‘Product Liability Prevention’ Programs for Manufacturers
by Randall Goodden
Due to the ever growing impact of lawsuits and fears of exposure, manufacturing corporations around the country have generated a significant interest in the formal study of Product Liability Prevention and its related systems and procedures. Not only has it become of major interest to manufacturers across the U.S., but is of growing interest to manufacturing corporations around the rest of the world as well. Unlike the focus of the past, it no longer merely centers on engineers geared toward product safety, but instead identifies roles and responsibilities for the entire management team in every area of the organization. These new responsibilities are typically then incorporated into the organization’s operating, or Quality systems. One of the most unique aspects of this program is that it brings manufacturers together with legal and insurance in a very proactive and positive effort.
Most manufacturing companies in today’s competitive industries, have fairly good operating procedures or Quality programs in place. Most efforts in product design and engineering are also well intentioned. To maintain a high standing in industry and gain the competitive edge, manufacturers must make every effort to continuously improve their products and processes and pursue new areas of opportunity, or they’re soon eliminated.
Leading companies are often certified to the QS or ISO 9000 quality standard or other similar programs as it relates to their Total Quality program and effort. In addition, they may have even created their own test labs or built Technology Centers for designing and testing their new products and materials for tomorrow. And yet, with all of these quality and engineering programs in place, numerous manufacturers continue to be hit by major product liability lawsuits. Some are even put out of business.
As some manufacturers are hit by steady streams of frivolous lawsuits, others may experience periodic blockbusters. Defense costs, out of court settlements, and/or high profile verdicts can have a major impact on the bottom line and drain the funds that would have otherwise gone into profit sharing, investment and growth. This unfortunate reality forces many manufacturers to pay ever-rising insurance premiums or face constant expenditures in self-insured programs.
The insurance industry claims it spends as much on defending corporate policyholders against product liability actions, as it spends in negotiating settlements or paying in plaintiff verdicts. To them they’re going to lose either way, so the objective is to just get out for the least amount possible. Because of this, insurance companies tend to focus their efforts on controlling the costs of legal defense and pursuing early settlements, despite the possible lack of credibility surrounding the case. These actions are definitely to the disadvantage of the manufacturer, but have become so common place to plaintiff and defense attorneys, that many if not most immediately plan for such moves and begin to negotiate settlements in the earliest stages of an action. The weaker defense attorneys put such plays into motion by instilling in the insurance carrier fears of the mounting odds against the manufacturer, compounded by what they refer to as “unique laws and negative local court and jury attitudes toward corporations in this part of the country or state, that will make a verdict for the defense nearly impossible”. For this breed of attorney negotiation is a much easier way of life. As it relates to defense counsel, it separates the “puke bucket” attorneys who seem to get sick at the thought of having to go to court, from the talented courtroom warriors who live for the challenge and are most interested in upholding the manufacturer’s record and reputation.
This new focus will hopefully be highly significant in reducing the chances of product liability exposure to begin with, and helping to avoid the potential for lawsuits and litigation.
Specializing in the New Focus
But for law firms to be successful consultants in this field to manufacturers, they must first understand how the corporate world works. The roles various members of management play, how the manufacturing operating systems are created, and what they contain. Just being an experienced trial lawyer will be of limited value to manufacturers. Law firms must fully understand things like quality control procedures, ISO systems, and how the programs are designed.
Although manufacturers for many years have focused on product safety and hazards analysis programs to varying degrees, especially in their engineering areas, the scope of Product Liability Prevention goes well beyond that narrow focus and deals with numerous other areas of management. This is the prime reason why the consultant or educator has to work with the entire management team, and not just target the engineering functions. Engineering departments normally have little to do with bringing about changes to the overall operating procedures of a company, but instead only tend to focus on their specific area of product design. Many of the aspects of PLP deal with other areas of the operation besides just the design of the product.
