A dribble of oil can make a big splash in the fortunes
of food and beverage processing companies.
By Debbie Hodson and Mary Thompson
That’s why the use of synthetic food grade lubricants for equipment in food and beverage manufacturing facilities, which is common overseas, is gaining popularity in the U.S.
Although initially more expensive, such lubricants prolong oil service life and reduce downtime (thus increasing productivity). They can withstand temperature extremes and can be designed for specialized applications.
Lubricant contamination is a continual threat for the food and beverage industry. Although strong maintenance and operational practices may lower the chance that oils and greases can contaminate products, they cannot always prevent leaks and spills. So any plant still using non-food grade lubes is at risk for an expensive product recall that could damage their brand and company reputation.
Even if a major recall is unlikely, minor leaks, which are common (and not always obvious), could result in batches being spoiled or recalled. Normal wear and tear on seals could cause a gearbox or hydraulic system to release oil or grease that could contaminate food or beverages.
The Food and Drug Administration (FDA) will permit zero contamination from lubricants at a food manufacturing plant if there is incidental contact between edible products and a non-food grade oil or grease.
However, when food grade lubricants are used, the FDA will allow contamination of up to 10 parts per million. Because food grade lubricants are manufactured to be odorless, colorless and tasteless when contamination is less than 10 ppm.
The FDA has determined the safe components of food grade lubricants. NSF International maintains the Class H1 list of food grade lubricants that can be used in equipment found in food and beverage manufacturing plants.
Many companies have decided that where lubricants are concerned, a pint of prevention is worth a river of remediation. To meet customer requirements or simply to reduce human error many companies are converting to food grade lubricants to remove the risk of recalls, litigation, and brand damage.
Even the world’s largest, most well established brands can be hurt by product recalls. For instance, Ford Motor Co. has said the Firestone Tire Co. product recalls cost it $3 billion.
Lubricant contamination can easily ruin edible products.
In June 2000 a Kansas City, Mo. food manufacturer, had to recall 86,000 pounds of sliced turkey products that may have been exposed to non-food grade lubricating oils at its plant in Albert Lea, Minn. The company discovered the problem after consumers complained about an off-odor and off-flavor product. Some consumers reported experiencing temporary intestinal discomfort.
Lubrication pros and cons
Because food grade lubricants should not affect the product in any way, they should be odorless, colorless, and tasteless. Companies can choose from a variety of mineral and synthetic lubricants, but quality differences between them are significant.
Conventional industrial fluids and greases (non H1) historically have been used in food and beverage manufacturing in the U.S., but the potential for contact with consumable products makes them less than ideal for many applications.
Common food grade mineral oil ("white oil") based products have helped companies meet the food grade requirement, but they often fall short of the performance requirements of modern food processing equipment.
Mineral-based products generally are cheaper than their synthetic counterparts but have serious limitations. They may under perform while under extreme conditions of load and temperature. Synthetic lubricants generally outperform mineral oil based lubricants because they are specifically designed for higher performance, whether for the extreme low temperatures of freezers or for the higher temperatures of ovens.
Their increased oxidation and thermal stability, compared to a mineral or white oil based product, can extend equipment life; reduce downtime, and lower maintenance costs.
Food grade synthetics inherently are more resistant to high temperatures because they are designed for those specific operating conditions. They also respond better to performance additives. This is important because of the FDA restrictions on the type and concentration of additives allowed in food grade lubricants.
Legal issues
Food contamination has many potential legal pitfalls for manufacturers.
The buyer and user of contaminated products can file lawsuits based on both negligence and strict liability. In a negligence case, the defendant’s product safeguards would be compared with what a reasonable company in the same or similar circumstances would have done. A jury could consider if the company used state-of-the-art safety devices to help it determine if the company acted in a reasonably prudent manner in manufacturing its product.
The defense against strict liability is more problematic. In a strict liability action, the errors of the party bringing the suit do not reduce the damages. The rationale for holding manufacturers to a strict liability standard is that they are best able to prevent the harm and to spread risks by purchasing insurance and passing on that cost in the price of the product.
Strict liability laws arguably act as a deterrent, giving manufacturer the incentive to increase their investments in product safety. Strict liability also can apply to every party in the distribution system.
In determining if food products are defective, some courts have imposed strict liability only if the injury stemmed from a "foreign object" as opposed to a "natural" food ingredient. Most courts do not follow that distinction, but simply ask if a consumer reasonably should not have expected the food product to contain that ingredient. If not, strict liability applies.
Additional causes of action could include breach of warranty claims and breach of contract claims. These causes of action generally allow the prevailing party to recover its legal fees and expenses. In addition, some jurisdictions will allow greater damages if the manufacturer has misrepresented the characteristics of the product.
