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Pundit’s Mailbag — NRA And Liability

Jim Prevor’s Perishable Pundit, March 29, 2007

With the National Restaurant Association’s Food Safety Conference fast approaching, our coverage has been substantial:

NRA Forms Produce Safety Working Group kicked off our coverage over four months ago, and we discussed NRA’s plans regarding produce safety.

National Restaurant Association Soon To Unveil Its Own Food Safety Plan was a substantial interview with an NRA executive who had previously worked at United. It was this piece that raised many concerns regarding what the NRA was planning.

An Open Letter To The Board Of Directors Of The National Restaurant Association came next, where we urged NRA to work with the produce industry to achieve food safety.

Second Appeal to NRA followed, and we pointed out that the produce industry welcomes the input of NRA’s scientists and those of its members.

NRA Stands Defiant was another piece where we pointed to the fact that NRA is in between permanent CEOs as a possible cause for this uncomfortable situation.

We then published Calling All Produce Executives Who Work Heavily With Foodservice, in which we asked produce executives to reach out to NRA.

This was followed by What Is Wal-Mart’s Role In The New NRA Food Safety Standards, in which we analyzed how the world’s largest retailer may wind up being behind the restaurant association’s standards.

We also published NRA’s Peter Kilgore Speaks Out, which included the verbatim publication of a letter from NRA’s Acting Interim President and CEO.

Pundit’s Mailbag — Reaction To NRA’s Reaction included a letter from a food safety consultant questioning the approach taken by NRA’s acting interim President in his letter to the Pundit.

NRA’s Food Safety Plan Still Looms In Mystery raised the issue of whether NRA’s focus on produce suppliers wasn’t misplaced in light of the serious food safety problems that arise in restaurant operations.

Much of the focus of these pieces has been an effort to point out to NRA the advantages of working collaboratively with the fresh produce industry to achieve higher levels of food safety. One of the things we pointed out is that growing doesn’t occur on the same schedule as procurement, and so NRA’s plans to come out with new requirements after the Salinas planting is done won’t help food safety.

Beyond that, we theorized it could increase the liability of restaurants as these operators will now be forced to sell the only available product which won’t meet the food safety standards that their own association has told them is important.

Now we have received a letter discussing this liability issue:

I am reading with interest on PerishablePundit.com the ongoing saga of the NRA and its development of food safety standards. As a lawyer in a former life, I am sensitive to your suggestion that the NRA might find itself exposed to liability as the result of implementing standards before anyone in the distribution chain has had a reasonable opportunity to implement them. On the other hand, it might be the case that, despite what might otherwise be driving the NRA to conduct business in the manner that it is, it recognizes that liability for damage to person or property as the result of food borne illness is strict

At every level of the distribution chain. I would encourage you to consult a products liability lawyer, as I have not studied this area in much detail for many years; however, once upon a time the law was that the seller (i.e., anyone in the distribution chain) who sold a defective product had strict liability (i.e., no negligence need be proven by a plaintiff) under the Uniform Commercial Code and most state statutes. If this remains the law, it may explain why the NRA seems to be impervious to your comments in this regard (although it does not explain why they are otherwise developing standards in a non-collaborative manner). Put another way, were the NRA to have developed its standards per your suggestions and given the industry some reaction time, would a food borne illness that crept its way into the distribution chain despite 100% compliance with the standards shield everyone in the distribution chain from liability? I tend to think not.

This raises the issue of insurance for food borne illnesses, which I am currently looking into. There does not seem to be much available on this topic, although it strikes me that, as time goes by, the insurance underwriters of the world are going to have a reaction to all of this. Perhaps they already have — if you are aware of the latest developments on the insurance front, I’d be grateful if you would share them.

I would be very interested in your thoughts about all of this.

Thanks for all the good work that you are doing.

— Joel K. Bedol
Chief Operating Officer
Sy Katz Produce, Inc
Pompano Beach, Florida

Many thanks to Joel for sharing his insights.

One clarification: We never said that NRA, as an association, would incur any liability for pronouncing any standards it might choose. We said that its members — individual restaurants — might have enhanced liability if they knowingly buy product that their own association has advised them is unsafe.

We’ve discussed the evolution of liability law on a few occasions, most notably in our piece Collateral Damage vs. Assumption Of The Risk.

And we do chat from time to time with many experts in the field, including Bill Marler, the famous product liability attorney who focuses on foodborne illness.

One of the reasons foodservice tends to be more proactive on food safety issues than retail is that they have more liability.

You’ll notice that when the lawsuits were filed in the Taco Bell case, they were filed against the restaurant chain as well as the product manufacturer.

In the case of spinach sold at retail, the lawsuits were brought against the producer but not the retailer.

Why? Restaurants are viewed under the law as the equivalent of manufacturers, the “creators” of the product. Generally speaking, they have a strict liability.

Retailers, simply reselling without alteration a bag of salad are viewed more like distributors and typically can’t be held liable without evidence of negligence.

These rules are not as simple as it sounds. For example, if a vendor is insolvent, the retailer is likely to be held liable — sort of a public policy impetus to get retailers to deal with vendors capable of shouldering their obligations.

It is certainly true, as Joel says, that compliance with voluntary standards will provide no guarantee of a shield against liability.

It is possible the NRA figures that restaurants will probably be held liable anyway and so doesn’t worry about increasing their liability — although they haven’t said that.

If the NRA takes that position, we would say it is shortsighted. First of all, in the case of a restaurant, both the product producer and the restaurant are strictly liable. So a court still has to decide how the liability will be apportioned. If a produce vendor can state in court that this restaurant bought product it knew — from the NRA — was not suitable for the purpose intended, it possibly would sway the apportionment of the liability.

In any case, in America our courts are courts not just of law but of equity, and judges and juries have significant leeway. It seems as if putting one’s members in a situation where they can’t possibly do what you recommend does no good and might do harm.

Joel’s question about insurance is interesting. When the spinach crisis broke,we assumed that product liability insurers would be a crucial player in enhancing food safety. Not wanting to pay claims, surely we thought they would demand high standards or charge those with low standards high fees.

It doesn’t seem to be the case, and our conversations with experts tell us it rarely is. It seems that the insurance industry runs on statistics and, plain and simple, there simply are not sufficient outbreaks to be able to judge the difference in likelihood of an outbreak based on the differences between the food safety plans of two different companies.

So insurance companies just don’t have the basis to go into Processor X and say “You get a 4% discount on insurance because your agitation is better.” There doesn’t seem to be that kind of direct intervention by these insurers.

Obviously, over time, if we keep having outbreaks and the insurance companies have to pay out a lot of money, insurance will get both more expensive and more difficult to get.

So far, though, we haven’t heard of a big problem in this area. Most large buyers require processors to have liability policies. If they can’t get them, it would close down the industry.

Much appreciation to Joel for his thoughtful letter.

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