Product liability insurance


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Product liability insurance

  1. 1. MARKET AVAILABLE- EVOLUTION OF LEGISLATIVE FRAMEWORK- PRODUCT LIABILITY LIABILITY.Liability is an obligation that legally binds an individual or company to settle a debt. When oneis liable for a debt, they are responsible for paying the debt or settling a wrongful act they mayhave committed. For example, if John hits Janes car, John is liable for the damages to Janesvehicle because John is responsible for the damages.Liability Insurance.Any type of insurance policy that protects an individual or business from the risk that they maybe sued and held legally liable for something such as malpractice, injury or negligence. Liabilityinsurance policies cover both legal costs and any legal payouts for which the insured would beresponsible if found legally liable. Intentional damage and contractual liabilities are typicallynot covered in these types of policies.Liability insurance is very important for those who may be held legally liable for the injuries ofothers, especially medical practitioners and business owners. A product manufacturer maypurchase product liability insurance to cover them if a product is faulty and causes damage to thepurchasers or any other third party. Business owners may purchase liability insurance that coversthem if an employee is injured during business operations.There are many different types of insurance policies available, but liability insurance is one ofthe most popular because it costs much less than many other options. For example, in regard toauto insurance policies, liability insurance costs far less than full coverage. The reason for this isbecause full coverage insurance must pay for both your vehicle and any other vehicle involved ina collision, as well as property damage and medical expenses due to injuries to you or anotherparty.On the other hand, liability insurance is only responsible for the other partys losses. There aredifferent types of liability insurance, including general liability, which works in much the sameway as auto liability insurance, but covers businesses. General liability protects a company fromthird party claims. Aside from general liability, there is also D & O liability, employer liability,and professional liability insurance.
  2. 2. D & O liability stands for "directors and officers" liability and is intended to cover the acts oromissions of those in the director or officer position. An entire company should not be heldliable for the statements, actions, failure to act, or other mistakes that are the responsibility of anofficer or director.Employer liability is also known as workers comp, and it is a mandatory form of liabilityinsurance coverage that all businesses must carry. While it sounds like it is intended to protectthe employee, which it does to some degree, it is actually protection for the employer in case ofinjury, job related illness, or other damages for which the employee might sue the company.Professional liability is similar to malpractice insurance, although the coverage may not be ascomprehensive as some malpractice policies in different fields. The purpose for professionalliability insurance is to protect those seen as professionals or "experts" in a given field, who maynot be protected by general liability due to their expertise. When one is seen as a professional, heis held to a higher standard and is therefore often considered to hold greater liability towards hisclients. Consequently, he needs more coverage than general liability insurance offers.The simplest definition of liability insurance is insurance which protects a person or entity fromclaims initiated by another party.
  3. 3. PRODUCT LIABILITYIn India, Product liability law, also called ―products liability‖, governs the liability ofmanufacturers, wholesalers, distributors, and vendors for injury to a person or property caused bydangerous or defective products. The goal of product liability laws is to help protect consumersfrom dangerous or defective products, while holding manufacturers, distributors, and retailersresponsible for putting into the market place products that they knew or should have known weredangerous or defective.The responsibility of a manufacturer or vendor of goods to compensate for injury caused bydefective merchandise that it has provided for sale.When individuals are harmed by an unsafe product, they may have a Cause of Action against thepersons who designed, manufactured, sold, or furnished that product. In the United States, someconsumers have hailed the rapid growth of product liability litigation as an effective tool forConsumer Protection. The law has changed from caveat emptor ("let the buyer beware") to StrictLiability for manufacturing defects that make a product unreasonably dangerous. Manufacturersand others who distribute and sell goods argue that product liability verdicts have enrichedplaintiffs attorneys and added to the cost of goods sold.Product liability insurance protects your business assets from legal proceedings for injury orproperty damage to third parties caused by your business activities or the products you