In an increasingly litigious society, it’s no
surprise that product liability cases have
drastically increased in the past 20 years.
Businesses — even those with good product safety policies and procedures — can’t
afford to ignore the risk or not take product liability seriously.
Product liability is far-reaching, putting
many different types of businesses — even
those that don’t directly manufacture products — at risk, according to Jerrold
Anders, a partner in the Product Liability
Practice Group at White and Williams LLP.
“Product liability holds manufacturers,
distributors, suppliers, retailers and others
who make products available to the public
responsible for the injuries those products
cause,” he says. “It’s a very real business
risk in today’s world.”
Smart Business spoke with Anders
about product liability and how businesses
can protect themselves against the risk of
lawsuits.
What is product liability?
Product liability encompasses a number
of legal claims that allow an injured party
to recover financial compensation from
the manufacturer or seller of a product,
including negligence, strict liability, breach
of warranty and various consumer protection claims.
Product liability laws vary widely from
state to state, and each type of claim
requires different elements to be proven to
present a successful claim. It involves
claims that the product was defective by
design, a manufacturing flaw or because of
a failure to warn about a risk or danger.
How concerned should the average business
be about product liability litigation?
Product liability is a very real business
risk, and not just to those who manufacture products.
A retailer has a responsibility as a seller
who puts a product in the marketplace,
and there’s also risk for sellers who install
products. While some states offer pass-through liability for retailers — which provides some level of protection against product liability claims — here in
Pennsylvania, a business must prove that it
is entitled to be indemnified by the manufacturer. This may involve litigation to
determine the facts and their legal effect.
What is product liability insurance?
Product liability insurance is an important type of insurance for any business
that sells manufactured or assembled
products. It covers damage to property or
injuries to a person for which your business is held responsible, and it protects
your business from a variety of lawsuits.
Business owners should check with
their insurance carrier and lawyer to see if
they are already covered. This is a complicated area involving completed operations, vendors endorsements and additional insured coverage.
What should businesses look for in a product
liability insurance policy?
Most small-business owners may not realize that they can try to negotiate the right to
appoint their own legal counsel to represent
the business in a lawsuit. Even if the insurance carrier does appoint an attorney for
the business, business owners should consider hiring an attorney with expertise in the
area of overseeing and coordinating such
cases to ensure that the business’s interests
are protected during the course of the lawsuit. I frequently do this for retailers, manufacturers and component part suppliers.
How can a business protect itself against
product liability lawsuits?
While there is no guarantee that a business can avoid a product liability lawsuit,
there are some very basic things businesses should do.
First and foremost, be aware of — and
comply with — all the guidelines for the
product you’re making or selling, including
government regulations, industry standards and trade association recommendations. While compliance may not save a
company from liability, not complying can
sink a business in a liability lawsuit.
Second, ensure you have good risk management and quality control programs in
place, including periodic product testing
and monitoring trade associations and
industry standards. It’s important to
understand that punitive damages are
generally not covered under product liability insurance; so even if you lose the
case, you want to demonstrate that you
did not act in a willful, outrageous manner. A business will want to show that it
had these programs in place and was acting in a reasonable manner.
A practical piece of advice is to simply
follow up on warranty claims before they
turn into product liability claims. Take customer complaints seriously. Don’t let a
small problem become a big one.
A retailer dealing with manufacturers
should try to have a type of vendor’s agreement saying that the retailer agrees to buy
the product and sell it to the public, but if
any lawsuit claims arise, the manufacturer
agrees to defend and indemnify the retailer. It’s also possible to negotiate to be an
additional insured on the manufacturer’s
insurance policy.
JERROLD ANDERS is a partner in the Product Liability
Practice Group at White and Williams LLP. Reach him at (215)
864-7003 or [email protected].