Product Liability Presented by: Patrick Teig & Lynette Marx
What is product liability? • Product liability refers to the “liability of any or all parties along the chain of manufacture of any product for damage caused by that product” (http://www.cornell.edu).
Defendants vs. Plaintiffs • Potential Defendants: any person involved in the manufacturing, processing, or importing of the product or component parts, as well as wholesalers, distributors, and retailers of the faulty product. • Potential Plaintiffs: any person injured, killed or who experienced property damage by use of a dangerous product. Includes the purchaser or user of the product, or a bystander.
Numbers don’t lie • On average 50 million product accidents occur annually. • Costing roughly $50 billion per year.
History • 14th Century: product sampling inspection • 18th Century: “caveat emptor” (let the buyer beware) and “privity of contract” • Today: Consumer Product Safety Act (CPSA), passed in 1972 (a federal consumer safety law)
Consumer Product Safety Act • Overseen by a five-member commission that has the power to set safety standards for more than 15,000 types of consumer products. • The CPSA also has the power to identify what it considers to be a “substantial hazard” and bar products it considers unsafe. • The act was amended and signed into law in 1990. Hisrich, Peters, Shepherd. Entrepreneurship. 6 ed. New York: McGraw-Hill Irwin, 2005.
Purpose of the CPSA • Develop uniform safety standards & state regulations • Promote research and investigation • Ensure consumer safety • Assist in public’s comparison’s of products ****The act does not provide for compensation to the injured party**** Besterfield et al, Total Quality Management (3rd edition), Prentice-Hall: NJ, 2003. http://www5.cao.go.jp/otodb/english/houseeido/hou/lh_03040.html
Products Liability Law • Controls the private litigation of injuries, death, or damage caused by defective/faulty products. • Tort law • Contract Law
Tort Law • Civil wrongs that cause harm or injury • State law created by judges and legislature • Three general classes of torts: strict liability, negligence and intentional • Damages: loss of earnings capacity, pain and suffering, and medical expenses http://www.law.cornell.edu
Strict Liability • Includes wrongs resulting in damage or harm caused by a defective and unreasonably dangerous product. • The injured consumer must prove that the product was defective at time of manufacture, was unduly dangerous, and is responsible for the injury.
Negligence • Focus is on the conduct of the manufacturer. • The manufacturer/seller did not “act with reasonable care to ensure the safety of the product” (http://sv.biz.findlaw.com). • Injured party must prove the defendant was careless and thus produced a defective product causing the injury.
Contract Law Claims • Injury claims related to a breach in sales or product warranty. • Two types of warranties: express & implied
Express Warranties • “A statement of fact or description of the item sold that has formed the basis of the bargain and creates a warranty that the product will conform to the statement” (http://www.equispec.com). • Grounds to sue: product was not what it was stated to be/do
Implied Warranty • “Provides that the product is reasonably fit for the general purpose for which the product was designed”; safe for its intended use (Besterfield et al, 2003). • A. Merchantability • B. Fitness for a particular purpose
Types of Defects • Manufacturing defect • Design defect • Inadequate warning
Manufacturing Defects • The result of a “product being manufactured differently than its’ usual process, causing it to be sold in a hazardous state” (http://sv.biz.findlaw.com)
Manufacturing Defects • The injured party must prove that the defective product was: 1. different from design specification 2. different from design formula 3. or the manufacturing process differed for that product from others
Design Defect • A consequence of the way the product was designed. • The injured party must prove the product’s design was: 1. not reasonably safe 2. presented a risk of injury to users 3. a safer product design existed 4. benefits outweigh risks
Inadequate Warning • Product fails to contain proper warnings that it could cause serious harm, injury or adverse reactions.
Defendant’s Defenses • Contributory Negligence: How the injured person’s actions or negligence contributed to their injury. • Comparative Negligence: Both the plaintiff and the defendant are guilty to a certain degree.
Defendant’s Defenses Cont. • Assumption of Risk: Injured person was knowingly aware of risk potential and voluntarily assumed the risk. • Product Misuse: Injured person used the product in a manner unintended, or in a way unforeseeable by the manufacturer.