supply.Manufacturers‘ product liability insurance is particularly important due to the large numbers ofpeople in contact with their products on a daily basis.Civil Product liability in India is, essentially, governed by:a) The Consumer Protection Act, 1986b) The Sales of Goods Act, 1930c) The Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as the―MRTP Act‖)d) The law of Torts.e) special statues pertaining to specific goodsThe laws relating to product liability, in India, have been constantly evolving, by way of judicialinterpretations and amendments, to become one of the most important socio-economiclegislations for the protection of consumers. The legislation, in respect of product liability inIndia, though was enacted to protect the interest of consumers but the same was, earlier,
  4. 4. construed narrowly, thereby frustrating the object sought to be achieved. The trend, however, haschanged in the recent times with the Courts adopting a pro-consumer approach. The Courts, inIndia, have now started awarding compensation and damages which are more punitive thancompensatory in nature.In Wheels World vs. Pradeep Kumar Khurana1 the complainant, a doctor by profession,complained to the respondent about deficiency in service in not repairing, free of charge, atechnical fault, which occurred during warranty period, in his new Montana car and then notdelivering the same for a period of 4 years. A sum of Rs. 30, 000/- with interest @ 18% perannum from 2/7/1988 to 7/5/1992, was awarded as compensation, in favour of the complainantfor his suffering, both professionally and otherwise, on account of non availability of car for aperiod of 4 years. Further interest, at the same rate for the same period, was also awarded on anamount of Rs. 82, 000/-, being the price of the car as well as an amount of Rs. 55, 00/- towardscosts and, last but not the least, an amount of Rs. 50, 000/-, which was deposited by theRespondent on account of stay of imprisonment, was also awarded to the petitioner.The product liability law, in India, apart from the civil liability, also imposes criminal liability incase of non-compliance with the provisions of each of the below mentioned Acts. The said Actsare in addition to and not in derogation of any other laws in force, which implies that an actionimposing penal liability can be simultaneously initiated along with a claim under civil law. Someof these are special Acts pertaining to sale of specific goods such as food, drugs, cosmetics etc..The provisions of these enactments are preventive in form, though the relief envisaged is anaction for breach in civil or criminal court. The Foods Adulteration Act, 1954 The Food Safety and Standards Act, 2006 The Drug & Cosmetics Act, 1940 The Indian Penal Code, 1860 The Standards of Weights and Measures Act, 1956 The Agricultural Produce (Grading and Marking) Act, 1937 for marking and grading of commodities like vegetables, butter, etc. The Indian Standards Institution (Certification Marks) Act , 1952 to formulate a number of standards for different products by ISI The Bureau of Indian Standards Act , 1986Each of the aforesaid Acts provides for imposition of fine and/or imprisonment in case of supplyof defective products or adulterated consumables.The Food Safety and Standards Act, 2006 is the most recent legislation which comprehensivelydeals with food and safety standards which are to be complied with by manufacturers and1 MANU/CF/0280/2002
  5. 5. producers, non-compliance of which imposes a liability, upon defaulters, of fine, extending uptoRs. Ten Lakhs and/or imprisonment.The provisions of Indian Penal Code (IPC), on the other hand, in respect of product liability, areattracted when the element of cheating and fraud can be attributed to such defects. For example,in the case of Smt. Uma Deepak v. Maruti Udyog Ltd Ors2 the Complainant alleged that thecar sold by the opposite party was not only accidental but the price, for the same, was alsoovercharged. The Court, in response to the allegations made by the complainant, directed arrestof the Directors as well as the manager of the dealers/agents who sold the said defective car tothe complainant and remanded them to judicial custody. Subsequent thereto, the said officers ofthe opposite party were released on bail and were directed to replace the disputed car with a newcar.Provisions of IPC are also attracted to provide punishment to offenders for false weights andmeasures , adulteration of goods ( food, drugs etc -6 months imprisonment, fine of 1000 rupeesor both), and false property marks ( one year imprisonment, fine or both). The period oflimitation as per Section 468 of the Criminal Procedure Code is 6 months if offence is punishablewith fine only , and one year if offence is punishable with upto one year imprisonment and threeyears if offence is punishable with imprisonment of above one year and upto three years.The provisions of the Standards of Weights and Measures Act, 1976 are attracted in case of anyfalse packaging, weight or measure which does not conform to the standards established by orunder the said Act and breaches the mandatory declaratory requirements on a package. If anymandatory declaration is