How-to guide: How to avoid liability for defective products in supply of goods agreements (USA)

Introduction

This how-to guide provides guidance on what constitutes a defective product, who in the supply chain is liable for the defective product, and how a producer or manufacturer can identify and avoid liability.

It highlights the risks faced by producers and manufacturers with respect to their liability to members of the public for defective goods and it incorporates practical tips, examples, and steps you can take to manage the risks and avoid this type of liability.

The guide is aimed at in-house lawyers as well as business professionals in organizations of all sizes and all sectors in the United States.

The guide covers:

1. Defective product liability basics
2. Pre-sale procedures
3. Sale procedures
4. Defective products

This guide can be used in conjunction with How to guide: Drafting a sale and supply of goods agreement and Checklist: Delivery and acceptance of goods in a business-to-business sale of goods contract.

Section 1 – Defective product liability basics

1.1 Theories of liability

A product liability claim normally involves injury or damage caused by an alleged defective product. Proving the claim, as discussed further below, usually involves one or more of several basic theories of liability:

• negligence;
• breach of warranty;
• strict liability;
• market share liability; or
• consumer protection laws.

A defective product that injures a person or property can cause the manufacturer of the product to be liable for the damages caused. When examining liability in a defective product case it must be emphasized that liability may also extend along the supply chain to the distributor, retail seller, and/or the lessor of the product.

Product liability laws are primarily rooted in state laws. The United States has a dual court system made up of both federal and state courts that run parallel to each other. Federal courts have limited jurisdiction, meaning they can only hear cases authorized by the US Constitution or federal statutes. Since there is no federal product liability law, individual state law is applicable depending on the venue and jurisdiction of the case. From a practical standpoint, in most states, product liability claims are based on the theory of strict liability, meaning that proof of the manufacturer’s negligence is not required in order to recover for injuries caused by a product. In a few states where strict liability is not the dominant theory of liability, the theory falls to negligence, or breach of warranty of fitness.

Although product liability laws are primarily at the state level, the United States has taken an active role at both the federal and state levels to actively engage in consumer protection. At the federal level, the US Consumer Products Safety Commission exists as an independent federal agency with a public health and safety mission to protect the public from unreasonable risks of injury and death from consumer products. Congress has also enacted focused legislation to address written product warranties. Many states have also enacted their own ‘lemon laws’. These laws focus on deceptive business practices, especially those practices that have been found to occur in the automobile industry.

1.1.1 Negligence-based claims

In the US, negligence is a common law principle. Four elements are necessary to establish a prima facie case. These elements are the following:

• the existence of a legal duty that the defendant owed to the plaintiff;
• the defendant’s breach of that duty;
• an injury suffered by the plaintiff; and
• proof that the defendant’s breach caused the plaintiff’s injury.

A plaintiff making a defective product claim based on negligence must show that reasonable care was not exercised in the manufacture, design, or marketing of the product. Defective product negligence claims are subject to the same defenses as other negligence claims, including contributory or comparative fault.

1.1.2 Breach of warranty claims

Consumer product producers and manufacturers often provide warranties (or guarantees) that their respective products will perform in a specific way or up to a specific standard. It is these guarantees that help create consumer confidence and hopefully encourage sales. Plaintiffs will often claim a breach of these warranties in support of their product liability claim.

In general, these types of claims are divided into express and implied warranty cases.

Express warranty

An express warranty is a warranty or guarantee that is written, and that promises that a product will perform in a certain manner (eg, ‘safe for household use,’ ‘will not harm children or pets,’ etc.). Examples of these written statements include the following:

• statements on product labels or packaging;
• instructions/guidelines included with the product;
• marketing materials used by stores or signs at the store where the product is purchased; or
• advertising statements for that product.

Implied warranty

An implied warranty is one that is not stated explicitly but is found to exist because of the circumstances of a transaction. When a product does not include an express warranty, an implied warranty might apply. Implied warranties appear in two ways:

• implied warranty of merchantability; and
• implied warranty of fitness.

