Graco And Simplicity In The News Again

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How does the Graco and Simplicity product name survive and apparently continue to thrive, when it seems it has a major product recall about every other month?

Over the last ten years Graco and Simplicity has distinguished itself as one of the most embattled and recalled company’s in the history of the United States, yet it seems to be able to continue to live up to it’s business model of delivering inexpensive baby and children’s products.  During this time, products such as cribs (suffocation), strollers (finger amputations), high chairs (falls), car seats (choking), toddler beds, swings, walkers, baby carriers, bassinets and toys have been recalled by the millions.  The cost alone to handle all the recalls and product liability lawsuits has to have reached into the hundreds of millions of dollars over the past ten years.  I guess the Civil Penalty imposed by the CPSC of $4M for not reporting known product defects in a timely manner must have seemed like a small slap on the wrist.

I have to believe somewhere some college professor is teaching a class based on the business model of Graco.  You have to give Graco their props.  Despite it’s name being negatively being associated with baby and children’s injuries and deaths and spending hundreds of millions in fines, product recalls and product liability lawsuits they appear to not only survive, but to thrive and remain profitable.

State To State Variability – Statute of Limitations

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This is the third blog in the series of “State To State Variability”.  The point of this series is to point out to the reader how particular state laws are statutes can impact the outcome of a product liability lawsuit and how they can vary so much from state to state.

 Statute of Limitations laws place a time limit on how long an injured party has to file a product liability lawsuit, after the time of the injury.  After the time limit has expired, an injured party loses the right to file a product liability lawsuit, unless a legal exception applies. For most states, a product liability claim must be filed within 2 to 4 years, after the injury.

 While the Statute of Limitations appears to have less variability from state to state than Joint And Several Liability and Statute of Repose, the real variability lies primarily with the legal exceptions.  When legal exceptions exist, it allows the Statute of Limitations to stop running. Typical legal exceptions are when a victim was a minor or mentally incompetent at the time of the injury or the defendant is in bankruptcy.  For example, in the state of New York, a minor has 3 years after their 18th Birthday to file a product liability lawsuit. 

Claims-Made Policies and Children’s Products

Because most states allow, at least, until the eighteenth birthday of a victim to bring a product liability lawsuit, claims-made policies are not a good fit for businesses that manufacture, import or distribute children’s products. 

To state it as simply as possible, once a claims-made policy is cancelled or non-renewed, there is no product liability coverage for any prior injuries or incidences involving your products.  To have a claim covered by a claims-made policy two things must exist – you must have the injury and the claim during the policy period.  In other words, you must keep renewing your claims-made policy or, if you switch policies, you must have the new insurance carrier to endorse your new policy to include the retro-date (original effective date of our first claims-made policy) of your first insurance policy.

The other issue for children’s businesses is the large retailers of children’s products are all too aware of the legal exception for minors that stop the statute of limitations from running.  As a result, most of the large retailers will require providers of children’s products to have an occurrence-based policy.  Unlike a claims-made policy, an occurrence-based policy only requires an incident or injury to provide coverage.  So all prior incidences or injuries to the cancellation or non-renewal of an occurrence-based policy would still be covered by the insurance company.

In summary, while it is tempting to purchase a claims-made policy because premiums can be 30 to 40% less than an occurrence-based policy, most of the major retailers are aware of the legal exception for minors and, as a result, will contractually require their vendors to have an occurrence-based policy in order to do business.  Also, from a pure risk management point of view, the owners, principles and stockholders of a children’s business should be able to sleep better at night knowing the occurrence-based policy will still provide product liability coverage for incidinces or injuries prior to the policy being cancelled or non-renewed.

State To State Variability – Statute of Repose

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A common theme in many of my blogs is the impact individual state laws or statutes can have on the outcome of a product liability lawsuit.  It is, in my opinion, possible to take the exact set of circumstances of a product liability lawsuit and have different outcomes in different states.  Product liability laws or statutes are created by state legislators and can be very different from state to state.  While there have been attempts to create federal preemption for medical products, all too often state laws continue to prevail over the federal preemptive defense.

