$4.5M Ice Cream Sandwich Recall Prompts Lawsuit Against Insurance Broker

Crave Better Foods, the Connecticut-based maker of Chipwich ice cream sandwiches, is suing its insurance broker for allegedly failing to secure coverage that could have helped offset $4.5 million in losses during a 2024 listeria-related recall. The lawsuit, recently filed in Connecticut Superior Court, claims the broker, Carlson & Carlson, neglected to procure Product Recall Insurance despite Chipwich’s rapid expansion and rising sales, leaving the company to incur costs including destroyed inventory, excess freight charges, and lost sales, Insurance Journal reported.

In the suit, the company accuses Carlson & Carlson of professional negligence, breach of contract, and misrepresentation. Though the company had initially declined Product Recall Insurance in 2018, it claims the insurance agent did not follow up, even as annual revenue climbed from $800,000 in 2018 to over $24 million by the end of 2023.

The apparent oversight is “a shock,” said Marcos Abel Baeza, Senior Broker, Professional Liability, Burns & Wilcox, Dallas/Ft. Worth, Texas. “Any company that is manufacturing food or sending out any kind of product needs to have Product Recall Insurance,” he said. “Especially with their revenues increasing so dramatically, it is on the broker to make sure that their policies continue to cover them for their operations.”

When an insurance broker is sued over alleged errors in their professional services, their Insurance Agents Errors & Omissions (E&O) Insurance can help pay for legal defense and other expenses.

“Human error is the biggest factor — we are all still human,” said Lori Zermeno, Broker, Professional Liability, Burns & Wilcox, Dallas/Ft. Worth, Texas. “There will always be some mistake that can happen, and it is very rarely deliberate or with any kind of malintent. Nobody is perfect. E&O Insurance is just a way for the insurance company to have your back, and for you to have your own back.”

There will always be some mistake that can happen … Nobody is perfect. E&O Insurance is just a way for the insurance company to have your back and for you to have your own back.

Lack of coverage ‘a clear miss’

The recall that reportedly cost the ice cream maker $4.5 million was triggered after listeria was detected at a third-party facility, Totally Cool, which manufactured products for multiple ice cream brands including Chipwich. Although no contamination was found on Chipwich equipment, the recall forced the company to destroy more than $2 million in product.

“As an insurance professional, I really do feel for the ice cream maker,” Zermeno said. “There is protection for recalls, and these things can bankrupt some companies.”

As an insurance professional, I really do feel for the ice cream maker. There is protection for recalls, and these things can bankrupt some companies.

Shortly after the recall was announced, Totally Cool reportedly laid off most of its staff and later filed for bankruptcy, according to the Baltimore Banner. Despite Chipwich’s $4.5 million recall loss, the impact “could have been a lot worse,” Zermeno said. “I think $4.5 million is actually a relatively low number when you think of what could have happened,” she said, pointing to the risk of consumer injuries or deaths. Data from the Grocery Manufacturers Association and the Food Marketing Institute indicates that the estimated average cost of a food recall is $10 million in direct costs alone.

The fact that Chipwich did not have Product Recall Insurance “could be a clear miss” on the part of the insurance agent and could trigger coverage under their E&O Insurance, Zermeno said, “unless the agent has it in writing that they offered this coverage and it was declined.”

“That would be a key point in the litigation — when was this offered and what was the correspondence?” she said. “Was it just offered that one time and then not again, or was it recommended each year? Regardless of the size of the company, if the risk is there, the risk is there. If you have a consumer-focused product, then the risk is always there.”

The importance of E&O Insurance for agents

In April, a federal judge in Connecticut ruled that negligence and breach of contract claims could proceed against an insurance agent who was sued for allegedly failing to renew a Flood Insurance policy in a timely manner, resulting in a lapse in coverage, Insurance Business Magazine reported. In October of 2024, a broker was sued in Oregon federal court by a former client who claimed a recommended Life Insurance plan caused “devastating” financial losses, ThinkAdvisor reported. 

Also known as Professional Liability Insurance, Insurance Agents E&O Insurance can respond to various claims related to an agent’s professional services, including allegations of inaccurate advice, failure to recommend adequate coverage, misrepresentation, and administrative errors.

“Insurance agents need to protect themselves in the event of something like this,” Baeza said, referencing the Chipwich lawsuit. “Most agents know that they cannot really operate and do serious business until they have their own E&O Insurance policy in place. [A lawsuit] could easily destroy a middle-market type broker or agency. It could potentially be the end of their business.”

Insurance agents need to protect themselves in the event of something like this. Most agents know that they cannot really operate and do serious business until they have their own E&O Insurance policy in place.

Depending on the state, insurance agents may be required to purchase the coverage or to obtain specific limits.

“Each state is different,” Zermeno said. “Insurance agents, real estate agents, lawyers — those industries are regulated because you are providing a service that is more on the financial side and has a little bit more risk. Each agent is responsible for knowing what those regulations are as well as what limits are required.”

Documentation: An agent’s best defense

In addition to purchasing E&O Insurance, insurance professionals should have policies in place to help avoid claims of negligence. Documentation is a key step in risk management for insurance professionals, Zermeno emphasized.

“Documentation becomes really important for anybody who purchases E&O Insurance,” she said. “The most important thing insurance agents can do is document their conversations with their insureds and be very diligent. They should remember that at renewal, they are starting over, so they do need to re-offer everything again.”

They should also understand the risks associated with today’s cybersecurity landscape and secure Cyber & Privacy Liability Insurance not only for their clients, but also for their own operations, according to Baeza.

“Anybody who is providing a professional service and uses a computer should have E&O Insurance coverage in place and Cyber & Privacy Liability Insurance coverage in place,” he said. “If an agent did not recommend Product Recall Insurance for a manufacturing client, they might also be dropping the ball on other coverages. It is on us as insurance brokers to make sure that we are not missing anything. We need to review each risk and help every insured stay as protected as they can be.”

It is on us as insurance brokers to make sure that we are not missing anything. We need to review each risk and help every insured stay as protected as they can be.