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Managing products liability risk for manufacturers and distributors

Managing Products Liability Risk for Manufacturers and Distributors

The material provided herein is for informational purposes only and is not intended as legal advice or counsel.


Please help yourself to Distributorsfood and drinks

Please let us know if the roomtemperature is too hot or cold

Bathrooms are located past the reception desk on the right

Please turn OFF your cell phones

Please complete and returnsurveys at the end of the seminar


Current acts and warranties

Current Acts and Warranties Distributors

Moderator and Presenter:

Hon. William A. Dreier


Product liability of manufacturers distributors and sellers
Product Liability of Manufacturers, Distributors and Sellers Distributors

1. State

  • Common Law

  • Statutory

    i New Jersey Product Liability Act

    • Consumer Fraud Act

    • Uniform Commercial Code Warranties

      2. Federal

      A. Magnusson-Moss Act

      B. Consumer Product Safety Act


N j product liability act
N.J. Product Liability Act Distributors

  • Manufacturing Defect

    • If causes injury, strict liability

  • Design Defect

    • Cannot warn later – Must correct

    • Reasonable person standard

    • Federal preemptions – Benefits lessened by Supreme Court

  • Warning Defect

    • Post-sale warning required, if later discovered

    • Reasonable person standard


  • U c c warranties
    U.C.C. Warranties Distributors

    • Express Warranties

      • Contracts

      • Advertisements and brochures

    • Implied Warranties

      • Warranty of merchantability

      • Warranty of fitness for particular purpose

      • Waivers and limitations

      • Magnusson-Moss prohibitions


    Highly technical don t go it alone
    Highly Technical – Don’t Go It Alone Distributors

    • Multiple state and federal statutes

    • Hundreds of published and unpublished court decisions

    • Federal and state regulations

    • Sometimes no definitive answers

    • When in doubt, err on the side of caution


    Strategies for reducing products liability risk

    Strategies for Reducing Products Liability Risk Distributors

    Presented By:

    Steven A. Karg


    Handout materials
    Handout Materials Distributors

    • A Primer in Protecting Your Company Against Products Liability Risk, published by Somerset Business (2001).

    • Seller Beware! A Timebomb Could Be Ticking Within Your Good Faith Business Practices, New Jersey Defense, Vol. 25, Issue 2(2009).

    • Contractual Indemnity for Product Manufacturers, New Jersey Defense, Volume 16, Issue 2 (1999).


    General risk reduction techniques
    General Risk Reduction Techniques Distributors

    • Good Business Structure Planning

      • Limit Liability of Owners.

    • Selection of Good Business Partners

      • Financially sound partners who can withstand liability and who share your goal of producing a good product.

    • Good Design, Manufacturing, Sales, Distribution and Monitoring Practices

    • Avoidance of Successor Liability

    • The Shift of Risk to Others


    Good practices producing a safe product three goals
    Good Practices – Producing a Safe Product – Three Goals Distributors

    • Design a product for which there is no reasonable safer alternative design.

    • Manufacture the product as it was designed and without manufacturing defects.

    • Incorporate appropriate warnings and instructions to avoid risks that could not be eliminated through reasonable alternative design.


    15 ideas for producing a product for which there is no reasonable safer alternative design
    15 Ideas for Producing a Product for Which There is No Reasonable Safer Alternative Design

    • Establish a products liability loss prevention committee.

    • Keep abreast of and employ the state of the art.

    • Hire experienced and knowledgeable design personnel to design your products.


    15 ideas for designing a safe product
    15 Ideas for Designing a Reasonable Safer Alternative DesignSafe Product

    • Closely monitor competing products.

    • Keep active in related industry organizations.

    • Closely monitor and comply with applicable minimum regulatory and industry standards.


    15 ideas for designing a safe product1
    15 Ideas for Designing a Reasonable Safer Alternative DesignSafe Product

    • Correct design and manufacturing defects as you acquire knowledge of them for past and future products.

      • Improve the product for the future.

