Shaping Risk: Product Liability and Recall 17 June 2014 Jim Sherwood Partner, BLM T: 020 7865 3376 E: firstname.lastname@example.org David Kidman Partner, BLM T: 020 7865 3440 E: email@example.com
Shaping Risk • Liability and Supply Chain Perils • Insurance – what is covered? • Keeping your Regulator Happy • Social Media & Reputation • Emerging Risks
Potential causes of action Claimant Supplier/Retailer Component/Ingredient Supplier Importer Manufacturer • Negligence • Consumer Protection Act 1987 (Directive 85/374/EEC) • Balancing interests • Safety • Contract • Satisfactory quality
Lessons Learned – Horsemeat Scandal • Overview • “as supply chains have become longer and more intricate, it has become harder to know what is happening further down the chain. Without complete transparency, you can lose a certain amount of control, and with that comes risk” – Helen Pope, Airmic deputy chair (Strategic Risk, April 2014) • The “country of origin: Ireland” pizza.
Lessons Learned – Horsemeat Scandal • The more complex the supply chain, the greater the risk of abuse and serious injury. • Contractual documents often inadequately define the product. • Only looking ‘one up’ the chain is risky. • Complex supply chains lead to greater exposure to foreign jurisdictions.
Lessons Learned – Horsemeat Scandal • Price is a risky driver “I guess the question I’m asked most often is: ‘When you were sitting in that capsule listening to the count-down, how did you feel?’. Well, the answer to that is easy. I felt exactly how you would feel if you were getting ready to launch and knew you were sitting on top of two million parts – all built by the lowest bidder on a government contract” – John Glenn’s retirement speech (first American to orbit the earth, third American in space)
Supply Chain Perils • Keeping costs down • Failure to monitor quality • Litigating outside EU • Changing business models – outsourcing, off-shoring • Political change – subrogation • Transparency/fraud
“... experienced businessmen …. should, in my view be taken to be the best judge of the commercial fairness of the agreement which they have made; including the fairness of each of the terms in that agreement.” • Watford Electronics v Sanderson CFL 
Stress Testing Contracts/Supply Chains • Take control • Review contracts/specifications • QC/control suppliers • Limit liability/apportion risk • Supplier to verify chain • Far East – incorporate HK arbitration? • Specify England/Wales as jurisdiction • Test insurance cover
Stress testing insurance cover – areas to address • Is there “damage”? • Exclusion of contractual losses, recall, product itself • Trigger for recall cover • Financial loss extensions • Reservation of rights – Airmic Statement of Principles • Client conflicts?
Keeping your Regulator Happy • Be prepared and act swiftly. • Assess the risk. • Present a solution, not a problem. • General Product Safety Regulations 2005 • ‘safe product’ – “under normal or reasonably foreseeable conditions of use…does not present any risk or only the minimum risks compatible with the product’s use, considered to be acceptable and consistent with a high level of protection of the safety and health of persons”. • Potential criminal offence • European Commission 2010 Guidance
Keeping your Regulator Happy • Case Study – Snap Bands • Distributor. Free. • Metal covered by plastic on the upper side, fabric on the underside. Sealed at edges. • 1 wrist laceration at school. 1 wrist laceration while playing sport. • No warnings or instructions.
Social Media – what can you do? • Courts give leeway for honest opinion • mumsnet.com v. forensic analysis • Impact of Defamation Act 2013 – focus on individuals? • Need to prove defamatory statement caused ‘serious financial loss’ • Perils of heavy-hand response – McLibel Two • Be media savvy – constructive and engaged approach • Ways to counter negative brand sentiment
Golden rules for public relations • Have in place a detailed crisis communications plan • Include: dealing with media, suppliers and consumers • Set up a crisis management team • Deal with the incident head on • Appoint a spokesperson and two substitutes – do this now
Emerging Risks • Nanotechnology
Nanotechnology • “20 years have elapsed since first indications of nanomaterial harm were published and in the intervening time an increasing body of literature has been developed on how nanomaterials interact with cells, mammals and aquatic organisms. Yet many governments still call for more information as a substitute for action” – Late Lessons from Early Warnings: science, precaution, innovation, European Environment Agency, January 2013.
Nanotechnology • Carbon nanotubes
Nanotechnology • Nanosilver • “indicative evidence of the harm of silver nanoparticles at low concentrations on aquatic invertebrates…any industry/institute using silver nanoparticles should consider taking the necessary steps to reduce or eliminate the potential exposure of the environment to these nanoparticles” – Aitken et al, 2009
EMF • IARC class 2B – “possibly carcinogenic to humans” • Swedish Council for Working Life and Social Research • Hardell et al • Marcolini – Italian Supreme Court • HPA and Public Health England
Obesity • Marketing to children • Food addiction • Difficulties in proving claims • ‘Iron triangle’
BLM Guides to Product Liability and Recall • Product Recall: Regulation, Reputation and Risk Management • Product Liability Insurance • Business to Business: Contractual Issues and Financial Loss • Product Liability Law • Emerging Risks • Food and Drink Industry – Claims Handling