Importantly, the law automatically applies implied warranties to a product. These and other warranties are codified in Article 2 of the Uniform Commercial Code (UCC), which nearly every US jurisdiction has adopted. Generally, a state law imposes two types of implied warranties on manufacturers and suppliers:

• an implied warranty of merchantability is a guarantee that a product is reasonably fit for the purpose for which it was sold; and
• an implied warranty of fitness for a particular purpose is a warranty created when a seller recommends or sells a product to a user knowing that the user intends to use the product for a specific purpose. The seller’s recommendation is an implied warranty that the product will be reasonably fit for the user’s purpose.

When a producer or manufacturer decides to provide a written warranty to a consumer, caution must be taken during the drafting process. Due to the proliferation of unfair or misleading disclaimers on warranties and to further enhance consumer rights, the United States enacted the Magnuson Moss Warranty Act (15 USC sections 2301-2312) in 1975. Sometimes referred to as the federal ‘lemon law,’ the Act authorizes the Federal Trade Commission (FTC) to develop regulations for written warranties. The Act directs the FTC to establish disclosure standards for written warranties, specifies standards for ‘full’ warranties, limits disclaimer of implied warranties, and establishes consumer remedies for breach of warranty or service contract obligations. Practitioners must be mindful of this Act when drafting and creating product warranties. Further, if a manufacturer or seller knows their product is likely to be used for a specific purpose, particularly one that is not advertised and may cause harm to consumers, they should take care to disclaim or warn against use of the product for that purpose. One such example would be the warnings on plastic bags to not use them as toys for risk of suffocation.

1.1.3 Strict liability

Most US states apply a strict liability theory to product liability cases. In these states, parties often are not required to prove that the supplier or manufacturer did not use extreme caution in the making of the product, meaning they were negligent. Instead, a party must prove and show that the product is defective and that the defect caused injury.

In these states, to make a prima facie case against the seller (defendant) of a defective product, a plaintiff must prove that:

• the defendant sells a product that the plaintiff uses;
• the defendant is the commercial seller of such a product;
• the plaintiff suffered an injury;
• when the defendant sold the item, the item was defective; and
• the defect was an actual and proximate cause of the plaintiff’s injury.

1.1.4 Market share liability

Introduced by Sindell v Abbott Laboratories, 26 Cal3d 588, 163 Cal Rptr 132, 607 P2d 924 (1980), market share liability allows a plaintiff to establish a prima facie case against a group of product manufacturers for an injury caused by a product, even when the plaintiff does not know (or is not reasonably able to ascertain) from which defendant the product that injured him or her originated. The doctrine apportions liability among the manufacturers according to their share of the market for the product giving rise to the plaintiff’s injury.

1.1.5 Consumer protection laws

The US Consumer Product Safety Commission is responsible for establishing safety rules to ensure that the US public can safely use the products that they purchase. According to 15 USC section 2072, a person who is injured by a defective product made by a party who knew of the violation of a consumer product safety rule that caused the consumer’s injury can file a personal injury lawsuit against the defendant in any federal district court where the defendant resides or has an agent, provided the amount in controversy is $10,000 or more.

States may have other consumer protection statutes that provide additional relief. For example, many states have lemon laws that supplement the Magnuson Moss Act. These types of laws usually protect consumers from abusive business practices, such as selling a vehicle that the owner knows is defective for a price that does not take such defect into consideration. Connecticut was the first US state to enact a lemon law to help owners of newer, yet defective, motor vehicles. The law, C.G.S. sections 42-179 – 190, put into place an informal arbitration process to resolve disputes between passenger vehicle owners and manufacturers.

1.2 Liability of non-manufacturers for defective products

Product liability lawsuits often include parties other than the producer or manufacturer within the supply chain of distribution. This chain may include distributors, wholesalers, retail sellers, or lessors. All the parties in this chain may be held liable in a defective product liability lawsuit. Each of these parties is described below.

1.2.1 Distributors

Distributors are the bridge that sits between the manufacturer and the wholesaler or retailer in the chain of distribution. Distributors generally store and ship or transport the product for resale by a wholesaler or retail store, and are rarely responsible for selling directly to the consumer. Sometimes, a distributor is also the wholesaler. Distributors are often found liable under supply chain liability theories.

