IOM July 2021 Insight From

Food safety is not just the job of food safety personnel. It’s the leaders and management-level employees in the food processing industry who carry the ultimate responsibility for food safety concerns.

In a recent webinar, M3 Insurance teamed up with Peg Dorn from WMEP Manufacturing Solutions and Leah Ziemba from Michael Best to discuss legal and liability risks food processing leaders need to know to ensure a safe workplace, safe food product and a safety net for themselves in case the worst were to occur.

“As a former auditor, I can tell within 10 minutes of walking into a facility if the top management is or is not engaged in the food safety program,” Dorn said.

However, just because leadership may not have its eyes on the operation does not mean its responsibility for the food safety is diminished.

The Park Doctrine: How a 50-year-old decision affects food industry leaders

While a company can be fined for food safety violations, it cannot be sent to jail. So, who within the company bears the ultimate legal responsibility for food safety?

Ziemba, industry group co-chair, agribusiness, food and beverage at Michael Best, shared the answer to this question by outlining the details of a nearly 50-year-old U.S. Supreme Court decision.

United States v. Park created a clear understanding of the ultimate responsibility that corporate officers have in ensuring food safety within their company. The case established that corporate officials can be prosecuted for food safety violations within the organization they lead.

The case also established that there is no intent necessary for the government to seek prosecution of a corporate officer for food safety violations. The government simply needs to show that because of a person’s position of authority within a food processing company, they could have prevented a food safety issue and promptly corrected it but failed to do so.

“This case was groundbreaking,” Ziemba said. “There are not many strict liability criminal statutes in our country.”

Leadership cannot simply argue that they have deferred authority for food safety to a responsible employee or consultant. The responsibility, and the legal risk, as outlined in the Park Doctrine, lies with the top leadership and those in a position of authority to prevent or correct the violation(s) at issue.

Who carries liability?

In recent years, the Blue Bell Creameries case has worked its way through the courts. In the well-documented case, the former president and CEO of Blue Bell Creameries faced seven criminal charges, and the company paid millions of dollars in fines for matters related to a deadly, nationwide listeria outbreak caused by its contaminated products.

In addition, Blue Bell Creameries’ board of directors faced a derivative action by a shareholder. The decision in favor of the plaintiff (stockholder) stated the board of directors failed to provide adequate oversight of a key risk area for the company (food safety). Ultimately, the directors of Blue Bell Creameries agreed to a $60 million settlement in the case.

Leadership in food processing facilities and its board members should take note of this court case as well as the Park Doctrine. These legal rulings have direct consequences for leaders and the level of personal liability they carry for food safety issues.

Liability coverage can help

If there is a lawsuit against your food processing organization, where will the money come from? If there is no corporate indemnification of the directors and officers, they could find themselves using their personal assets to fund their defense when named in a lawsuit stemming from their role on the company’s board.

In a scenario where your organization has purchased directors and officers liability insurance, the money to pay legal fees and settlements can come from the company itself, the directors and officers insurance coverage or both.

“It’s an honor to be invited to be a member of the board of a food processing operation. But the individual should understand both their legal risks as well as inquire about the insurance coverages that are in place to protect their personal assets against claims made against them in their board position,” said Jeanne Flanagan, director of management liability at M3 Insurance.

The only liability coverage that provides protection for this exposure is directors and officers liability insurance. This coverage is the financial backstop used to provide protection to directors and officers when indemnification by the corporation is not available. The coverage essentially has three parts:

 

“Side A” — Protects the directors and officers when the organization is unable to indemnify its directors and officers.

“Side B” — Reimburses the corporation for its indemnification obligation to its directors and officers.

“Side C” — Also known as “entity coverage” — ensures there is coverage when the corporation is sued.

 

In Wisconsin, companies large and small have established our state as a global leader in the food industry. It’s up to the individual leaders of these operations to understand their role, their risks and how to protect their assets while continuing to produce products that feed their neighbors next door and around the world.  

Jen Pino-Gallagher is the director of the food and agribusiness practice at M3 Insurance. She identifies the most effective and efficient way to help clients in the food and agribusiness industry identify growth opportunities and reduce risk within their operations.