      • Consider a recall, retrofit, or supplemental warnings for past products with after-discovered defects.

    • Conduct safety testing.

    • Consider and design against foreseeable misuses of your product.


    15 ideas for designing a safe product2
    15 Ideas for Designing a Reasonable Safer Alternative DesignSafe Product

    • Consider the environment in which the product will operate and design the product to operate safely in that environment.

    • Design against safety problems created by worn parts.

    • Hire a safety consultant to review and improve the product.


    15 ideas for designing a safe product3
    15 Ideas for Designing a Reasonable Safer Alternative DesignSafe Product

    • Patent your product innovations.

    • Document your improvement effort.

      • Teach your organization the importance of the documents they generate.

    • Update your designs to keep up with safety innovations.


    Good practices producing a safe product the second goal
    Good Practices – Producing a Safe Product – The Second Goal

    • Design a product for which there is no reasonable safer alternative design.

    • Manufacture the product as it was designed and without manufacturing defects.

    • Incorporate appropriate warnings and instructions to avoid risks that could not be eliminated through reasonable alternative design.


    5 ideas for manufacturing a product without manufacturing defects
    5 Ideas for Manufacturing a Product Without Manufacturing Defects

    • Carefully purchase and inspect raw materials and component parts.

    • Institute a quality control program for your manufacturing lines and document your efforts.

    • Closely monitor the manufacturing process to avoid recurring manufacturing problems.


    5 ideas for manufacturing a product without manufacturing defects1
    5 Ideas for Manufacturing a Product Without Manufacturing Defects

    • Inspect completed products for proper operation and compliance with manufacturing standards, then document the individual results where practical.

    • Use some of the 15 good design practice ideas for the manufacturing phase as may be applicable.

      • For instance, conduct testing, join manufacturing groups and keep abreast of the industry.


    Good practices producing a safe product the third goal
    Good Practices - Producing A Safe Product – DefectsThe Third Goal

    • Design a product for which there is no reasonable safer alternative design.

    • Manufacture the product as it was designed and without manufacturing defects.

    • Incorporate appropriate warnings and instructions to avoid risks that could not be eliminated through reasonable alternative design.



    11 ideas for using appropriate warnings and instructions
    11 Ideas for Using Appropriate Warnings and Instructions Defects

    • Know the difference between, and how to apply, the terms of art: "DANGER", "WARNING", and "CAUTION".

      • “DANGER” indicates an imminently hazardous situation which, if not avoided, will result in death or serious injury.

      • “WARNING” indicates a potentially hazardous situation which, if not avoided, could result in death or serious injury.

      • “CAUTION” indicates a potentially hazardous situation which, if not avoided, may result in mild or moderate injury.


    11 ideas for using appropriate warnings and instructions1
    11 Ideas for Using Appropriate Warnings and Instructions Defects

    • Comply with State and Federal labeling regulations and standards.

    • Address the foreseeable audience by:

      • writing at its level,

      • writing in its languages, and

      • effectively delivering the warning to it.


    11 ideas for using appropriate warnings and instructions2
    11 Ideas for Using Appropriate Warnings and Instructions Defects

    • Place and distribute the warnings properly to ensure that the information is delivered in a manner calculated to reach the end user.

    • Document the delivery and use of warnings and training materials and save contemporaneous copies or samples to be produced later if needed.

    • Provide first aid or antidote information where applicable.


    11 ideas for using appropriate warnings and instructions3
    11 Ideas for Using Appropriate Warnings and Instructions Defects

    • Provide an instruction manual containing:

      • a safe method for assembly of the product;

      • instructions for safe use of the product;

      • a description of the product's intended uses and its limitations;

      • warnings of any latent dangers inherent in the product;


    11 ideas for using appropriate warnings and instructions4
    11 Ideas for Using Appropriate Warnings and Instructions Defects

    • maintenance procedures;

    • measurable adjustment specifications for safe and proper operation;

    • a recommended frequency for maintenance; and

    • warnings against misuse or modification that stress the consequences of misuse or modification.