1.2.2 Wholesalers

A wholesaler receives a shipped product from the distributor, then ships the product to retail stores when a retailer places an order. This can also work in reverse. A manufacturer may send the product for storage in a warehouse owned by a wholesaler who then hires a distributor to transport the product to retail stores. Like distributors, wholesalers are often found liable under supply chain liability theories as well.

1.2.3 Retail sellers

Generally, a retailer is the last link in the chain of distribution when a customer or consumer buys the product from a store owner. If a retailer knowingly sells a defective product or fails to move recalled items from their shelves and inventory, they could be held liable for the injuries caused by the defective products. The extent of a retail seller’s liability is a matter of state law, typically determined by the applicable common law.

1.2.4 Lessors

A lessor leases a product. If they lease a defective product which is dangerous to the consumer or user, and the use or consumption of the product injures the consumer or user, then the lessor can be held liable. As we can see, supply chain liabilities can keep extending through the supply chain. A lessor is in the original chain of distribution, reaps a profit by placing a product in the stream of commerce, and, when the product is in their hands, the lessor is as capable, as a seller, of preventing a defective product from proceeding through the stream of commerce.

1.3 Types of defects

As explained above, while product liability laws vary from state to state they generally favor the consumer. When a person is injured using or consuming a defective product, it is not always necessary to show that the manufacturer or distributor was negligent. This principle is referred to as ‘strict liability,’ meaning that liability will be imposed even without a showing of fault on the part of the manufacturer or distributor. There are three types of defects that will lead to the imposition of strict liability:

1.3.1 Manufacturing defect

A manufacturing defect can be found in a product that was manufactured in a way that makes it unsafe, even if the design of the product was not deficient. A manufacturing defect could be a result of using improper or substandard material, deviation from product design, damage to the product during the manufacturing process, or faulty, missing or unspecified parts.

1.3.2 Design defect

A design defect relates to an essentially unsafe product, even if the product was manufactured according to the design, using proper workmanship and adequate materials. A design defect can refer to the product itself or to the packaging used for the product.

1.3.3 Failure to warn/insufficient warnings/marketing defects

The product may be free of any defects or design flaws, but there were incomplete or non-existent operating instructions or warnings to alert the consumer of possible hazards. This type of defect may include the failure to warn of hazards, or the failure to provide adequate instructions for the use of the product.

There have been cases where evidence has revealed that a defendant knew of a danger associated with a product and deliberately hid the danger or marketed the product using deliberately misleading statements. These types of situations may give rise to a claim for deceptive marketing or intentional misrepresentation, or to a tort claim based on the fraudulent conduct.

1.4 Potential damages

Damages represent the monetary exposure a defendant faces in the product liability action. Consider the potential damages exposure if a determination is made that a defective or dangerous product was placed into the marketplace. Potential damages in a defective or dangerous product lawsuit fall into two general categories: compensatory (actual) damages, and punitive (exemplary) damages. Depending on the scope and extent of a plaintiff’s injuries, and if punitive damages are awarded, damage awards can be massive.

Here is an example of a contractual clause to limit liability for defective products:

Compensatory damages aim to compensate the party for the injury caused by the product. By placing a dollar value on the injury or illness that occurred because of the defective product, this type of damage tries to restore the party to the condition they were in prior to the injury or illness. Compensatory damages are awarded to reimburse an injured party for economic and non-economic losses.

Here is a sample clause for the limitation of compensatory damages:

Economic losses refer to money or property that the injured person lost because of his or her injury or illness. These types of losses include:

• medical expenses such as doctor, hospital, pharmacy, and physical therapist bills. If the product-related injury or illness requires ongoing medical care, the future medical expenses to cover those costs will also be considered;
• costs incurred in making adjustments to the injured party’s lifestyle that are required due to the injury and resulting disability. This may include the expense of paying for assistance with household chores or renovations to a home to accommodate a loss of mobility;
• loss of wages or profits includes money lost due to missing work because of the injury or illness. If the injured party is a business owner instead of an employee, he or she may be entitled to lost profits. This type of economic loss may also include loss of future wages or profits if the injury or illness prevents the party from working in the future; and
• compensation for the cost of repairing or replacing property that is damaged or destroyed by the defective product.

