Post-sale Duties: How to Comply and How to Defend Product Liability - - PowerPoint PPT Presentation

The audio portion of the conference may be accessed via the telephone or by using your computer's

• speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

Presenting a live 90-minute webinar with interactive Q&A

Post-sale Duties: How to Comply and How to Defend Product Liability Litigation after Recalls

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, APRIL 4, 2017

Kenneth Ross, Of Counsel, Bowman and Brooke LLP, Midway, Utah George W. Soule, Partner, Soule & Stull, Minneapolis

Tips for Optimal Quality

Sound Quality If you are listening via your computer speakers, please note that the quality

• f your sound will vary depending on the speed and quality of your internet

connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-866-869-6667 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

FOR LIVE EVENT ONLY

Continuing Education Credits

In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you email that you will receive immediately following the program. For additional information about continuing education, call us at 1-800-926-7926

• ext. 35.

FOR LIVE EVENT ONLY

Program Materials

If you have not printed the conference materials for this program, please complete the following steps:

• Click on the ^ symbol next to “Conference Materials” in the middle of the left-

hand column on your screen.

• Click on the tab labeled “Handouts” that appears, and there you will see a

PDF of the slides for today's program.

• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.

FOR LIVE EVENT ONLY

Post-Sale Duties: How to Comply and How to Defend Product Liability Litigation after Recalls

Kenneth Ross and George W. Soule April 4, 2017

5

RECALLS: Common Law and Regulatory Law

Kenneth Ross Bowman and Brooke LLP

kenrossesq@gmail.com

6

Why discuss post-sale issues?

• “…post-sale warnings are probably the

most expansive area in the law of products liability”

• “timeless”
• “monster duty”

Henderson and Twerski

7

Why discuss post-sale issues?

• Potential penalties from government have

increased

• In recent study, over 70% of punitive damage

awards based on failure of manufacturer to take adequate post-sale remedial actions

• Legal requirements to report and undertake

remedial programs have increased in U.S. and elsewhere

• Plaintiff’s attorneys are beginning to understand

and will attack manufacturer for failure to comply

8

• U.S. Regulatory

– Consumer Product Safety Commission – National Highway Traffic Safety Admin. – Food and Drug Administration

• U.S. common law
• Foreign regulatory

– EU, Canada, Australia, Japan, South Africa, Taiwan, China, Brazil, etc.

Legal Requirements

9

U.S. Common Law

10

Post-Sale Duty To Warn

“Although a product [may] be reasonably safe when manufactured and sold and involve no then known risks of which warning need be given, risks thereafter revealed by user

• peration and brought to the attention of the

manufacturer or vendor may impose upon one

• r both a duty to warn.”*

*Cover v. Cohen, New York Court of Appeals (1984).

11

Balancing test – Common law and Restatement 3d

• Post-sale warning is to be provided if:

– substantial risk of harm – users can be identified and can reasonably be assumed to be unaware of risk – can be effectively communicated to those at risk and acted upon; and – risk of harm is sufficiently great to justify burden

12

Independent claims

• Most states have adopted some form of post-

sale duty to warn.

• Plaintiff may sue on two theories: selling a

defective product (strict liability and negligence) and post-sale failure to warn (negligence).

• Seller cannot absolve itself of liability for selling

a defective product by issuing a post-sale

• warning. Seller can negate negligence in the

post-sale allegation.

13

Common Law

• No duty to recall; however can be liable for

negligent voluntary recall or if government

• rders a recall
• Actions by government agencies (orders,

civil penalties, documentation) can get into litigation

• Foreign actions can also get into U.S. cases

14

What is adequate?

• Based on negligence
• Whatever the jury thinks is adequate
• Could manufacturer have done more, should

they have done more (generally no common law duty to recall)

• Compliance with regulatory requirements may

not provide a defense

15

U.S. Regulatory Law

16

Report to CPSC

• fails to meet a consumer product safety

standard or banning regulation,

• fails to comply with any other rule,

regulation, standard or ban under the CPSA

• r any other Act enforced by the

Commission,

• contains a defect which could create a

substantial product hazard to consumers, or

• creates an unreasonable risk of serious

injury or death (no defect required) Fines for failure to report or late reporting

17

CPSC Criteria for Substantial Product Hazard

(Reporting and Recall)

• Pattern of defect
• Number of products in use
• Severity of risk
• Likelihood of injury
• Applies to hazards anywhere in world
• Non-U.S. recall is a factor to consider
• Litigation and settlements are a factor

18

Report to NHTSA

• Report to NHTSA required if vehicle or

accessory contains a “safety-related defect.”