Claims often are brought against the original food processor or food company by entities further down the product processing chain that have incurred economic loss because to the contaminated food. Such entities may include firms that further processed the allegedly contaminated food, packagers, or retailers.
Wholesalers and retailers frequently are sued when product contamination occurs, but seldom pay a judgment. The Model Uniform Products Liability Act provides that product sellers other than manufacturers are liable only when they acted negligently. Many states have granted retailers a statutory indemnity if they did not alter the product.
As an example of the multitude of lawsuits that can arise from a single incident of food contamination, consider the example of a recent product recall. A company that manufactured nut clusters, which were used in cereal manufactured by a major corporation, determined that the nut clusters were contaminated with wood shavings after they had already been incorporated into cereal, packaged, and distributed. This lead to a product recall and numerous lawsuits. The cereal manufacturer incurred recall expense, damage to brand reputation, cost of notification of the recall, internal costs associated with hiring additional personnel to handle the recall, cost of return shipments, as well as the cost of destruction of the contaminated food. The cereal manufacturer sued the nut cluster manufacturer for its damages. This lead to coverage litigation to determine which insurance policies, if any, would cover the various expenses. In addition, the cereal manufacturer faced claims from retailers, who incurred costs of storing the recalled product, shipment costs, lost profits, and damage to reputation. This type of incident could have easily given rise to consumer claims as well, leading to potential personal injury litigation, and even class action claims if personal injuries were widespread.
Finally, it is important to note that the food product manufacturer that manufactured the nut clusters also suffered considerable damages. However, the manufacturer was left with significant liability, and no legal recourse.
The recall and the subsequent litigation caused the nut cluster manufacturer to incur significant damages, including actual damages of legal fees, recall expenses and loss of employee time and productivity. In addition, it suffered considerable intangible costs as well, including damage to reputation, loss of customer faith, and costs associated with regaining customers for its products.
Insurance
Determining if a company has adequate insurance against contaminated food claims is a complex, lengthy process.
Of course, coverage depends on the role of the policyholder, the type of policy, and its terms and exclusions. Appellate court case law has provided little guidance regarding coverage issues in contaminated food claims.
However, to the extent that a manufacturer seeks coverage for an insurance claim involving faulty work or products, most jurisdictions have held there is no insurance liability because there has been no accident. Most policies exclude coverage for damage or contamination to a manufacturer’s work or product. Courts have said that excluding such business risks from coverage is in the public interest because it will motivate managers to better operate the business.
Many high-exposure, contaminated-food claims involve global corporations with complex and often specialized insurance programs. They may have obtained an expansive insurance program that generally provides coverage for many aspects of contaminated food claims, using a series of endorsements that provide for third-party recall coverage. To the extent that there is additional coverage for recall expenses, it often is limited to the specific recall expenses of third parties.
Large-exposure, contaminated-food claims almost always are complex, involving recall and impaired property policy provisions. Often they create unique legal issues, even in situations where part of the contaminated food claim is covered by a policy.
Virtually all high-exposure contaminated food claims result in a recall of some form. Distributors’ or sellers’ damages can include the costs of storing the recalled product, shipping it back to the manufacturer, notifying the public about the recall, destroying contaminated food, and employee time to facilitate the recall or destruction. They also can seek damages for foregone profits and damaged reputation.
If the food product is a component used by other food production companies, the contamination can cause the customer to stop production, destroy products, notify customers, and conduct its own recall.
Legal fees and expenses can be substantial. A food product manufacturer ultimately may be responsible not only for its legal fees, but in the case of a breach of warranty or breach of contract claim, the fees of the party bringing suit.
There also are intangible damages such as loss of reputation, loss of customer faith or approval, and costs to regain market share. These are difficult to quantify, but can have a substantial impact on a business' bottom line.
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Mary C. Thompson is a member of the litigation practice of Thompson Coe Cousins & Irons. Thompson’s experience complex and mass tort litigation, with an emphasis on toxic torts and environmental litigation. She is also an Adjunct Professor of Toxic Torts and Environmental Litigation at the University of Houston Law Center. Thompson writes and speaks on such topics as toxic torts, insurance coverage, and environmental litigation. She is an Associate Editor, Editorial Board Member and columnist. She is on the editorial boards for both the American Bar Association’s Environmental and Toxic Tort Newsletter and Tort and Insurance Practice Newsletter, and The Appellate Lawyer. www.thompsoncoe.com
DEBBIE HODSON is the industrial sector-marketing manager for Shell Lubricants, a leader in fast lubes, automotive/consumer products, transport, and industrial offerings to consumer and business customers. Shell Lubricants is a subsidiary of Shell Oil Company. Shell Oil Company is an affiliate of Royal Dutch/Shell Group of Companies (NYSE: RD). For more information, please call 713-546-3759 or e-mail debbie.hodson@.shell.com and visit www.shell-lubricants.com/FoodBev.
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