1.4.3 Non-economic losses

Non-economic losses are usually divided into pain and suffering and loss of consortium. They account for injuries that are difficult to quantify, such as physical or emotional suffering:

• pain and suffering includes pain, anguish, or loss of enjoyment of life resulting from the injury or illness. A dollar value is attached to pain and suffering to compensate the injured party. Past awards by the courts for similar injuries or illnesses in past cases assist in estimating the value of such a claim; and
• loss of consortium permits compensation for the impact of the injury or illness on the individual’s relationship with their spouse. This may include damages for loss of affection or emotional support, loss of companionship, and impairment of sexual relations. A loss of consortium claim is made by the spouse of the injured party.

1.4.4 Punitive damages

Punitive damages aim to punish a defendant’s egregious conduct, and to deter future similar conduct. This type of compensation is rarely granted against manufacturers; however, juries in high-profile cases have shown an increasing willingness to award such damages, particularly when the conduct is of a prolonged, willful nature.

Section 2 – Pre-sale procedures

With the preceding legal parameters and ramifications in mind, producers and manufacturers can take certain steps to minimize their liability risk and alleviate damage exposure. By implementing a thorough analysis of the manufacturing and design process, drafting tighter pre-sale limitation of liability agreements, and reviewing product marketing (which encompasses advertising, marketing, packaging and labeling), producers and manufactures can identify and avoid defective product liability.

Remember, it is impossible to eliminate every risk associated with putting a product in the market. Risk management is the process of identifying risks, controlling those risks, and mitigating their impact. This process includes designing an indemnification plan to compensate a party for any potential harm or loss that may arise in connection with the product. Risk management also requires securing appropriate insurance in case product liability issues arise and the use of a reliable system for tracking and monitoring sales of the product once it is launched.

2.1 Manufacturing and design

The process of producing a new product includes careful coordination of a number of steps, beginning with the manufacturing and design of the product. This step entails reviewing the design and then testing the product to ensure that it meets manufacturer’s, industry, and government standards. Moreover, any related best practice standards must be adhered to and individually tailored to the specific product.

2.2 Limitation of liability agreement

It is a good idea to enter into a pre-sale limitation of liability agreement that includes a disclaimer of liability or a cap on damages. This way, a product is less likely to be the subject of a liability claim. Provisions of the UCC, particularly UCC section 2, Part 3, General Obligation and Construction of Contract, provide helpful guidance when drafting limitation of liability agreements.

During the contract and/or warranties drafting process, a manufacturer may strategically shift a specific risk from itself to another party. The risk transfer allows the other party (consumer) to assume the liabilities associated with any defective products and can give the company greater control over the exposures it allows upon itself. When done correctly, this risk transfer can work to prevent possible financial losses through defective products suits.

A product may be shielded from liability by following the principles below.

• The product is covered by appropriately limited warranties and disclaimers. For example, the manufacturer could:
  • limit warranties to those express warranties provided under UCC section 2-313;
  • exclude all other warranties, express or implied; or
  • specifically exclude the implied warranties of merchantability and fitness for particular purpose (UCC sections 2-314 and 2-315).
• The product is subject to meaningful remedy limitations. The UCC permits the contractual limitation of remedies available to the buyer in a breach of warranty under UCC section 2-719. Therefore, the manufacturer could:
  • specifically define the available remedies as limited or exclusive; or
  • limit or exclude consequential damages.
• The product is accompanied by comprehensive warnings that are:
  • written in plain language and understandable to the average user; and
  • conspicuous, prominent and large (as compared to other copy) to alert a reasonably prudent person.

2.3 Marketing

Marketing is the process of making a product available to buyers. The product’s target market and consumer expectations should be incorporated into the marketing plan and be its focus when developing the labeling, packaging, advertising material, and any warnings or disclaimers for the product. Marketing professionals should take care that warnings or disclaimers are not hidden or presented in such a way as to lessen the consumers’ attention to them.

