Managing Products Liability Risk for Manufacturers and Distributors

1. 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.

2. Please help yourself to food 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

3. Current Acts and Warranties Moderator and Presenter: Hon. William A. Dreier

4. Product Liability of Manufacturers, Distributors and Sellers 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

5. N.J. Product Liability Act • 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

6. U.C.C. Warranties • Express Warranties • Contracts • Advertisements and brochures • Implied Warranties • Warranty of merchantability • Warranty of fitness for particular purpose • Waivers and limitations • Magnusson-Moss prohibitions

7. Highly Technical – Don’t Go It Alone • Multiple state and federal statutes • Hundreds of published and unpublished court decisions • Federal and state regulations • Sometimes no definitive answers • When in doubt, err on the side of caution

8. Strategies for Reducing Products Liability Risk Presented By: Steven A. Karg

10. Handout Materials • 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).

11. General Risk Reduction Techniques • 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

12. Good Practices – Producing a Safe Product – Three Goals • 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.

13. 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.

14. 15 Ideas for Designing a Safe Product • Closely monitor competing products. • Keep active in related industry organizations. • Closely monitor and comply with applicable minimum regulatory and industry standards.

15. 15 Ideas for Designing a Safe 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.

16. 15 Ideas for Designing a Safe 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.

17. 15 Ideas for Designing a Safe 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.

18. 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.

19. 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.

20. 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.

21. Good Practices - Producing A Safe Product – The 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.

22. Why So Many Warnings?

27. 11 Ideas for Using Appropriate Warnings and Instructions • 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.

28. 11 Ideas for Using Appropriate Warnings and Instructions • 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.

29. 11 Ideas for Using Appropriate Warnings and Instructions • 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.

30. 11 Ideas for Using Appropriate Warnings and Instructions • 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;

31. 11 Ideas for Using Appropriate Warnings and Instructions • 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.

32. 11 Ideas for Using Appropriate Warnings and Instructions • Employ a safety and warnings consultant where warranted. • Review manuals and warnings with an experienced products liability attorney.

33. 11 Ideas for Using Appropriate Warnings and Instructions • 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.”

34. 3 Risk Reduction Ideas for the Sale of Products • 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.

35. Consumer Fraud Act • Damage caused by a product as opposed to economic harm relating to purchase • Treble Damages • Attorneys Fees

36. Consumer Fraud Act • Actionable Conduct Under CFA: • Innocent or intentional misrepresentations in an affirmative statement • Intentional omissions of material fact • Innocent or intentional violation of applicable regulation

37. Consumer Fraud Act • Bosland v. Warnock Dodge • Six year limitations period • No demand requirement • Class action problem • Ticking time bomb

38. General Risk Reduction Techniques • 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

39. What is Successor Liability? • 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.

40. Some Potential Sources of Successor Liability • 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.

41. 2 Tips for Avoiding Successor Liability • Conduct due diligence before purchasing assets from other businesses. • Consult counsel regarding potential successor liabilities when purchasing assets from other businesses.

42. General Risk Reduction Techniques • 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

43. Chain of Distribution Liabilities Manufacturer Distributor Retailer Injured Party Liability Common Law Indemnity Contractual Indemnity

44. Underlying Themes for Reducing Products Liability Risk • 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.

45. Insurance Considerations Presented By: Charles W. Miller III

46. Insurance Considerations Largest Lawsuits • Owens Corning $1.2 billion • Dow Chemical $4.25 billion • GM $4.9 billion • GM $20 billion • Phillip Morris $28 billion

47. Insurance Considerations Product Liability Insurance • Legal liability • Arising out of accidents • During the period of insurance

48. Insurance Considerations 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

49. Insurance Considerations Recall Insurance Reimbursement for: • Recall expenses • Loss of profit • Product rehabilitation • Crisis communications

50. Insurance Considerations Practical Suggestions • Regular risk assessment/insurance review • Negotiate for the best coverage • Purchase needed insurance coverage