    11 ideas for using appropriate warnings and instructions5
    11 Ideas for Using Appropriate Warnings and Instructions Defects

    • Employ a safety and warnings consultant where warranted.

    • Review manuals and warnings with an experienced products liability attorney.


    11 ideas for using appropriate warnings and instructions6
    11 Ideas for Using Appropriate Warnings and Instructions Defects

    • Consider Warranty-Related Issues:

      • Whether to Use an Express Warranty

      • Limitations of Remedies

      • Disclaimers of Warranty

      • Magnuson-Moss Compliance for Consumer Products

      • Consumer Fraud Issues

    • Avoid too many warnings – the “Billboard Effect.”


    3 risk reduction ideas for the sale of products
    3 Risk Reduction Ideas for the Sale of Products Defects

    • Avoid affirmative misrepresentations of the capabilities of the product.

    • Disclose information about the product that the buyer would deem important to his known application.

    • Avoid verbal warranties that are inconsistent with express warranties or disclaimed warranties.


    Consumer fraud act
    Consumer Fraud Act Defects

    • Damage caused by a product as opposed to economic harm relating to purchase

    • Treble Damages

    • Attorneys Fees


    Consumer fraud act1
    Consumer Fraud Act Defects

    • Actionable Conduct Under CFA:

      • Innocent or intentional misrepresentations in an affirmative statement

      • Intentional omissions of material fact

      • Innocent or intentional violation of applicable regulation


    Consumer fraud act2
    Consumer Fraud Act Defects

    • Bosland v. Warnock Dodge

      • Six year limitations period

      • No demand requirement

      • Class action problem

      • Ticking time bomb


    General risk reduction techniques1
    General Risk Reduction Techniques Defects

    • Business Structure Planning

    • Selection of Good Business Partners

    • Good Design, Manufacturing, Sales, Distribution and Monitoring Practices

    • Avoidance of Successor Liability

    • The Shift of Risk to Others

      • Contractual Indemnity

      • Insurance Considerations


    What is successor liability
    What is Successor Liability? Defects

    • Court imposed liability of a successor in interest for the liabilities of its predecessor.

    • The rationale is that the acquiring entity has benefited by the dissolution of the predecessor, and should cover its responsibilities.


    Some potential sources of successor liability
    Some Potential Sources of Successor Liability Defects

    • An express or implied agreement to assume the predecessor company's debts and obligations;

    • A fraudulent transfer;

    • A de facto merger or consolidation of entities;

    • A purchasing company becomes a mere continuation of the selling company;

    • A transfer for no adequate consideration; and

    • One entity acquires all or substantially all of the manufacturing assets of another entity and continues to manufacture essentially the same product line, and by doing so leaves those harmed by the transferor's products without a remedy.


    2 tips for avoiding successor liability
    2 Tips for Avoiding Successor Liability Defects

    • Conduct due diligence before purchasing assets from other businesses.

    • Consult counsel regarding potential successor liabilities when purchasing assets from other businesses.


    General risk reduction techniques2
    General Risk Reduction Techniques Defects

    • Business Structure Planning

    • Selection of Good Business Partners

    • Good Design, Manufacturing, Sales, Distribution and Monitoring Practices

    • Avoidance of Successor Liability

    • The Shift of Risk to Others

      • Contractual Indemnity

      • Insurance Considerations


    Chain of distribution liabilities
    Chain of Distribution Liabilities Defects

    Manufacturer

    Distributor

    Retailer

    Injured Party

    Liability

    Common Law Indemnity

    Contractual Indemnity


    Underlying themes for reducing products liability risk
    Underlying Themes for Reducing Products Liability Risk Defects

    • Strive to Produce a Good, State of the Art Product;

    • Select Good Business Partners;

    • Plan Ahead to Reduce Product Related Risk; and

    • Use Risk Shifting Techniques.