Section 3 – Sales procedures

Once your team has completed the product’s pre-sale assessment, it is necessary to move on to an analysis of the product’s sales procedures. In this step of the analysis, advertising and marketing continue to be reviewed. Do the advertising and marketing messages describe the expected consumer behavior with the product? For example, a swimming pool manufacturer’s advertisements that showed swimmers diving head-first into a swimming pool were evidence of the ‘appropriate, intended use’ of the pool (King v Kayak Mfg Corp, 182 W Va 276, 387 SE 2d 511 (1989)). A review of the organization’s trade channels and partners is also necessary. Most important is having a finger on the pulse of the new product rollout. Having procedures in place to monitor product sales and reports is imperative.

3.1 Advertising and marketing

Effective product management should factor in unintended uses of the product, which are often foreseeable. For example, the manufacturer of a screwdriver should anticipate that their product will be used to open paint cans. Liability for misuse can, to some extent, be guarded against with thoughtful advertising and marketing. Product managers should consider the performance expectations for a product that are created by the product’s marketing when anticipating and planning for the ways in which a product might be misused by a purchaser. Continuing with the screwdriver example, the advertising team should be sure that all marketing messages focus on the fact that the screwdriver is a tool for driving screws and take care not to advertise or market it as an all-purpose tool.

3.2 Trade channels

An analysis of how the product is going to ultimately reach the consumer is also necessary. How is the product going to go from the point of manufacture to the hands of the consumer? This route through which a product must travel to reach the consumer is known as a trade channel or path of distribution. This can include anything from retail sales, experts, business-to-business sales, or a combination of different channels. Regardless of the type of end user, the product will likely touch many hands.

Testing components you acquire from suppliers or having them provide you with enough data about the testing they undertake is a great strategy to minimize risk and to make you feel comfortable with the components. Consider including provisions in your supplier contracts that grant you access to their test data or give you ample time to examine the goods that are delivered before you must accept them.

A manufacturer cannot determine who will ultimately use their product, but they can protect themselves by advising those who distribute it to try to limit sales to the type of consumer the manufacturer is targeting. Potential supply channel liability in products liability cases requires this diligence.

3.3 Sales monitoring

A critical step in preventing liability for defective goods is monitoring the sales of the product for reports of injuries, misuse, and buyer complaints. Establishing a team with a clear chain of command to stay abreast of these reports and complaints is imperative, as is having a plan in place to address them. The plan should include using relationships with communication channels to disseminate information about the product. For example, when teens began ingesting Tide brand laundry detergent pods as part of an online stunt, Proctor & Gamble’s (Tide’s manufacturer) crisis teams used two-way communication with audiences on social media to inform its customers about the dangers of swallowing detergent. They recruited peer-level influencers, such as New England Patriots football player Rob Gronkowski, to appear in a video advising young people to stop this behavior. The company also worked with YouTube to quickly remove the viral videos promoting the stunt.

3.4 Redesign/reconfigurations

Products may be modified or reconfigured for many reasons. For example, a new look may be needed to revive consumer interest in the product, or a modification may be made to improve performance, take advantage of new technologies, reduce manufacturing costs, or for health or safety reasons.

Before a product is relaunched after a redesign or reconfiguration, the modification should be carefully reviewed. A change could make a product less safe than it was before.

Section 4 – Defective products

Manufacturers have an obligation to send safe products into the marketplace. But even with stringent diligence in minimizing risk, situations do arise where a product is alleged to be potentially defective or dangerous. Even after product liability risk analysis, pre-sale and sale procedures, steps must be in place to handle such a claim should one arise. Prepare a legal team to receive and investigate any notices of defective products, initiate product recall procedures (if necessary), deal with consumer product safety agencies (if necessary), and ultimately establish a legal defense strategy (if necessary).

4.1 Notice of defect

A notice of defect indicates to the seller that the product has a defect that the buyer does not want to accept. This usually occurs with some type of formal ‘notice’ provided to the manufacturer from the buyer. It is the buyer or user’s responsibility to inspect the purchased product as soon as possible and report any defects. If the buyer or user fails to do so, its claims regarding the warranty for defects will lapse.

4.2 Product recall

At this point, the manufacturer has invested many thousands of dollars and hours of time into creating the best product possible, and, hopefully, it has been a success. However, sometimes something goes awry and a recall must be initiated.

