The Scariest Theory in Product Liability and How to Prepare for It
The Scariest Theory in Product Liability and How to Prepare for It
By Kenneth Ross*
Law professors who helped to develop a new restatement of product liability law called the legal theory of “post-sale duty to warn” as “the most expansive area in the law of products liability” and “timeless.” They go on to say that “[I]f you want to see people turn ashen white quickly, we recommend that you gather representatives from industry in a room and then flash the words ‘post-sale warnings’ on a screen.” Other law professors read all of the punitive damage awards and concluded that most such awards are based, in full or in part, on a jury’s belief that a manufacturer knew about safety problems with its products in consumer’s hands and did not do enough to fix them.
Most manufacturers, at some point, will have to undertake a post-sale program in connection with one of its products. The program could include a consumer warning, recall, retrofit, refund or safety upgrade. Such a program may be instituted as a result of a series of accidents or consumer complaints, lawsuits, an adverse jury verdict, a safety improvement in new products, a change in standards, or a request or order of a governmental entity in the United States or foreign country.
Recalls or other corrective actions occur somewhere in the world every day and can have a huge impact on the manufacturer, product seller, consumer and even the manufacturer’s shareholders. These negative impacts result from, among other things, the cost and disruption of the recall itself, lost goodwill for the recalled product, and penalties levied by government agencies. And, worst of all, unless they are 100% effective, injuries and lawsuits that result from the product problem.
Any manufacturer selling in the United States needs to assume it has, at a minimum, a post-sale duty to tell customers about safety hazards it learns about after sale since significantly more than half of the states have adopted some version of this duty, either through the courts or the legislatures.
On the regulatory side, U.S. governmental agencies have revised their regulations to require reporting of more safety issues which has resulted in more recalls and in more fines for late reporting. In addition, governments in the European Union, Canada, Japan, China, South Africa and Australia have passed new laws increasing a manufacturer’s responsibility to recall its products from the marketplace.
The result is that being unprepared to meet your duties under these laws and failing to comply with these laws when a duty is triggered will subject manufacturers and product sellers to huge risks.
The Common Law of Post-sale Duties
The common law basis for post-sale duty to warn is negligence. So, the higher the risk, the more the manufacturer needs to do to minimize the risk to consumers and other product users.
As with all questions of reasonableness under negligence principles, the common law provides no further guidance to a manufacturer to understand how effective its post-sale program must be in order for it to be considered non-negligent. As long as the product injured someone, the jury could find that the manufacturer or product seller could have done more to fix the problem or recall the product and therefore was negligent.
In addition, a post-sale duty to warn is a separate cause of action from pre-sale defect. So, even if a manufacturer successfully defends the post-sale negligence cause of action, it may still be liable. If the manufacturer’s product was deemed defective at the time of sale, the manufacturer could still be held liable for selling a defective product.
While there is no common law duty to recall a product, if the manufacturer engages in a voluntary recall and a manufacturer fails to act reasonably, it can be held liable. Again, there is no further guidance on what is reasonable. It is up to the jury.
The ability of the plaintiff to argue that more could have been done will be boundless. And, plaintiffs may not even need an expert to support this theory. In such cases, the defendant will need to prove that their conduct was “state of the art,” complied with or exceeded all applicable governmental statutes and regulations, and was as comprehensive as necessary considering the level of risk.
However, the law also clearly says that compliance with applicable governmental regulations or statutes is a minimum requirement and “does not prevent a finding of negligence where a reasonable man would take additional precautions.”
Based on this law, it is apparent that a manufacturer may not be able to successfully defend itself by claiming that a government agency such as the Consumer Product Safety Commission “approved” its post-sale program. While this “approval” by a government agency may not get into evidence, it should be able to be used by an expert witness who can cite it as one of the bases for opining that the manufacturer’s conduct was reasonable and the post-sale program adequate.
All of this makes it important for manufacturers to be prepared to institute a post-sale remedial program quickly, and for the program to be as effective as it can be under the circumstances. This effectiveness will reduce the number of products in the field that could harm people, and will hopefully allow the jury and any affected government agency to conclude that the manufacturer’s conduct was reasonable and not negligent. And, even if the manufacturer is held liable under strict liability or negligence for selling a defective product, its actions and due diligence should be helpful in defending against any claim of punitive damages.
Meeting a Manufacturer’s Post-Sale Duties
One of the most important, yet frequently overlooked, preventive activities is to prepare, before sale, for the eventual recall or other corrective action. Many of the most effective techniques that can be undertaken after sale can only be performed if the manufacturer established them BEFORE sale.