found missing on the package a fine of up to 2000 rupees shall belevied as per Rule 39 of the Standards of weights and measures packaged commodity rules.The Drugs and Cosmetic Act, 1940 also provides for criminal liability for manufacturers andproducers of medicinal products or cosmetics etc, which do not adhere to the prescribedstandards.Product Liability Law (Defective Products Law) falls under personal injury/tort law and isclosely related to litigation law. It refers to the claims against any parties along the chain ofmanufacture (designers, manufacturers, distributors and retailers) of products which have defectsthat harm consumers causing injury or loss. The federal Uniform Commercial Code (UCC)addresses breach of warranty product liability claims, but there are also many laws states haveenacted to deal with these claims and common law plays a large part as well.There are four legal theory categories by which a plaintiff may base his/her damage recoveryfor a product liability claim:2 (2003) CPJ 90(MRTP)
  6. 6.  Breach of Express or Implied Warranty (controlled by contract law) – an express warranty is one that is actually stated, either orally or in writing. This warranty can be expressed in the packaging or labeling of the product; on the instructions enclosed with the product; on marketing material for the product and/or in any advertising for the product. When a product‘s defect violates information presented in the warranty, the damaged party may be able to pursue a defective product claim. An implied warranty is one that law applies automatically to a product, whether the retailer or manufacturer states it expressly or not. These laws are usually categorized in one of two ways: implied warranty of merchantability, which guarantees that the product is realistically suitable for the purpose for which it is sold and is reasonably safe; or implied warranty of fitness for a particular purpose, which deals more explicitly with a specific function of a product and the buyer‘s reliance on the seller‘s expertise in offering or suggesting the specific product to fulfill that purpose. Negligence – the party responsible for the defect failed to exercise ordinary reasonable care and this resulted in the defect which caused harm, injury or some other type of damage. Additionally, there must be duty of care in existence and the plaintiff must be able to exhibit that the alleged responsible party owed him/her this duty. Generally, a manufacturer has a requirement to produce goods free from defective and unreasonably dangerous conditions. Strict Tort Liability – In general tort law, it is necessary to prove negligence in order to maintain a cause of action; however, with strict liability the plaintiff only need show that the product is defective and that the injury or harm he/she suffered was caused by this defect, and proof of negligence is not necessary. Intentional Misrepresentation or Fraud – the retailer or manufacturer was aware of a dangerous defect in the product, but concealed this information or marketed the product in a deliberately misleading manner. A defective product is a product that causes harm, injury or some type of loss due to a flaw, error or weakness in the product, its marketing or use. There are three types of defects for Product Liability Claims: Design Defects – present before the product is made, when the defect is part of the design of the product; it was manufactured properly, but the design itself is faulty.
  7. 7.  Manufacturing Error/Defects –when the product does not conform to design specifications or performance standards or it differs in some fundamental way from other units from the same product line. These defects occur during the construction or manufacturing phase and can result from loose, warped or missing parts; sloppy or improper assembly; or the use of substandard or defective materials. Failure to Warn (also referred to as defective marketing claims) – the manufacturer did not provide adequate warnings, instructions or product labels with respect to a real or potential hazard or danger, which resulted in injury.
  8. 8. THEORIES OF LIABILITYIn most jurisdictions, a plaintiffs cause of action may be based on one or more of four differenttheories: Negligence, breach of Warranty, Misrepresentation, and strict tort liability.Negligence refers to the absence of, or failure to exercise, proper or ordinary care. It means thatan individual who had a legal obligation either omitted to do what should have been done or didsomething that should not have been done.A manufacturer can be held liable for negligence if lack of reasonable care in the production,design, or assembly of the manufacturers product caused harm. For example, a manufacturingcompany might be found negligent if its employees did not perform their work properly or ifmanagement sanctioned improper procedures and an unsafe product was made.Breach of warranty refers to the failure of a seller to fulfill the terms of a promise, claim, orrepresentation made concerning the quality or type of the product. The law assumes that a sellergives certain warranties concerning goods that are sold and that he or she must stand behindthese