Product Contamination and Product Recall SRMC Meeting Atlanta

Product Contamination and Product Recall SRMC Meeting Atlanta, Georgia April 7, 2016 William Harrison Managing Director Product Recall Practice

Overview The Risk – – – Frequency Severity Sampling of Industry Losses Loss Drivers Risk Areas 1 st Party and 3 rd Party Losses Coverage Scope and Loss Triggers – – – MARSH Loss Drivers Policy Triggers Covered Losses 16 March 2018 1

The Risk

The Risk • Business Interruption and Brand Name Rehabilitation Costs • Suffered by XYZ INC. and your customers • …As a result of a contamination or a failing product Recall costs barely scratch the surface of this risk MARSH 16 March 2018 3

Contamination is Likely • Hazards in food cause an estimated 48 million illnesses, 128, 000 hospitalizations and 3, 000 deaths a year, all in the safest food system in the world. Roughly translated this means 1 in 6 Americans will develop a food borne illness. (CDC Stats for 2011). MARSH 16 March 2018 4

Why there are more incidents. • Greater testing at all levels of production of ingredients • Health departments working together to find common causes for widespread food borne illness • Greater level of scrutiny of food processing locations • FDA recall power over all ingredient suppliers – Increased traceability MARSH 16 March 2018 5

Why are the contamination related losses getting larger? • Social Media – – Facebook Twitter Blogs 700 Cable TV channels • How many of these outlets have an editor? MARSH 16 March 2018 6

What does this all mean……… • There are more reported contaminations and the average loss is getting larger MARSH 16 March 2018 7

Recall Costs - Perception Vs Reality MARSH 16 March 2018 8

Large U. S. Product Recalls 2007 Topps Meats 2008 Maple Leaf Foods 2008 Menu Foods 2009 Peanut Corp of America Peanuts used by hundreds of companies in thousands of products Salmonella 2009 Nestle Toll House Cookie Dough Ecoli 2010 Kellogg 28 M Boxes of Various Cereals 2010 Wright County Egg/Hillandale Farms 2010 Basic Food Flavors 2010 Freshway Foods 2011 Cargill 2011 MARSH Conagra Peter Pan Peanut Butter Jensen Farms Beef Salmonella Ecoli Deli Meats Listeria Pet Food Melamine and Cyanuric Acid Chemicals in Liner $47 M Recall Costs $26 M Advertising Costs Business Interruption - Undisclosed 21. 7 Million Pounds Filed for Bankruptcy Originally estimated at $69 M Final Cost Unknown $55 M At least $1 BN 300, 000 cases recalled Cost Unknown 2 Q 2010 Revenue was $3. 06 bn vs. analysts expectations of $3. 29 bn Exact Cost Undisclosed Eggs Salmonella 550, 000 Eggs Recalled Cost Undisclosed Hydrolyzed Vegetable Protein Salmonella Used in soups, sauces, dressings etc. 176 separate recalls resulted Cost Undisclosed Romaine Lettuce Ground Turkey Cantaloupes 16 March 2018 Ecoli Salmonella Listeria Recall affected 23 states Cost Undisclosed 36 million pounds of meat recalled Cost Undisclosed 300, 000 Cases recalled in 17 states Filed for Bankruptcy 9

Blue Bell Expands Ice Cream Recall March 24, 2015 • BRENHAM, Texas, March 24 (UPI) Blue Bell Creameries has added another series of products single serve ice cream cups to a list of items recalled due to a listeria outbreak. The Brenham ice cream company recalled a number of ice cream novelties earlier in the month after the items were linked to listeria monocytogenes infections in five patients at a Kansas hospital. • Three of the patients died. • All five people were admitted at a Kansas hospital for unrelated conditions and became ill with the infection between January 2014 and January 2015. For the four patients whose food intake was documented, all had consumed milkshakes made with a single serving Blue Bell ice cream product called Scoops while in the hospital. • At the time, Blue Bell also recalled Chocolate Chip Country Cookie Sandwiches, Great Divide Bars, Sour Pop Green Apple Bar, Cotton Candy Bar, Vanilla Stick Slices, Almond Bars, six pack Cotton Candy Bars, six pack Sour Pop Green Apple Bars and 12 pack No Sugar Added Mooo Bars. • That list has grown to include 3 ounce single serve, institutional/food service cream cups in chocolate, strawberry and vanilla, all with tab lids. MARSH 16 March 2018 10

