Category Archives: Product Recall

Exposing Foreign Manufactures That Sell Defective Products

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The million-dollar question for many is – will the new searchable database (Section 212) provided by the Consumer Product Safety Commission hold foreign manufacturers that ship defective products into the U.S. more accountable?

Now that the CPSC requires product and package markings that contains information such as source of the product, it should be easier to identify manufactures that sell defective products.

It is my belief that many U.S. manufacturers hope the searchable database (Section 212) provided by the Consumer Product Safety Commission that publishes the name of the product and the manufacturer will impose enough of an indirect cost such as loss of consumer confidence and company credibility that foreign manufacturers looking to do business in the U.S. will have to invest more in product research and safety and therefore, even the playing field for more U.S. manufacturers to compete with regards to product pricing. 

U.S. Importers could be one the biggest benefactors of the searchable database.  Since it is next to impossible to litigate product liability issues against foreign manufacturers, U.S. importers are typically held entirely accountable for the safety of foreign made products.  By having a searchable database that quickly identifies the names of problem foreign manufactures, U.S. importers will be in a better informed and less likely to bring inferior products into the U.S. that could result in costly product liability trials and product recalls.

While the overall goal of the CPSC is to protect the U.S. public from defective products, the changes could also help U.S. manufacturers by imposing some of the same costs on foreign manufacturers for testing and product safety that they must incur in order to do business in the U.S. and it could potentially help U.S. Importers by avoiding foreign manufacturers that have a poor history of safe products.

Rule #1 – Take Product Customer Complaints Seriously

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The first step I recommend to every new manufacturer, importer and distributor is to have a system for collecting data regarding customer complaints. 

The data collection system can be something as simple as a sheet of paper that asks for name of the customer, address, phone numbers, fax numbers, email and nature of the problem or it could be one of the many available complaint management software’s available to businesses.

After you have collected the data, it is to your benefit to quickly identify the nature of the problem. If the problem is a manufacturing defect it may involve immediately halting production and identifying which batches of the product that were affected. If is was a design defect, you would want to halt production immediately and try to halt all potential shipments and recall any products with your customers. If it was a warning label or instruction defect, it may involve creating updating warning labels or instructions and repackaging existing products and sending new labels and instructions to your customers so they can attach or include with your products.  

Of course, these examples above are over simplifications, but you get the idea that without the data collection of complaints, you may be too slow to take any steps and find your self involved with a full blown product recall involving one of the federal agencies responsible for product safety.

Only through collection of customer complaints can you start to identify the defect or safety issue early enough so that hopefully you can address and solve the problems before the federal policing agencies such as Consumer Product Safety Commission; Food and Drug Administration; National Highway Traffic Safety Administration, Bureau of Alcohol, Tobacco and Firearms; Food Safety and inspection Service of the U.S. Department of Agriculture; U.S. Department of Housing and Urban Development; Environmental Protection Agency; Federal Aviation Adminstration; and U.S. Coast Guard have to get involved.

Once one of the federal policing organizations get involved, you face potential fines or jail time for non-compliance and huge financial expense to comply with all the necessary steps and regulation for an effective product recall.

Administrative Costs For Children, Household And Recreational Products On The Rise

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Let’s face it the Consumer Product Safety Commission has come under increasing fire from congress and the public because of the overwhelmingly large number of product recalls over the past few years – especially for foreign products imported into the U.S. It has become obvious that CPSC lacked the resources to adequately oversee all the things necessary to keep the American public safe.  As a result, on August 14, 2008 the President of the United States signed legislation that will reform the laws and regulations governing the CPSC. 

The U.S. Consumer Product Safety Commission is the federal agency responsible for overseeing product-safety recalls of toys, household products, recreational equipment, some vehicles, and consumer products not under the jurisdiction of other federal agencies.

Because we provide product liability insurance to a large number of manufacturers, importers and distributors of children’s, household and recreational products, I was particularly interested in how much compliance with CPSA of 2008 was going to cost in order to comply.

Below are 4 new administrative costs for businesses that manufacturers, importers and distributors of children, household and recreational products must bear:

  1. Permanent markings must be on all products to help identify them in the event of a product recall;
  2. Businesses must provide registration forms to consumers and keep accurate records of registered consumers;
  3. All children’s products must be tested by an independent testing company before they can be imported or distributed;
  4. Warnings that are on or with the products must also now be included in the advertising.

Business owners that do not feel compelled to comply with the new CPSC statutes are subject to much harsher penalties.  Civil penalties will rise to $100,000 per violation and a cap of $15,000,000.  Criminal penalties have also increased permitting imprisonment and forfeiture of assets.  Also, state attorney generals can sue companies for violation of CPSC statues.

While we believe that more needed to be done to protect the American public from the high number of unsafe products being imported, we also understand that the administrative costs for small businesses in the U.S. continue to make it more difficult for these businesses to be profitable and stay in business.