Initiating the Corporate Effort
Once the primary players are in place, it is time to educate the company as to what Product Liability Prevention is all about. This is best handled by in-house seminars with the entire management team. For defense attorneys not well enough versed in this area, they might consider bringing in an instructor for this initial presentation, and then functioning as the consultant to the company from that point forward.
Contracts & Agreements: Teaching the importance of customer contract reviews, wording that needs to be contained in purchase orders with suppliers and subcontractors, contractual considerations for products shipping overseas.
Product Design: The most critical first step in the product lifecycle. The least expensive time to recognize a potential problem and make a change. Teaching the management team how to hold effective Design Reviews; How to comprise the Design Review Team as well as the Product Safety Team, and teaching the Design Review Team their roles and responsibilities for achieving effective design reviews, and the Safety Team the elements of Hazards Analysis and Risk Assessment.
Marketing / Advertising: Teaching the team about potential problems with their marketing and advertising campaigns, things that can be viewed as “guarantees” against potential hazards and create exposure, as well as other promoted activities with the product that can lead to personal injury.
Reliability Testing: Discussing the importance of performing adequate reliability tests on new products, as well as teaching the manufacturer how to document and deal with possible product problems and negative test results.
Document Control: Teaching the entire manufacturing organization how important the documents they generate are, and helping them recognize the potential dangers in what they write, the proverbial “smoking gun” per se, as well as teaching them how to deal with delicate product issues and decisions.
Warranties: Explaining breach of warranty, the issues of implied and expressed warranties, and how these things can enter into a product liability lawsuit if they’re not controlled properly.
Warning Labels & Instructions: Educating the team to recognize when the need exists for developing warning labels, how to design them, their placement, the standards that exist for warning label design, what concerns should be incorporated into warning labels versus operating instructions.
Records Retention: Teaching the management team the importance of proper records retention, immediate accessibility, what types of records need to be maintained and for how long.
Supplier Selection: Going beyond product, price and delivery capabilities and D&B ratings, and addressing the issues related to product liability concerns, insurance requirements, indemnification agreements and more. Reviewing what Purchase Orders need to state in fine print, ensuring they are adequately protected against the supplier’s or subcontractor’s mistakes and more.
Recall Procedures: Companies need to know what the game plan will be should they ever need to conduct a product recall, and not try to develop the game plan in that moment of crisis. Knowing the different options available, when to actually recall the product versus just sending out notices, other organizations that may need to be contacted by law, etc
Liability Incidents & Investigation: Teaching the newly created In-house Expert and Corporate Team how to recognize potential liability incidents as well as how to properly handle these initial notifications. Learning how to investigate incidents when first reported, gathering the facts, and writing reports.
Litigation: Teaching the In-house Expert and Corporate Liability Team the many stages of a product liability lawsuit and what to expect. What will be demanded, the chain of events, their responsibilities, and how they can help. Working with the insurance representatives and assigned counsel on the case, and helping answer questions, gather documents, conduct tests, etc. This is especially the case for those corporations that don’t have an inhouse Legal department.
Opportunities for a New Alliance
The defense attorney and law firm will benefit by the newly formed working relationship it will now have with the manufacturer. The new In-house Expert will work closely with the Liability Consultant on developing the program and effort, as well as on individual cases if they develop.
Opportunities for Insurance Carriers
Insurance companies should recognize the benefits of having their manufacturing clients be under the guidance and care of a product liability prevention consultant or adviser, in order to help avoid a critical or fatal incident. Surely paying for an ounce of prevention here will be worth a pound of cure.
Randall Goodden is the author of Product Liability Prevention – A Strategic Guide (Quality Press, 2000) and Preventing & Handling Product Liability, (Marcel Dekker Publishers, 1995). He has had numerous articles published in the leading Corporate, professional and legal magazines, and is a featured speaker at conferences and universities around the world. You can order Randall's essential book through Quality Press. For more information visit Randall Goodden's web site at http://RLGoodden.tripod.com .
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