PRODUCT LIABILITY IN THE UNITED STATES
Companies selling products in the US are generally subject to US product liability law if they are considered a “manufacturer” or are part of the distribution chain. If a product consists of multiple components, each individual supplier is considered a potential manufacturer. This product liability applies regardless of how the product reached the country and by whom it was sold. As most people are aware, the economic impact in the event of a claim can be extremely serious in some cases. Prevention is therefore of the utmost importance. In the following, we explain the basic principles of product liability and how you can protect yourself against claims for damages.
When does product liability arise?
Product liability arises when typical product risks occur. These risks consist of:
- Manufacturing defects
- Design defects
- Missing, misleading, or incorrect instructions
- A lack of warning labels on the product
In the case of a manufacturing defect, the product deviates significantly from other products in the product line. Typical examples of manufacturing defects include material defects or improper assembly. Design defects occur when the product does not meet general quality requirements. These are assessed based on consumer expectations or a cost-benefit analysis. For example, a product is defective if it does not meet the reasonable safety expectations of an ordinary user. Consumer expectations may be lower in this context than generally expected. In addition, the manufacturer is required to continue monitoring the product. For example, if there are an increasing number of complaints that indicate a possible product defect, and this potentially poses risks to users or third parties, the manufacturer must take proactive measures.
However, the primary concern in preventive measures with regard to product liability is the “failure to warn.” This means that the operator/user was not adequately warned of particular risks involved in using the product and did not receive sufficient instruction in its use. Companies are obligated not only to produce a “safe” product, but also to instruct the operator/user in the product documentation in the proper installation, use, and maintenance of the product in accordance with US standards.
These US standards often differ substantially from German instruction manuals, which are usually too technical and too short for operators/users in the United States. Operating and service manuals for products, brochures, promotional material, and websites should therefore be adapted to the current US standards for product liability. These standards may even vary from state to state. This means there is an increased need for the manufacturer to provide appropriate information in the form of warnings on the product itself and in the product documentation. The documentation must be prepared so that it clearly indicates the specific places or situations where dangers may arise and simultaneously shows how these dangers can be avoided, for example by taking precautions.
Requirements for asserting compensation claims due to product liability
Product liability is usually strict liability, which means that it is irrelevant whether the manufacturer of the product causing the damage knew or should have known that the damage could occur.
In principle, three conditions must be met for a compensation claim:
- There must be a construction (design), manufacturing, or instruction defect in the product.
- The operator/user must have suffered health or material damage.
- The damage must have been clearly caused by the defect in the product.
Statistically speaking, only about 3 percent of all product liability cases result in a relevant verdict (an out-of-court settlement is often reached). Of these verdicts, only about half are guilty verdicts against the defendant companies. Most of the rulings are in an economically reasonable range (approximately $20,000–$40,000). In exceptional cases, of course, those notorious multimillion rulings can be handed down. However, they are exceptionally rare and usually result from extreme gross negligence on the part of the manufacturer.
But in any case – regardless of the verdict – each party must bear its own legal costs in the US. So in the case of a product liability lawsuit, costs will be incurred in any case, even if it is subsequently found that the manufacturer is not at fault.
We advise taking a number of measures to prepare yourself in case a product liability lawsuit should arise:
- Devise the composition, construction, design, etc. of products where possible to take into account all potential use or consumption scenarios by the user (and, in contrast to European law, you must base your assumptions on a different understanding of the consumer)
- Comply without exception with all standards and regulations recognized and required by local and national US authorities
- Implement highly developed and verifiable quality controls in the production process (for example, ISO certification is very useful for defending a product liability claim in court)
- Attach labels, warning symbols, and notices directly to the product if possible. Care should be taken here to ensure that they are legible and understandable and possibly also provided in other languages. Information in the form of symbols/graphics or possibly also in Spanish is therefore also recommended. The labels must also be visible in the event of private resales
- For products that require explanation, it is recommended that training be provided to the customer or sales staff, or that such training be required
- Document all measures taken as accurately and completely as possible
- Prepare and test an emergency plan in the event of recalls
Product liability insurance
One way to protect yourself is by taking out product liability insurance. Nonetheless, it’s important to bear in mind that these policies do not insure against punitive damages. However, the costs incurred during product liability proceedings are usually covered.
If you take out a product liability insurance policy, this should, if possible, be purchased from a US insurance broker, provided that you have a subsidiary in the US. This option isn’t available if you don’t have a subsidiary, but product liability insurance can also be obtained from a European insurer. It should be noted that distributors in the US usually accept these policies only if the insurance policy specifically includes the US.
In many cases, the same product is insured by the producer, distributor, and retailer. It therefore makes sense to consult with all the stages involved in the retail process in advance and, if necessary, to take out joint insurance.
Product liability insurance is often stipulated as a prerequisite by major distributors and retailers before they will even include the product in their range.
Despite the risk of being exposed to product liability claims in the US, you can take steps to protect yourself accordingly. You should seek legal assistance from law firms, particularly with regard to reviewing product documentation. Our team of lawyers will be happy to revise English-language documentation to make sure that it includes a memorandum with the necessary hazard statements and warnings, which are known as “disclaimers,” as well as any other essential information, such as copyright notices. If you have any questions or comments about the above, please do not hesitate to contact us.