Category Archives: Foreign Liability

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.

Common Mistake By U.S. Importers of Foreign Products

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All too often, importers that contact me assume that the foreign manufacturers that they buy their products from share some liability in the event of a product liability claim in the U.S. - particularly if the foreign manufacturer says they have a product liability policy. 

Unless that foreign manufacturer’s policy has a worldwide endorsement that specifically states it will cover product liability claims in the U.S. courts, that foreign product liability policy is useless to the importer. 

The fact is the importer is at the top of the pyramid when it comes to responsibility to ensure that any products brought into the U.S. are safe for use by the American public.  This is why it is common for importers to be classified as manufactures for insurance rating purposes by the product liability insurance carriers because any product liability claims involving manufacturing defect will stop with the importer. 

So if you are an importer, do not assume that, even if the foreign manufacturer has a product liability policy, that the manufacturer has your back or will be responsible for any product liability claims brought in the U.S. involving your imported products.  It is more than likely you are on your own to handle any and all product liability claims.

How Purchasing Foreign Liability Insurance May Reduce Your Product Liability Insurance Cost

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Many of the U.S. manufactures and distributors that contact me looking for a product liability insurance quote and export products to countries outside the U.S. are often unaware there is often a large difference between U.S. product liability insurance rates and foreign product liability rates.  In many cases U.S. exporters are not always aware that another option exist because local and general agents are not aware of all the options when it comes to product liability.

While it is, in most cases, safe to assume that your insurance policy will cover you in the event you have a foreign product liability lawsuit, it is important to understand that most of the U.S. product liability insurance policies will only cover foreign product liability claims that are brought back into the U.S. courts. 

The problem with allowing foreign product liability claims to be heard in the U.S. courts is it is usually much more expensive than the alternative of having the claim heard in the country of origin.   The first reason for this is contingency fees. In the U.S., lawsuits can be brought with little or no expense to the litigant and therefore, there is no cost to the litigant and no reason not to “roll the dice”.  The result is often frivolous and marginal lawsuits in the hopes of “hitting the jackpot”.  Contingency fees are simply a percentage of settlement or judgment awards so the litigant pays nothing if nothing is won or recovered by the litigant’s attorneys. The second reason is the liberal discovery rules in the U.S.  It has become an art for U.S. law firms to cover-up defendants with discovery materials. The cost for a defendant to comply is enormous. Even when it is obvious that the defendant has no negligence or role in the lawsuit, the defendants’ insurance carriers are often willing to pay thousands of dollars to get their names released from a lawsuit because it cheaper to settle than respond to all the discovery materials. The third reason is punitive damages.  Punitive damages allows the jury to reward further damages on top of compensatory damages.  If a plaintiff can show the defendants behavior was egregious and callous, punitive damages may be awarded.  While in many cases proving gross negligence can be a daunting task, foreign product liability litigants may have the luxury of venue shopping to find more favorable forums or courts in the U.S. to have their cases heard and therefore, increase the chances of finding a more sympathetic jury pool and receiving punitive damage awards.

In summary, for many U.S. exporters of products that are considered very high risk such as chemicals and critical aircraft and auto parts, foreign liability insurance will likely not be available. For all other U.S exporters, when the foreign liability insurance coverage is available it should save you considerable money by have purchasing this insurance and excluding Worldwide coverage on their U.S. product liability insurance policy.