Your co-packer's policy protects them. Not you. If contamination originates at their facility, your brand bears the cost of the recall. Here's the specific coverage you need to close that gap — and the contract language that matters.
Here's the scenario that plays out for CPG brands every year. A contamination event is detected — Listeria in the facility, an undeclared allergen in a shared production run, a foreign object found during a quality audit. The co-packer's team identifies the issue. They notify the brand. The brand initiates a voluntary recall. Product comes off the shelves. Retailer notification begins. And then comes the bill.
That bill — for product retrieval, distributor fees, re-manufacturing, retailer notification, and lost gross profit — lands on the brand's desk. Not the co-packer's. Why? Because the brand is the legal owner of the product. The brand's name is on the label. The brand is the entity that sells into the retail channel. When a consumer or retailer brings a claim, they bring it against the brand. The co-packer is a vendor. Their insurance covers their facility, their employees, and their direct liability. It does not cover your brand's recall costs.
This gap exists regardless of fault. Even if the contamination was entirely the co-packer's error — their facility, their process, their failure — your brand is still first in line for the retail and consumer-facing costs. You can pursue the co-packer for indemnification afterward, but that takes months of litigation while your cash position deteriorates. And co-packer policies routinely have limits too low to cover the full exposure of a meaningful recall event.
The founders who get blindsided by this are not careless. They saw their co-packer's certificate of insurance. They knew the co-packer carried product liability coverage. They assumed that coverage would respond to a recall event involving their product. It doesn't. Understanding why — and what to do about it — is the entire point of this guide.
A co-packer's general liability and product liability policy covers their facility, their operations, and their direct negligence. If a worker at their facility is injured and sues, their policy responds. If a piece of their equipment causes property damage to a third party, their policy responds. If they produce a product that causes bodily injury and a lawsuit names them directly, their policy may respond — subject to their limits, their exclusions, and how the lawsuit allocates fault.
What it explicitly does not cover is your brand's recall costs. Recall expenses — product retrieval, retailer notification, re-manufacturing, consumer communication, crisis PR, lost gross profit — are a separate coverage category called product recall or contaminated products coverage. Co-packers almost never carry this coverage for their customers' products. Why would they? Their risk is the liability claim, not the brand's downstream recall expense.
There's also a named insured issue. Your brand is not the named insured on the co-packer's policy. You may be listed as an additional insured, but AI coverage on a co-packer's policy typically covers you for claims arising from the co-packer's operations — not for independent recall costs your brand incurs. The coverage is narrow by design, and the claims scenarios where it responds are much more limited than most founders assume.
Co-packer policy limits are frequently mismatched to the exposure anyway. A co-packer with $1M in product liability running a $50M annual production volume is carrying a policy that couldn't cover a single major recall event, let alone multiple brands' exposure simultaneously. Their policy is sized for their risk tolerance and their premium budget — not for the aggregate exposure of every brand they co-pack for.
Getting named as an additional insured on your co-packer's policy is a standard request and a reasonable step. It gives your brand some coverage under their policy for claims where their negligence is the proximate cause. If a consumer sues both your brand and your co-packer after an injury, the AI status means your brand has some defense coverage under the co-packer's policy for that specific claim. That's meaningful. But it's not a substitute for your own recall coverage, and here's why.
AI endorsements on co-packer policies typically have two major limitations. First, the coverage only applies to claims arising from the co-packer's operations — not to your brand's own business activities, your other products, your other facilities, or your voluntary recall decisions. If you initiate a precautionary recall of a product that co-packer made, but there's no proven contamination event that a plaintiff is suing over, the AI coverage may not respond at all. Second, you're sharing limits with the co-packer and all their other additional insureds. In a catastrophic event, those limits erode quickly.
Getting the AI endorsement takes time. Co-packers have their own brokers, their own underwriters, and their own approval processes for endorsement changes. Two to four weeks is a realistic timeline for getting a named AI endorsement properly added to a co-packer's policy — not a blanket AI clause (which may or may not be enforceable) but a specific endorsement naming your entity. For brands launching or switching co-packers on tight timelines, this is a meaningful operational constraint that needs to be planned for in the contracting process.
The right coverage stack for a brand using a co-packer has two components. First, your own product recall or contaminated products coverage needs to explicitly cover co-packer-origin contamination events. Many recall policies have exclusions or sublimits for events originating at third-party facilities. Before signing with a co-packer, pull your recall policy language and confirm that a contamination event originating at their facility triggers your coverage. If it doesn't, you need to fix the policy — not the contract.
Second, a vendor liability rider (sometimes called contingent product liability coverage) extends your policy's reach to cover claims arising from vendors who produce products on your behalf. This is different from being named on their policy — it's your own policy covering you for events that originate with them. The premium delta is typically modest for early-stage brands, and the coverage gap it closes is the one that actually materializes in most co-packer contamination scenarios.
The contract language with your co-packer matters too, but insurance is primary. A co-packing agreement that requires the co-packer to notify you of contamination events within a specific window, that assigns recall response responsibilities, and that includes an indemnification clause in your favor gives you legal remedies after the fact. But the contract can't pay for the recall while it's happening. Your insurance does that. Get the policy right first, then use the contract to strengthen your post-event recovery position.