    Insurance considerations

    Insurance Considerations Defects

    Presented By:

    Charles W. Miller III


    Insurance considerations1
    Insurance Considerations Defects

    Largest Lawsuits

    • Owens Corning $1.2 billion

    • Dow Chemical $4.25 billion

    • GM $4.9 billion

    • GM $20 billion

    • Phillip Morris $28 billion


    Insurance considerations2
    Insurance Considerations Defects

    Product Liability Insurance

    • Legal liability

    • Arising out of accidents

    • During the period of insurance


    Insurance considerations3
    Insurance Considerations Defects

    Product Liability Insurance

    4. Arising out of any defects in the product

    • Only as to claims arising out of products

      covered under the policy

    • After they have left the insured’s premises


    Insurance considerations4
    Insurance Considerations Defects

    Recall Insurance

    Reimbursement for:

    • Recall expenses

    • Loss of profit

    • Product rehabilitation

    • Crisis communications


    Insurance considerations5
    Insurance Considerations Defects

    Practical Suggestions

    • Regular risk assessment/insurance review

    • Negotiate for the best coverage

    • Purchase needed insurance coverage


    Insurance considerations6
    Insurance Considerations Defects

    • Buy sufficient policy limits

    • Use business partners’ coverages, if possible

    • Review coverage once it is issued


    Product sellers liability concerns and solutions regarding foreign manufacturers suppliers

    Product Sellers: DefectsLiability Concerns and Solutions Regarding Foreign Manufacturers/Suppliers

    Presented by:

    M. Karen Thompson


    Problems arising from dealings with foreign manufacturers suppliers
    Problems Arising from Dealings with Foreign Manufacturers/Suppliers:

    • Less sophisticated safety and quality systems

    • Limited governmental oversight

    • Jurisdictional Issues

    • Post-sale problems/recalls

    • Difficulty of service of process

    • Lack of assets in the U.S.

    • Damage to reputation


    Fact pattern
    Fact Pattern: Manufacturers/Suppliers:

    • New Jersey distributor purchases grinding tools from Taiwanese manufacturer

    • No formal contract between them, just purchase orders

    • Manufacturer attaches distributor’s logo to the tools in the factory

    • Manufacturer drafts all instructions and warnings for tools

    • Manufacturer boxes tools in individual packaging with instructions and warnings


    Fact pattern continued
    Fact Pattern: Manufacturers/Suppliers:(Continued)

    • Tools are shipped direct from Taiwan to distributor

    • Distributor sells tools to customers in original packaging

    • Tools fail to include recommended ANSI and OSHA warnings

    • New Jersey resident sustains injury and sues distributor in New Jersey court

      Can this distributor be held liable???


    Product liability causes of action in new jersey
    Product Liability Causes of Action in New Jersey: Manufacturers/Suppliers:

    The manufacturer or seller of a product shall be liable if the claimant proves that the product was not reasonably fit, suitable or safe for its intended purpose because it:

    • failed to contain adequate warnings, or

    • deviated from the design specifications, formulae, or performance standards of identical units (i.e. a manufacturing flaw)

    • was designed in a defective manner (i.e. design defect).

      New Jersey Products Liability Act, N.J.S.A. 2A:58C-2


    Product seller under new jersey statute means
    “Product Seller” under New Jersey Statute Means: Manufacturers/Suppliers:

    Any person who, in the course of a business conducted for that purpose:

    • sells; distributes; leases; installs; prepares or assembles

      • a manufacturer’s product according to the manufacturer’s plan, intention, design, specifications or formulations, or

    • blends; packages; labels; markets; repairs; maintains or otherwise is involved in placing a product in the line of commerce.