assertions.Misrepresentation in the advertising and sales promotion of a product refers to the process ofgiving consumers false security about the safety of a particular product, ordinarily by drawingattention away from the hazards of its use. An action lies in the intentional concealment ofpotential hazards or in negligent misrepresentation. The key to recovery on the basis ofmisrepresentation is the plaintiffs ability to prove that he relied upon the representations thatwere made. Misrepresentation can be argued under a theory of breach of express warranty or atheory of strict tort liability.Strict liability involves extending the responsibility of the vendor or manufacturer to allindividuals who might be injured by the product, even in the absence of fault. Injured guests,bystanders, or others with no direct relationship to the product may sue for damages caused bythe product. An injured party must prove that the item was defective, the defect proximatelycaused the injury, and the defect rendered the product unreasonably dangerous.Historical DevelopmentThe history of the law of product liability is largely a history of the erosion of the doctrine ofprivity, which states that an injured person can sue the negligent person only if he or she was aparty to the transaction with the injured person. In other words, a defendants duty of reasonablecare arose only from the contract, and only a party to that contract could sue for its breach. Thismeant that a negligent manufacturer who sold a product to a retailer, who in turn sold it to the
  9. 9. plaintiff, was effectively insulated from liability. The plaintiff was usually without a remedy intort because it was the manufacturer and not the retailer whose negligence caused the harm.The privity doctrine dominated nineteenth-century law, yet courts created exceptions to avoiddenying an injured plaintiff a remedy. Soon privity of contract was not required where the sellerfraudulently concealed the defect or where the products were inherently or imminentlydangerous to human life or health, such as poisons or guns. The decisions then began to expandthese exceptions. Some courts dropped the Fraud requirement. A concealed defect coupled withsome sort of "invitation" by the defendant to use the product was enough. In a few cases, theterm imminently dangerous was construed to mean especially dangerous by reason of the defectitself and not necessarily dangerous per se. For example, products intended for humanconsumption, a defective scaffold, and a coffee urn that exploded would be consideredimminently dangerous.The seminal case of MacPherson v. Buick motor co3., broadened the category of "inherently"or "imminently" dangerous products so as to effectively abolish the privity requirement innegligence cases. It held that lack of privity is not a defense if it is foreseeable that the product, ifnegligently made, is likely to cause injury to a class of persons that includes the plaintiff.Because this is essentially the test for negligence, the exception swallowed the rule. TheMacPherson case quickly became a leading authority, and the privity rule in negligence casessoon was ignored. Increasing public sympathy for victims of industrial negligence alsocontributed to the demise of the rule.In warranty, a similar privity limitation was imposed, in part because warranties were thought tobe an integral part of the sales contract. Beginning in the early twentieth century, an exception tothe privity rule developed for cases involving products intended for human consumption (food,beverages, drugs) and eventually also for products intended for "intimate bodily use" (e.g.,cosmetics) so that the warranty in these cases extended to the ultimate consumer. In the case ofexpress warranties, which could be said to be made to the public generally, the privityrequirement was abandoned during the 1930s. For example, a manufacturers statement inliterature distributed with an automobile that the windshield was "shatterproof" constituted anexpress warranty to the purchaser that the windshield would not break (Baxter v. Ford MotorCo., 168 Wash. 456, 12 P.2d 409 [Wash. 1932]).But with respect to implied warranties, exception to the privity rule did not extend beyond food,drink, and similar products until Henningsen v. Bloomfield Motors, Inc4.. In this case, the NewJersey Supreme Court abolished the privity limitation generally and held that the impliedwarranties run to the foreseeable ultimate user or consumer of the product. The Henningsendecision, which also invalidated the manufacturers attempted disclaimer of Implied Warrantyliability, has been followed in almost all jurisdictions.3 217 N.Y. 382, 111 N.E. 1050 (N.Y. 1916)4 32 N.J. 358, 161 A.2d 69 (1960)