Egg Recall Hits 550 M, One of Largest in History August 21, 2010 • More than a half billion eggs have been recalled in the nationwide investigation of a salmonella outbreak that Friday expanded to include a second Iowa farm. The outbreak has already sickened more than 1, 000 people and the toll of illnesses is expected to increase. Iowa's Hillandale Farms said Friday it was recalling more than 170 million eggs after laboratory tests confirmed salmonella. The company did not say if its action was connected to the recall by Wright County Egg, another Iowa farm that recalled 380 million eggs earlier this week. The latest recall puts the total number of potentially tainted eggs at about 550 million. FDA spokeswoman Pat El Hinnawy said the two recalls are related. The strain of salmonella bacteria causing the poisoning is the same in both cases, salmonella enteritidis. Federal officials say it's one of the largest egg recalls in recent history. Americans consume about 220 million eggs a day, based on industry estimates. Iowa is the leading egg producing state. The recall has put the spotlight on egg production, especially large scale factory like facilities like Wright County Egg, where the outbreak allegedly began. The huge plant houses 7 million chickens producing 5. 5 million eggs a day. Researchers say even with tougher new FDA regulations, government oversight is too weak with too few regulators to monitor today's mega facilities, reports CBS News correspondent Bill Whitaker. MARSH 16 March 2018 11

Chobani's Big Business Lesson Inc Magazine, January 2015 • In April, the Wall Street Journal reported that, as part of its financing deal with private equity firm TPG, Chobani had to replace its chief executive within the year. • The Post's report stands in contrast to a decidedly upbeat Ulukaya, who spoke with Inc. last year, expressing great optimism about Chobani's prospects for 2015. • That hopefulness, however, may mask some problems. Last April, Chobani, an Inc. 5000 company, secured a $750 million loan from TPG, for which it reportedly received a 35 percent stake in the company. Chobani sought the loan after a serious product recall in 2013, when mold allegedly contaminated its product and sickened more than 200 people. • Ulukaya spent $450 million for an Idaho production facility, allegedly the source of the food poisoning. The food safety issues occurred due to inadequate worker training, and a rush to get the factory up and producing at full capacity, according to news reports. The factory was built in less than 11 months in 2012, according to Chobani. MARSH 16 March 2018 12

Danone to sue New Zealand's Fonterra over baby formula recall • By Naomi Tajitsu and Geert De Clercq • WELLINGTON/PARIS (Reuters) French food group Danone (DANO. PA) said it would sue wholesale dairy exporter Fonterra (FSF. NZ) and stop buying products from the New Zealand firm following a contamination scare that sparked the recall of infant milk formula across Asia. • The world's largest yoghurt maker did not say how much money it was seeking, but it has previously said it wanted full compensation for what it says were 350 million euros ($476 million) in lost sales following the recall of the company's Dumex and Karicare infant formula products. • Danone is one of Fonterra's biggest milk powder customers, according to analysts who cover the sector. Fonterra, which said it would contest the suit "vigorously", declined to give details on its sales to the French firm…… • Eight companies issued product recalls in August. Danone is the first to take legal action against Fonterra. In December, Fonterra said it had reached agreements to compensate six firms and that it was "very, very close" to an agreement with an affected nutritional company. MARSH 13

Bird Flu Eats Up Yum Profits in China By Charles Riley @CRriley. CNN April 23, 2013: 11: 21 PM ET HONG KONG (CNNMoney) Yum Brands just can't shake off its China troubles. The fast food giant said Wednesday that same store sales in China dropped 20% in the first quarter, as it continues to grapple with the fallout from a food safety scandal and fears over a new strain of bird flu. • The sharp decrease in sales dragged down net income by 26%, from $458 million in the first quarter of last year to $337 million this year. MARSH 14

