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Best practices in product liability management.

"Death Blamed on Medication"

"Tough Bagel Botches Anniversary; Couple Sues Restaurant for Broken Tooth"

"Carbon Monoxide Poisoning Allegations Gain Momentum"

"Rotary Hammers Recalled"

"Worker Dies in Tractor Rollover; Seat Belt Attachment Faulted"

Headlines like these appear in the news every day, and when they do, companies lace some tough decisions. On one hand if a product is a safety hazard, there is an ethical and legal responsibility to take action to protect the public. On the other hand, sometimes lawsuits are filed over situations where there is no genuine product deflect or liability. Then the company must decide whether to settle or fight.

With hundreds at products on the market, the last thing any manufacturer wants is lot a product's integrity to be questioned A product recall, a high-profile lawsuit or a potential class action suit are events that can destroy a brand reputation that has been carefully built tip through years of marketing and customer service. Immediately, the damage is clone, despite the fact that many product liability claims have no merit and there is nothing wrong with the product, just someone saying there is.

Companies often settle such lawsuits just to get rid of them. It may seem caster or more cost-effective in the short run to make a cash settlement than to go through the steps of investigation, analysis, negotiation and potential litigation Yet by settling, companies risk tarnishing their brand and attracting other litigants with similar claims who recognize an easy way to receive a cash settlement.

The simple truth is that when companies pay tar claims that have no merit, they lose. So, what steps should risk managers take to defend the company's products from the damage at trivolous lawsuits and determine which have legitimate merit? Based on the experience of claims managers who both specialize in product liability and who have handled thousands of claims, there are seven main principles to consider.

1. Bring in a specialist. Product liability claims differ from other types of liability claims and require special handling. Many law firms and claims management firms either product liability services. For best results, companies should look for a firm with depth in a variety at product lines and industry segments, not only in managing product liability claims and litigation but also in helping to design programs to minimize exposure to product liability risks and to deal with a product recall and its associated issues.

The complexity of many product liability claims makes an in-depth understanding of the industry and the product a critical component of a successful resolution. Product liability specialists should possess highly developed product knowledge in a wide range at industries including automotive agriculture, food, consumer products, construction equipment, pharmaceuticals chemicals and medical products.

In addition, the product liability team members must possess the experience needed to manage all aspects of a claim. including: alleged design defects; failure to warn or instruct foreseeable product users; manufacturing detects associated with materials and quality control: service, repair and installation issues: and express and implied warranties and other contractual issues.

2. Agree on a philosophy for handling these claims. An appropriately aggressive approach to claim and litigation management consistent with the company's philosophy can be taken only by fostering constant communication and close collaboration with company risk management, the claims management firm and the client's legal counsel.

3. Incorporate a flexible altitude towards claims management. Flexibility is important so that the approach to a particular claim can be adjusted quickly based on the results of an investigation, the company's changing needs or other unforeseen circumstances or events.

4. Take a customized approach to each claim. The complex and unique nature of each product liability claim means that a one-size-fits-all approach does not work. The details of each claim must be carefully investigated and evaluated, and a plan must be tailored from the ground up to help ensure the claim's proper resolution.

5. Establish central control of the claims management process. Companies often find themselves involved in a product liability claim that crosses numerous geographies and jurisdictions. In such cases, a nationwide or even international presence and extensive knowledge of national, state and local laws and regulations prove especially valuable. To ensure accuracy and consistency in managing complex claims, control of both the claim and litigation processes must be coordinated from a central point.

6. Build a strong team. Claims management is a team effort, and team members must work closely with a manufacturer's technical, risk management and legal teams to achieve optimal results. In addition to highly experienced product liability attorneys and claim professionals, the claim management team should include a seasoned staff of support personnel providing a full spectrum of product liability claim and risk management services. This includes claim investigations and evaluations, litigation management, product safety and liability prevention, and product recall consultation.

7. Conduct a complete on-site investigation. Claims investigations should include a thorough collection of physical evidence, interviews, documentation and close communication with appropriate legal counsel. The most critical factor is locating and securing the product in as close to its accident condition as possible so that the evidence can be preserved and an expert inspection conducted. Incident reports, investigations and internal records should disclose design defect, misuse of the product, consumer failure to heed warnings, conformance to industry standards, conformance to governmental standards/regulations and quality control.

In product liability claims, the thoroughness of the investigation and the depth of analysis often prove to be the most critical factors in successfully defending the claim.

In the Jack in the Box E. coli cases, for example, a close investigation of each case was necessary to determine which illnesses or symptoms could potentially have been related to E. coli, and which might have been the result of the flu, a cold or other causes.

Should the firm decide to litigate, the product liability team will need a structured, consistent and coordinated approach to litigation management that includes close collaboration with the client's risk manager, engineering, general counsel and defense counsel. This is especially critical when numerous attorneys in various jurisdictions are involved. This comprehensive approach results in both a timely evaluation of the claim and a resolution aligned with the manufacturer's philosophy.

Preventing Future Claims

The best approach to defending product liability claims is to ensure that an aggressive program of product safety and liability prevention is in place before a claim is made. Such programs not only help reduce accidents and increase safety, they also ultimately result in more competitive products. The phases for product safety and liability prevention programs include policy development, program design, ongoing evaluation and improvement. But to look at the optimum safety and liability prevention program, start with what all companies want to avoid: a product recall.