One of the state laws that can have a major impact on the outcome of a product liability lawsuit is the Statute of Repose.  The Statute of Repose prevents product liability lawsuits against the manufactures, importers, designers and distributors of products based on the age of the product.  However, only 19 of the 50 states have Statute of Repose laws to protect businesses from product liability lawsuits.  Most of the states that have Statute of Repose laws limit product liability lawsuits somewhere between 5 to 12 years after the sale of a product.  Two states, Arizona and Rhode Island, have found Statutes of Repose laws for products unconstitutional.

One of the industries that is very familiar with Statute of Repose laws and the impact they can have on a product liability lawsuit is the Tree Stand industry.  For example, if a kid where to die or become a quadriplegic in a state with a 10 year Statute of Repose law and the age of the tree stand was 11 years from the date of sale, the manufacture, designer and sellers of the tree stand could be protected from a product liability lawsuit because of the 10 year deadline was exceeded.  However, in another state that did not have a Statute of Repose law, the manufacture, designer and sellers of the tree stand could find themselves named as defendants in a product liability lawsuit and, at the very least, incur discovery and settlement costs and, at the worst, large monetary judgments by a sympathetic jury.

Retailer Will Pump You Up With Undeclared Steriods

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I just read an online article, “Retailer Pulls Supplements with Alleged Steriods”, in which online retailer Bodybuilding.com is having to recall lots of 65 dietary supplements that are believed to contain steriods such as androstenedione, superdrol, madol and tren.

This article supports a previous blog I wrote, “Health Supplements Biggest Problem – Undeclared Substances”.  In this blog I reference a study that indicates that up to 25% of all health supplements in the market could contain undeclared substances.  This study did not indicate that all the undeclared substances were harmful, but it is, just the same, disconcerting not knowing what is going into your body when you take a health supplement.

What I find fascinating is that while the folks at bodybuilding.com maintain that they were not aware of any unlawful substances going into their health supplements, I cannot help but wonder, since they were in the body building business, if they were trying to gain an unfair advantage over their competitors.  If you go to their website, you will see grandpa’s before and after pictures.  In the after picture, grandpa has a body most 26 year old guys could only dream of.  Give me what he is taking! On second thought, I think I will pass.  If steriods were unknowingly in his health substances, he could have an increased risk of heart attack, stroke and death, not to mention acute liver damage, shrinking testes and male infertility.

I wonder what Bodybuilding.com’s product liability insurance carrier is thinking.  My bet is their product liability policy has either been cancelled or they have been notified that they will be non-renewed.  The policy was more than likely a claims-made policy and once cancelled will not cover any of the  prior or future incidences by their customers such as liver damage, stroke, etc. that may have been caused by unknowningly ingesting steriods. 

I, also, wonder what person liability will be assigned to the owners or stockholders of the company in the future, if it turns out that there was knowledge that steriods were being used in their dietary supplements.  Every General Liability policy has an exclusion for intentional acts and even if a product liability lawsuit was filed against the company, it is likely their insurance carrier could deny coverage.  With no insurance coverage for the company, plaintiffs may have a case to go after personal assets of the company principles.

State To State Variability – Joint & Several Liability

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If you are a business selling products in the U.S., nothing exemplifies better how state laws can impact your business more than Joint and Several Liability.   

We know from my previous blog, “Why Naming Multiple Defendants In A Lawsuit Is Common Practice”, that it is typical for the plaintiff’s attorney to name as many defendants as possible, when there is a product liability lawsuit.   However, what may surprise you is that even if you have only marginal ties to the product that is responsible for the product liability lawsuit you could potentially be responsible for paying the lions share of the damages or even paying all of it. 

How can this be? This is not fare! What kind of law would allow this to happen?

Joint and Several Liability was created to make sure the injured party or plaintiff was able to be made whole, even if one or more of the defendants are unable pay their share of the product liability monetary damages.  Many of the critics of Joint and Several Liability refer to this approach as the “deep pocket” rule because of the potential of a product liability lawsuit becoming a search for the “deepest pockets”.

