While manufacturers inevitably face products-liability claims, certain business practices could enable your company to limit or even prevent exposure. Being sued on the basis of products liability costs companies in a variety of ways. Manufacturers may be able to avoid or limit these costs by implementing the below practices.
Products-liability claims may arise from manufacturing defects, design defects, failure to warn or even plain old warranty claims. Such claims could be brought by almost anyone: customers, consumers, distributors, resellers or any end user of the finished product. The claims may be brought by a single plaintiff, or they may be in the form of class actions or mass actions. A company may even be added to an existing lawsuit as a third-party defendant by one of its customers bringing an indemnity claim.
Products-Liability Claims Cost Companies Big Time
When addressing products-liabilities claims, the first question many companies ask is, so what? The answer: products-liability claims are expensive . . . very expensive. First, even if a company prevails on the merits, its bottom line took a shot because lawyers are expensive! Second, the employees’ valuable time will be spent on the claim instead of their jobs. Third, insurance premiums may increase over time, sometimes substantially. Fourth, the company may lose some of the cases. Fifth, even bogus claims may lead to bad publicity, especially in the age of the internet and the online review. Customer loyalty may be lost, employee morale may suffer, investors and partners may flee, and profits may fall. In fact, very little, if anything, good comes from having to defend these claims.
Important Measures to Avoid Products-Liability Claims
Instead of incurring the above costs by reacting to products-liability claims, be proactive. Taking preemptive steps to ensure products safety may avoid, or efficiently defeat, a number of products-liability lawsuits. Consider the following practices:
- Write and use a Products Safety Policy
- Establish a Products Safety Committee
- Empower a Products Safety Manager who is independent of any particular corporate division and reports directly to senior management
- Audit your manufacturing
- Audit your warranty claims
Using these practices, search for problems before defective products reach customers. Generally, establish a corporate culture that empowers the entire company and all its employees to think safety first. The above practices encourage such a culture and provide their own benefits. Of course implementing these practices costs money, but opting not to implement these practices will likely cost more in the long run.
Keeping Information Private
Plaintiffs have used manufacturers’ analysis of products safety against the manufacturer in past products-liability cases. Prudent manufacturers take steps to safeguard communications and other information related to products safety. This information cannot be protected by merely stamping confidential on the document. Instead, put your company in a position to assert the attorney-client privilege over its safety work. The following important steps may protect safety information as privileged.
- Make sure that in-house counsel are part of the company’s Products Safety Committee.
- If any investigations are initiated by the Products Safety Committee or Products Safety Manager, make sure that the investigation has a legal purpose that is approved by the legal department (or outside counsel) and made clear to those who are part of the investigation.
- Restrict access to such information and documents to those who are necessary recipients of it.
Getting products-liability claims to zero is a challenge for any company. But the more that your company works to prevent products-liability claims, the less your company will spend managing and defending those claims. Preempting and mitigating products-liability claims is much more efficient than paying for them over and over again.