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May 17, 2017

New FDA Rule Proves Challenging for Food Transporters

If you’re in the business of transporting food products, the road is a little bumpier these days. The FDA issued its final Food Safety Modernization Act (FSMA) rule on Sanitary Transportation of Human and Animal Food in April 2016, and businesses involved in the transportation of food products in the U.S. are bearing a heavier burden when it comes to ensuring the safety of those products.

It’s all part of the FDA’s ongoing efforts to keep our food supply safe during transport. The new final rule introduced new, stricter requirements for:

  • Vehicles and transportation equipment. The design and maintenance of vehicles and transportation equipment must ensure that transported food doesn’t become unsafe.
  • Transportation operations. Temperature controls and contamination prevention measures are under heightened scrutiny.
  • Training. Training in sanitary transportation practices and documentation of the training is required when the carrier and shipper agree that the carrier is responsible for sanitary conditions during transport.
  • Recordkeeping. Carriers must maintain records of all written procedures, agreements, and training.

While the new sanitary rule doesn’t change the letter of the law, it shifts the responsibility onto the motor carrier to carry out the transport instructions set by the shipper. If a receiver notices anything about a shipment that doesn’t meet the new standards, they can reject it.

The insurance conundrum

With the added liability risk, carriers are understandably concerned about their insurance coverage – and that’s another bump in the road with the new rule. If a shipment one of your drivers is carrying is deemed unsuitable by the receiver and gets rejected, who’s at fault? Will your general liability, property, and motor truck cargo policies cover you?

The bad news is, current cargo and property policies probably wouldn’t cover the rejected shipment. These policies generally cover direct physical loss and damage to goods, but the new rule makes the definition of “direct loss” a little fuzzy. A receiver can reject a shipment as adulterated if the new sanitary standards haven’t been met, but no firm criteria to determine “adulteration” of goods have been set.

The fact is, insurance companies are still trying to work with the new rule and come up with appropriate coverage guidelines. In the meantime, it’s likely the industry will see an uptick in lawsuits as shippers, carriers, receivers, and insurers all debate what constitutes a “direct loss” and which link in the supply chain is at fault when something goes wrong.

What can motor carriers do to reduce their liability risk?

While this is being ironed out, there are steps motor carriers can take to reduce their liability risk:

  • Make sure your risk managers understand the law and how it uniquely applies to your business
  • Provide more comprehensive training to ensure employees are aware of their responsibilities
  • Be even more diligent about recordkeeping
  • Take care not to waive certain rights through contracts with shippers, such as the right to establish protocol to determine whether a shipment should be deemed a loss
  • Maintain clear communication with shippers about expectations and responsibilities

These days, any food entering the U.S. distribution system is under a microscope, and that means every link in the food supply chain has more liability exposure than ever. But since the new FDA final rule puts even more of the burden for food safety on carriers like you, it’s crucial that you understand the rule and how it impacts your business.

For more information, visit the FDA FSMA Food Safety Technical Assistance Network.

Need help sorting it out? At Heffernan Insurance Brokers, we offer a wide range of transportation insurance coverages to fit your business. Contact us today. 

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