October 21, 2014
The growth of product liability litigation and its effect on businesses, and indeed on society, have been striking. The dramatic rise in product liability insurance premiums, as well as the many indirect costs of litigation, has provided a strong incentive for companies to address product liability issues before accidents occur. Many of the costs some suppliers incur are attributable to a lack of awareness of product liability law, or to an unwillingness to deal with it in a reasonable manner. This issue of Business Counselor Update includes the addition of a new chapter to Business Transactions Solution on Product Liability (§§92:1 et seq.) that focuses on those general features of product liability law which should be considered in advising a business client how to conduct its operations to prevent the distribution of dangerous products, not only to minimize its exposure to product liability lawsuits, but also to promote the safety of the public. Specifically, the commentary describes the regulatory and case law framework for product liability, particularly strict liability, and describes procedures that companies can take to assess and mitigate product liability risks associated with products that they manufacturing and/or otherwise distribute. The chapter includes a master form for a product liability self-evaluation and the Specialty Forms library includes policies and procedures that can be used to establish and administer a product safety program.
Product liability law and practice focuses on the risks associated with dangerous and defective products and should be approached as an integral part of the larger product development and distribution process. Product safety should be taken into account from the very beginning as new products are designed and undergo preliminary testing and safety features should be integrated into the manufacturing process. Once the manufacture or other production of a product is completed safe usage should be facilitated through delivery of instructions and warnings and the availability of advice from sales, marketing and support personnel. Accordingly, when developing policies and procedures for product safety companies and their attorneys should be sure that they are incorporated into policies and contracts that are used during the entire range of product development activities (see §§81:1 et seq.). This includes implementing quality control processes as part of the overall procurement process to be sure that raw materials and parts supplied by outside vendor are safe and reliable (see §§82:1 et seq. and 83:1 et seq.); ensuring that design elements necessary for the safe products are included in the manufacturing process (see §§84:1 et seq.) and that manufacturing is carried out in accordance with the highest standards of workmanship and safety; and making sure that warnings, instructions and user manuals are carefully prepared and that advice regarding proper use of products is readily available from sales representatives and the company’s product service and support teams (see §§88:1 et seq. and 89:1 et seq.).
In managing and completing the steps associated with developing and administering an effective product safety and product liability risk mitigation program:
- Administer a questionnaire with appropriate representatives of all departments involved with the product development and commercialization process to identify areas of operations that might create product liability risks and concerns (see §§ 92:47 and 92:48);
- Conduct a products liability self-evaluation for the client (see § 92:39) including an analysis of the product liability management process (see § 92:46) and use follow-up sessions to develop a strategy for creating a product safety program or improving an existing program..
- Collect copies of all product liability insurance policies covering activities of the client and conduct a review of the contents of such policies to determine adequacy and areas where changes in coverage might be appropriate (see § 92:44)
- Provide assistance to client in preparing documentation necessary to support creation of product safety program including rules and procedures for operation of a product safety committee (see § 92:42);
- Conduct an analysis of the adequacy of warnings and instructions provided with products in light of regulatory requirements and practical aspects of using the products (see § 92:43);
- Ensure that the client takes potential product liability claims into consideration when conducting due diligence investigations in anticipation of proposed mergers and acquisitions (see § 92:45); and
- Assist the client in developing crisis management and recall procedures that can be quickly and efficiently implemented in the event it becomes necessary to recall products that are found to be defective or otherwise pose unreasonable safety risks to users (see § 92:50).