Follow these tips to prevent the liabilities of the company you’re purchasing from transferring to you with the sale.
If any of the above possibilities exist, I recommend that you not only carry a Product Liability Policy with higher than average liability limits. I also advise buying a Product Recall Policy for added protection of your assets.
The buyer may be strictly liable for injuries caused by product defects. This is so even regarding previously manufactured and distributed products in the case of point #4 above..
A perfect example of this is SFCA, Inc’s purchase of Simplicity, Inc. SFCA purchased the debt and then purchased the assets through a foreclosure sale of Simplicity. Simplicity was a leading juvenile and baby furniture designer, importer and distributor. SFCA designs, distributes and imports cribs, changing tables, toddler beds, bassinets, etc. A definite similarity exists between the two companies..
The State of Illinois brought a lawsuit against SFCA because SFCA sold bassinets with a design flaw that it acquired from Simplicity to a retailer. They did so knowing the bassinet design was responsible for at least one infant death. SFCA refused to participate in the recall, claiming it was not responsible for the design flaws since it did not design the defective product.
The question in my mind is whether SFCA acted on the advice of legal counsel or did officers of the company make an executive decision? Regardless of who is responsible for this curious decision, if SFCA only spends $1 million to resolve this mess they should consider themselves lucky. Hopefully, SFCA carried both Product Liability and Product Recall insurance.
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