Product recall: practical considerations for global manufacturers

Whatever the jurisdiction, companies should be adequately prepared to initiate a robust product recall. If necessary actions are not taken, they could be exposed to litigation, criminal prosecution, irreparable damage to their commercial reputation and revenue, and potential harm to their customers.

Ikea dresser recall

The recent criticisms made of Ikea in a potential US class action arising out of its recall of chests and dressers has brought into sharp focus the importance, as well as the difficulties, of getting a recall and other corrective measures right.

In June 2016, Ikea announced the voluntary recall of 29 million products in the US which were deemed unstable if not properly anchored to a wall, following a number of child deaths and injuries. Ikea customers were advised to immediately stop using the furniture if not appropriately anchored, to keep it away from children, and promised a full refund for affected dressers. Ikea also re-announced the recall in November 2017 after further injuries were reported.

In May 2020, two parents filed a proposed class action against Ikea US Retail LLC and Ikea North America Services (Ikea) in Pennsylvania, alleging that they were turned away at an Ikea store when they attempted to return two recalled dressers in 2018. Their complaint is that Ikea’s recall announcements were “woefully inadequate”, with many purchasers not having received notice of the recall, and that its promise to issue a complete refund was unfulfilled, with gift cards or anchoring kits being offered instead.

Unlike other consumer claims focusing on the safety of a product, this claim centres upon Ikea’s alleged failures to carry out an effective recall and adequately implement corrective actions. If the litigation proceeds, it is likely to comprise all consumers in the US who bought or owned the products targeted by the 2016 and 2017 recalls.

Handling a product recall

Although the Ikea claim is based in the US, criticisms regarding the adequacy of recalls, whether justified or not, will not be new to the manufacturers, retailers, importers and distributors of products made and sold throughout the world.

We only have to look at recent interventions by the UK’s Office for Product Safety and Standards (OPSS) to appreciate that manufacturers are coming under an increasing amount of scrutiny and accountability in respect of (i) their decisions as to whether to carry out a recall and/or corrective measures and (ii) the manner in which these are implemented.

Such actions should therefore be implemented with care and precision. Getting it wrong will not only risk an intervention by enforcement authorities, it could also have devastating commercial and reputational consequences.

Careful preparation

Companies should ensure they have the right insurance cover to protect them in the event that they choose, or are ordered, to initiate a recall. Failing to insure adequately, or at all, could leave a company bankrupt, even where a recall is performed promptly and in an exemplary manner. While a standard product recall policy may cover certain costs that a company must incur when conducting a recall, standard product recall policies generally do not cover consequential damage, loss of gross profits, and third-party claims or lawsuits, amongst other things. Accordingly, it is critical that companies understand the scope of the insurance that they have and supplement this where required.

Companies should also have appropriately delineated procedures for not only implementing a recall, but also conveying necessary information to their customers and the public at large. As we have learned from the recent challenges Ikea is facing, communication is key.

Focused actions

When deciding which corrective action should be taken, companies should carefully consider all relevant factors. These may include the outcome of risk and safety assessments, post-market surveillance, the number and gravity of complaints, whether a whole product line or only a batch is affected, and whether certain corrective measures are sufficient.

However such decisions are complicated by the ever-changing and growing number of product safety standards and regulations placed on manufacturers in different jurisdictions, as well as the challenges presented by the reality that consumer contact details are not always registered, products may have been re-sold and the reported confusion caused to consumers by the expanding number of product recalls websites.

Practical tips for companies

Of course, prevention is always better than cure and so it is important that manufacturers ensure from the outset that their risk and quality assessments are as robust as possible so that risks can be identified and minimised. Manufacturers should nevertheless prepare for the ‘worst case scenario’ by:

• Encouraging customers to register their contact details through use of guarantees
• Procuring adequate insurance to cover potential risks and mitigate the company’s exposure
• Ensuring strong traceability of products to easily identify affected batches or product lines
• Keeping a register of complaints pertaining to product safety
• Carrying out prompt and thorough investigations of complaints
• Updating distributors and retailers if a product presents a potential risk
• Working closely and transparently with enforcement authorities if a potential problem arises
• Ensuring that recall notices clearly identify the affected product, the risks and the proposed corrective actions
• Ensuring that any corrective actions or modifications are carried out promptly.

These steps will ensure, insofar as practicably possible, that manufacturers have taken every step possible to limit the consequences of any potential future product recall. If handled with precision, care and with consumers in mind, it may even be an opportunity for a manufacturer to demonstrate its commitment to its customers and the priority it gives to their safety.

Read others items in London Market Brief - July 2020

Related item: Preemptive recalls may not be covered by product recall insurance