Monthly Archives: April 2009

Did You Know Your Product Liability Policy Excludes Pollution Liability?

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One of the most overlooked and devastating exclusions in a product liability policy is the pollution exclusion. 

Many manufacturers, assemblers and importers of equipment such as machinery, piping and hoses overlook the fact that chemicals will be passing through their products and think that their product liability policy will cover them in the event a chemical is released causing property damage or bodily injury.  A defective product that releases chemicals into the environment can render business property completely unusable and potentially cause far reaching and long lasting environmental damage that could take massive amounts of money to rectify.  The damages could easily reach into the million of dollars.

Most general liability and product liability policies specifically deny coverage for bodily injury or property damage arising from the discharge of pollutants “which arises of ‘your work’ … or … which arises out of ‘your product’”. 

The next time you and your risk managers meet, I highly recommend that you discuss your pollution liability exposure.  You may agree that your pollution liability may be roughly the same or higher than your product liability exposure.

Remember the primary reason you should buy insurance – to cover severity and catastrophic loss.  Even a minor pollution spill may be too expensive to cover out of pocket and possibly expose the officers and owners of the business to personal liability.

Why Naming Multiple Defendants In A Lawsuit Is Common Practice

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When a product liability client is sued, they are usually amazed at how many parties are named in the product liability lawsuit and how many of the named parties have little or no connection to the product that allegedly caused the injury.  

The 3 reasons below will provide a little insight into why there are multiple defendants named when there is a product liability lawsuit.

The first reason there are so many parties named in a product liability lawsuit is  “Alternative Liability Theory”.  This theory allows the plaintiff to shift the burden of proving which of the two or more defendants was responsible for their injury to those defendants in which the plaintiff cannot identify.  Under this theory the plaintiff still has to prove the product caused the injury; however, it relieves the plaintiff of the burden of identifying the source of the product and requires the defendants to prove they were not the source of the injury.  This theory also is a means to get the defendants to identify the guilty parties responsible for the injury in order to avoid being subject to liability themselves.

Of course since product liability law is subject to individual state laws, “Alternative Liability Theory” may not apply in your state.

A second reason so many defendants are often named on product liability lawsuits is because the plaintiff’s attorney could be sued for malpractice, if the attorney fails to name a responsible party to the lawsuit and as a result, the plaintiff misses out on receiving compensation for the injury.  Since legally the plaintiff’s attorney cannot bring the same lawsuit twice, it is the responsibility of the attorney to name all parties that could even remotely have any responsibility for the injury.

The third reason is what makes people so cynical about the legal system.  In the U.S. our Discovery rules are so liberal that attorneys have perfected the art of covering up potential defendants with discovery paperwork.  The costs to comply is so expensive that it is more often in the financial best interest of the defendant’s insurance carrier to provide a settle payment to get release from the lawsuit than to go to the expense of trying to comply with discovery. 

Simply put, by naming as many defendants as possible, the plaintiff’s attorney can increase the amount of money they can collect.  For example, the cost of complying with discovery could potentially cost $10,000; however, by settling for $7,000 the insurance carrier ultimately saves $3,000.  So the next time your insurance carrier decides to settle rather than fight or defend a frivolous product liability lawsuit you will understand that the settlement is based on pure economics.  If you are adamant about defending what you see as a frivolous lawsuit, your insurance carrier may agree to pay you the settlement amount and allow you to hire your own attorney to defend the claim.

An Epic (Kayak) Question For U.S. Companies Outsourcing In China

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Since I was born and raised in Charleston, SC, I was particularly interested in the story about the Charleston-based company’s, Epic Kayaks, lawsuit against its Chinese manufacturer.  

Apparently, Epic Kayaks had outsourced the manufacturing of its kayaks to Fu Yang Flying Eagle Boat Co., Ltd.  Unsatisfied with the project management of the boats being manufactured at Fu Yang Flying Eagle Boat Co., Ltd, Greg Barton, a two-time Olympic gold and bronze medalist and co-owner of Epic Kayaks decided to end their relationship with the manufacturer and move to another new factory in Fuyang.   According to Greg, Flying Eagle refused to release Epic’s molds and equipment unless it received fees and payments that would effectively put Epic Kayaks out of business.