The U.S. Consumer Products Safety Improvement Act of 2008 Mandates Searchable Database for Consumers

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One of the most significant changes of the U.S. Consumer Product Safety Improvement Act of 2008 is the creation of a searchable database (Section 212) for consumers by the Consumer Product Safety Commission.  This one change could significantly impact a company’s reputation and product liability litigation.

CPSC is required to establish a searchable data base by October 2010 on the internet that consumers can access.  The information provided will identify the name of the product, the manufacturer’s name and provide reports on deaths and injuries caused by the product.  In order to make sure that no information on the website is materially incorrect or trade secrets are not exposed, manufacturers will be allowed to review and comment on the information before it is posted on the database.

This one change should help potential U.S. importers and distributors of foreign products to identify problem foreign manufactures and as a result, reduce the number of unsafe products brought into the U.S.  It may also increase product liability litigation because U.S. consumers will be able to identify more easily whether their product in question has a history or potential for harm and assist with gathering important facts to assist them with their product liability lawsuit.

4 Ways You Can Assume The Liabilities of The Company You Are Purchasing

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While in most cases the company that purchases the assets of another company does not inherit the seller’s liability, there are four exceptions every buyer should be aware of that might transfer liability to buyer or purchasing company.

  1. Examine the purchase agreement carefully.  It may require the buyer to assume the predecessor’s liabilities.
  2. The transaction might be viewed as a merger.  In a merger, the selling company or predecessor’s rights and liabilities transfer to the buyer or surviving entity.
  3. If the company buying the other company is a similar business to the company they are buying, it may be viewed as a continuation of the seller’s operation.
  4. If it is determined that the transaction was fraudulent or for the purpose of the seller to avoid liability, liability could be transferred to the company that purchased the assets.

If any of the above possibilities exist, I recommend that you not only carry a product liability policy with higher than average liability limits, but that you also carry a product recall policy for added protection of you assets.

Buying The Assets of A Similiar Business? – You May Also Be Buying The Liabilities!

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When one corporation buys the assets of another similiar corporation, they may also being buying the liabilities of that corporation.  In most cases, the buyer of a firm or corporation’s assets does not inherit the seller’s liabilities.  However, there is an exception when the acquiring corporation is similiar and possibly viewed as a continuation of seller’s operation.  In an instance like this, the buyer may be strictly liable for injuries caused by defects, even if the product was previously manufactured and distributed by the selling corporation.   

A perfect example of this is SFCA, Inc’ purchase of Simplicity, Inc.  SFCA, Inc., an affiliate of Blackstreet Capital Partners, LLC purchased the debt and then purchased the assets through a Foreclosure sale of Simplicity, Inc.   Simplicity, Inc. was a leading juvenile and baby furniture designer, importer and distributor.  SFCA, Inc designs, distributes and imports cribs, changing tables, toddler beds, bassinets, etc. so there is a definite similiarity between SFCA and Simplicity.

Currently, the Attorney General Lisa Madigan of Illinois, has brought a lawsuit against SFCA, Inc. because SFCA acquired the inventory of Simplicity in March of 2008 and continued to sell design-flawed bassinets to retailers, despite knowing the bassinet design was responsible for, at least, one infant death.  Apparently, SFCA refused to participate in the recall because it claimed it was not responsible for the design flaws, since it did not design the defective bassinets.

The million dollar question in my mind is – did SFCA act on the advice of their legal counsel or was this an executive decision by one or more of the officers of the company not to fully participate in the recall of these defective bassinets?   Surely, SFCA’s legal counsel would have made them aware of this legal precedent.  Regardless of who was responsible for this curious decision, I am guessing if SFCA only spends a million dollars to resolve this mess, they will consider themselves fortunate.  Hopefully, SFCA, Inc. carried both product liability and product recall insurance.

Additional Insured On A Chinese Product Liability Insurance Policy? – Whoop Tee Doo!

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If you are an importer of Chinese products and have been told by the Chinese manufacturer or distributor that you are covered by their product liability insurance policy, I recommend you read Linda Stamato’s article below.  After reading this article, you will have a better understanding of why your U.S. insurance carrier does not provide discounted rates on your U.S. product liability policy when you can provide proof you are Additional Insured on the Chinese manufactures or distributitors insurance policy.  Simply put, nobody with any experience in the product liability field has any confidence that any type of restitution be found in the Chinese courts, even if the case is an obvious slam dunk of manufacturing defect or design defect.

As reported by Linda Stamato of NJ.com: In the United States, we have no end of attacks on product liability litigation, consumer protection laws and class action lawsuits. (A visit to Americans for Tort Reform provides information and perspective on these efforts.) As this group and others question the “excesses” of lawsuits in compensating the injured and doubt their efficacy in bolstering product quality, consider what is taking place in China……  Read the Full Story on Toxic milk and poisoned babies: Product liability limits in China

Confidence in Chinese products is so low that I predict that more retailers and U.S manufactures that use Chinese parts in their finished products are going to start requiring the U.S. Importers and Distributors of these products to start carrying Product Recall Insurance with a third party endorsement that will cover the expenses of any third party (retailer) for the recall of any product that incorporates your product including the cost to repair or replace such product.

