The Uneasy Case for Food Safety Liability Insurance

Foodborne illnesses sicken millions and kill thousands of Americans every year, leading many to conclude that our dysfunctional government food safety system, which still relies heavily on physical inspections of food and facilities, is incapable of protecting us. As a result, many now look to the private market for solutions to our food safety crisis. One private market approach, food safety liability insurance, is gaining popularity. This article examines the benefits and drawbacks to food safety liability insurance and raises doubts about its ability to improve food safety. The market for safe food is plagued by overwhelming information problems that (1) make foodborne illnesses extremely difficult to connect to their pathogenic sources, (2) create moral hazard and adverse selection problems that drive food suppliers to shirk on food safety, and (3) suppress tort claims by victims of foodborne illnesses. These problems limit the effectiveness of food safety liability insurance. Yet while the food safety liability insurance appears to provide few of the regulatory benefits of other type of liability insurance, food safety liability insurance also carries risks: a potential to increase moral hazard, send false signals to insureds regarding their risk of transmitting a foodborne illness, and diminish demand for more effective means to control foodborne illnesses