One of a manufacturer's greatest worries is an unexpected call about an accident and injuries involving its product. When product liability claims arise, they require a calm and quick assessment of legal liability, corporate reputation and insurance coverage.
This article offers some considerations for manufacturers and distributors and some practical suggestions for managing and avoiding expensive and reputation or relationship damaging product liability claims. Knowing your potential exposure to liability and having a plan to deal with product liability claims before they arise will help preserve your company's reputation and minimize the costs associated with a claim.
Sources for Potential Liability: An Overview
This article deals with three sources of liability for a manufacturer. 1. Liability based on the product sale agreement; 2. Liability based on statutory obligations; and 3. Liability to an end user for negligence.
If your sale agreement promises that the equipment will perform certain functions or contain specific materials and it does not, then the manufacturer or distributor can be held liable for damages to the purchaser for misrepresentation or breach of contract.
Many vendor's or manufacturer's contracts have clauses that limit the representations and warranties that apply to the contract and sometimes limit liability to the amount of the purchase price of the product or the repair or replacement of the product.
In most product liability cases, the injured person is a third-party consumer or end user who does not have any contract with the manufacturer. However, the manufacturer or distributor can still be held liable. The courts have sometimes found that promises or representations made by a manufacturer or distributor to a third party are actually warranties that can create liability for the manufacturer even though there is no agreement between the parties.
To determine if promises or representations are warranties, the courts will consider if the parties intended to be bound by them to consumers and end users. For example, the courts have sometimes decided there was an intention to create liability where a manufacturer distributed detailed brochures to the public. Manufacturers and distributors should carefully weigh any statements they make to potential customers because those statements may create unintended legal consequences.
A second source of liability is statute law. In Ontario there are several implied warranties under the Sale of Goods Act (Ontario) (the "Act"). The Act provides implied warranties that goods will be fit for a particular purpose and that goods bought by description will be of a merchantable quality. If these warranties are breached, then liability for damages may arise. The Act is meant to protect purchasers who buy faulty products. Third parties injured by products are generally not entitled to a remedy for breach of an implied warranty. Most manufacturers and distributors exclude implied warranties by wording in their contracts. To do this, they must use clear and unambiguous language1. These exclusions provide some protection but even when they are clearly written, courts may limit their effect.
There are other Ontario statutes which apply to specific products. Even if a manufacturer or distributor fails to comply with its statutory obligations, that alone does not create grounds for liability. However, a manufacturer or distributor can be liable for causing personal injuries even if it has complied with the appropriate statute.
A third source of liability for a vendor, manufacturer, distributor, installer or anyone in the relevant supply chain comes from tort (negligence) law. A manufacturer or distributor may have to defend a tort claim for negligence if its product causes someone personal injury or financial loss or if it damages property.
Under Ontario tort law, a manufacturer or distributor that sells products, knowing that without reasonable care in the manufacture or use of its products, it will cause injury to the life or property of third parties, owes a duty of care to the third parties. This duty of care extends to the ultimate consumer or user of product but includes any other person whose injury was reasonably foreseeable.
If a product requires training or instructions on how to install or to use it then its manufacturer has a duty to appropriate warnings, instructions and in some cases, training to installers and users. If a product has to be installed by someone other than the manufacturer, the installer also has a duty to follow the manufacturer's instructions and properly install the product.
In a product liability claim, a person claiming breach of this duty (the plaintiff) must prove on the balance of probabilities that 1) a defect in the defendant's product or the defendant's failure to provide instructions or to warn of foreseeable harm caused injury to that person; and 2) that defect or failure to provide instructions or to warn was caused by the defendant's negligence.
Courts can infer negligence when an accident occurs which would not normally have happened without a negligent act. This inference can be rebutted. For example, there may have been some intervening event which was the real cause of the injury (e.g., the installer did not read the manufacturer's instructions or misused the product) or the plaintiff may have voluntarily assumed the risk of injury or may have used the product improperly. Depending on the facts, a court may apportion liability between the manufacturer and the plaintiff. If an installer was involved and was negligent, the installer may also be liable.
A claim that a manufacturer has been negligent may arise if there was a manufacturing defect; the products' design was defective; or the manufacturer failed to warn that the product was dangerous.
The most common proof of a defective product is that it contains something that it should not contain, or that something is absent that should be present. When this occurs, it is typically because one of the manufacturer's employees made a mistake and failed to follow the correct procedure or instructions.
Because the manufacturer controls the manufacturing process, it has a duty to ensure that there are no defects in manufacture that are likely to give rise to injury in the ordinary course of the product's use.
If a product's design is defective and the manufacturer knew or ought to have known that, then the manufacturer will be liable for damages caused by the use of the defective product.
Determining whether a product is defective requires expert evidence about the design and manufacture of the product.
A manufacturer may be liable if it does not use a safe design, even if that design complies with industry or government standards. However, compliance with such standards will be considered by courts when determining liability.
Duty to Warn
If a manufacturer discovers that it has sold a product which is defective or dangerous, it has a duty to warn the customers who purchase the product of the dangers. We are all familiar with products bearing warning labels.