Yum Brands to Cut Ties with 1, 000 Chinese Slaughterhouses After Chicken Scare Reuters | Posted: 02/25/2013 12: 52 pm EST By Megha Rajagopalan BEIJING, Feb 25 (Reuters) Yum Brands Inc said on Monday it will stop using more than 1, 000 slaughterhouses in China as it moves to tighten food safety and reverse a sharp drop in business at KFC restaurants in its top market after a scare over contaminated chicken. Diners began avoiding Kentucky based Yum's nearly 5, 300, mostly KFC, restaurants in China in December after news reports and government investigations in the Asian country focused on chemical residue found in a small portion of its chicken supply. Yum was not fined by Chinese food safety authorities, but its restaurant sales in the country dropped and have yet to recover. As a result, Yum warned this month that it expected 2013 earnings per share to contract, rather than grow. 15 MARSH

E. Coli Outbreak Linked To Taco Bell AP/ February 11, 2009, 5: 39 PM • An E. coli outbreak that has sickened at least 22 people — two of them seriously — was linked by health investigators Monday to three Taco Bell restaurants in New Jersey. Investigators also were examining whether an outbreak on Long Island was connected to the fast food chain. All but two of the people who fell in New Jersey had eaten at one of the fast food restaurants between Nov. 17 and Nov. 28, authorities said. But exactly what food contained the bacteria was still unclear. • $100 M loss MARSH 16

Mc. Lane Found Clean; Taco Bell on Defense • Mc. Lane Foodservice Inc, distributor to the Taco Bell restaurants reportedly linked to the recent E coli outbreak in several Northeastern states, announced that a site investigation by the New Jersey Department of Health and Environmental Services (NJDHES) has found no evidence of improper storage or handling practices by Mc. Lane. Comment • It was later proved a fact that there was “ no evidence of improper storage or handling practices by Mc. Lane”. Mc. Lane delivered contaminated product to Taco Bell and is responsible for a portion of the damage that the product causes. Mc. Lane took title to the product that it then delivered to Taco Bell. Mc. Lane wrote a meaningful check to Taco Bell. MARSH 17

Nestle Recalls Cookie Dough • A massive Nestle Cookie Dough recall is underway due to the discovery of E. Coli Bacteria by the Food and Drug Administration (FDA). Nestle cooperated with the FDA and CDC by willingly issuing the recall on their refrigerated cookie dough products. The end result was a $100 M+ financial loss. Nesquik Recall: Nestle Pulls Cans Nationwide Over Salmonella Risk • GLENDALE, Calif. Nestle USA is recalling some of its Nesquik chocolate powder because of a possible salmonella risk. MARSH 18

Kellogg • 2008 Peanut salmonella issue $34 M Loss - many injured • 2010 Cereal Kellogg recalled approximately 28 million boxes of Apple Jacks, Corn Pops, Fruit Loops and Honey Smacks cereals because a "waxy" smell and flavor coming from the package liners could make people sick, the company said Friday $70 M Loss • 2012 - Mini Wheats and Frosted Mini Wheats $20 $30 M Loss MARSH 19

Con. Agra • 2002 19 M pounds of beef • 2007 Peter Pan Peanut Butter Recall $80 M Loss • 2007 Walmart brand peanut butter recall made by Conagra $? ? Paid to Walmart • 2007 Chicken and Turkey Pot Pies $40 M+ Loss • 2007 was a very bad year! MARSH 20

Cadbury • 2006 Chocolate Recall Salmonella $1 M pounds of chocolate was recalled $30 M $90 M Loss estimates MARSH 21

H. J. Heinz • 2002 Botulism contaminated salmon recalled $25 M Loss MARSH 22

Maple Leaf Foods • Listeria Contamination of sliced Business Interruption related $100 M + Loss MARSH 23

