When the produce distribution company Mike Dill works for began receiving indemnity agreements from corporate customers asking to guarantee that their organic produce was completely free of adulterants, he was hesitant to agree to a statement that was not physically possible to prove.
Dill, the food safety and compliance manager for Oregon-based Organically Grown Company, knew that no fruit and vegetable distributor could guarantee that their products were entirely free from all microbial contamination, however minuscule the risk might be. And yet, that’s exactly what his customers — grocery chains, restaurants, and other produce distributors — were asking his company to do.
Over the past five to 10 years, produce industry professionals have watched these types of guarantees maneuver into the majority of relevant contracts, despite the fact that they can’t be proven. But, by signing them, distributors and farmers effectively agree to take full responsibility for any foodborne illnesses that result from eating their products, even if the illnesses resulted from negligence on the part of the grocery chain or the restaurant.
“[The distributor] guarantees that the products it grows and/or handles are not adulterated …” states one such contract. Another asks that, “[The distributor] guarantees that the products are in full compliance with all the laws of the United States and all laws of any state or local government within the United States.”
Some companies may have cut ties with customers when such language first began appearing in contracts, but soon enough they were being required by most major grocery chains. Now some distributors have adopted the language when buying from other distributors.
“We have millions of pounds of produce going through our warehouse,” Dill said. “I don’t think any company in the produce trade has the ability to guarantee it’s all 100-percent fine.”
The only way a produce company could guarantee their products were completely free of contamination would be to test every square inch of each individual apple or leaf of spinach, said Bill Marler, managing partner of food safety law firm Marler Clark, which underwrites Food Safety News.
“If a company’s lawyers are asking for this assurance, it’s nonsensical,” Marler said.
Such warranties or guarantees allow the purchasing companies to attempt to shift all of the responsibility for food safety on to the distributors and farmers, said Brad Sullivan, managing attorney at L+G LLP, Attorneys at Law, which specializes in agricultural law, food safety compliance and product liability.
What’s more, Sullivan said, these warranties or guarantees, when combined with indemnity agreements, shift the responsibility in such a way that the farmer and distributor can be held responsible even when a food safety issue arises from the customer’s own negligence.
For example, if a grocery chain stores a product at an improper temperature and allows bacteria to propagate and sicken people, the farmer and distributor could still be on the hook to foot the legal bill. The same would apply if a restaurant unintentionally cross-contaminated products in the kitchen.
“Basically, if there’s an outbreak, they’re telling the farmer, ’You have to pay everything and not us — not just for your negligence, but ours, too,’” Sullivan said.
Though illness outbreaks are considered very rare in the U.S. produce industry, it is still impossible to completely prevent contamination. And while most contamination never results in an illness, a few exceedingly rare contamination events lead to outbreaks.
When an E. coli or Salmonella outbreak does occur, every actor in the supply chain — from the farmer to the grocery chain — faces legal responsibility from a personal injury standpoint, Marler said.
When grocery chains or restaurants are sued by victims of foodborne illness outbreaks, they have long had the ability to turn around and sue the farmer or distributor further down the supply chain if the farmer or distributor is found to be at fault. The difference with this new language in the indemnity agreements is that the grocery chains remove the potential for their own culpability.
Another issue arises, however, when the farmer and distributor does not have enough insurance money to cover the cost of litigation, which, in a severe outbreak, is often several orders of magnitude greater than their insurance policy.
Litigation costs against Jensen Farms in the 2011 Listeria outbreak involving cantaloupe, for example, quickly exceeded their $4-million insurance policy and put the farm out of business. Nearly three years later, retailers which sold the cantaloupes, including Walmart and Kroger, are still locked in legal discussions regarding how much money to pay out to victims to cover the remaining claims. (Editor’s note: Walmart just settled 23 civil cases related to Jensen Farms cantaloupe.)
The indemnity agreements may also be designed to cover transactions several months to a year in advance. Dill’s company may sign an agreement in January while not even knowing what types of products they’ll be selling come June or July, let alone whether or not the products are completely free of contamination.
Distributors who mainly sell to smaller stores, such as San Francisco-based Veritable Vegetable, have only dealt with such agreements when doing business with major grocery chains, according to Daria Colner, communications director for Veritable Vegetable.
Still, the practice has become increasingly common across the trade.
“The people with all the market power are imposing stricter and stricter indemnity, hold harmless, guarantee, and insurance requirements on people who can’t really give those assurances,” Sullivan said.
Until something changes, Dill said he and other distributors feel stuck in legal limbo.
“I am all for food safety and doing all I can to ensure our growers are providing the safest products possible, but I am seeing a shift in what my position entails,” Dill said. “I’m moving from being an on-farm resource to a bookkeeper who gathers documents to satisfy customers who might feel they will not have any liability in an outbreak if I sign their document.”© Food Safety News