The letter will say something to the effect, “Please recognize (agency or agent with address) as my Broker of Record for all prior submissions. This authorization revokes any previous authorizations.”

Please note, I do not have a problem with BOR or AOR’s, if properly represented, but I am finding that more and more insurance agents are deceiving their prospects by asking them to sign a BOR letter and telling them it is standard operation procedure, when in fact, it is shrewd play to take the work of others.   

Below are some legitimate reasons you may want to provide an agent or agency a Broker of Record Letter:

1. You are not receiving good service from your agent or agency.  If it takes days or weeks to get your agent to return your phone calls or it is difficult to get Certificates of Insurance to your clients, this may be enough to consider a BOR or AOR letter.
2. You lack confidence that you agent or agency adequately understands your insurance needs.  Not all agents and agencies understand product recall or product liability insurance and as a result may struggle with providing the appropriate coverage and premiums.  The same could be said for contractors, trucking, doctors offices, etc.  Having confidence that an agent or agency specializes in your type of business may be reason to provide a BOR or AOR letter.
3. A family member is in the insurance business. Let’s not be naive.  It is okay to support a family member and want them to do well in their profession.  However, it is not appropriate to seek other agents and agencies to do all the work with the intention of moving it over, after the work has been complete.  If the family member tried to help, but did not provide the best quote, it would not hurt my feelings or be unexpected for you to move your business with a BOR or AOR letter.

So the next time you are seeking multiple quotes from different agents or agencies and they send you a BOR or AOR letter and tell you it is standard procedure to secure quotes, you may want think twice about working with that agent or agency.  Trust and honesty are the most basic requirements for any type of relationship.

The great thing about these add on endorsements are, they provide some product recall expense coverage at a much lower price than if a small business had to purchase a stand-alone or individual product recall policy.  Minimum premiums for a stand-alone product recall policy typically are in the $10,000 range per year and just too expensive for most small and start-up businesses to afford.  The product recall expense endorsements allow the small business owner to choose a smaller sub limit ($25,000 to $250,000) of their product liability limit to be used on for product recall and provides affordable premiums for 5% to 25% of the total product liability premium.  Some of the dietary supplement insurance carriers are offering $25,000 sub limits of coverage for as low as $500 or 5% of total premium, whichever is higher. 

Product recall or withdrawal is necessary when your product is deemed to have or suspected to have a defect that will potentially cause bodily injury or property damage.  The determination that a product needs to be recalled can be made by you or because a government entity has ordered you to withdraw your product from the market place.

Products recall expenses can include the following:

1. costs of notification;
2. costs of stationary, envelopes, product of announcement and postage or facsimiles;
3. costs of overtime paid to regular nonsalaried employees and cost incurred by your employees, including costs of transportation and accommodations;
4. costs of computer time;
5. cost of hiring independent contractors and other temporary employees;
6. costs of transportation, shipping or packaging;
7. costs of warehouse or storage space;
8. costs of proper disposal of “your products,” or product that contain “your products,” that cannot be reused, not exceeding your purchase price or your cost to produce the products.

The cost of getting this endorsement can vary greatly depending on limits of coverage you want, the type of products you sell and amount of product you have in the market place. 

If have any doubts about the need for product recall insurance, I highly recommend you go to www.recall.gov and look at the list of all the products similar to yours that are being recalled.  I believe you will quickly conclude that during the life of your business it is much more likely that your business will face a recall than a product liability claim.

• Child Craft (out of business)
• Delta Enterprise Corp of New York, NY
• Evenflo of Miamisburg, OH
• Jardine Enterprises of Taipei, Taiwan
• LaJobi of Cranbury, N.J.
• Million Dollar Baby of Montebello, Calif.
• Simmons Juvenile Products, Inc. of New London, Wis.
   