The Loss Can Come From Anywhere! Dressing Eggs Avocado Blended in Arizona from TOMATOES grown in Florida, VINEGAR from the Philippines, and SPICES from all over the world Chickens raised in Indiana Grown in California Bacon Chives PIGS from West Virginia, shipped to Missouri, slaughtered in Iowa Grown in New Mexico and packaged in Oklahoma Tomato Cheese Grown in New Jersey Made in California from MILK produced in Oregon Onion Romaine Lettuce Grown in Texas Grown and in Arizona Chicken Breasts Chicken born in Virginia raised in Alabama transported to feedlot in North Carolina and slaughtered in Indiana • Illustration of vast diversity in food supply chain. MARSH Watercress Grown in Asia, shipped to Maryland, sold in Delaware Cucumbers Grown in South Carolina Packaged in Ohio • Sources shown are only one possibility of origination point.

Agreements May Not Provide Effective Recourse Airports Schools Contracts Nursing Homes Hospitals Retailing Direct Ship Meat/Poultry Food Service Entity Baked Goods Refrigerated Disposables Frozen Dairy Products Beverage Input Suppliers, Farmers, Contract Growers, Ingredient Suppliers, Package Manufacturers, Transporters, Imports MARSH 16 March 2018 25

GL excludes 3 rd Party Recall Liability • Standard General Liability Exclusion • Damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of: 1. “Your product”; 2. “Your work”; or, 3. “Impaired property”; • If such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it. • Commercial General Liability Coverage Form, 2. Exclusions, n. Recall of Products, Work or Impaired Property. MARSH 16 March 2018 26

General Liability vs Product Contamination Insurance • A contamination that causes Bodily Injury triggers both type of coverage • GL covers – the bodily injury/pain and suffering law suits and potential settlement • Product Contamination covers the resulting economic loss – Business Interruption – Brand Sales Rehabilitation costs – Recall and Replacement costs – Specialty consulting costs – Can cover very similar losses suffered by your customers which are caused by your products MARSH 16 March 2018 27

Who Suffers the Financial Loss Resulting from a Contamination? • The ingredient supplier or distributor • The contract manufacturer who makes the product • The brand name manufacturer who markets the product • The contract manufacturer who makes the product • The restaurant that serves the product • The supermarket that sells the product All of the above MARSH 16 March 2018 28

Who’s Liable? Who Can Actually Cause the Loss? • The ingredient supplier or distributor • The contract manufacturer who makes the product • The brand name manufacturer who markets the product • The restaurant that serves the product • The supermarket that sells the product Any of the above MARSH 16 March 2018 29

Contracts – The right language can be more valuable than insurance policy any • Buyers of Ingredients or Component Parts and use of Contract Manufacturer – Is there a contract with the seller? – Is Recall Liability clarified in the contract? – Is there a cap? – Is anyone held harmless? • Contract Manufacturers and Seller of Ingredients or Component Parts – Is there a contract with the Buyer? – Is Recall Liability clarified in the contract? – Is there a cap? – Is anyone held harmless? MARSH 16 March 2018 30

Benchmarking • Of the Top 30 Food Processors in 2016 – 25 have a corporate program • Very likely that there will be 1 2 new buyers in 2015 • Why? 1) The root cause of a foodborne illnesses is more likely to be found today than ever before. 2) Supplier caused recalls are an increasing risk due to advances in traceability 3) The news surrounding a contamination will spread faster than ever before thanks to the social media. 4) From a shareholder perspective the risk is foreseeable and financially meaningful. Simply put, there are more losses and the losses are getting larger. MARSH 16 March 2018 31

Large Diversified Food Brands MARSH 16 March 2018 32

Coverage Scope and Loss Triggers

Product Contamination What triggers the policy? • Definitions to understand – Malicious Tampering – Accidental Contamination – Product Extortion – Adverse Publicity – Government Recall MARSH 16 March 2018 34

Product Contamination Causes of Loss • Mislabeling • Foodborne illness – E. coli, salmonella, listeria • Foreign objects – knives, mixing equipment, metal shavings, plastic • Allergens – peanuts, tree nuts, fish, shellfish, eggs, milk, soy, wheat etc. • Contaminated ingredients or equipment • Poor QA/QC MARSH 16 March 2018 35

