Product liability protocols key to managing risk
The old wisdom of ‘caveat emptor’—let the buyer beware—is giving way to a new adage: ‘caveat venditor’—let the seller beware.
WARNING: ‘This Superman costume will not enable you to fly.’ Such a warning does not tell us that children have been jumping off roofs. What it indicates is that if a child put on his Superman cape and then launched off a roof his parents would find someone to sue.
Most likely, they would take action against the cape’s manufacturer, following a host of precedents in United States courts finding manufacturers liable for failure to warn.
The increase in seemingly frivolous warnings on manufactured goods reflects a changing market, where litigation is common and courts tend to rule in favour of the plaintiff. More and more frequently, victims of injury through use of a product are bringing liability suits against producers. And they’re winning.
In a buyers’ market, manufacturers need to protect themselves against liability litigation. Even the most carefully researched and tested product may involve some risk, and sensible producers need a management plan in place to protect themselves, particularly as they move into overseas export markets.
Product liability
In layman’s terms, product liability is an area of business law that allows consumers injured by a purchased product to sue its manufacturer, retailer and distributor for liability. A court can determine whether the manufacturer, retailer or distributor can be held responsible for injury or damage to the plaintiff on the basis of:
- failure to warn
- inadequate user instructions
- defective products.
A liability suit can be extremely costly for a business but there are ways to manage the risk and invest in adequate protection.
Product liability insurance
In case of litigation over an issue of product liability, it is wise for a corporation to have financial protection in place. Product liability litigation is often a drawn-out and extremely costly process. Even a single accusation of liability can snowball into a class action, where the company found liable has to pay legal costs as well as compensation to all parties represented by the suit. Liability insurance is an investment in protecting your brand and company from the financial penalties of product failure.
Overseas warranties
Most contracts stipulate that the seller must be able to provide a warranty bond. This requirement offers security to the buyer, so that if a product fails overseas the buyer can recover the full cost of their investment. According to the Australian Export Finance and Insurance Corporation, if an exporter cannot provide a warranty bond it is generally out of the running to secure a contract.
The buyer needs to know that if the seller’s products do not meet contractual requirements, or fail after they have been on-sold, there is a reserve of money that can draw on. Banks usually require a business to have 100 percent of the value of a warranty bond before they will issue a bond on their behalf.
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