Apparently, drop down cribs have a long history of problems and are known to be less structurally sound than four fixed side cribs.  In the last 5 years, more than 9 million drop down cribs have been recalled from the market.  They are also more suscetible to age related wear and tear and incorrect assembly than the fixed side cribs.

If you want to know more about crib safety, go to JPMA Crib Safety.

Over the last ten years Graco and Simplicity has distinguished itself as one of the most embattled and recalled company’s in the history of the United States, yet it seems to be able to continue to live up to it’s business model of delivering inexpensive baby and children’s products.  During this time, products such as cribs (suffocation), strollers (finger amputations), high chairs (falls), car seats (choking), toddler beds, swings, walkers, baby carriers, bassinets and toys have been recalled by the millions.  The cost alone to handle all the recalls and product liability lawsuits has to have reached into the hundreds of millions of dollars over the past ten years.  I guess the Civil Penalty imposed by the CPSC of $4M for not reporting known product defects in a timely manner must have seemed like a small slap on the wrist.

I have to believe somewhere some college professor is teaching a class based on the business model of Graco.  You have to give Graco their props.  Despite it’s name being negatively being associated with baby and children’s injuries and deaths and spending hundreds of millions in fines, product recalls and product liability lawsuits they appear to not only survive, but to thrive and remain profitable.

This article supports a previous blog I wrote, “Health Supplements Biggest Problem – Undeclared Substances”.  In this blog I reference a study that indicates that up to 25% of all health supplements in the market could contain undeclared substances.  This study did not indicate that all the undeclared substances were harmful, but it is, just the same, disconcerting not knowing what is going into your body when you take a health supplement.

What I find fascinating is that while the folks at bodybuilding.com maintain that they were not aware of any unlawful substances going into their health supplements, I cannot help but wonder, since they were in the body building business, if they were trying to gain an unfair advantage over their competitors.  If you go to their website, you will see grandpa’s before and after pictures.  In the after picture, grandpa has a body most 26 year old guys could only dream of.  Give me what he is taking! On second thought, I think I will pass.  If steriods were unknowingly in his health substances, he could have an increased risk of heart attack, stroke and death, not to mention acute liver damage, shrinking testes and male infertility.

I wonder what Bodybuilding.com’s product liability insurance carrier is thinking.  My bet is their product liability policy has either been cancelled or they have been notified that they will be non-renewed.  The policy was more than likely a claims-made policy and once cancelled will not cover any of the  prior or future incidences by their customers such as liver damage, stroke, etc. that may have been caused by unknowningly ingesting steriods. 

I, also, wonder what person liability will be assigned to the owners or stockholders of the company in the future, if it turns out that there was knowledge that steriods were being used in their dietary supplements.  Every General Liability policy has an exclusion for intentional acts and even if a product liability lawsuit was filed against the company, it is likely their insurance carrier could deny coverage.  With no insurance coverage for the company, plaintiffs may have a case to go after personal assets of the company principles.

Keep in mind that recalls are simply not for defective products that do not work as intended.  To implement a product recall there must be some evidence that the product presents an imminent danger to cause bodily injury or property damage.

The following items may surprise you to be on the product recall list:

• Denture cream
• Foot Warmer
• Car Floor Mats
• Coffee Mugs
• Office Chairs
• Candle Holders
• Women’s Robes
• DVD Players
• Flashlights
• Women’s Shoes
• Indoor Light Fixtures
• Key Chains
• Computer Batteries
• Entertainment Stands
• Window Blinds

The point I am trying to make is that all of the manufacturers, importers or distributors of these products could not have anticipated the type of problems they are currently experiencing. 

So the next time you feel like paying for product liability insurance is a rip off, I recommend you go to www.recalls.gov and look at all the products being recalled and ask yourself if your business could survive without product liability or product recall insurance, if one of your products ended up on the list.