Now for the interesting part – Epic Kayaks has filed a lawsuit in the intermediate level court in Hangzhou, China to gain control of their molds and equipment rather than pay the fees to Flying Eagle.

I think the million dollar question for every U.S. based company that outsources their products in China or every U.S. based company that is considering outsourcing in China is – is there a remote chance of a fair and impartial trial in the Chinese courts against a Chinese manufacturer?

The other question I have is – what role will politics play in the decision by the Chinese courts?  Will the Chinese court view a negative ruling against Epic Kayaks as more bad publicity at a time when Chinese manufacturing business is struggling with an economic downturn and much bad international press regarding overall product quality?

If Epic Kayaks is successful, it will be interesting what impact this will have with U.S. businesses and insurance carriers that provide product liability insurance for Chinese products.  Maybe confidence goes up for U.S. businesses and maybe some bold insurance carrier will decide to take a chance and sue a Chinese manufacturer that was responsible for a large product liability claim or product recall to recover some of the money it had to pay out in claims.

Product Liability/Product Recall and The Cost Of Human Life In The U.S.

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I heard something both comforting and disturbing at the same time the other day, when I was talking with a Product Liability wholesale broker. 

We were talking about a prospect that designed and manufactured big commercial slides for water parks and the type of claims typically associated with this product liability risk. 

The disturbing part of the conversation was that he said many of the big designers and manufactures of high risk products such as waterslides were taking their new designs overseas to sell before bringing them back to the U.S. to sell because the cost of a human life was so much less in other foreign countries than it is in the U.S.   In other words, if the design of the product turns out to be defective and people are injured or die, it is much less expensive to handle claims in other countries than the U.S. 

I guess the comforting part of this conversation was knowing that the products in the U.S. my children are using are much more likely to be safe because, if they are not, companies know that there could be a costly product liability lawsuit or an expensive recall of their products.

While I am happy that my children are safe, I am also a little sad that they do not get the opportunity to learn to dive off a diving board or swing on a tire swing because insurance premiums make it too expensive to provide such activities or products.

Obama And The Preemptive Defense For Medical Products

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Many of bloggers and journalist I read are convinced that Obama’s administration is out to completely strike down preemption as an effective defense by medical manufacturers.  While the Wyeth v. Levine preemption case was a big win for the U.S. trial lawyers and a big set back for the Bush Administration’s attempt to override a State’s rights concerning product liability law, I am not so sure that Obama will not support preemption as a defense for medical manufacturers in the future.

Past history shows that while in the Senate, Obama, went against party lines and U.S. trial lawyers and voted for tort reform.  So it is not a slam-dunk that he will look to completely do away preemption as a viable defense.

The bigger issue with preemptive defense for medical products is the FDA seems to ignore the risk/utility analysis  so commonly used in product liability lawsuits to determine if another product on the market at the same time as the alleged defective product would perform the same functions without the alleged defect.   It appears that the FDA routinely approves medical products that have similar uses as existing medical products on the market, but have more side effects without providing superior results.

This leads many to believe that the FDA is not a truly independent agency and that they may be coming under the influence of the big medical and drug companies.  As long as this continues to happen there appears to be no choice but to allow product liability lawsuits to determine if the injury in question could have been avoided.

If preemption is going to be used as an effective product liability defense, the FDA is going to have to tighten its approval guidelines so they have more credibility within the courts.

RV Manufacturer Sued For Failure to Warn

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The owner-operator of a new recreational vehicle filed suit against the manufacturer after the RV crashed, resulting in injuries. The owner said he was driving on an expressway and put the vehicle in “drive” so he could get out of the driver’s seat to walk to the rear of the RV to get coffee.  The driverless vehicle ran off the road and overturned.  The owner of the vehicle claimed in his suit that the manufacturer failed to provide a warning that automatic drive didn’t mean the RV could drive “automatically.”

Source:  Liable to Laugh: An American Specialty Companies Book Copyright 2004