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Supply Chain Risk

Farm-to-Table’s Food Safety Perils

Restaurant patrons call for locally sourced menus, but short supply chains up the risk of foodborne illness.
By: | October 3, 2017 • 7 min read

The National Restaurant Association surveyed 1,298 members of the American Culinary Federation in October 2016, asking them to rate 169 items as a “hot trend,” “yesterday’s news,” or a “perennial favorite.”

The chefs and restaurateurs ranked ‘hyper-local sourcing’ as the No. 1 concept trend. Eighty percent of respondents called this a “hot trend.” Locally-sourced produce was ranked number five, and locally-sourced meat and seafood was ranked number six.

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A variety of factors are driving the farm-to-table trend, which focuses on sourcing products from suppliers located within 100 miles from the restaurant. Environmental sustainability is one of those factors.

As the effects of climate change become more evident and more widely publicized, consumers seek ways to reduce their carbon footprint. Trucking in food from an hour away versus from across the country significantly reduces the emissions generated from food transport.

An increased focus on health and wellness is another factor. More and more, diners not only want to consume fresh food, they also want to know just how fresh it is. Knowing that your salad is made of veggies harvested from an organic farm just 50 miles away makes that food seem more wholesome.

Finally, a desire to support small farmers and local businesses is another reason restaurant patrons want farm-to-table menus.

Food Safety Risks

Conventional wisdom suggests that eatery owners should be all for this trend, as shorter supply chains typically equal less risk.

Restaurateurs can go out and visit their supplier themselves, talk to the farmers in person and see their processes with their own two eyes — and be back at their businesses within a few hours. Delivery time is shortened. There are fewer middlemen.

Scott Aiello, vice president, product manager, industry practices, Liberty Mutual

But removing those intermediaries makes it harder to control food safety. Smaller suppliers might not be subject to the same regulatory oversight that a big producer would be, and they lack the resources of large commercial farms and food processors to do thorough and regular ingredient testing. Cutting out intermediaries could also mean reducing the number of quality control checkpoints.

If a farm-to-table restaurant has locations in multiple regions, the supply chain also grows fragmented since each location will use a different network of local suppliers. That makes it even harder to control food quality and ensure product consistency.

“Quick-serve restaurant chains have the special challenge of needing to be responsive to consumers’ growing interest in farm to table, but the volume of standard ingredients they require for national distribution exceed the capabilities of almost all local producers,” said John Quelch, food safety expert and Dean of the Miami Business School.

“They therefore have to work with and qualify many local producers to meet their quality control and food safety standards, which inevitably adds cost.”

It also adds liability.

Large commercial farms and food manufacturers are subject to more regulatory scrutiny and inspected far more frequently.

They are more likely to have established safety and food testing procedures and on-site inspectors. Small, local farmers are typically less experienced in food safety testing or USDA inspections.

“Dealing directly with small, individual farms means taking on a lot of the quality control responsibility yourself.” — Scott Aiello, vice president, product manager, industry practices, Liberty Mutual

“Large farms and manufacturers that are selling into Giant or Wegmans are going to be forced to meet certain standards. It’s harder to ascertain whether smaller operations are adhering to recognized standards,” said Martin Bucknavage, senior food safety extension associate, Penn State Department of Food Science.

“When you’re dealing with a food wholesaler, you can be fairly certain given their size and focus on the industry that they have the right controls in place and are dealing with reputable farms,” said Scott Aiello, vice president, product manager, industry practices, Liberty Mutual. “Dealing directly with small, individual farms means taking on a lot of the quality control responsibility yourself.”

Outbreak Aftermath

A foodborne illness outbreak can cause potentially irreparable reputational damage to a restaurant, on top of bodily harm to patrons.

“We’ve seen some restaurants in the past completely go out of business due to foodborne illness. Even massive chains have struggled with it,” Aiello said.

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Chipotle offers the most recent and high-profile example. The fast-casual Mexican chain touts its commitment to sourcing from local farms, not factories. Its website says it “served more than 30 million pounds of produce sourced from local farmers around the country in 2015.”

