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If you’re part of the food industry—whether you run a restaurant, grocery store, catering service, or any other business handling food products—you’re likely well aware of the risks associated with food waste.
With approximately 14% of food produced worldwide lost between harvest and retail, it’s clear that food waste is a significant concern, with events like power outages, equipment failure, and contamination all contributing to the problem.
In addition to causing environmental concerns, food spoilage or contamination can result in significant financial losses and disruptions, leaving many businesses wondering: is there any way to protect themselves against these risks?
This leads us to food spoilage coverage insurance, a type of insurance that protects businesses against financial losses from perishable goods. However, businesses must be aware of how this insurance works to ensure they have the right coverage in place when unexpected losses occur.
Keep reading to learn the difference between food spoilage and contamination, explore the different types of insurance available, and understand what typically isn’t covered.
Key Takeaways
- Food spoilage coverage typically applies to food damaged by prolonged power outages, equipment breakdowns, or mechanical failures.
- Food contamination coverage usually applies when there’s a verified public health risk or a required recall, covering expenses such as replacing contaminated food and conducting medical tests for employees.
- There are different types of insurance that may cover food loss, including commercial property insurance, food spoilage insurance, food contamination insurance, business interruption insurance, and product liability insurance.
- Not all spoilage is covered by insurance, with policies typically excluding spoilage caused by poor maintenance, equipment wear and tear, uncovered events, supply chain disruptions, lack of proof, and more.
Food Spoilage vs. Food Contamination: What’s the Difference and Why It Matters for Insurance
Food loss can occur for a variety of reasons, generally categorized into two main groups: spoilage and contamination.
Below, we explain the main differences between these two categories and how they affect food spoilage coverage insurance.
What Is Food Spoilage?
Food spoilage is the deterioration of food quality over time, often resulting in bad odor, discoloration, or texture changes that make the food unsafe or unpleasant to consume. The major causes of food deterioration include temperature, moisture, insects, parasites, rodents, and the growth of microorganisms, among others.
What Is Food Contamination?
Food contamination refers to the presence of unwanted materials or substances—such as bacteria, viruses, chemicals, or foreign objects—that make the food dangerous to eat. This can occur during food processing, packaging, transportation, preparation, or at any other point in the process, making it a complex challenge for businesses to manage and prevent.
There are three types of food contamination:
- Biological: This refers to food that is contaminated by organisms or substances they produce, often introduced by humans, rodents, and other carriers. Common examples of this include Salmonella, E. coli, and Listeria.
- Physical: This is when a foreign object contaminates food, such as Band-Aids, pieces of plastic, or glass shards.
- Chemical: This refers to food that has been contaminated with a natural or artificial chemical substance, such as cleaning agents or pesticides.
Why This Distinction Matters for Insurance
So why does this matter? Does business insurance cover food loss?
The answer isn’t a simple yes or no, as food spoilage and contamination are often treated differently by insurance providers.
While different types of insurance may cover different areas, this is how spoilage and contamination are typically distinguished:
- Food spoilage coverage typically applies to food damaged by prolonged power outages, equipment breakdown or failure, or mechanical breakdowns.
- Food contamination coverage, on the other hand, might only apply when there’s a verified public health risk or a required recall, typically covering expenses like replacing contaminated food and conducting medical tests for employees.
What Causes Food Loss in a Business Setting?
From power outages to delivery delays, food loss occurs for a range of reasons—reasons that are often unpredictable and costly.
While there are multiple ways to minimize food waste, proper insurance coverage is also key in reducing the financial losses associated with spoilage and contamination.
That said, key causes of food loss include:
1. Power Outages
When food is not maintained at the recommended temperatures, bacterial growth increases. For this reason, sudden or extended power outages are one of the leading causes of food spoilage, as they affect electricity, refrigerators, freezers, and temperature-controlled storage. With weather-related power outages up by 67% since 2000, this is a big concern for businesses of all sizes.
2. Refrigeration and Equipment Breakdowns
Even when power is stable, businesses can experience malfunctions in commercial fridges, walk-in freezers, or HVAC systems, leading to food spoilage. While this can happen at any time, it’s especially damaging overnight or on weekends, as there may be no one available to address the issue quickly.
It’s important to note that while insurance for a food business may cover spoilage if the breakdown was sudden, it may not cover damage due to poor maintenance or old equipment.