• Recall necessary if that defect presents an

“unreasonable risk” to “motor vehicle safety”

19

Report to FDA

• Malfunction
• Serious injury or illness
• Death

20

International Regulatory Law

21

Canada

22

EU GPSD Safety Obligation

…any product which, under normal or reasonably foreseeable conditions of use … does not present any risk or only the minimum risks compatible with the product's use, considered to be acceptable and consistent with a high level of protection for the safety and health of persons…

23

Reporting in Australia

• Actual death, serious injury or illness (anywhere

in the world)

• Recall undertaken (anywhere in the world)
• Level of risk not applicable
• Need actual knowledge by Australian supplier

24

Other countries

• Japan
• Korea
• South Africa
• Brazil
• China

25

Preparing Pre-sale and Post-sale

26

Pre-Sale Advance Planning

• Design issues
• Contracts
• Traceability and marking
• Ability to identify customers, including social

media efforts

• Public communications
• Determine legal reporting responsibilities
• Checklists, personnel and committees

27

Pre-Sale Advance Planning

• Finance and accounting
• Early warning systems
• Record creation and retention
• Training/mock recalls
• Reintroduction
• Audit

28

Information Gathering

• Claims, accidents and lawsuits
• Complaints from consumers and users directly

and via social media

• Warranty returns
• Observations by service personnel
• Parts sales

29

Information Gathering

• Information from government
• Information from competitors and trade

associations

• Information from vendors
• Information from Internet (i.e. blogs

and social media)

30

Decision Points

• Post-sale duty?
• Duty to report to government?

– Which ones?

• Duty to perform corrective action?

– What to do – recall, repair, replacement?

• Only on future products
• Only on products in field
• On future products and products in field

– Where?

31

Managing the Recall

32

33

34

Recall Checklist

• Identify defect/safety issue
• Stop production
• Isolate inventory to be recalled
• Determine appropriate remedy
• Test replacement/repair

35

Recall Checklist (cont.)

• Repair/Dispose units on hand and units

returned under the recall

• Discuss all aspects with CPSC Compliance

staff

• Redesign future production to eliminate

hazard

• Change model/serial number for redesigned

product

• Where product changes are made to existing

products, label so as to distinguish from recalled products

36

High-tech Developments

• Communicate by email to customers,

distributors, retailers, etc.

• Video and text messages on website.
• Web based registration for returns
• Increase ID of customers
• Increase response rate

37

38 38

39 39

CPSC - Class A Hazard

• Exists when a risk of death or grievous injury or

illness is likely or very likely, or serious injury or illness is very likely.

• Class A hazards warrant the highest level of
• attention. They call for a company to take

immediate, comprehensive, and expansive corrective action measures to identify and notify consumers, retailers and distributors having the defective product and to remedy the defect through repair or replacement of the product, refunds, or other measures.

40

FDA Recalls

• When a company undertakes a recall, the FDA

performs a Health Hazard Evaluation that decides on a risk level based, in part, on probability and severity of harm and designates a recall classification (21 CFR Sec. 7.41).

– Class I is for hazards that will cause serious adverse health consequences or death. – A class II hazard is for the remote probability of temporary or medically reversible adverse health consequences. – And class III is where a violative product is not likely to cause adverse health consequences.

41

Recall Insurance

42

Coverage

• Policy is triggered by a voluntary,

involuntary or mandatory stock recovery, market withdrawal or recall (by or on behalf of the insured, its customer or a regulatory body.

• Unsafe insured product has resulted in or

would result in bodily injury or property damage.

43

Protection

• Reimbursed insured for expenses and other

financial loss which are typically excluded in a General Liability policy.

– Costs of performing recall – Consultant costs

• Extra coverage for

– Replacement costs (i.e. refunds) – Loss of profit – Rehabilitation costs – Consequential damages

44

For more information, see www.productliabilityprevention.com

45

RECALLS: LESSONS FROM LITIGATION

George W. Soule Soule & Stull LLC Minneapolis, Minnesota

gsoule@soulestull.com

46

TOPICS

• Managing the recall
• Defending the recall
• Defending the product after the recall

47

DO THE RIGHT THING

SPIKE LEE, 1989

48

DO THE RIGHT THING

• Make the right decision for product safety
• Understand that you will become a target
• Be mindful of litigation interests

49

STAY IN TOUCH WITH FIELD

• Accident reports
• Communications from dealers and

customers

• Warranty claims
• Competitors’ designs
• Product and safety literature
• Scientific advancements

