Food products are the first thing that comes to mind when considering spoilage and contamination. However, many businesses have significant inventories of perishable items, including pharmacies and doctors' offices.
A perishable is a fresh food or another item — not always a consumable — that requires controlled storage for safety and quality, such as medicine. It does not include shelf-stable items that do not need consistent temperature or humidity.
Any business with a sizeable perishable stock should consider adding spoilage and contamination insurance to its insurance plan.
What's Covered
Spoilage and contamination insurance helps businesses pay for costs associated with spoiled or contaminated perishables in any event specified in the insurance policy. However, it does not include product contamination at the source of production. For example, if a drug manufacturer allowed an unwanted substance to fall into a mixing vat, the loss would not be covered.
Specific events, or "named perils," usually trigger spoilage or contamination coverage. The two primary perils are extended power outages and equipment breakdowns. These can cause a change in temperature or humidity that ruins products or a leak of refrigerants or other damaging substances onto perishables.
Coverage can include the cost of the inventory, loss of profits, and potential legal fees and liability damages if spoiled stock harms a consumer. If a government agency shuts your business down following a contamination incident, some policies will even cover:
Required equipment cleaning after the incident
Medical expenses or vaccinations for employees or other exposed individuals
Loss of income during the shutdown
Professional services or advertising to help repair your business's reputation
The payout limits and perils covered will differ based on your policy choices and the company that issues them, so review the details with your Professional Risk agent.
All Power Outages Are Not The Same
A spoilage and contamination policy will define what's accepted as a covered "power outage."
A typical policy will not cover loss of power due to accidental disconnection from a power source. For example, failing to plug a power cord back in after someone trips on it would not be insured.
Intentional deactivation of electricity is also excluded.
Losses would not be covered if your building lacks sufficient power to operate the equipment.
Claims would be denied if the power loss is due to a government order or national fuel shortage.
Adding Spoilage and Contamination to Your Policy
Spoilage and contamination insurance can be added to a business owners policy (BOP) or commercial property policy. It is often included in equipment breakdown insurance, though that coverage requires a mechanical failure of the appliance or system to respond. If you have equipment breakdown insurance, check the policy carefully for spoilage and contamination details.
A program policy or BOP tailored to your industry may include specific coverage for spoilage and contamination of perishable inventory.
You can speak with the Market Manager, Rhonda Martin, or the P&C Account Manager, Michael Weber, about coverage limits. Policies generally have one amount for an occurrence and another total amount, the aggregate, for the entire term of your policy — typically a year.
If you have significant amounts of inventory or high-value perishable stock, verify that your occurrence payout limit is high enough to cover the financial hit if you lose all your inventory from a single event.
If you add spoilage and contamination as an endorsement to your commercial property policy, ensure it dovetails with your other coverages, such as business interruption insurance, equipment breakdown coverage, and product liability. Your Professional Risk agent can help you fine-tune your whole insurance suite to have a good blend of complementary coverages.
Other Details
Additional variables are helpful to understand when choosing spoilage and contamination insurance.
Most spoilage and contamination policies require a refrigeration maintenance agreement or give a premium discount to businesses with one. This agreement is made directly between the policyholder and an approved refrigeration or equipment maintenance company. It must be in effect throughout the policy period, and you should expect to be asked for proof of regular service when you file a claim. If the maintenance agreement is terminated or lapses, you may lose coverage.
When selecting your policy, remember that it will have its limits and deductibles separate from your primary commercial property insurance. If you can supply perishable inventory records, this will be helpful information for setting appropriate coverage amounts.
Some policies separate spoilage protection from contamination protection, so you have the flexibility to select just one or the other or a combination of both at different limits. This can be a helpful feature for businesses that face more exposure in one area.
When choosing limits and coverage, you'll be asked if you want damages paid based on the "selling price." Just as the term implies, this considers your retail markups and the value added to your perishables.
Additional options may apply to the spoilage and contamination policy you select. Please contact Market Manager Rhonda Martin or P&C Account Manager Michael Weber for a complimentary review of your policy and tailored coverage.
This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem.
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