The problems encountered by Toyota regarding defective brakes and accelerators highlight a problem many businesses face. The recall is estimated to cost well over £1bn and to be added to this, is the management time in dealing with the crisis, the damage to its reputation, the costs of rebuilding this and the impact on future sales. When the final costs are counted, it will probably be over £2bn. Toyota will be looking to offset some of these costs by claiming against the suppliers of the defective parts.
Few companies can survive such a financial hit and although, not on the same scale, many businesses could find themselves in a similar position.
Conventional insurance policies do not cover the types of costs incurred by Toyota and the risks of recalls are rising all the time because of the growing impact of media on safety conscious and consumer issues. As soon as a product is recognised as being faulty, businesses face the dilemma of leaving it in the market or undertaking an expensive recall. The first inclination is to keep quiet and hope the problem does not become serious but if the defect is safety critical, major problems can emerge. Insurers could refuse to pay out for any injury or damage caused, huge fines can be imposed, directors would be sued and in the worse case, even sent to prison for health and safety breaches or corporate manslaughter; the risks are too high for anyone other than the desperate.
The situation is exacerbated in that a large part of manufacturing is now done in the Far East especially China. If their goods are defective, attempts would normally be made to recover the costs. This is virtually impossible especially against a Chinese company with no assets in the UK. The only hope is to sue the UK importer if there is one. These are unlikely to have the appropriate insurance, so the chances of recovery is very low, this scenario leaves the UK business shouldering the burden themselves with little prospect of recovery.
Insurance against the financial risks of recall is available. It is a small market and cover can be costly but should be considered by businesses that manufacture or import consumer goods or parts or materials to be used in these.
Please contact us on 0113 250 0377 if you would like further discussions.
Please speak to Mohammed Taj or Chris Corkery on 0113 250 0377 for a quotation.