A recent norovirus outbreak was linked to Chipotle in July 2017, on the heels of previous norovirus, E. coli and salmonella outbreaks in 2015, sending their shares tumbling 13 percent. It also sparked a class-action lawsuit filed by shareholders, claiming the chain has misled them about its efforts to resolve its cleanliness and food safety issues.

Widespread illnesses can also lead to lawsuits from consumers seeking damages for their medical care, lost income, and pain and suffering.

Despite the risks, the farm-to-table movement shows no signs of stalling. And restaurant owners can serve locally sourced food safely as long as they do their due diligence.

“Have approved suppliers. Don’t just go down to the local farmers’ market and buy from whomever. Know who you’re buying from,” Bucknavage said. “You have to see for yourself that the farm is a legitimate business with quality and safety standards in place.”

Restaurateurs can start by checking a farm’s audit history. The USDA as well as other third parties provide farm inspections. Regular audits indicate that the farmer is trying to comply with federal food safety standards.

But it also requires a boots-on-the-ground approach.

“Pay attention to the layout of the farm — are animals being kept away from produce? Many outbreaks are linked to contamination of fresh fruits and veggies with animal waste. Are workers washing hands and keeping their equipment clean? How many times are the food products washed before delivery? What temperature control protocols are in place both on the farm at the time products are harvested and processed and while they are in transport?” Aiello said.

Martin Bucknavage, senior food safety extension associate, Penn State Department of Food Science

The farmer should have records to indicate when produce was picked and where, and how long it was stored, as well as what temperature it was stored under. He should also be able to detail how he applies fertilizers or pesticides, and how the irrigation system works.

“If you ask the farmer if he follows good agricultural practices, and he looks at you like you have two heads, that’s not a good sign,” Bucknavage said.

Farmers should also have controls to prevent the cross-contamination of allergens and proper labeling of allergens on any packaged products. Serving food that is not properly labeled for allergens can have negative effects similar to foodborne illness.

These tasks would ordinarily fall to a distributor when working with a larger supplier. Going farm-to-table requires restaurant owners and managers to take on these tasks themselves. They might not be able to inspect every farm every day, but they can instill food safety practices in the kitchen to guard against errors on the farmer’s part.

“You can check the temperature of the delivery truck and of the product. You will need to wash all the produce before use. You can make sure every employee is washing their hands,” Bucknavage said.

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Some quality control tasks should also be transferred back to the farmer, however, through precise contractual language.

“Contractual risk transfer is a cornerstone of risk management. It shouldn’t be viewed as less important just because you’re dealing with a small, family-run farm. A handshake won’t do it. Clear contracts hold people accountable,” said Aiello.

The contract can establish what a restaurant’s expectations are around the farmer’s food safety practices and stipulate what insurance he must maintain.

“That will mean there’s an extra layer of due diligence being done by the farmer’s underwriter as well,” Aiello said.

Insurance and Crisis Management

Should the worst happen, restaurant owners should have a crisis management plan at the ready, including expert resources on tap who can handle the PR and communications strategy in the event of an outbreak.

“Legal expertise can help you understand exactly what the allegations are against your restaurant if someone files a lawsuit, and whether the responsibility should be placed on your suppliers, and how to hold them accountable,” Aiello said.

Insurers with industry expertise can usually help to build these crisis management networks and tighten up contract language. General liability coverage as part of a business owner’s policy may pick up financial losses from litigation. Crisis management coverage may also be included in the BOP or available as an endorsement. &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Pharma Under Fire

Opioids Give Rise to Liability Epidemic

Opioids were supposed to help. Instead, their addictive power harmed many, and calls for accountability are broadening.
By: | May 1, 2018 • 8 min read

The opioid epidemic devastated families and flattened entire communities.

The Yale School of Medicine estimates that deaths are nearly doubling annually: “Between 2015 and 2016, drug overdose deaths went from 33,095 to 59,000, the largest annual jump ever recorded in the United States. That number is expected to continue unabated for the next   several years.”