Over time tort reform efforts have led to many states limiting the applicability of pure joint and several liability.  Currently states are using one of the following three approaches when distributing financial liability of defendants:

  1. Pure Joint/Several Liability – Each defendant in a product liability lawsuit is responsible for the entire amount of the damages, regardless of amount responsibility or liability each defendant had.  Currently, 16% of states use Pure Joint and Several Liability, including my fine state, South Carolina.
  2. Pure Several Liability – Each defandent is only liable for their assigned portion of the damages, based on their percentage of responsibility or liability.  For example, manufacture and designer of a faulty product would have a higher percentage of responsibility or liability than the retail distributor of the product.  Currently, 28% of the states use Pure Several Liability.
  3. Modified Joint/Several Liability – This is somewhere between Pure Joint/Several Liability and Pure Several Liability and can vary greatly state to state.  Currently, 56% of the states use Modified Joint and Several Liability.

Overall, the point of this blog is that life is not fare and if you are a business that distributes products in all or most of the 50 states, the amount of monetary damages your business may be responsible for paying could largely depend on the state in which the product liability case is being tried. 

If you want to know which states use Pure Joint and Several Liability, Pure Several Liability or the Modified Joint and Several Liability, simply click on this chart.

Product Liability Claims Can Be Unpredictable

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I was reviewing the website, www.recalls.gov, the other day with one specific thought in mind – how many products are on the recall list that you would never classify as high risk, but are considered dangerous enough to be recalled or removed from public use?

Keep in mind that recalls are simply not for defective products that do not work as intended.  To implement a product recall there must be some evidence that the product presents an imminent danger to cause bodily injury or property damage.

The following items may surprise you to be on the product recall list:

  • Denture cream
  • Foot Warmer
  • Car Floor Mats
  • Coffee Mugs
  • Office Chairs
  • Candle Holders
  • Women’s Robes
  • DVD Players
  • Flashlights
  • Women’s Shoes
  • Indoor Light Fixtures
  • Key Chains
  • Computer Batteries
  • Entertainment Stands
  • Window Blinds

The point I am trying to make is that all of the manufacturers, importers or distributors of these products could not have anticipated the type of problems they are currently experiencing. 

So the next time you feel like paying for product liability insurance is a rip off, I recommend you go to www.recalls.gov and look at all the products being recalled and ask yourself if your business could survive without product liability or product recall insurance, if one of your products ended up on the list.

Nanotechnology – The Great Unknown!

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Back in December of 2008 I wrote a blog “Insuring Nanotechnology Still Up In The Air”.

 In the article, I stated that because insurance carriers viewed nanotechnology as potentially the next “asbestos” it would be difficult to insure and that nanotechnology business development would probably be forced to ‘creep at a snails pace”.

It turns out that, maybe, I was wrong. According to Lux Research, a consultant on emerging technologies, Nanotechnology business is expected to increase thirty fold.  It is expected to increase from $100 billion in 2007 to $2.6 trillion in 2014.  It is thought that, as much as 15% of all manufactured products will rely on some type of nanotechnology by 2014.

The interesting part of the from a product liability insurance point of view is how many insurance carriers are going to line up to provide product liability policies for nanotechnology businesses.  Ultimately, larger companies, such as DuPont and 3M, could either self-insure or bring enough premium to the table to attract some insurance carriers to provide product liability coverage.  However, with some claims already being filed with some sunscreen companies that use nano particles in their products, it is my opinion that most of the insurance carriers are going to wait before jumping in to provide product liability coverage for the new emerging nanotech products.  The insurance carriers are going to want a proven track record of no claims before making product liability insurance policies available to small and medium size companies.

The insurance companies’ primary concern is that since nanotech particles can be smaller than a virus and can easily penetrate or be absorbed by human tissue, they may be handling severity related claims such as cancer, similar to the thousands of past and pending asbestos claims.

One thing that is a sure thing – product liability trial lawyers are already having seminars in far away exotic locations and are preparing their strategies on how to hit a home run similar to the home run hit with asbestos.

The Electronic Discovery Trap

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In a recent blog, “Why Naming Multiple Defendents In A Lawsuit Is Common Practice”, I talked about the liberal discovery rules in the U.S. and cost to comply when named as a defendent in a product liability lawsuit.

