May/June 2006

A Forensic Accountant’s Role in Product Liability & Recall Cases
By John W. Field, Jr.

Product recalls are one of the few unforeseen business catastrophes that can affect any consumer product imaginable. From SUVs to frozen pizzas, no company is immune to product recall and liability claims and special confidential coverage for this exposure is a must for most insurance portfolios.

Though the recall of a product is one of the most extreme steps a company can take, it is often necessary if the product has the potential to harm the users. Most businesses like to develop their own private recall protocol and try to avoid government involvement.

Whether dealing with a case of product defect, contamination or malicious tampering, it is important that the insurance company engage forensic accountants who bring the experience, expertise and complexity required for the product recall or liability cases. Similar to property damages claims, the sooner the liability carrier involves a forensic accountant, the higher the likelihood of controlling the loss and mitigating damages for both the insured and the insurer.

The investigative professionals will calculate the physical damages, inventory costs, lost profits, and extra expense, recall and rehabilitation costs.

Once brought on board, the forensic accountants can assist the insurance company and the adjuster in:

Setting up proper audit protocols
On-site audit and inventory observations
Monitoring the recall, destructions and rehabilitation process
Evaluating loss of market share
Determining lost profits and extra expenses

If needed, the forensic accounting team will set up on-site operations and stay the course until the job is done and all parties have reached a resolution. The team will also review and assess relevant historical documentation, monitor the recall process and manage the flow of all information needed to track expenditures and quantify damages.

John Field is a partner in Matson, Driscoll & Damico’s Chicago office. John has more than 30 years experience in forensic accounting. For more information, please contact him at jfield@mdd.net.