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That’s roughly 160 deaths every day — and it’s a count that’s increasing daily.

In addition to deaths, the number of Americans struggling with an opioid disorder disease (the official name for opioid addiction) is staggering.

The National Institute on Drug Abuse (NIDA) estimates that 2 million people in the United States suffer from substance use disorders related to prescription opioid pain relievers, and roughly one-third of those people will “graduate” to heroin addiction.

Conversely, 80 percent of heroin addicts became addicted to opioids after being prescribed opioids.

As if the human toll wasn’t devastating enough, NIDA estimates that addiction costs reach “$78.5 billion a year, including the costs of health care, lost productivity, addiction treatment, and criminal justice involvement.”

Shep Tapasak, managing principal, Integro Insurance Brokers

With numbers like that, families are not the only ones left picking up the pieces. Municipalities, states, and the federal government are strained with heavy demand for social services and crushing expenditures related to opioid addiction.

Despite the amount of money being spent, services are inadequate and too short in duration. Wait times are so long that some people literally die waiting.

Public sector leaders saw firsthand the range and potency of the epidemic, and were among the first to seek a legal reckoning with the manufacturers of  synthetic painkillers.

Seeking redress for their financial burden, some municipalities, states and the federal government filed lawsuits against big pharmaceutical companies and manufacturers. To date, there are more than 100 lawsuits on court dockets.

States such as Ohio, West Virginia, New Jersey, Pennsylvania and Arkansas have been hit hard by the epidemic. In Arkansas alone, 72 counties, 15 cities, and the state filed suit, naming 65 defendants. In Pennsylvania, 16 counties, Philadelphia, and Commonwealth officials have filed lawsuits.

Forty one states also have banded together to subpoena information from some drug manufacturers.

Pennsylvania’s Attorney General, Josh Shapiro, recently told reporters that the banded effort seeks to “change corporate behavior, so that the industry can no longer do what I think it’s been doing, which is turning a blind eye to the effects of dumping these drugs in the communities.”

The volume of legal actions is growing, and some of the Federal cases have been bound together in what is called multidistrict litigation (MDL). These cases will be heard by a judge in Ohio. Plaintiffs hope for a settlement that will provide funding to be used to help thwart the opioid epidemic.

“From a societal perspective, this is obviously a big and impactful issue,”  said Jim George,  a managing director and global claims head with Swiss Re Corporate Solutions. “A lot of people are suffering in connection with this, and it won’t go away anytime soon.

“Insurance, especially those in liability, will be addressing this for a long time. This has been building over five or six years, and we are just now seeing the beginning stages of liability suits.” 

Basis for Lawsuits

The lawsuits filed to date are based on allegations concerning: What pharma knew or didn’t know; what it should have known; failure to monitor size and frequency of opioid orders, misrepresentation in marketing about the addictive nature of opioids; and false financial disclosures.

Opioid manufacturers, distributors and large drugstore chains together represent a $13 billion-a-year industry, meaning the stakes are high, and the pockets deep. Many have compared these lawsuits to the tobacco suits of the ’90s.

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But even that comparison may pale. As difficult as it is to quit smoking, that process is less arduous than the excruciating and often impossible-to-overcome opioid addiction.

Francis Collins, a physician-geneticist who heads the National Institutes of Health, said in a recorded session with the Washington Post: “One really needs to understand the diabolical way that this particular set of compounds rewires the brain in order to appreciate how those who become addicted really are in a circumstance where they can no more [by their own free will] get rid of the addiction than they can get free of needing to eat or drink.”

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk.” — Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

The addiction creates an absolutely compelling drive that will cause people to do things against any measure of good judgment, said Collins, but the need to do them is “overwhelming.”

Documented knowledge of that chemistry could be devastating to insureds.

“It’s about what big pharma knew — or should have known.  A key allegation is that opioids were aggressively marketed as the clear answer or miracle cure for pain,” said Shep Tapasak, managing principal, Integro Insurance Brokers.