Product recalls usually begin when a buyer or user files a complaint after being harmed by a product. Complaints are filed with one of the following agencies:

• the US Consumer Product Safety Commission (CPSC) – responsible for monitoring a wide range of consumer items used in homes, schools, and sports;
• the US Food and Drug Administration (FDA) – regulates food, medicine, and other products that are consumed or used by the body;
• the US Department of Agriculture (USDA) via a subdivision called the Food Safety and Inspection Service – the food industry, including recalls for meat, poultry, and eggs;
• the US Environmental Protection Agency (EPA) – regulates products that affect or pose a risk to the environment;
• the National Highway Traffic Safety Administration (NHTSA) – regulates defective automobiles and automotive parts;
• the US Coast Guard – regulates boats and other watercraft.

Importantly, it is not just a business that can initiate a recall, often referred to as a voluntary recall. A governmental agency may also begin a recall by informing another agency about a problem with a product, a mandatory recall. Once a complaint is filed, the appropriate agency then begins an investigation into the issue. This may include multiple rounds of testing or inspecting other products in the same shipment or lot as the defective product. Every agency has its own procedures for deciding if a recall is warranted and how it should be handled. For example, the FDA and the USDA assign different ‘classes’ to products to reflect the severity of the defect and the seriousness of the complaint.

It is important to note that corporations must report any defects and safety hazards even if they do not think the scenario justifies a recall. The CPSC has stated that it is the agency’s responsibility, not the company’s, to determine if a recall is necessary, and that it cannot do so unless it is informed of the problem. It’s better to be proactive rather than reactive.

If the agency’s investigation concludes that a recall is warranted, then the manufacturer is informed. Manufacturers then can elect to recall the defective product to avoid further injuries to consumers, or they can refuse to initiate a recall. In the latter situation, the appropriate agency may take further action by seizing the dangerous products in question or issuing a mandatory recall of the product. An expedited response is often made for more serious complaints.

Each agency has different requirements on how to notify retailers, wholesalers, buyers, and all other parties affected by the recall.

Once the agency notifies the affected parties, the manufacturer must then correct the defective item. This can be done by either repairing or replacing the product at its own expense. The severity of the problem and related laws and regulations dictate what corrective action plan to implement.

There are critical activities that businesses should undertake during a recall. Maintaining consumer trust during a recall is key. The best approach is for companies to communicate effectively by being:

• transparent;
• consistent; and
• responsive.

Companies with a quick response plan of action and carefully crafted recall messages increase their chances of preserving, and sometimes even improving, consumer satisfaction.

Companies must first communicate to retailers and consumers that a recall is happening. Have a plan for notifying them of the existence of the recall, the nature of the underlying problem, how the affected product can be returned, and how an improved product might replace it.

Companies can use existing communications platforms to communicate directly with consumers. For example, information about toys and other juvenile product recalls can be posted on parent-to-parent blogs. Also, companies sometimes form partnerships with entities already in contact with the consumer base. For instance, Maryland has implemented a Department of Motor Vehicles notification system to spread the word about automobile recalls.

Lastly, manufacturers can establish strong media relations, adequately label products for tracking, and consider practicing mock recall scenarios.

While the above steps are helpful when a product recall has already become necessary, there are steps the manufacturer or producer can take in order to avoid the necessity of a recall in the first instance. The manufacturer can pay close and consistent attention to consumer safety regulations and standards. By using consumer regulation standards as frameworks, producers can ensure that products are being safely produced, maintained, and distributed.

4.3 Quality Control

Quality control measures should be outlined for each individual product in your portfolio and should be implemented at every stage of product design. For manufacturers of both physical and digital products, testing to ensure that the product not only works, but is also free of hazards is paramount. Placing serial or batch numbers on all products to ensure ease in traceability will also assist companies with quality control issues, particularly in the case of a product recall.

4.4 Defenses to liability

Applicable defenses to liability depend on the facts and the jurisdiction where the lawsuit arises. Defenses may include those existing in common law and statute, be based on compliance with government and industry standards, or center on unusually susceptible consumers, sealed containers, and contract specifications.

In a suit for injuries caused by an allegedly defective product, it is usually the injured party’s burden to show that the product was defective when it left the control of the manufacturer or retailer. In 47 states, the plaintiff bears the burden of establishing the existence of a design defect. However, in Alaska, California, and Hawai'i, the defendant must justify the product’s design to demonstrate that there was no defect. It must be emphasized that the manufacturer offering the product is not liable for injuries caused by other parties’ mishandling or unauthorized modification that make the product harmful at the time it was consumed or used by the buyer, unless the mishandling or modification was foreseeable.

