Pointing fingers at employees, customers and suppliers: last March, a diner claimed she found part of a severed finger in her chili at a Wendy's International Restaurant in San Jose, Calif. The incident is the latest to highlight the risks facing risk executives like Joe Kovalcik

Risk & Insurance, July, 2005 by John Williams

On March 22, a diner at a Wendy's restaurant in San Jose made a claim that Joe Kovalcik, vice president of risk management of Wendy's International, will not soon forget. The customer, Anna Ayala, claims she bit down on a severed finger while eating a bowl of chili.

These kinds of incidents send chills down the spine of people like Kovalcik, as they can easily force a restaurant into bankruptcy. In the case of Wendy's, which has thousands of locations around the country, the chain survived, although the incident was blamed for a 2.8 percent drop in first-quarter earnings compared with the year-earlier period. A number of outlets in northern California also suffered through slower business and layoffs.

"I don't know what Wendy's did," says Dan Knise, executive vice president of Restaurant Insurance Corp. "Surely, though, what you want to do is save as much evidence as possible, ideally in the serving that created the problem. Also, you should preserve any raw materials and other ingredients that would be back on your pantry shelf."

As it turns out, however, Wendy's was hardly to blame as Ayala's claim appeared to be a hoax. Police, who arrested the woman at her Las Vegas home, say she has a history of making claims against large corporations, news reports say. A complaint against her alleges Wendy's restaurants in the San Francisco Bay area lost $2.5 million.

Kovalcik, citing the police investigation and legal issues surrounding the case, declined to comment. But in a conference call in late April with analysts, Jack Schuessler, chairman and CEO, said, "We're starting to climb back."

Kohl's Frozen Custard in Wilmington, N.C., may not find it so easy to bounce back. In May, Clarence Stowers found part of 23-year-old Brandon Fizer's finger in a pint of ice cream. The owner of the store, Craig Thomas, confirmed the incident, saying Fizer lost part of his finger after trying to catch a bucket dropped inadvertently in a custard-dispensing machine. A drive-thru window attendant scooped custard from the bucket into a pint before being alerted to the accident.

And just to show how nasty this fight is about to get, Stowers, according to an Associated Press report in May, had no intention of returning the finger to either a doctor or the shop owner. According to a note on Kohl's Web site, Stowers stormed out of the store claiming he was going to contact local television stations and a lawyer.

Incidents of restaurant patrons biting down on "foreign objects" in their food isn't uncommon, however. In a survey of general liability claims conducted by the Restaurant Insurance Corp., almost 30 percent of the claims were for biting into and/or swallowing a foreign substance, such as a piece of bone or metal.

The average cost of each claim, stemming from subsequent dental work and jaw injuries, was about $1,800.

One way for restaurant industry risk managers to protect their companies against such claims, says Knise, is to preserve the evidence. "For example, if it turns out that the mashed potatoes have a foreign substance in them, many managers throw all of the remainder of the supply out," he says. "They may do this with a half-empty can of tomatoes, too."

Managers should be instructed to keep all remaining supplies of food when foreign substances are found. "This is important evidence, so we can determine whether the problem was caused by the restaurant or the supplier," he says. If it turns out to be the latter, it works in favor of the risk management department and the corporation. But without evidence, there is no way to prove supplier culpability.

THE SUPPLIER ISSUE

Moving beyond a single incident affecting a single chain to the broader concerns of the multibillion-dollar restaurant industry is the worry about food contamination as more and more restaurants buy their food, fresh fruits and vegetables in particular, from around the world based on growing seasons.

"The USDA, which is responsible for food safety, does not inspect food coming in from outside the country as much as it does domestic food sources," says Roy Maize, director of the Restaurant & Hospitality Management program at the University of Alabama. "As a result, food is coming in that is grown under conditions we would not accept domestically, such as with the use of different fertilizers or even raw manure."

Though meat is heavily regulated, produce is not, and that causes three problems for people like Kurt Leisure, vice president of risk services for the Cheesecake Factory in Calabasas, Calif. Because there are so many companies in the loop--the grower, the packer, the shipper and the distributor--it is difficult to trace a problem back to its source.

In addition, standards of food production and distribution are often lower outside of the United States, and while meat is cooked before it is served, "a lot of produce, however, is served raw," says Leisure, who claims his company is "highly selective" when it comes to choosing where food comes from. As a result, Cheesecake Factory is willing to pay more for some food products just to ensure that they've gone through more rigorous quality controls.