3. Natural Disasters and Extreme Weather
Different weather conditions—such as floods, fires, hurricanes, and heavy snow—can cause power outages, directly damage inventory, or shut down a business before inventory can be used or sold. In fact, it’s estimated that an average of 3.4% of retail sales are directly affected by the weather.
While food loss due to disasters is typically covered by food spoilage coverage insurance, the risk must be listed in the insurance policy.
4. Improper Food Handling or Storage
There are many mistakes that can be made in the fast-paced food industry that lead to spoilage or contamination, such as poor food handling, improper stock rotation, and storing food at incorrect temperatures. While these issues may stem from a lack of adequate training, many are unintentional errors that can happen even in well-managed businesses.
Companies may be able to put in a food spoilage insurance claim for these losses, depending on the situation and the nature of the policy.
5. Food Contamination from External Sources
Contaminated supplier ingredients, pest infestations, and chemical exposure during cleaning—these are just some of the ways that food can be compromised from external factors. This contamination may stem from the business itself or from external parties such as suppliers, contractors, or transportation providers.
Insurance providers may request proof that the contamination wasn’t caused internally before covering the damage.
6. Unexpected Delivery Delays or Storage Failures
Losses can also occur during transportation or as a result of delivery delays. To prevent spoilage, proper temperature and humidity levels must be maintained throughout transport and storage. However, certain situations, such as a truck breaking down or goods sitting unrefrigerated for too long after arrival, can result in food loss.
Types of Business Insurance That May Cover Food Loss
Commercial property insurance, food spoilage coverage, and other available insurance options—what’s the difference?
While coverage for food spoilage or contamination is not standard in most cases and must be added as a rider or endorsement, companies still must understand the difference between these insurance plans in order to choose the right one for their specific needs.
1. Commercial Property Insurance
Commercial property insurance protects your company’s physical assets from events like fire, explosions, burst pipes, storms, theft, and vandalism.
This insurance primarily covers assets like furniture and equipment, exterior signs, landscaping, and inventory. So where does food fit into this?
Food spoilage can also be covered by commercial property insurance. However, since it’s not typically covered in standard policies, many insurers offer optional spoilage coverage as an add-on.
That said, food loss is typically only covered if it’s linked to one of the insured risks, such as a fire or power outage.
2. Food Spoilage Insurance
Food spoilage coverage insurance primarily protects perishable stock. It works by reimbursing establishments for the cost of food and beverage products lost due to prolonged power outages, equipment breakdown or failure, or mechanical breakdowns.
This type of coverage is especially important for restaurants, grocery stores, or any business storing temperature-sensitive items, as food waste can result in significant financial loss.
However, not all spoilage is eligible for coverage. Some policies require proof of a qualifying event, such as a failed compressor or a prolonged outage, and may also require you to have equipment service contracts in place that include regular maintenance and repair schedules.
3. Food Contamination Insurance
Food contamination insurance covers food loss from contamination, either from within the business—such as a chemical spill—or from an external source—such as a tainted ingredient supply.
This type of insurance may also cover costs associated with product recalls, disposal, and lost revenue during business shutdowns ordered by health departments, thereby reducing the cost of food recalls. As with any insurance, the coverage terms vary widely, with some policies only taking effect when there’s a public health risk or media exposure.
*To learn more about food recalls, check out the following articles:
4. Business Interruption Insurance (Limited Relevance)
Business interruption insurance helps businesses cover lost income after an unexpected event. For instance, if a company is not able to continue operations after a fire or a natural disaster, this insurance helps compensate for this downtime.
While not directly covering food loss unless combined with spoilage coverage, business interruption insurance still provides companies with financial support to recover lost income and maintain operations during periods of closure.
5. General and Product Liability Insurance (Limited or No Coverage)
Product liability insurance is designed to protect businesses against claims that a product they made or sold caused harm to a consumer. For instance, if a customer gets sick from contaminated food and makes a claim, this insurance will help cover things like legal fees and the customer’s medical expenses.
While product liability insurance does not cover losses from spoilage or contamination, it’s a great option for companies that want extra protection in the event of contaminated food causing harm to a customer.
What Food Spoilage Insurance Doesn’t Cover
Insurance is important for businesses in the food industry. However, that doesn’t necessarily mean that everything is covered, as there are exclusions, grey areas, and payout limitations that may apply.
