Exercising Caution After The Big Verdict in
Barnhard v. Cybex International, Inc.
January 3, 2012- $66 million – that’s what a New York jury awarded to the plaintiff in Barnhard v. Cybex International, Inc. There, the plaintiff, a 24 year-old physical therapist, became a quadriplegic when a 600 pound exercise machine fell on top of her.
The machine was not bolted to the floor, but it did not fall on its own accord -- the plaintiff misused it. She pulled it over while grasping the machine’s top to stretch her arms and shoulders. Critically, the machine had been used safely and without incident at the same location for 25 years. But Cybex had been sued before. And, like most manufacturers, it knew of other accidents involving different model products.
At trial, the court allowed the plaintiff to introduce evidence of seven prior accidents, despite the fact that these earlier accidents involved dissimilar facts and/or different model exercise machines. This evidence permeated the trial and undoubtedly tainted the jury’s impression of Cybex. Indeed, this type of evidence has been called a “tactical nuclear weapon” and the most dangerous evidence a jury will hear.
After nearly eight weeks of trial, a run-away jury awarded $66 million to the plaintiff and held that Cybex was 75% liable for the accident. On November 18, 2011, a New York appellate court reduced the verdict to $44 million. On November 21, 2011, Cybex issued a statement explaining that it was not at fault for the accident, that the appellate court erred in affirming the jury’s liability decision, and that Cybex will appeal the verdict – again. According to published reports, Cybex had $4 million in available insurance to cover the incident.
While bankrupting judgments are nothing new, the Barnhard verdict should act as a clarion call to those who do not have the following risk management measures in place:
Adequate Insurance Coverage. While most companies do not need, or cannot afford, $45 million in insurance coverage, adequate insurance is key. This will depend on your company’s tolerance for risk, the type of products you manufacture or sell, the dangers associated with each product’s foreseeable misuse, and your claims history.
Product Recall Insurance. Most companies appreciate the need for adequate insurance but overlook the importance of product recall insurance. The costs associated with a product recall are not covered by general liability or product liability insurance.
Active Internal Supervision. Good risk management goes beyond the purchase of insurance. If your company does not have an in-house attorney, it should have a designated risk manager to whom all claims, complaints and risk-issues percolate. He or she should be responsible for regulatory reporting, coordinating with counsel, and the development of appropriate internal product safety policies and risk management employee training. In addition, your risk manager should consider tracking past accidents (or more importantly, their differences), and ensuring that the company’s engineers and designers consider litigation defect theories and claims of inadequate warnings when assessing and reevaluating a product’s design and warnings.
Smart Contract Drafting. Your company can eliminate certain risks and shift others by drafting smart contracts. This requires the periodic audit of key sales documents – from purchase orders and invoices to vendor agreements; from contracts and instructions to product warranties. If properly drafted, these legal documents can save your business, literally. But they need to be clear and concise, and you need to continually assess whether additional or different terms are needed in light of new law or changed circumstances.
Document Retention. Human memory is unreliable, and employees with key institutional knowledge will, inevitably, leave your company. Written records, on the other hand, speak for themselves. They show your due diligence and design considerations; and they can help you disprove fault or discount liability. To defeat future claims, you should consider drafting a comprehensive record retention schedule today.
Prompt Accident Response. In the event of a new claim or complaint, promptly notify your insurance carrier, retain counsel and evaluate any regulatory reporting requirements. Even without a lawsuit, you should collect and hold relevant company documents, make every effort to interview key witnesses and locate and preserve the product involved in the accident. If the product is misplaced or repaired, key evidence is lost forever. Further, to distance and differentiate a new accident from prior incidents, move quickly to secure the evidence and lock-in witness recollection.
As aptly noted by Elbert Hubbard, “[g]enius may have its limitations, but stupidity is not thus handicapped.” Accidents happen, but with the right risk management measures you can reduce the likelihood of an adverse or run-away verdict. While Cybex intends to appeal the Barnhard verdict (again), it should serve as your call to action.