Manufacturers and sellers most commonly defend product liability actions by either refuting the facts and arguments presented by the plaintiff or by asserting an ‘affirmative defense’. An affirmative defense is a set of facts that if proven by the defendant, defeats or mitigates the legal consequences of the defendant’s otherwise unlawful conduct. Examples include misuse (ie, not using product for purpose or manner intended), modification (ie, the product was altered in some way after it was delivered to the consumer), and assumption of the risk (ie, a reasonable person would know that the product is inherently dangerous at the time of purchase and would have an understanding of how to avoid the danger).

Product liability defenses can be grouped generally into contract defenses, conduct defenses, and statutory defenses.

4.4.1 Contract defenses

Manufacturers often include terms in their contracts that disclaim warranties, require prompt notice of breach of warranties, and/or place limitations on their liability for breach of warranties. Defenses based on such terms are normally asserted only in transactions between commercial parties.

4.4.2 Conduct defenses

Conduct defenses look at the actions of the product user or a third party, and whether those actions were a cause of the injuries. Conduct defenses are usually applicable in negligence-based actions, rather than strict liability actions. They include such traditional tort defenses as comparative fault or assumption of risk.

4.4.3 Statutory defenses

Statutes of limitations or statutes of repose are examples of defenses provided by statute. A statute of limitations provides that an action is barred unless brought within a certain time after the injury, or after the plaintiff’s cause of action accrues. A statute of repose, in the context of product liability claims, states that an action for injuries is barred if not brought within a certain time after the product’s manufacture.

4.5 Tests for defectiveness

Once a defective product lawsuit is commenced, courts use different tests for proving whether a product is defective. The two main tests for defectiveness are the consumer expectations test and the risk-utility test.

4.5.1 The consumer expectations test

The consumer expectations test examines the product to determine if the product is ‘dangerous to the extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics.’ The test is based on objective standards such as the expectations of the ‘ordinary consumer’ who has the ‘ordinary knowledge of the community.’

4.5.2 The risk-utility test

The risk-utility test uses a cost–benefit analysis. A manufacturer may be liable if the inherent risk of harm posed by the product outweighs the utility or benefits of the product. The risk-utility test also looks at the potential costs for making a product safer; for example, the cost of adding a label warning against a misuse of the product that is not otherwise obvious.

Courts ultimately determine which test best fits the facts of the case. While the consumer expectations test is one way to determine whether a product is defective, the risk-utility test is often favored for matters involving complex products.

4.5.3 Comparing the tests

Some states, such as California, allow consumers to prove design-defect claims using either the consumer expectations test or the risk-utility test. The difference in the tests is the information that the jury hears during a trial. The risk-utility (also called risk-benefit) test requires a battle of expert witnesses who will offer opinions on the design of the product. However, the consumer expectations test requires no expert testimony whatsoever. Instead, the consumer must produce evidence of the “objective conditions of the product” which the jury can then use to determine whether that product meets ordinary standards.

Additional resources

US Consumer Product Safety Commission, Recall Handbook
Product Liability

Related Lexology Pro Content

How-to guides:

How to supply goods internationally
How to draft a supply of services contract
Drafting a sale and supply of goods agreement

Checklists:

Assessing whether standard terms and conditions should be used for the supply of goods and services
Delivery and acceptance of goods in a business-to-business sale of goods contract
Review of terms and conditions for the purchase of goods and services from the perspective of the buyer

Clauses:

Liability

Reliance on information posted:

While we use reasonable endeavours to provide up to date and relevant materials, the materials posted on our site are not intended to amount to advice on which reliance should be placed. They may not reflect recent changes in the law and are not intended to constitute a definitive or complete statement of the law. You may use them to stay up to date with legal developments but you should not use them for transactions or legal advice and you should carry out your own research. We therefore disclaim all liability and responsibility arising from any reliance placed on such materials by any visitor to our site, or by anyone who may be informed of any of its contents.