Product Contamination (cont. ) Causes of Loss (cont. ) • Intentional Contamination Tampering • Product Extortion • Criminal Intent – Cover for a crime • Animal Rights Activists – PETA, Animal Rights Militia • In 1994, two supermarkets in Canada received a message from ARM saying that it had injected rat poison into turkeys at several stores. “The holidays have finally arrived and so has the Animal Rights Militia, ” the message said. “We are here to avenge the mass murder of millions of Christmas turkeys. ” MARSH 16 March 2018 36

Accidental Contamination Example Definition § Any accidental or unintentional contamination, impairment or mislabeling of an Insured’s Product (s), which occurs during or as a result of its production, preparation, manufacture, packaging or distribution; provided that the use or consumption of such Insured’s Product(s): § Has resulted in or would result in clear, identifiable, internal or external, visible physical symptoms of bodily injury, sickness, disease or death of any person(s), within three hundred and sixty five (365) days following such consumption or use, or § Has caused or would cause property damage to or destruction of tangible property other than damage to or destruction of Insured Product(s) or any other tangible property or product in which the Insured Product(s) is incorporated as an ingredient or component. § Great QC program accidents do happen § Bad or mislabeled ingredients § Broken glass or metal shavings produced in the production process § Breakdown of testing devise § Mislabeling product or omitting ingredients § Lead § Various dyes § Allergens MARSH 16 March 2018 37

Malicious Tampering Example Definition • Any actual, alleged or threatened, intentional, malicious, and wrongful alteration or contamination of the Insured’s Product(s), whether or not by an employee of the Insured, so as to render it unfit or dangerous for its intended use or consumption or to create such impression to the public. • Murder plot “Pepsi Cola” “Tylenol”, “R. J. Refrescos Cocaine allegation ”, • Target company animal rights groups • Chi’s green onion incident • Wendy’s thumb incident MARSH 16 March 2018 38

Adverse Publicity Example Definition • The reporting of an actual or alleged Accidental Contamination during the Certificate period in local, regional or national media (including but not limited to radio, television, newspaper, magazines or the internet) or any governmental publication. MARSH 16 March 2018 39

Government Recall – Coverage Implications • What businesses is my client involved in? Who has authority over these industries? • Ordered by Government entity with Authority – Who has actual authority to order a Recall • Ordered or recommended – FDA, USDA, CPSC etc • Government ordered Shut down of a manufacturing, processing plant or Restaurant location MARSH 16 March 2018 40

Product Contamination • What are the covered losses? – – Business Interruption Brand Rehabilitation Recall, Replacement, Testing, and Destruction costs Consulting costs Each Program has a retained Crisis Management Response firm MARSH 16 March 2018 41

Covered Losses: Third Party Recall Liability 1. Consequential damages suffered by your customers as a result of a Contamination/Recall caused by your products Business Interruption Brand Rehabilitation Recall, Replacement, Testing, and Destruction costs Consulting costs 2. Consequential damages – Contractual protection – Liability caps 3. Is there anything that can be done to limit the number of customers who receive a portion of any one batch or run of product? MARSH 16 March 2018 42

Client Specific Risk • Food Related and Life Sciences – Restaurant – Food Processor – Ingredient Supplier – Contract Manufacturer – Retailer – Wholesale/Distributer Do they take title? • Non-Food – Auto Parts – General Component parts – Mechanical Items/ Appliances – White Goods – Wholesale MARSH 16 March 2018 43

A potential XYZ Inc. Program outline for Underwriters • Which Base Policy • Which endorsements • 1 st Party Risk • 3 Rd Party Risk • CLOP • Recall Liability • Which version of Government Recall? • Insured Products MARSH 16 March 2018 44

Consulting • The Acheson Group • RQA Inc. • Red 24 • Edelman Worldwide • Fleishman Hilliard • Operational Consulting • High Level Governmental Contacts • Crisis Communications MARSH 16 March 2018 45

