United States: Risk Management For Manufacturers: Proactive Risk Mitigation

A few suggestions to evaluate and mitigate exposure to a products liability claim

This is the second column in a three-part series, aimed at helping manufacturing companies avoid litigation. In Part One, we recommended that companies regularly review their existing insurance policies and programs, with an eye toward previous issues as well as toward future growth and development.

In addition to taking steps to button up insurance coverage issues, manufacturers can be proactive in other ways to mitigate the risks posed by the creative plaintiffs' bar. We offer a few suggestions for consideration, which are part and parcel of the exposure evaluation described in our previous column.

1. Evaluate and assess exposure. Just as proper insurance is a useful tool in protecting the company's bottom line when faced with products liability litigation, so too is an evaluation of exposure to that litigation in the first instance. Conducted proactively, that is, before a lawsuit is filed, such an evaluation can help identify the scope of exposure. More importantly, it can help a company identify where changes can be made to decrease exposure.

Areas of inquiry should include product design and testing (including design drawings, design changes, testing documents and interviews by counsel of key personnel involved in both); product certifications (i.e., U.L. and others) and the implications thereof; and for existing products, prior incident reports (including informally reported incidents, previous litigation regarding the same product, discussions during risk management or similar committee meetings, etc.)

It is easy to see that the results of any such evaluation and assessment would be a discovery gold mine in the event of litigation. Care should be taken in selecting who will conduct the evaluation, how they will do so, and how and to whom the results will be communicated, to preserve the attorney-client privilege.

2. Instructions and warnings. Manufacturers should consider having a risk manager as well as legal counsel review all instruction manuals, labels, warnings, warranties and the like, and revise them to ensure that they comply with the law of the relevant jurisdictions. Should anything be printed in another language? It also is important to periodically re-review warnings to take into account whether the warnings are adequate in light of subsequent developments since the product's initial release. If the product is distributed and/or used in other countries, the company needs to consider whether a warning written for the U.S. market is sufficient for those other markets (and, again, whether it should be written in another language for those markets.)

3. Actively — even aggressively — participate in claims investigations. One of the worst things a manufacturer can do from a risk management standpoint is to gain a reputation for "rolling over" and quickly settling claims. Although it takes time, manufacturers can shed themselves of that reputation, which may well make them a less frequent target of the plaintiffs' bar. Shedding that reputation can directly impact the bottom line, both in terms of reducing resources directed to defending litigation, dollars spent on retentions or deductibles under insurance policies, and in terms of policy premium dollars. If a manufacturer receives notice of an investigation of an incident — whether it is a scene investigation or a lab exam — evaluate the likely exposure and decide how actively to participate. Over time, becoming a regular presence at investigations (and later, aggressively defending rather than settling lawsuits) may go a long way to convincing the plaintiffs' bar that the manufacturer will no longer so readily settle claims, and ultimately, prompting them to turn elsewhere.

These are only a few suggestions to evaluate and mitigate exposure to a products liability claim. One of the keys to effective risk management is to recognize that products liability need not, and should not, be a reactive business. Instead, companies can work with their counsel to evaluate and minimize litigation risks posed by existing products, and as they prepare to bring new products to market.

Originally published in the American Bar Association's Insurance Coverage Litigation Articles, December 4, 2013. © 2013 by the American Bar Association.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.