      N.J.S.A. 2A:58C-8


    Limited statutory protection for product sellers in new jersey
    Limited Statutory Protection for Product Sellers in New Jersey:

    Statute may afford relief from imputed liability if certain criteria are met:

    • Product seller must certify as to the manufacturer’s correct identity, and

    • Product seller’s role with respect to the product was minimal

      N.J.S.A. 2A:58C-9(a) and (d)


    Statutory protection doesn t apply and product seller is strictly liable if
    Statutory Protection Doesn’t Apply and Product Seller is Strictly Liable if:

    • the identity of the manufacturer is incorrect, or

    • the manufacturer has no known agents, facility or other presence within the United States, or

    • the manufacturer has no attachable assets in the United States, or

    • the manufacturer has been adjudicated as bankrupt and is judgment proof

      N.J.S.A. 2A:58C-9(a) and (c)


    Imputed liability to domestic distributors if foreign manufacturer is unavailable
    Imputed Liability to Domestic Distributors if Foreign Manufacturer is “Unavailable”:

    • By Statute: Ten states, in addition to New Jersey

    • Model Uniform Product Liability Act

    • Restatement (3d) of Torts, § 1


    Product seller shall also be liable if
    Product Seller Shall Also be Liable if: Manufacturer is “Unavailable”:

    Product seller has exercised significant control over the product’s

    • Design

    • Manufacture

    • Packaging

    • Labeling

      with respect to the alleged defect or warning which caused the injury, or


    Product seller shall also be liable if1
    Product Seller Shall Also be Liable if: Manufacturer is “Unavailable”:

    • Product seller knew or should have known of the defect or had facts available from which it should have known of the alleged defect, or

    • Product seller created the defect in the product which caused the injury.

      N.J.S.A. 2A:58C-9(d)


    Risk controls for distributors product sellers
    Risk Controls for Distributors/Product Sellers: Manufacturer is “Unavailable”:

    Good Importer Practices (draft guidance)

    • Know the foreign company and other companies with which they do business

    • Understand the products and vulnerabilities

    • Understand the hazards that may arise

    • Ensure proper control and monitoring of hazards


    Risk controls for distributors product sellers1
    Risk Controls for Distributors/Product Sellers: Manufacturer is “Unavailable”:

    • Initial Investigation Before Purchasing

      • Reputation of manufacturer

      • Financial stability of manufacturer

      • Quality and safety of product

  • Quality Assurance Procedures

    • Testing

    • Conformity to specifications

    • Compliance with U.S. requirements

    • Compliance with industry standards

    • Monitoring throughout life cycle of product


  • Risk controls for distributors product sellers2
    Risk Controls for Distributors/Product Sellers: Manufacturer is “Unavailable”:

    • Warnings and Instructions

      • Clear and direct

      • Proper language for intended users

      • Compliance with industry or regulatory standards

  • Advertising and Sales Literature

    • Accurate statement of capabilities and uses


  • Risk controls for distributors product sellers3
    Risk Controls for Distributors/Product Sellers: Manufacturer is “Unavailable”:

    • Packaging and Shipping

      • Adequate to prevent damage

      • Contains warnings and instructions

      • Required documents

      • Retain shipping records and identification data

  • Transfer the Risk to Foreign Manufacturers through Detailed Contract Provisions:

    • Certifications of safety and quality testing (in English)

    • Audit procedures

    • Product warranties


  • Risk controls for distributors product sellers4
    Risk Controls for Distributors/Product Sellers: Manufacturer is “Unavailable”:

    • Notice obligations

      • Regarding safety issues

      • Regarding changes in manufacturing processes

      • Regarding suppliers or parts (quality fade issue)

    • Recalls

      • Responsibility for recalls

      • Recall protocols

    • Cooperation Clause


    Risk controls for distributors product sellers5
    Risk Controls for Distributors/Product Sellers: Manufacturer is “Unavailable”:

    • Indemnification provisions

      • Strict construction

      • Conspicuous placement

      • Duty to defend

      • Identification of protected parties

      • Cover negligence of distributor

      • Assumption of defense

      • Consent to settlement


    Risk controls for distributors product sellers6
    Risk Controls for Distributors/Product Sellers: Manufacturer is “Unavailable”:

    • Indemnification provisions (Cont’d)

