems and processes in place, said Paul Hopkin, technical director of the London-based Association of Insurance & Risk Managers.
These events have again highlighted the importance of having risk managers involved in setting up and assessing supply chains, he said.
The events may have triggered some companies' disaster response plans that include damage to reputation and prompted companies not directly affected to review their disaster response plans, Mr. Hopkin said.