The foundation of a post‑sale program is establishment of an information network that will allow a company to determine how its product is performing in the United States and around the world. This information is necessary for the manufacturer to make decisions about whether any post‑sale corrective action is appropriate.
The increased impact of foreign events on U.S. responsibilities makes it even more important that this network gather information received anywhere in the world. In addition, the regulatory and common law requirements discussed above apply to information the manufacturer obtained (or should reasonably have obtained) that identifies an unsafe condition. Therefore, anything less than a “reasonable” effort at obtaining information may be considered by the jury or government agency in determining whether the manufacturer should have known about the problem.
A manufacturer has a number of readily available sources of information. For example, notices of claims or accidents might provide information on the types of products that are failing, the mode of failure and possible misuse of the product. Company personnel and personnel in the supply chain should be trained to ensure that sufficient information is gathered concerning the claims and accidents so that potential problems can be identified. Lawsuits (including settlements and verdicts) will provide the same information.
Customer complaints and warranty returns provide fertile sources of information. A pattern of complaints and returns may indicate that a product is failing in a particular mode on a regular basis. Again, personnel should be trained to identify and clarify the information so that it is accurate and substantiated. The manufacturer does not want to gather and maintain inaccurate and overstated complaints and claims that incorrectly make it appear that a problem exists.
An unusual number of sales of safety-critical component parts may indicate that a part is failing prematurely. Of course, observations by sales and service personnel who are actually out in the field talking to customers are invaluable sources of information. Post‑sale information can also come from competitors at trade shows or as part of membership in a trade association.
Post-sale information, albeit some of it unsubstantiated or even incorrect, is now posted by consumers on the Internet. Some companies monitor the Internet, especially sites customers might visit, to read comments about their products. Each manufacturer will need to determine whether a follow-up investigation of safety issues raised by customers or product owners who post such information is warranted. Ignoring such information can be perilous, but following up on all alleged safety issues could be time-consuming and fruitless.
Once a manufacturer has obtained all relevant information, it must determine whether post‑sale action is necessary. This includes reporting to the relevant governmental agency and undertaking some form of corrective program.
Ideally, a corporate or divisional product safety committee will analyze the information. This committee should be made up of representatives from various areas of the company, including engineering, service, sales, marketing and legal. The lawyer advising the committee should be experienced in product liability and regulatory law in the countries where the affected product was sold.
Analyzing the information and deciding what it means is the most critical phase of this process. Many manufacturers use or should use risk assessment prior to selling their products. This process identifies the risk, probability of the risk occurring, consequences if it occurs, and methods to minimize the risk. Before sale, the manufacturer should make a projection on the probability of the risk occurring. It is, of course, difficult to estimate the probability of an event occurring when it has never happened before.
After sale, the manufacturer is, in effect, plugging new numbers into its risk assessment. Post-sale incidents may indicate risks or consequences that were never imagined, or increase the estimated probability calculated before sale. Redoing the pre-sale risk assessment is a good way to formally recalculate the numbers and assumptions. Unfortunately, that doesn’t really answer the question of whether remedial action is necessary and what form it should take.
Other actions that can be taken before a recall becomes necessary is to ensure that your supply chain has a good record of customers, that your suppliers and the manufacturer have established traceability markings and procedures so that unsafe products can be easily identified, and that both purchase and sales contracts deal with the possibility of recall and what happens when it occurs.
There are many excellent guides for how to undertake a recall. For example, there is the CPSC Recall Handbook, a European Union document called "Corrective Action Guide: Guidelines for Businesses to manage Product Recalls & Other Corrective Actions" which describes an excellent post-sale risk assessment, a Health Canada guide on recalls, a new ISO standard called “Guidance standard on Consumer product recall and corrective action: Code of good practice” and “Business Requirements Analysis Document (BRAD) for Product Recall” issued by GS1, a not-for-profit organization dedicated to the adoption and implementation of standards-based, global supply chain solutions.
Recalls can be extremely difficult and very ineffective, despite the best of efforts. There are no clear guidelines in the common law or even with government agencies about how effective a recall has to be. Recalls or retrofit programs with an effective rate of much less than 10 percent have been deemed acceptable by the CPSC. And, the CPSC has said that the average response rate from consumers for most recalls is between 4 percent and 18 percent.
Virtually no recalls have 100 percent compliance. As a result, the manufacturer will have many products in the field that it has admitted or intimated are defective or at least pose a risk of injury. After an injury occurs and a lawsuit filed, how will the manufacturer defend its product?
Every manufacturer who sells products that could hurt someone needs to have a pre-sale and post-sale plan to minimize future risk and to take quick, decisive action if unplanned risks start to occur with products in use. They need to think about how they will able to defend a claim that they were negligent in the event accidents occur. And then they need to cross their fingers.