Defendant’s Defenses Cont. • Statues of Repose: “useful life defense”. States product is free of defects if it does not cause injury within its’ useful life term. • State of the Art Defense: No safer design or technology available at time of manufacturing.
Proof • Expert Witnesses • Product Design Records • Customer Complaints • Sales History • Sales Literature • Government/Industry Standards
Financial Loss • Attorney fees • Expert witness fees • Investigation fees • Increase in product liability insurance • Cost of recalls, replacement, or repairs • Damaged reputation • Increased quality efforts
Quotes from Ayn Rand: “ Competition is a byproduct of productive work, not its goal. A creative man is motivated by the desire to achieve, not the desire to beat others.” Ayn Rand
More Ayn Rand: “ This country wasn’t built by men who sought handouts. In it’s brilliant youth this country showed the world what greatness was possible to Man. Then it began apologizing for it’s greatness and began giving away it’s wealth, feeling guilty for having produced more than its neighbors.” Ayn Rand
Prevention • The manufacturer must reduce the risk of a lawsuit to a level that will allow reasonable profit and continued growth. • Two product liability prevention gurus: • W. H. Koch • Our text • Randall Gooden • Product Liability Prevention: A Strategic Guide • Numerous publications in quality periodicals
Safety Committee • Koch’s Safety Committee: • Legal Departmant • Manufacturing Department • Marketing Department • Quality Department • Safety Engineer (chair) • If the organization does not have a safety engineer then one should be selected.
Product Liability Team • Gooden’s Product Liability Team: • In-house Product Liability Expert • Quality Head • Risk Manager • Head of R&D or Technology • Head of Engineering • Head of Finance
Warning Labels • The largest cause of manufacturer's liability is inadequate or non-existent warnings. • Difference between instructions and warnings. • A company must ask “who is the likely user of the product?” • In most cases engineers and technicians do not write good warnings.
New Product Review • New products are more likely to be involved in product liability litigation. • The safety of the consumer is paramount • Product review team is established that has no preconceived notions about the product. • The design review is the least expensive time to propose a change to a product and the most effective place to catch liability concerns.
Control of Warranties • The product liability prevention program must continually review warranty, advertising literature, dealer agreements, catalogs, and technical publications. • The use of the words “safe” and “ensures the safety of the operator” should be avoided.
Liability and Documentation • Documentation can be effective in proving that a manufacturer operated in a concerned and responsible manner • However, if handled improperly, documents can prove just the opposite. • Avoid “dangerous documents” or the “smoking gun” document
Liability and Documentation • ISO 9000 documentation can be used in a lawsuit. Manufacturer liability can be shown if the company failed to follow it’s own quality manual. • How long should records be kept? • “Manufacturers should keep the record as long as they need it and then dispose of it.” Gooden
Product Recall • Product Recall is a manufacturer’s worst nightmare. • High costs, perhaps bankruptcy • Possibility for product liability suits • To reduce damage, a product recall contingency plan should be formulated • When a recall is required, traceability of the units with the defective condition must be available
Redress • Customers will accept failures if there is an effective redress: • Warranty policy • Availability of info on redress policy • Prompt handling of complaints, returns, and claims • Repair facilities that give prompt, fair- priced service
Six Basic Concepts • Leadership: Must be committed to a quality program. • Focus on Customer Satisfaction: Emphasize design quality and defect prevention. • Employee Motivation: TQM is everyone’s responsibility.
Six Basic Concepts • Continuous Process Improvement • Supplier Partnership: Except only outstanding supplier quality. Work as a team. • Performance Measures: Quantitative data is useful in measuring customer satisfaction.
McDonald’s Case • Elderly woman awarded nearly $3 million after burning herself with a cup of hot coffee purchased at a McDonald’s drive thru.
McDonald’s Case Group Discussion Questions: • Was the product defective? If so, how? • Who is responsible for the injury and why? • What type of warranty was breached? • What proof would assist the plaintiff? • What can the plaintiff be compensated for? • What defense can the defendant use?
McDonald’s Update • The jury awarded the plaintiff $200,000 in compensatory damages and $2,700,000 in punitive damages. • The comp. damage award was reduced by the plaintiff’s 20% of fault. • The judge reduced the pun. damage award to $480,000. • The case settled for an undisclosed amount before it was appealed.