      • Survival of duty

      • Assignments

      • Sophisticated parties

      • Consent to jurisdiction

    • Insurance Coverage

      • U.S. based insurer

      • Distributor as additional insured

      • Certificates of insurance

      • Tail coverage


    Pending legislative solution s 1606
    Pending Legislative Solution – S. 1606: Manufacturer is “Unavailable”:

    Foreign Manufacturers Legal Accountability Act of 2009

    • Foreign manufacturers must designate a registered agent in at least one state to accept service of process

    • Foreign companies must consent to the jurisdiction of the state or federal court where the registered agent is located

    • State should have a substantial connection to the importation, distribution or sale of the products of the foreign manufacturer


    Reporting recalls under the consumer product safety improvement act of 2008

    Reporting & Recalls Under the Consumer Product Safety Improvement Act of 2008

    Presented By:

    Haekyoung Suh


    Consumer product safety improvement act of 2008
    Consumer Product Safety Improvement Act of 2008 Improvement Act of 2008

    • Third-party testing of children’s products by certified laboratories for certification purposes.

    • Certificate of conformance required for all consumer products.

    • ASTM F963-07 now mandatory.

    • Ban on children’s products containing more than a minimal amount of lead or phalates.

    • Packaging for children’s toys and games must contain a label or cautionary statement about choking hazards.


    Consumer product safety commission
    Consumer Product Safety Commission Improvement Act of 2008

    • Regulation

    • Public Information

    • Compliance

    • Research

    • Import Safety


    Saferproducts gov
    SaferProducts.gov Improvement Act of 2008

    • Active by March 11, 2011

    • Consumer Portal

    • Industry Portal


    Commission Receives Improvement Act of 2008

    Incident Report Manufacturer

    (5)

    Commission Manufacturer

    Publishes (10) Responds to

    Incident Report Incident Report


    Time saving strategies
    Time-Saving Strategies Improvement Act of 2008

    • Register your contact information with the Commission.

    • Designate a central person or unit within your company to handle all incident reports.

    • Develop a protocol or system to review, analyze and rapidly respond to incident reports.

    • Establish a protocol to scan incident reports for confidential information.


    Notification
    Notification Improvement Act of 2008

    Manufacturers, distributors, and retailers of a consumer product or any other product over which the Commission has jurisdiction must notify the Commission immediately upon receipt of information that reasonably supports the conclusion that the product:

    • Fails to comply with an applicable consumer product safety rule or voluntary consumer product safety standard.

    • Fails to comply with any other rule, regulation, standard or ban enforced by the Commission.

    • Contains a defect that could create a substantial product hazard.

    • Creates an unreasonable risk of serious injury or death.


    “If in doubt, report.” Improvement Act of 2008

    “Report early and often.”


    Strategies for notification
    Strategies For Notification Improvement Act of 2008

    • Gather information needed to report to the Commission.

    • Draft an explanatory letter and follow up with a telephone call.

    • Commence a dialogue with the Commission.

    • Request that the Commission acknowledge receipt of your company’s notification, in writing, to confirm the date of notification.


    TOTAL RECALL Improvement Act of 2008

    or

    FAST TRACK PROGRAM


    Strategies for handling a recall
    Strategies For Handling a Recall Improvement Act of 2008

    • Develop Pre-Recall Plans.

    • Establish a Recall Protocol.

    • Implement Post-Recall Procedures.


    Myth #1: I’m a small company; I won’t get Improvement Act of 2008

    caught.


    Myth #2: I’d rather pay a small fine than Improvement Act of 2008

    deal with the headache and

    cost of a recall.


    Myth #3: I don’t sell products across state Improvement Act of 2008

    lines so I don’t need to worry

    about a federal statute.


    Myth #4: I can handle the problem by Improvement Act of 2008

    myself.


    Question answer session

    Question & Answer Session Improvement Act of 2008

    Thank you for coming!

    Please fill out the evaluation forms and return them at the registration table.