By understanding what’s not covered by your insurance, you can better prepare for potential losses and take steps to minimize financial risks.
1. Spoilage from Poor Maintenance or Negligence
While food spoilage coverage insurance offers companies’ protection from unexpected events, it doesn’t eliminate their responsibility for maintaining the performance of their machinery and equipment. Insurance policies usually won’t cover spoilage caused by lack of proper equipment maintenance or negligence.
In other words, if you don’t want your insurance claim for food spoilage to be denied, make sure your equipment stays in tip-top shape.
2. Gradual Equipment Wear and Tear
While wear and tear is a normal part of business equipment usage, insurance providers do not assume responsibility for it. This means that spoilage caused by long-term deterioration of equipment isn’t eligible for reimbursement, as food loss must be the result of a sudden and unexpected event.
3. Uncovered Perils or Events
Many policies only cover specific causes—such as food loss from a power outage—so losses from other causes may not be covered by your insurance. Since every insurance provider has different coverage details, it’s important to compare options carefully to find the provider offering the most comprehensive coverage.
4. Food Loss Due to Delivery or Supply Chain Issues
If a company experiences losses due to spoiled or delayed shipments from suppliers, these losses will not likely be covered by insurance. That said, if the products you receive are spoiled upon delivery, you should address the issue directly with your supplier.
5. Spoilage Without Proof or Documentation
Companies should keep detailed records of their food losses. Why?
Because a lack of evidence is a common reason for food spoilage insurance claims to be denied. To prevent this from happening, be prepared to provide timestamps, photos, maintenance records, or inventory logs.
6. Contamination Without Confirmed Cause
Unfortunately, suspecting food contamination is not enough—you need concrete evidence. For food contamination insurance to apply, they often require the contamination to be officially confirmed. For instance, a lab-tested report or a health department validation would support your claim.
7. Intentional Acts or Employee Error
While food spoilage insurance typically covers disasters like fires, it does not cover food losses caused by deliberate actions or major employee mistakes. For instance, if an employee leaves the freezer door open or makes a mistake due to a lack of training, the claim will likely be denied—unless the policy includes an employee negligence add-on.
8. Low Policy Limits and High Deductibles
Just because you lose $2,000 in profit doesn’t necessarily mean your insurance will cover it completely. Sub-limits or low caps can reduce the payout amount, meaning you might lose $2,000 in inventory but only receive $500 in reimbursement, depending on the policy.
How Food Waste Management Supports Better Risk and Insurance Outcomes
Aside from insurance, there are other ways to reduce the financial losses from food waste: sustainable waste management. Why should you do this?
Because food waste management:
- Reduces Avoidable Spoilage and Loss: Advanced waste management practices—such as inventory tracking, following restaurant food storage guidelines, and having a detailed strategy for disposal—help reduce unnecessary food spoilage.
- Supports Sustainability and Business Reputation: Managing organic waste in an environmentally friendly way helps align your business with growing sustainability expectations from regulators, customers, and corporate partners—contributing to long-term growth.
- Improves Regulatory Compliance and Safety Readiness: Companies that have a standardized approach to waste handling can ensure compliance with local and federal regulations, thereby reducing costs associated with noncompliance.
- Enhances Operational and Cost Efficiency: Clear protocols for commercial food waste disposal often lead to better purchasing decisions, less overstocking, and lower disposal costs, especially in multi-site operations.
Conclusion
To protect your business from financial loss, operational disruption, and unexpected risk, it’s important that you understand what is—and what isn’t—covered by food spoilage coverage insurance.
By reviewing your current policies, speaking with your insurance providers, and making sure your coverage reflects the real risks you face in day-to-day operations, you’ll be better prepared for unplanned incidents.
And for companies focused on meeting industry standards and strengthening their sustainability efforts, we recommend working with an experienced food waste recycling company like Shapiro.
When you partner with us, we’ll create a tailored waste management strategy that ensures compliance and reduces your environmental footprint.
Contact us today to learn more about our services.
Baily Ramsey, an accomplished marketing specialist, brings a unique blend of anthropological insight and marketing finesse to the digital landscape. Specializing in educational content creation, she creates content for various industries, with a particular interest in environmental initiatives.