  10. 10. From 1930 to 1960, various legal writers and a few judges discussed the creation of strictliability in tort for defective products. The best-known judicial exposition of this view wasCalifornia Supreme Court Justice Roger John Traynors concurring opinion in Escola v. CocaCola Bottling Co. of Fresno5,. A number of justifications have been advanced for strict liability:negligence is often too difficult to prove; strict liability can be accomplished through a series ofactions for breach of warranty; strict liability provides needed safety incentives; the manufactureris in the best position to either prevent the harm or insure or spread the cost of the risk; and themanufacturer of a product induces consumer reliance on the expectation of the products safetyand should be made to stand behind the product.Finally, in 1963, in Greenman v. Yuba Power Products, Inc., 59 Cal6., the California SupremeCourt adopted strict tort liability for defective products. Within a short time, strict liability sweptthe country and was, as of 2003, the law in all but a few states.NegligenceThe duty to guard against negligence and supply a safe product applies to everyone in the chainof distribution, including a manufacturer who carelessly makes a defective product, the companythat uses the product to assemble something else without discovering an obvious defect, and thevendor who should exercise greater care in offering products for sale. These individuals owe aduty of care to anyone who is likely to be injured by such a product if it is defective, includingthe initial buyer, that persons family members, any bystanders, and persons who lease the itemor hold it for the purchaser.Additionally, the duty to exercise care involves all phases of getting a product to the consumersor users. The product must be designed in such a way that it is safe for its intended use. It mustbe inspected and tested at different stages, made from the appropriate materials, and assembledcarefully. The products container or packaging must be adequate. The manufacturer must alsofurnish adequate warnings and directions for use with the product. The seller is proscribed frommisrepresenting the safety or character of the product and must disclose all defects.Breach of WarrantyWarranties are certain kinds of express or implied representations of fact that the law willenforce against the warrantor. Product liability law is concerned with three types of warrantiesinvolving the products quality or fitness for use: express warranty, implied warranty ofmerchantability, and implied warranty of fitness for a particular purpose. These and other5 24 Cal. 2d 453, 150 P.2d 436 (1944)6 2d 57, 377 P.2d 897
  11. 11. warranties are codified in the Uniform Commercial Code (UCC), which every state has adopted,at least in part.An express warranty can be created in one of three ways: through an affirmation of fact made bythe vendor of the goods to the purchaser relating to the goods, which becomes part of thebargain; by way of a description of the goods, which is made part of the basis of the bargain; andthrough a sample or model, which is made part of the basis of the bargain.7An express warranty can be words spoken during negotiations or written into a sales contract, asample, an earlier purchase of the same kind of product, or claims made in publicity or on tagsattached to the product. An express warranty is created when a salesperson states that the productis guaranteed to be free from defects for one year from the date of the purchase.Implied warranties are those created and imposed by law, and accompany the transfer of title togoods unless expressly and clearly limited or excluded by the contract. However, with respect todamages for personal injury, the UCC states that any such contractual limitations or exclusionsare "prima facie unconscionable" and cannot be enforced.8The implied warranty of merchantability requires that the product and its container meet certainminimum standards of quality, chiefly that the product be fit for the ordinary purposes for whichsuch goods are sold9. This requirement includes a standard of reasonable safety.The implied warranty of fitness for a particular purpose imposes a similar requirement in cases inwhich the seller knows or has reason to know of a particular purpose for which the goods arerequired and in which the buyer is relying on the seller to select or furnish suitable goods. Theseller then warrants that the goods are fit for that particular purpose10. For example, assumingthat the buyer tells the seller, a computer supplier, that he needs a high-speed computer tomanage inventory and payroll functions for his business. Once the seller recommends aparticular computer to handle these requirements, the seller is making an implied warranty offitness. If the computer cannot adequately process the inventory and payroll, the buyer may filesuit.The action for breach of one of these warranties has aspects of both tort and contract law. Itsgreatest value to the injured product user lies in the fact that liability for breach is strict. Nonegligence or other fault need be shown. However, in addition to the privity limitation, certaincontract-related defenses have impaired the remedys usefulness. These include the requirementthat the seller receive reasonably prompt notice of the breach as a condition to his or her liability,the requirement that the buyer has relied upon the warranty, and the ability of the seller to limitor disclaim entirely the implied warranties. These defenses are most appropriate in cases in7 (U.C.C. § 2-313).8 (U.C.C. § 2-719 (3)).9 (U.C.C. § 2-314).10 (U.C.C. § 2-315).