Apparently, Epic Kayaks had outsourced the manufacturing of its kayaks to Fu Yang Flying Eagle Boat Co., Ltd.  Unsatisfied with the project management of the boats being manufactured at Fu Yang Flying Eagle Boat Co., Ltd, Greg Barton, a two-time Olympic gold and bronze medalist and co-owner of Epic Kayaks decided to end their relationship with the manufacturer and move to another new factory in Fuyang.   According to Greg, Flying Eagle refused to release Epic’s molds and equipment unless it received fees and payments that would effectively put Epic Kayaks out of business.

Now for the interesting part – Epic Kayaks has filed a lawsuit in the intermediate level court in Hangzhou, China to gain control of their molds and equipment rather than pay the fees to Flying Eagle.

I think the million dollar question for every U.S. based company that outsources their products in China or every U.S. based company that is considering outsourcing in China is – is there a remote chance of a fair and impartial trial in the Chinese courts against a Chinese manufacturer?

The other question I have is – what role will politics play in the decision by the Chinese courts?  Will the Chinese court view a negative ruling against Epic Kayaks as more bad publicity at a time when Chinese manufacturing business is struggling with an economic downturn and much bad international press regarding overall product quality?

If Epic Kayaks is successful, it will be interesting what impact this will have with U.S. businesses and insurance carriers that provide product liability insurance for Chinese products.  Maybe confidence goes up for U.S. businesses and maybe some bold insurance carrier will decide to take a chance and sue a Chinese manufacturer that was responsible for a large product liability claim or product recall to recover some of the money it had to pay out in claims.

We were talking about a prospect that designed and manufactured big commercial slides for water parks and the type of claims typically associated with this product liability risk. 

The disturbing part of the conversation was that he said many of the big designers and manufactures of high risk products such as waterslides were taking their new designs overseas to sell before bringing them back to the U.S. to sell because the cost of a human life was so much less in other foreign countries than it is in the U.S.   In other words, if the design of the product turns out to be defective and people are injured or die, it is much less expensive to handle claims in other countries than the U.S. 

I guess the comforting part of this conversation was knowing that the products in the U.S. my children are using are much more likely to be safe because, if they are not, companies know that there could be a costly product liability lawsuit or an expensive recall of their products.

While I am happy that my children are safe, I am also a little sad that they do not get the opportunity to learn to dive off a diving board or swing on a tire swing because insurance premiums make it too expensive to provide such activities or products.

Of course the Peanut Corporation of America has a product liability insurance policy, but it may not provide any coverage because of the “intentional acts exclusion” in the policy.

It appears that via email the company president, Stewart Parnell, was informed by the plant manager, Sammy Lightsey, of a positive Salmonella test and despite of that warning instructed the plant manager to ship the products.

Typically, a commercial general liability policy states that the policy does not cover “bodily injury” or “property damage” expected or intended from the standpoint of the insured.  It could be easily argued that Stewart Parnell and Sammy Lightsey could have reasonably expected consumers to get sick and possibly die because of the positive Salmonella test and chose to ignore the positive test and warnings for profit.

The Peanut Corporation of America’s insurance carrier, Hartford Casualty Insurance Company, will be within their rights, in my opinion, to deny the claim. However, based on an inside source at The Hartford, it is more likely The Hartford will pay the $10,000,000 in policy aggregate limits and wash their hands of the ugly mess.

From The Hartford’s viewpoint, even if they could successfully deny product liability coverage based on the “intentional acts exclusion”, they would still pay out the full $10,000,000 in policy limits sooner or later.  All the insurance carriers of the manufacturers such as Cliff Bar and Hershey that used Peanut Corporation of America’s products in their finished products and were sued, as a result, would sue The Hartford to recover their losses.

Obviously, the saying “do unto others as you would have them do unto you” never crossed the company president’s or the plant manager’s mind.

Before the dust on this tragedy has settled the direct and indirect costs associated with this peanut butter products recall will reach into the billions of dollars.  I mention this because apparently, to the officers and employees of the Peanut Corporation of America, human life only has value if it is your’s or one of your immediate family members.