According to Statista, total retail and food services sales in the United States totaled 5.32 trillion dollars in 2015.[i] This includes perishable foods, which is food that “will spoil the most quickly and require refrigeration.”[ii] A recent article from fooddive.com notes that fresh and perishable foods account for $177 billion in sales, [iii] which makes the perishable food market in the U.S. quite significant. As such, companies that manufacture, process, and distribute perishable foods have an exposure to loss due to spoilage. One insurance coverage that can address this risk is spoilage coverage.
It was previously noted that the fresh and perishable U.S. food market totaled some $177 billion. Firms such as restaurants, food manufacturers, food wholesalers, and grocery stores operate in this space. Should their stocks of perishable food spoil, this can lead to lost revenues and depending on how much perishable food these firms handle, the financial loss could be significant. This is where spoilage coverage can help.
The purpose of spoilage coverage is to address damage to perishable stock. This coverage can mitigate and address the economic loss that firms suffer from spoilage losses. In general, there are a number of covered causes of loss that will trigger this coverage. One covered cause of loss on the form is from power outages, either from a fluctuation in power or from a total interruption in power. Another covered cause of loss is from mechanical breakdown or mechanical failure from any refrigeration, cooling or humidity control equipment.[iv] It should also be noted that “mechanical breakdown also includes loss caused by contamination by the refrigerant used in cooling equipment. Power outage coverage applies whether the outage originates on or off premises, with no requirement that the outage be caused by another insured peril.”[v] In short, spoilage coverage has a broad number of covered grants, making it a very useful coverage for insured’s with exposures to perishable goods.
Keep in mind that there are exclusions under the perishable coverage form. One prominent exclusion on this form is from situations involving utility interruption. Utility interruption coverage is addressed under a separate endorsement coverage, hence the reason for the exclusion.
In closing, restaurants, manufacturers of food products, and food distributors have an exposure to loss due to spoilage of their perishable inventory. This is where spoilage coverage comes into play. Spoilage coverage can address damage to a firm’s perishable stock. This coverage is activated by a variety of covered causes of loss including mechanical breakdown and power outages. There are exclusions though, including scenarios involving utility interruption. Spoilage coverage is an essential coverage that insureds that have operations and exposures involving perishable inventory should definitely consider buying.
For more information on how to best protect your produce, watch Insurance 101: Equipment Breakdown Coverage (For Your Business).
[i] “U.S. Food Retail Industry – Statistics and Facts” Statista https://www.statista.com/topics/1660/food-retail/
[ii] “What is Perishable Food? – Definition & Examples” Study.com https://study.com/academy/lesson/what-is-perishable-food-definition-examples.html
[iii] Zarling, Patti “Fresh foods continue to drive in-store sales, report notes” Fooddive.com June 19, 2018 https://www.fooddive.com/news/grocery–fresh-foods-continue-to-drive-in-store-sales-report-notes/525893/
[iv] Cook, Mary Ann “Commercial Property Risk Management and Insurance” The Institutes 1st Edition Page 4.25
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