I wanted to expand on this because so many of the businesses that contact us have never been through a lawsuit and do not have any concept of how extremely expensive it is to comply with discovery in today’s electronic and technological world.

Often overlooked in today’s modern world is the fact that plaintiff attornies have spent the last 20 years perfecting the art of electronic discovery and how to use it against the defendents as a way of making them spend money. 

Did you know that defendents are required to preserve every email? If the emails are in an old system, defendents are required to search out and discover emails in old systems that are no longer supported and make this information available to the plaintiffs in whatever format they want to read it.  Not only is it expensive to ferret out the emails, but what if the emails contain sensitive materials that are protected by HIPPA privacy laws?  The cost to comply goes up.

I think you get the picture.  Even if you have no liability in the lawsuit, our liberal discovery rules in the U.S. allow the plaintiff’s attorney to force you to spend a great deal of money to comply with discovery.  The higher the costs to you the greater the asking price by the plaintiff’s attorney to reach a settlement.

Defense Costs Inside or Outside The Limits of Liability?

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When buying a surplus lines product liability insurance policy, you are often presented with product liability quotes that indicate the defense costs are inside the limits of liability.  If you read your proposal or quotes carefully, you will often see the option of adding defense costs outside the limits of liability for an additional 10% premium charge.

Why is this important? Before I can answer this it is important that you first understand what it means to have defense costs inside or outside the limits of liability.  If your defense costs are inside the limits of liability, any lawyer fees, investigation expenses, defense expenses and appeal expenses erode your limits of liability.  In other words, if all these expenses add up to $500,000 and you have a $1,000,000 per occurrence limit on your product liability policy, you only have $500,000 left to pay a judgment or settlement.   If your defense costs are outside your limits of liability, lawyer fees, investigation expenses, defense and and appeal expenses of a claim will not reduce your liability limits.

This may not appear to be a big deal on the surface, but if you had a bad batch of defectively manufactured products, you may find yourself faced with multiple claims.   Recent data indicates the national average cost to defend a product liability claim is $876,000.   A $1,000,000 per occurrence with a $2,000,000 aggregate liability limit could be exhausted very quickly and you could find your business with no limits left to pay the judgment or settlement of additional claims very quickly.

Once the liability limits have been exhausted, your insurance carrier no longer has any obligation to pay any claim, judgment or claim expense or to defend or continue to defend your company.

So when purchasing or renewing your product liability policy, review it carefully and if your defense costs are within the limits of liability, think very carefully about spending an additional 10% to add your defense cost outside the limits of liability.  It could mean the difference between success and failure as a business.

Intellectual Property Insurance – The Most Underrated Insurance!

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Did you know that Intellectual Property (patent, copyright, trademark) claims are 5 times more frequent than Directors & Officer (shareholder) claims?  Yet, while most companies carry D&O insurance, very few companies will cover their intellectual property exposure.

Intellectual Property insurance reimburses the litigation expenses to enforce or defend against Intellectual Property infringement and protects against certain violations involving patent, trademark and copyright infringement.

The average patent infringement lawsuit cost $2.6MM, when the amount in controversy is between $1MM to $25MM.  The median litigation expense for an infringement suit through trial can range from $250,000 for copyright to $2,000,000 for patent.

With the economic downturn and companies’ operating revenues being less liquid or non-existent, a company’s ability to adequately defend itself in an Intellectual Property infringement lawsuit may be the key its survival.

By not having Intellectual Property Insurance you face the following risks:

  1. Abandon your accused products.
  2. Try to obtain a license from the accuser from a position of weakness.
  3. Defend yourself by using your cash reserves and available credit lines.

In my opinion, importers should be twice as cautious of getting embroiled into an infringement claim.   Since the overseas manufactures do not share in any of the risk of an infringement claims or expense, they are not as diligent or concerned about potential infringement claims.  I have seen countless instances and claims involving artwork on imported products and packaging.  For example, rug importers have to pay particularly close attention that their rug patterns are not similar or the same as their competitors and many of the foreign outsourcing manufactures have garnered bad reputations for using the same artwork on packaging for their different customers as a way to hold down development and production cost.