Product recalls can be either involuntary or voluntary. Involuntary recalls are mandated by governmental agencies with prescribed regulations and procedures that must be followed. Voluntary recall decisions are made by companies acting independently when circumstances dictate. In addition, a manufacturer who, in the face of a known safety hazard, fails to take any action whatsoever faces potential punitive damages for any subsequent accidents that occur. And, under the Consumer Product Safety Act, the directors and officers of the company could face criminal penalties for knowingly and willfully allowing such action or inaction. The manufacturer may also be subject to liability for failing to warn of a product-related risk after the time of sale.

In the event of a recall, product liability specialists should provide expert assistance and services in both instances including defect analysis, hazard analysis, regulatory reporting and compliance consulting, and corrective action program development.

Decisions regarding product recall should not be considered in a vacuum but as part of an overall product safety and liability prevention program. Without this program in place, it is difficult for a manufacturer to be prepared for the decision making necessary when a product is determined to have a problem after it has been sold. Often, there is little or no warning that a decision is going to have to be made.

The Safety Program

As a first step in developing a prevention program, corporate management must make safety an important and highly visible objective in the design, production, and marketing of the company's products. A statement of policy may be used to emphasize management's commitment to safety. However, a policy statement alone will not make product liability problems disappear. In fact, a company that has a formal policy statement that is not followed may be in a worse position in court than one without any precise product safety policy.

At a minimum, the manufacturers should establish a corporate safety policy and program, identify personnel responsible for safety, and require program audit and documentation. Moreover, the elements of a strong and successful product safety and liability prevention program should start with the management's commitment to the program.

From there, the program should include a companywide safety training and awareness, as well as a specialized safety team drawn from all involved company departments. There will need to be implementation and documentation of all necessary procedure and standard practices. Finally, there must be a system for measurement, corrective action and status reporting, as well as a regular audit of the effectiveness of the program.

Many companies have decided to create a product integrity or product safety committee to make and monitor decisions relating to product safety. These committees typically include representatives from engineering, manufacturing, quality control, purchasing, advertising, legal, claims and insurance departments.

While their responsibilities will be varied by organization, they all should include the following: 1) establishing guidelines and criteria for the evaluation of product hazards; 2) establishing criteria for warnings, labels and manuals; 3) establishing guidelines for advertising, product brochures, and other printed materials; 4) arranging for review of all product warranties, exculpatory clauses, disclaimers and liability release statements; and 5) arranging and issuing notifications to government agencies regarding product defects or noncompliance with safety standards.

A Recall Preparedness Checklist

The last step in preparedness is to develop a step-by-step preparedness checklist that should be followed to prepare for a potential recall. Such a list should include the following:

* Draft a formal, written policy in anticipation of possible recall or remedial measures

* Communicate the policy with key personnel

* Assign coordinator for any future recall campaign

* Stage a "dry run" or mock product recall of a specified product in order to evaluate the efficiency of the recall plan

* Code products to identify the suspect product as to model and date of manufacture

* Require suppliers of components and parts to mark and code each unit to identify the manufacturer of the parts

* Seek indemnification agreements from suppliers against the cost of recall or corrective action and any other losses relating to a recall of defective components or parts supplied by them

* Create a product safety committee to consider whether complaints are safety related and to order a recall if necessary

* Forward all complaints to the product safety committee and product recall coordinator immediately

* The product safety committee requires the authority to consider the necessity for recall

* The product safety committee requires the authority to order a product recall

Information should also be on file to expedite the identification of products that may need to be recalled. The company's records should enable the determination of the following:

* Model number and date of manufacture of the suspect item.

* Quantities of suspect units in the hands of the ultimate consumer.

* Quantities of suspect units in the hands of distributors

* Location of products in the field

* Description of each incident, accident or malfunction

* Identity of person in user organization to whom recall notices should be delivered

Manufacturers are not the only entities that can be impacted or implicated in a product liability situation or a product recall. It is important to remember that a commercial product seller or distributor may be subject to liability for failure to recall a product if they fail to comply with a governmental directive requiring a recall or, in the absence of such a directive, the seller or distributor undertakes to recall the product and fails to act as a reasonable person would in recalling the product.

However, for a seller to be subject to liability for post-sale failure to recall, the plaintiff must establish not only that the seller unreasonably failed to recall the product, but also that the defect that was the subject of the recall was a legal cause of the plaintiffs injury.

Be Not Afraid

Companies faced with a product recall need not be at the mercy of negative publicity or potentially enormous product liability lawsuits. Firmly defending claims, along with a comprehensive investigation can spare the firm the undeserved loss of brand equity from frivolous product liability claims. The potential for both product liability lawsuit and a product recall can be reduced with a comprehensive product safety and liability plan. In addition to strengthening the firm's position in a liability situation, these programs actually improve plant safety and result in more competitive products.

Sam Terzich is senior vice president for Cambridge, a strategic global outsourcing firm. He heads Cambridge's product and professional liability division. His office is based in Rosemont, Illinois.
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Author:Terzich, Sam
Publication:Risk Management
Geographic Code:1USA
Date:Aug 1, 2005
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