Recent Policy Issues • …. solely and directly… • Application issues • Government Recall applicability specific to client MARSH 16 March 2018 46

Product Recall Organization Chart William Harrison Product Recall Practice Leader Paul Ritchie Product Recall Leader Casualty Manager Marsh Bermuda Sandra Richards-Vance Vice President Marsh Bermuda Amanda Rudnicki Product Recall Broker Canada Geoffrey Mills Product Recall Practice Leader Ryan Roth Product Recall Broker Adam Nisenson Product Recall Broker Marsh Forensic Accounting Services David Palmer Product Recall Leader Marsh London Tim Nash Product Recall Broker Marsh London Marsh Claims Robert W. O’Brian Washington D. C. Thomas Grey Charlotte, NC Beth Murphy Assistant Broker Vincent Missonak Chicago, IL Susan Messmer Billing Specialist Michael Galvin San Francisco, CA Ken Chung London MARSH 47

Contamination Incident Claims MARSH

In the Event of a Contamination Incident Underwriter – To Be Determined • In the event of a covered event, the policy requires that XYZ INC. call the respective Crisis Hotline. The crisis consultants will answer the phone. The crisis consultants is the appointed Crisis Management firm for this program. They are very experienced in helping Insured's respond to a food related contamination crisis having responded to hundreds of incidents. They are available to XYZ INC. to provide information, advice and guidance. The crisis consultants are not there to force XYZ INC. to make any particular decision. XYZ INC. always makes the final decision. • Although the crisis consultants fees are covered by the policy, during the course of this process, the crisis consultants work for XYZ INC. . Anything you share with the crisis consultants is confidential and will not be shared without your permission. 24 hour Crisis Hotline - (XXX) XXXX • Please also call Marsh Product Recall (XYZ INC. specialty insurance broker for this risk). They have also been involved in hundreds of claims both as brokers and as underwriters of this risk. In addition to anything they might be able to do to help during the incident; they need to report the incident to the underwriter. Marsh product recall will notify FACS, our forensic accounting specialists, to help calculate the loss. Marsh Product Recall - Bill Harrison (609) 216 2994 (24 hr mobile) MARSH 16 March 2018 49

In the Event of a Contamination Incident • Common Question Q. How do I know if the event is real and when to call? A. If there is an contamination incident that you think has the chance to hurt a customer or cause a loss to the company, call the hotline. If you are not sure, call. Better safe than sorry. The underwriters understand that big companies have incidents. It’s not viewed negatively by the underwriter. • Notice of Loss – Marsh will help you file the Notice of Loss in writing as soon as possible after you find out that you have an incident. Always call the hotline first. MARSH 16 March 2018 50

Product Recall Claims STRATEGIC OPERATIONAL FINANCIAL MARSH William Harrison Product Recall Practice Leader Robert W. O’Brien Washington D. C. Geoffrey Mills Product Recall Practice Leader Thomas Grey Charlotte, NC Ryan Roth Product Recall Broker Vincent Missonak Chicago, IL Adam Nisenson Product Recall Broker Michael Galvin San Francisco, CA Ken Chung London Kevin Mc. Carthy Marsh Forensic Accounting Services 51

Marsh’s Product Recall Practice • Marsh’s Product Contamination and Recall Practice is a specialist group whose role is to assist our clients in better understanding and mitigating the risk of a product contamination or product recall. • Our practice leaders have more than 70 years of product recall experience and are widely recognized as the leading brokers in their field. They have worked with most of the largest food and beverage, alcohol and tobacco, auto parts, white goods and many other consumer products companies in North America and around the world. We have developed market solutions for the restaurant, supermarket and automotive industries. • As former senior underwriters with one of the leading recall markets, our practice leaders were involved in the drafting of policy wordings, claims settlements and the development of underwriting guidelines – all of which still form the basis of the product recall market today. • As brokers, our practice leaders have been involved in the development of many of the products in the market today. MARSH 16 March 2018 52

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