  12. 12. which a products failure causes economic loss. The trend has been away from strict enforcementof these defenses in personal injury cases in which the action is closer to a tort action.Strict LiabilityThe rule of strict liability applied in product liability suits makes a seller responsible for alldefective items that unreasonably threaten the personal safety of a consumer or the consumersproperty. The vendor is liable if he or she regularly engaged in the business of selling suchproducts, which reach the consumer without any substantial changes having been made in theircondition. The vendor is liable even if he or she exercised care in handling the product and if theconsumer bought the product somewhere else and had no direct dealings with the vendor.DefectsA critical issue in a product liability lawsuit is whether the product contains a defect, which is animperfection that renders a product unsafe for its intended use. Design defects exist when awhole class of products is inadequately planned in such a way as to pose unreasonable hazards toconsumers. For example, an automobile manufacturers design of a vehicle with the fuel tankplaced in such a position that it will explode upon low-speed impact can be classified asdefective. In that case, products manufactured in conformity with the intended design would bedefective. A production defect arises when a product is improperly assembled. For example,frames of automobiles that are improperly welded to the body at the assembly plant would beclassified as a production defect.In addition, something other than the product itself can cause it to be defective. For example,caustic chemicals should be packaged in appropriate containers. Improper labeling, instructions,or warnings on a product or its container also make a product defective. Dangerous productsshould carry warning labels that explain how they should be used, under what circumstancesthey are likely to cause harm, and what steps can be taken in an emergency involving theproduct.The principle of proper labeling includes claims made in sales brochures, product displays, andpublic advertising. It extends beyond warranty or negligence law, because a seller is strictlyliable to users or purchasers of the product who are not in privity with the seller.A manufacturer who creates the demand for goods through print and broadcast media has theresponsibility to determine that the product has the qualities represented to the general public.Some courts allow injured consumers to sue even if they have not read a certain label oradvertisement. The standard is that if the advertisement is directed toward the public at large and
  13. 13. makes claims that a normal consumer would take into consideration when deciding to make apurchase, then the manufacturer must stand behind that claim for every member of the public.Causes of InjuriesThe issue of causation of injuries can be complicated, particularly if the product involved is onlyan indirect or remote cause, or one of a number of causes. Regardless of the theory of liability,the plaintiff must prove that the product was defective when it left the hands of the defendant andthat the defect was the cause of injury. These issues are ordinarily questions of fact to be decidedby the jury.When the evidence indicates that an injury might have been precipitated by several causes, thequestion becomes whether the cause for which the defendant is liable was a substantial factor inbringing about the injury. A defendant is not necessarily liable if he is responsible for the lastcause or the immediate cause of the injury. For example, a person who was injured by a cookingpot that fell apart when the person removed it from the stove might not have to show that adefect in the pot handle was the only possible explanation for the accident. The jury could stillproperly consider whether a defect was a concurring cause of the accident, even if they foundthat the plaintiff misused the pot by handling it too roughly.RisksA manufacturer has the duty to make the product as safe as possible. If the manufacturer cannotdo so, he has the obligation to adequately warn users and buyers of the dangers that exist. Theconcept of a reasonably safe product extends to all dangers likely to arise when the product isbeing used normally or in a way that can be anticipated, even if it is not the purpose for which itwas sold. For example, a manufacturer might foresee that someone is likely to stand on a tableand might be required either to make it sufficiently strong and stable for people to do so withoutsustaining injury or to warn customers not to stand on it.No liability is extended to a manufacturer if a plaintiff was disappointed because he or she hadunreasonable hopes for a particular product. Frequently, however, a consumers expectations areclearly reasonable but are not met. For example, no one expects to find defective brakes in a newautomobile.In some instances, a defect might not be inherent in the product, but a consumer should be awarethat care is needed. An average adult need not be warned that knives cut, that dynamite explodes,or that electrical appliances should not be used in the shower. A consumer who ignores hazardswill not succeed in an action alleging product liability. However, many manufacturers printwarnings about common-sense hazards to provide added protection from a lawsuit.
  14. 14. Traditionally, an individual must be at least as careful as a reasonably careful person. Increasingrecognition has been given, however, to a more realistic standard—the occasionally carelessconsumer. Courts are now less interested in how obvious a danger is and more concerned withdiscovering how serious the risk is and how readily it could have been avoided.A consumer who clearly misuses a product cannot recover if an injury results. For example, aperson who disregards a printed warning that nail polish remover is for external use only cannotblame the manufacturer for making an imperfect product if he or she ingests it. In addition, theconsumer is precluded from recovery if he or she continues to use a product that is obviouslydangerous. The theory is that the consumer has assumed the risk. This rule applies, however,only to obvious defects and does not establish a duty for consumers to scrutinize every productthey purchase.Whether a consumer has assumed responsibility for using an obviously dangerous product ormisused a relatively safe product depends on who the user is likely to be. The classic example ischildrens clothing, which generally must be at least somewhat flame-resistant, because childrenare less able to appreciate the danger of accidental fires.Unavoidable DangersAlthough manufacturers and sellers have a duty to take precautions and provide adequatewarnings and instructions, the public can still obtain products that are unavoidably unsafe. Aseller is not held strictly liable for providing the public with a product that is needed and wantedin spite of the potential risk of danger. Prescription drugs illustrate this principle because all ofthem have the potential to cause serious harm if used unreasonably.The duty to warn consumers of unavoidable dangers presents special problems if certainindividuals are likely to suffer allergic reactions. The law considers an allergy to be a reactionsuffered by a minority of people that is triggered by exposure to some substance. Courts used toreject claims based on allergic reactions, reasoning that the product was reasonably safe and thatthe injury was caused by a defect peculiar to the individual. That approach has been abandoned,with manufacturers providing careful instructions on use and clear warnings about possiblesymptoms that suggest an allergic reaction.Multiparty LitigationSince the 1970s, groups of plaintiffs have filed consolidated lawsuits against the manufacturersof certain products. The makers of contraceptive devices, silicone breast implants, asbestos, andtobacco products have encountered this type of multiparty litigation. In many states, one judge isappointed to handle all cases involving claims against such a manufacturer. The litigation
  15. 15. process can prove costly for defendants because they may have to defend themselves in manydifferent states. The resulting verdicts or negotiated settlements can also be very expensive tocompanies.