These cases, Tapasak said, have the potential to be severe. “This type of litigation boils down to a “profits over people” strategy, which historically has resonated with juries.”

Broadening Liability

As suits progress, all sides will be waiting and watching to see what case law stems from them. In the meantime, insurance watchers are predicting that the scope of these suits will broaden to include other players in the supply chain including manufacturers, distribution services, retail pharmacies, hospitals, physician practices, clinics, clinical laboratories and marketing agencies.

Litigation is, to some extent, about who can pay. In these cases, there are several places along the distribution chain where plaintiffs will seek relief.

Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

Nancy Bewlay, XL Catlin’s global chief underwriting officer for casualty, said that insurers and their insureds need to pay close attention to this trend.

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk,” she said.

“We, as insurers who identify emerging risks, have to communicate to clients. We like to be on the forefront and, if we can, positively influence the outcome for our clients in terms of getting ahead of their risks.”

In addition to all aspects of the distribution chain, plaintiffs could launch suits against directors and officers based on allegations that they are ultimately responsible for what the company knew or should have known, or that they misrepresented their products or signed off on misleading financial statements.

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Shareholders, too, could take aim at directors and officers for loss of profits or misleading statements related to litigation.

Civil litigation could pave the way, in some specific instances, for criminal charges. Mississippi Attorney General Jim Hood, who in 2015 became the first state attorney general to file suit against a prescription drug maker, has been quoted as saying that if evidence in civil suits points to criminal behavior, he won’t hesitate to file those charges as well.

Governing, a publication for municipalities and states, quoted Hood in late 2017 as saying, “If we get into those emails, and executives are in the chain knowing what they’ve unleashed on the American public, I’m going to kick it over to a criminal lawsuit. I’ve been to too many funerals.”

Insurers and insureds can act now to get ahead of this rising wave of liability.

It may be appropriate to conduct a review of policy underwriting and pricing. XL Catlin’s Bewlay said, “We are not writing as if everyone is a pharma manufacturer. Our perception of what is happening is that everyone is being held accountable as if they are the manufacturer.

“The reality is that when insurers look at the pharma industry and each part of the supply chain, including the pharma companies, those in the chain of distribution, transportation, sales, marketing and retail, there are different considerations and different liabilities for each. This could change the underwriting and affect pricing.”

Bewlay also suggests focusing on communications between claims teams and underwriters and keeping a strong line of communication open with insureds, too.

“We are here to partner with insureds, and we talk to them and advise them about this crisis. We encourage them to talk about it with their risk managers.”

Tapasak from Integro encourages insureds to educate themselves and be a part of the solution. “The laws are evolving,” he said. “Make absolutely certain you know your respective state laws. It’s not enough to know about the crisis, you must know the trends. Be part of the solution and get as much education as possible.

“Most states have ASHRM chapters that are helping their members to stay current on both passed and pending legislation. Health care facilities and providers want to do the right thing and get educated. And at the same time, there will likely be an uptick in frivolous claims, so it’s important to defend the claims that are defensible.”

Social Service Risk

In addition to supply chain concerns, insurers and insureds are concerned that even those whose mission it is to help could be at risk.

Hailed as a lifesaver, and approved by the Food and Drug Administration (FDA), the drug Naloxone, can be administered to someone who is overdosing on opioids.  Naloxone prevents overdose by blocking opioid receptor sites and reversing the effects of the overdose.

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Some industry experts are concerned that police and emergency responders could incur liability after administering Naloxone.

But according to the U.S. Department of Justice, “From a legal standpoint, it would be extremely difficult to win a lawsuit against an officer who administers Naloxone in good faith and in the course of employment. … Such immunity applies to … other professional responders.”

Especially hard hit are foster care agencies, both by increased child placements and stretched budgets. More details in our related coverage.

While the number of suits is growing and their aim broadening, experts think that some good will come of the litigation. Settlements will fund services for the addicted and opioid risk awareness is higher than ever. &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]