Death, injury, and loss from defective products can be death sentences for businesses. Small companies can be litigated out of existence with even a single lawsuit. Even major corporations can take massive hits from product liability lawsuits. The average jury award for product liability cases in the United States in 2018 was a staggering $7.7 million.
And it isn’t just manufacturers that can end up on the hook for product liability damages. Anyone in the production and distribution chain can be exposed. Anyone from the engineers who design products, to the manufacturers that build them, to the distributors and stores that get the products in front of customers.
Companies engaged in the design, manufacture, distribution, and sale of products need to be aware of the potential impact of product liability claims. They also need to know the steps they can take to mitigate those risks. Those steps include reducing the likelihood of an event giving rise to liability. They also involve finding insurance coverage to help cover the cost of any events that occur. In this post, we discuss several tips and strategies to mitigate product liability risk.
Strict Processes and Controls
From design to build, ensuring quality and consistency in product manufacture can help eliminate many potential product liability risks. Companies should ensure that they have standards in place and closely adhered to in the design process and that manufacturing processes are consistently followed. Careful design helps avoid inherent defects, and consistent manufacturing helps eliminate liability claims based on faulty products that deviate from standards.
Once products are designed and built, thorough testing can help catch products that deviate from standards or otherwise present risks. It’s not always possible to catch every defective product. Still, identifying even a small percentage can reveal problems that may impact thousands of similar or identical products. Testing should focus on adherence to design and manufacturing standards as well as high-impact risks, such as fire hazards or physical injury dangers.
When a product liability issue does arise, it’s time for the organization to act quickly and decisively to cap further liability. That means identifying where other products might be in stores and with customers, for example and determining the likelihood and scope of further liability. Depending on that analysis, it may even be advisable to do a product recall. These recalls can be extremely expensive but can be less expensive than experiencing multiple significant claims if the recall is not issued. The automobile industry is an obvious example. The cost of recalling millions of vehicles for a brake defect is often less than the cost of thousands of potentially fatal accidents resulting from not conducting the recall.
Being proactive is never a bad idea when it comes to mitigating risk. Companies also need to keep an ear to the ground to help identify risks before they occur. This includes staying up to date on laws and regulations that impact their industry. Failing to comply with these may represent a negligence per se situation in which the fact that the law is violated is presumptive proof of fault for a resulting injury. More generally, it’s a good idea to be aware of major product liability issues in the industry in which a company operates, as it may signal risks in the company’s own operations.
As with many business risks, insurance can be a useful mitigation option. There are multiple insurance products that may be useful with product liability issues. General liability insurance is carried by most businesses. It often covers property damage and personal injury resulting from product liability claims. Many insurance providers also offer specific product liability insurance riders that give increased protection – in terms of scope and coverage amount – in exchange for a higher premium. Finally, some providers offer product recall endorsements that specifically help pay the costs of recalls necessitated by faulty products that are already in the hands of customers but that may not have yet caused injury or other damages. While adding product liability riders and recall endorsements can be costly, companies that take steps to reduce their level of risk may be able to negotiate lower rates with providers. Product liability is often an existential risk for companies of all sizes, but especially smaller organizations. A single instance of death or serious injury resulting from a defective product can cost millions of dollars. Multiply that by hundreds, thousands, or even millions of customers, and the risk can be dizzying. But companies aren’t helpless in the face of potential lawsuits. They can take steps to reduce their risk of claims and can take out insurance policies to help absorb the financial impact of claims that do occur.