  16. 16. LEGAL BACKGROUNDIt is necessary to have an understanding of the legal aspects having a bearing on product liabilityinsurance. The insured may be a manufacturer, a wholesaler or a retailer and claims for injury ordamage may be made against any one or two or all of them by purchase of the goods. Liabilityfor these claims therefore, arises under contract and some of the provision of the Indian Sale ofGoods Act is relevant. These are s follows:  Under section 15 of the Sale of Goods Act the seller has a responsibility to ensure that the goods sold corresponded with the description and, if the sale is by sample, that the goods in addition corresponded with sample.  According to section 16, the seller has an obligation to ensure that the goods are fit for which they are required by the buyer and if, the goods are bought by description, that they are merchantable quality. This section modifies the common law maxim of ‗buyer beware‘. Again, the provision applies whether the seller is a manufacturer or not.  Section 17 provides that in contracts of sale by sample the goods shall, not only correspond with sample in quality, but shall also be free from defects.  Section 59 confers on the buyer the right among other things, to claim damages for breach of contract.  It is important to note that the actions under Sale of Goods Act for breach of condition or warranty need not be based on negligence. This position applies only as between the parties to the contract. An injured party who is not a party to the contract may, of course, have a claim against the seller but the claim will have to be based on negligence.  A guarantee given by the seller may include not only the replacement of the defective product but also indemnity to the buyer against any loss, damage injury caused by the defective product. This would be liability assumed under contract or agreement which is excluded under the products liability policies.  On the other hand, the seller may contract out of his liability by incorporating a disclaimer. The law does not prohibit such disclaimers as long as : a) The disclaimer is brought clearly to the notice of the buyer before the sale is effected : and b) The disclaimer is not contrary to public policy.  The buyers too, in certain contracts, may endeavour under the terms of purchase to transfer to the seller all liability for loss, injury or damage suffered by the buyer. Whether the seller is liable or the buyer is liable will have to be determined with reference to the actual circumstances of the sale.