Why The Preemptive Defense Cannot Apply To All FDA Approved Products

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Over the past few years I have gone back and forth over whether preemption is good for the American public.

 

Many of the pharmaceutical and medical device company reps that contact me for product liability insurance quotes are quick to point out that there products should be better than average risk because of the preemptive defense, which allows federal law to preempt state laws and since their products are FDA approved they are protected by federal statute. The general rule with Preemption is that once the federal government enacts a statute on an issue, no state can enact contradictory laws

 

I do agree that it is reasonable to argue that the FDA has more expertise to determine what is in the best interest of the American public than twelve random jurors. However, when I see the FDA approving things such as the Ortho Evra birth control patch I believe it will be impossible for the preemptive defense to be used on all FDA approved products.

 

The Johnson & Johnson Ortho Evra birth control patch is a great example what is wrong with the preemption argument.

 

When a jury is asked to determine whether a product has a Design Defect they use commonly what is known as risk/utility analysis. One of the criteria of risk/utility analysis is the availability of a substitute product or products at the time of manufacture, sale or distribution, which would meet the same needs of perform the same functions as the product without containing the alleged defect.

 

Studies on the Ortho Evra birth control patch show this product has double the risk of the pill that is currently on the market. So far, 20 deaths have been linked to Ortho Evra and listed symptoms are deep vein thrombosis, blood clots in legs and lungs, pulmonary embolisms and stroke.

 

As long as the FDA continues to approve products such as Ortho Evra, when safer alternatives exist, it will be, in my opinion, impossible for courts to rule in favor of preemption.

Understanding The Differrences Between Product Liability, Product Recall and Impaired Property

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One of the most common confusions for many of the prospects and customers I come in contact with is there understanding the differences between Product Liability, Product Recall and Impaired Property.
 
Many people will wrongly assume that Product Recall and Impaired Products are covered by their Product Liability policy.  It is important to note that the standard ISO Product Liability policy form specifically exclude “damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of your product, your work or impaired property.”
 
The other most common mistake that prospects make when contacting me is assuming “Impaired Property or Products” are covered by a Product Recall policy. The trigger for product recall is when your product has caused bodily injury or property damage or poses an imminent danger of bodily injury or property damage. Impaired Property is “tangible property (other than your product(s)) that cannot be used, or that is less useful, because it incorporates your product(s) that is known or thought to be deficient, defective, or inadequate, but only if such property can be restored to use by the repair, replacement, adjustment or removal of your product(s).”  Most calls I receive regarding product recall the prospects are really looking for profit protection in the event they are required to warranty or pull their products because of their product is found to be defective or does not perform as promised and is returned by the end user for a refund. While it is possible to find Product Recall policies that will offer an “Impaired Property” endorsement, it is important to note that the “Impaired Property” endorsement does not cover your obligation to replace your product(s) or to refund the price paid for your product(s).  Impaired Property is specifically designed to provide some protection to the third party that incorporates your component or ingredient into the their finished product.
 
In summary, product liability does not provide coverage for product recall or impaired property and product recall does not provide coverage for impaired property without endorsement and impaired product does not provide coverage to replace or refund the price paid for your products.

Product Recall Vs. Product Guarantee – Know The Difference

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We often get calls from prospects wanting to buy product recall insurance. After a little while of discussion it becomes obvious that most of the prospects are really looking for product warranty insurance. It is important to understand that the trigger for Product Recall Insurance is the potential for the product to cause bodily injury or property damage and as a result, is considered to be unsafe and must be removed from the market or public. Product warranty is much more passive and involves a promise to repair or replace or refund the purchase price of a product because it fails to meet a particular standard of performance.
 
 Increasingly, large retailers are asking manufacturers, distributors and wholesalers to warranty their products in the event they fail to perform to a reasonable standard for the retail customer and the retailer is forced to take back the products and provide refunds.
 
Most manufacturers or importers that contact me are looking for an inexpensive way to protect their profits in the event they are forced by warranty or indemnity agreement with the distributor to take back product. To the best of my knowledge, there are no insurance carriers willing to provide this type of insurance coverage. Most warranty insurance coverages are extended warranties for the repair of automobiles and equipment such as electronics, washing machines, etc. 
 
Important point – product warranty insurance is provided for the end user. For example, when you buy a car or washing machine, you can purchase an extended warranty insurance to cover repair or replacement costs. This insurance is a money maker for the retail establishment and the insurance carriers that provide this coverage.
In most cases, companies that call and ask for product recall or product warranty insurance are in fact looking for cheap insurance that would protect their profits in the event they would have to take back their product because the product was defective or simply did not perform as advertised.