The duty to warn applies to defects that ought to be known as well as those that are actually known to the manufacturer2. The warnings must be reasonably communicated and clearly describe the specific risks. This obligation applies whether the dangers are discovered at the time of sale or afterwards. When there is greater possibility of harm from inherently dangerous products, the duty to warn is greater.
Warnings should be clearly communicated in the product manual as well as on the final product. The warnings should completely describe the risks to the end user and outline both the proper use and foreseeable misuse of the product.
Compliance with Local Standards
As mentioned above, manufacturers owe a duty of care to those who will be using their products. This duty includes ensuring that their products are safe for use. Different jurisdictions have different standards that products must meet. Manufacturers need to be aware of these standards and ensure that the products they supply meet the local standards. For example, a product made in Europe and certified using European standards may not necessarily meet Canadian standards. Therefore, a European manufacturer wanting to sell a product in Canada will need to determine the standards of each jurisdiction where its products are sold or distributed.
Foreign manufacturers looking for information about Canadian standards should contact The Standards Council of Canada for assistance. The Standards Council of Canada is a government agency that promotes the voluntary compliance with Canadian standards.
Limitation Period for Legal Claims
In Ontario, the Limitations Act governs the maximum time allowed for a person to commence a legal claim for damages. In a product liability case, the manufacturer or distributor will pay close attention to these two issues: 1) the applicable limitation period; and 2) the date when the limitation period starts to run.
In Ontario, the basic limitation period for actions in tort or contract is two years3. That time period will usually begin when the plaintiff discovers the damage or injury and determines its cause. Because product liability litigation often deals with injuries that are not readily discoverable, the calculation of when the limitation period begins can raise complex issues.
There is also an ultimate limitation period that prevents a party from commencing litigation for most claims fifteen years after the day the damage or injury was sustained. This time restriction applies regardless of when the damage or injury was discovered.
Assuming its products are well-designed, well-made and no more hazardous in use than other comparable products, what can a manufacturer do to minimize the risk of landing in court on a liability claim?
We recommend attention to the following:
Manufacturers should ensure their product manuals contain clear and complete warnings. Because manuals can be lost or destroyed, warnings may need to be attached to the product itself.
Affix a toll-free number or email address on each product for users to contact the manufacturers. That way, when problems occur, they could be resolved quickly and simply.
Response to Incidents
Product liability cases are often complex. Every incident will be different. The key to successful management of a claim is to gather details and evidence quickly, assess accurately and react appropriately.
- Train front line staff to be alert to product liability news, to gather details quickly and to report them to management.
- Designate one person in the company to manage all product liability issues.
- Make efforts (for example: by warranty registration requests forms included with the product) to create a database of end users you can alert in case of new hazards.
- It is important to have a pre-planned course of action (emergency response plan) for how to deal with serious incidents that may occur. This can save legal costs and greatly limit your liability in the future. Your plan might include:
- Sending a forensic expert to the site to document and preserve evidence and seek copies of any official reports (fire marshal, etc.) determining the cause – with the help of expert testing, if needed.
- If required, alerting the appropriate government agency (e.g. the Canadian Food Inspection Agency, or the Electrical Safety Authority in Ontario).
- Promptly report the incident to your insurer. Related costs of an incident may be covered, even if you do not have product liability insurance. You may have a right to be defended by your insurer even if the claim itself is not insured. Failure to report promptly an incident or claim may jeopardize your insurance coverage.
- Hiring a consultant to help communicate with the media and users. Your goal would be to show that the problem has been identified and fixed and the product is safe to use.
- Issuing a safety bulletin to emphasize risks or correct operating use of the product.
- Engage legal counsel.
Product liability insurance is often too expensive for manufacturers or distributors. However, some insurance policies do cover damage caused by a manufacturer's products. It is important for manufacturers and distributors to review regularly their insurance coverage and confirm it is appropriate.
When a product claim arises, it is also important to understand that an insurer usually has the power to settle a claim even if the insured (the manufacturer) does not agree with that decision. A manufacturer may want to protect its reputation by fighting a claim to trial, but the insurer may decide it is more economical to settle, even if a settlement could damage the product's reputation.
To counter this potential conflict of interest, when a claim arises, it is prudent to educate the insurer's lawyer about the product and how it is made. Consider inviting the insurer's lawyer to visit the manufacturer's facility and meet with management and staff to understand better the product and how it is made. A well-informed insurance lawyer is more likely to defend better the claim and the interests of the manufacturer.
The bottom line is that even well designed, well made products can become subject to product liability claims. Careful attention to warnings and a plan to deal with incidents as they occur can significantly reduce your risks.
Product liability issues are complex. The key to dealing effectively with any incident is to gather details swiftly, assess accurately and react appropriately.
1. Hunter Engineering Co v Syncrude Canada Ltd (1989) 1 SCR 426.
2. Cominco Ltd. v. Westinghouse Can. Ltd., (1981) 127 DLR (3d) 544 BCSC
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.