  17. 17. PRODUCT LIABILITY REFORMBusinesses have sought relief from state legislatures and Congress regarding product liability,contending that the shifting legal standards make them vulnerable to even the most suspectclaim. Some states have passed laws that provide manufacturers with the right to defendthemselves by showing that their product met generally acceptable safety standards when made.This assertion is known as the state-of-the-art defense, which relieves manufacturers of the taskof attempting to make a perfect product. An injured consumer cannot recover on the theory thatthe product would have been safe had the manufacturer incorporated safety features that weredeveloped after the product was made. Consumer advocates have opposed such laws becausethey allow manufacturers to avoid liability. The advocates argue that these laws discourageinnovation because higher safety standards are set as improvements are made.Businesses have also attempted to set maximum amounts that persons can recover for PunitiveDamages. Some states have capped awards for punitive damages. In 1996, President bill clintonvetoed a bill that would have limited punitive damage awards to $250,000, or two times theeconomic and non-economic damages, whichever amount was greater, stating that it woulddeprive U.S. families of the ability to fully recover for injuries caused by defective products.In the same year, the Supreme Court imposed its own version of product liability reform withBMW v. Gore11,. The case involved an automobile purchaser who brought action against aforeign automobile manufacturer, American distributor, and dealer based on the distributorsfailure to disclose that the automobile had been repainted after being damaged prior to delivery.An Alabama circuit court entered a judgment in the case of Compensatory Damages of $4,000and punitive damages of $2,000,000. The Supreme Court ruled unanimously the punitivedamages award was excessive. In this case, the Court devised three factors to assist trial judgesin determining whether a jurys punitive damages award were excessive: (1) the degree ofreprehensibility of the defendants conduct; (2) the disparity between the harm or potential harmsuffered by the plaintiff and the punitive damages award; and (3) the difference between thepunitive damages award and the civil or criminal penalties authorized or imposed in comparablecases. The BMW case showed that there were limits under the Constitution to the amount ofpunitive damages that could be imposed.Federal Preemption of State Product Liability LawFor the most part, product liability law is governed by state law. Occasionally, the federalgovernment will move to preempt an entire area of product liability law from state control in11 517 U.S. 559, 116 S. Ct. 1589, 134 L. Ed. 2d 809 (1996)
  18. 18. order to protect a certain group of manufacturers. An example of this is the Federal BiomaterialsAccess Assurance Act, a 1998 law that protects suppliers of materials for implantable medicaldevices from "unwarranted" suits by laying out the permissible basis of biomaterials supplierliability. Under the act, a biomaterials supplier may only be held liable in three situations:1. when the supplier is a manufacturer of medical implants under the act;2. when the supplier is a seller of medical implants; or3. when the supplier sold materials that did not meet contractual specifications of the manufacturer.More problematically, a court will have to decide whether an area of product liability is affectedby a federal law that does not expressly preempt product liability suits but may indicate thefederal government wished such suits to be preempted. For implied Preemption, the SupremeCourt has recognized two subcategories: field pre-emption and conflict pre-emption. Under fieldpre-emption, a state statute is superseded when a federal statute wholly occupies a particularfield and takes away state power to supplement it. Conflict pre-emption occurs when compliancewith both the federal and state statute is impossible, and the state law stands as an obstacle to thelegislative objectives of Congress.An example of conflict preemption was Geier v. American Honda Motor, Inc12., in which theCourt ruled against an injured motorist who brought a defective design action against theautomobile manufacturer under District of Columbia tort law, contending that the manufacturerwas negligent in failing to equip the automobile with a drivers side airbag. The Court ruled thelaw suit was preempted in that it actually conflicted with department of transportation (DOT)standard, promulgated under National Traffic and Motor Vehicle Safety Act, requiringmanufacturers to place drivers side airbags in some but not all 1987 automobiles. The Courtnoted the rule of state law imposing duty to install airbag would have presented an obstacle tovariety and mix of safety devices and gradual passive restraint phase-in sought by the DOTstandard.12 529 U.S. 861, 120 S. Ct. 1913, 146 L. Ed. 2d 914, (2000)
  19. 19. PRODUCT LIABILITY INSURANCEIn product liability insurance terms, a product is any physical item that is sold or given awayProducts must be fit for purpose. An individual is legally responsible for any damage or injurythat a product you supply may cause.ResponsibilitiesIf the seller supplies a faulty product, claimants may try to claim from him first, even if he didnot manufacture it. He will be liable for compensation claims if: business name is on the product business had repaired, refurbished or changed it imported it from outside the European Union cannot clearly identify the manufacturer the manufacturer has gone out of businessOtherwise, the manufacturer is liable - or the processor, where the product involves parts frommultiple manufacturers.However, one must also: show that the products were faulty when they were supplied to the seller. show that the seller gave consumers adequate safety instructions and warnings about misuse show that the seller included terms for return of faulty goods to the manufacturer or processor in any sales contract he gave to the consumer make sure that the seller supply contract with the manufacturer or processor covers product safety, quality control and product returns have good quality control and record-keeping systemsWhat is covered?Product liability insurance covers the individual against damages awarded as a result of damageto property or personal injury caused by your product. Product liability insurance also covers theindividual against unforeseen circumstances, such as product faults the quality control system
  20. 20. couldnt trace. However, if one simply makes an inferior product, he may be unable to make aclaim, or even get insurance. Bad workmanship is not covered.Before issuing a policy the insurer will want to know that: manufacturing or services are carried out in line with industry best practice staff are adequately trained equipment and systems are appropriate, up to date and well maintained