Product liability Featured

7:00pm EDT November 24, 2006

In an increasingly litigious society, it’s no surprise that product liability cases have drastically increased in the past 20 years.

Businesses — even those with good product safety policies and procedures — can’t afford to ignore the risk or not take product liability seriously.

Product liability is far-reaching, putting many different types of businesses — even those that don’t directly manufacture products — at risk, according to Jerrold Anders, a partner in the Product Liability Practice Group at White and Williams LLP.

“Product liability holds manufacturers, distributors, suppliers, retailers and others who make products available to the public responsible for the injuries those products cause,” he says. “It’s a very real business risk in today’s world.”

Smart Business spoke with Anders about product liability and how businesses can protect themselves against the risk of lawsuits.

What is product liability?

Product liability encompasses a number of legal claims that allow an injured party to recover financial compensation from the manufacturer or seller of a product, including negligence, strict liability, breach of warranty and various consumer protection claims.

Product liability laws vary widely from state to state, and each type of claim requires different elements to be proven to present a successful claim. It involves claims that the product was defective by design, a manufacturing flaw or because of a failure to warn about a risk or danger.

How concerned should the average business be about product liability litigation?

Product liability is a very real business risk, and not just to those who manufacture products.

A retailer has a responsibility as a seller who puts a product in the marketplace, and there’s also risk for sellers who install products. While some states offer pass-through liability for retailers — which provides some level of protection against product liability claims — here in Pennsylvania, a business must prove that it is entitled to be indemnified by the manufacturer. This may involve litigation to determine the facts and their legal effect.

What is product liability insurance?

Product liability insurance is an important type of insurance for any business that sells manufactured or assembled products. It covers damage to property or injuries to a person for which your business is held responsible, and it protects your business from a variety of lawsuits.

Business owners should check with their insurance carrier and lawyer to see if they are already covered. This is a complicated area involving completed operations, vendors endorsements and additional insured coverage.

What should businesses look for in a product liability insurance policy?

Most small-business owners may not realize that they can try to negotiate the right to appoint their own legal counsel to represent the business in a lawsuit. Even if the insurance carrier does appoint an attorney for the business, business owners should consider hiring an attorney with expertise in the area of overseeing and coordinating such cases to ensure that the business’s interests are protected during the course of the lawsuit. I frequently do this for retailers, manufacturers and component part suppliers.

How can a business protect itself against product liability lawsuits?

While there is no guarantee that a business can avoid a product liability lawsuit, there are some very basic things businesses should do.

First and foremost, be aware of — and comply with — all the guidelines for the product you’re making or selling, including government regulations, industry standards and trade association recommendations. While compliance may not save a company from liability, not complying can sink a business in a liability lawsuit.

Second, ensure you have good risk management and quality control programs in place, including periodic product testing and monitoring trade associations and industry standards. It’s important to understand that punitive damages are generally not covered under product liability insurance; so even if you lose the case, you want to demonstrate that you did not act in a willful, outrageous manner. A business will want to show that it had these programs in place and was acting in a reasonable manner.

A practical piece of advice is to simply follow up on warranty claims before they turn into product liability claims. Take customer complaints seriously. Don’t let a small problem become a big one.

A retailer dealing with manufacturers should try to have a type of vendor’s agreement saying that the retailer agrees to buy the product and sell it to the public, but if any lawsuit claims arise, the manufacturer agrees to defend and indemnify the retailer. It’s also possible to negotiate to be an additional insured on the manufacturer’s insurance policy.

JERROLD ANDERS is a partner in the Product Liability Practice Group at White and Williams LLP. Reach him at (215) 864-7003 or andersj@whiteandwilliams.com.