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Protecting against label claims lawsuits

By Hank Schultz , 09-Jan-2013
Last updated on 10-Jan-2013 at 18:30 GMT

Labels provide information to consumers, and unfortunately, to class action lawyers, too. Suits over false advertising based on label claims are an ever-rising threat.  For companies seeking to shield themselves via insurance, here’s the bad news:  There is none to be had.

“There was coverage available for about one year, from July 2011 to July 2012,” said insurance broker Greg Doherty . It was a policy that covered Prop 65 suits that, when modified, did give true false advertising coverage. It didn’t sell.

“It didn’t sell for three reasons:  It was very expensive. It also didn’t sell because people thought, ‘This will never happen for me.’  Number three, it was a very complicated policy and people didn’t understand it,” he told NutraIngredients-USA.

“Your next best bet is a good lawyer,” said Doherty, who works with Poms & Associates in Woodland Hills, CA.

Review coverage

Denver-based attorney Justin Prochnow, a principal with the firm Greenberg Traurig , agreed.  But he said the new year is a good time for companies to review their insurance coverage.  Many are unsure of what their policies actually cover, he said. As an example, Prochnow offered the case of insurance coverage in the case of the recall of product because of contamination.

“If you have a recall, a lot of insurance policies have exemptions for recalls. We have found that when companies have recalls, and the contamination happened at a contract manufacturing facility, that their policies may cover only contamination that happened in a facility that they own,” he said.

Review label claims

As far as label claims are concerned, an ounce of prevention equals a pound of cure. Good legal advice can help companies avoid making label claims that can get them sued in the first place, Doherty said.

“The no. 1 thing to do is to make sure that you as a company review it internally or have someone qualified do it,” Prochnow said.

 “There are a lot of these lawsuits out there that could be prevented. A lot of times these companies are making nonpermissible claims and don’t even realize it,” he said.

Nutrient content claims are a biggie, Prochnow said.  Companies that don’t understand that language such as “good source of” has a regulatory definition attached to it are ripe for the slaughter.

“When someone says ‘potassium rich’ or good source of calcium,’ a lot of people don’t even realize that means you have 10% or more  of the daily value of calcium in their product,” he said.

Decide where you stand

Careful review of label language is important, Prochnow said, and will become more so if moves to require labeling of GMO ingredients are successful in states like Washington, Vermont and others. But it is not a sure-fire preventive against lawsuits, especially in the area of ‘natural’ claims.  Companies have to make a decision how important it is to their brand identity to be able to make a ‘100% natural’ claim, as opposed to saying something along the lines of ‘made with natural ingredients.

“You can’t make assessments of risk unless you know where you stand,” Prochnow said.

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