50

TIMING IS EVERYTHING

GARRETT HEDLUND, COUNTRY SINGER

51

ACT DECISIVELY AND EXPEDITIOUSLY

• Assume that recall “process” documents

will be admissible

• Wringing of hands or passing the buck will

not appeal to jury

• Even a few weeks can seem like an

eternity in the courtroom

• More difficult to defend products sold or

injuries that occur during decision period

52

53

DON'T LET YOUR IDEAS GET BURIED URIED

54

WHATEVER YOU SAY MAY BE USED AGAINST YOU IN A COURT OF LAW

MIRANDA WARNING

55

DRAFT THE MESSAGE WITH CARE

• Not an admission that product is defective
• Recall condition may not exist in every product
• Create an incentive for user to respond to recall

condition

• Remember that lawsuits will come

56

57

This notice is sent to you in accordance with the requirements of the National Traffic and Motor Vehicle Safety Act. The Company has determined that a defect which relates to vehicle safety exists in the models listed

• above. Our records indicate that you have purchased
• ne of these vehicles.

Under certain conditions the fuel pump on the vehicle listed above may not provide adequate pressure or may fail entirely, which can cause poor performance or possible engine stalling, increasing the risk of a crash. The repair will consist of the installation of a re- designed fuel pump and fuel system filter screens and hoses.

58

59

60

61

62

BE GALLANT, NOT GOOFUS

Be careful in e-mail communications

63

THINK BEFORE YOU PRESS SEND

• Avoid product

criticisms

• Do not speculate or

editorialize

• Do not blame others
• Do not equate safety

with cost

64

CLOSE THE LOOP ON DECISION

• You have received information about

potential problems

• Must document decision on how to

respond to problems

65

JUST THE FACTS, MA'AM

JACK WEBB, DRAGNET

66

JUST THE FACTS: DOCUMENT FACTS, NOT OPINIONS

• Document findings in risk assessments
• Detail observations in test reports
• Record facts in incident investigations
• Log reasons for design changes
• Represent company only as authorized

67

DEFENDING THE RECALL

68

TIMELINE

Product Manufactured Recall Accident

69

• No duty to recall or retrofit – Restatement

(3rd) Products Liability §11

• If manufacturer undertakes recall, duty to

use reasonable care

NO DUTY TO RECALL PRODUCT

70

FAILURE TO NOTIFY OWNER

• Mistake in notification process
• Insufficient efforts to reach owners

– Failure to use mass media – Obligation to use social media?

71

OTHER CLAIMS

• Recall was too late
• The recall fix was inadequate

72

OFFENSIVE USE OF RECALL

• Product owner ignored recall notice

– Ground for comparative fault

• Recall provided additional warnings

against misuse

73

DEFENDING THE PRODUCT AFTER THE RECALL

74

TIMELINE

Product Manufactured Accident Recall

75

RECALL ≠ LIABILITY

• Consider all potential defenses
• "Recall" is term of art

– May occur when product could be risk to health – Remedy may be inspection, repair, adjustment, re-labeling

76

PICK THE LOSERS AND “WINNERS”

• Evaluate reports, claims and lawsuits

promptly

• Settle when injury caused by recall

condition

• Defend when injury not caused by recall

condition

• Recognize that even “winners” can be

difficult cases

77

WEIGH PROS AND CONS OF EXCLUDING THE RECALL

• Rule 407: Subsequent remedial measures

inadmissible to prove defect, negligence

• If coming in, better to deal with up front
• Do not want to walk tightrope throughout

trial or be impeached

• Part of due care story
• Needed to defend punitive

damages claim

78

EXCLUDE EVIDENCE AND CLAIMS NOT SUPPORTED BY LAW

• Failure to recall or retrofit
• Should have issued recall sooner
• Violation of agency process
• Should have reported incidents to federal

agency

79

TELL THE DUE CARE STORY

• You are a careful manufacturer, concerned

with product safety

• Explain how you did not foresee recall

condition or scenario

• May need to defend against punitive

damages allegations

80

DUE CARE STORY

• Standards
• Government regulations
• Agency approval
• Competitors
• Risk evaluation
• Testing
• Product literature
• Warnings/instructions

81

PUT RISK OF INJURY INTO PERSPECTIVE

• Contrast number of injuries with product

use to show low risk

• Factors

– Number of products

– Years of use – Numbers of use per year

82

• Number of motorcycles

– 1999: 1859

– 2000: 2541 – 2001: 2109

• Assume all sold on July 1
• 4000 miles per year

83

84

• 6509 motorcycles
• 51,072,000 motorcycle miles
• 0 accidents
• 0 injuries

85

PROVE THE RECALL CONDITION DID NOT CAUSE THE INJURY

• Recall condition did not exist in product
• Recall condition did not cause injury
• Another factor caused accident

86

87

88

89

90

LACK OF WARNING DID NOT CAUSE INJURY

• Learned intermediary
• User is professional who should have

known of the danger

• User did not read warning
• User had no contact with sales

representative

91

Stay Calm and Call Your Lawyer

92