This document discusses the evolution of product liability laws in India. It provides definitions of key terms like liability, liability insurance, and product liability. It outlines the various acts and legal frameworks that govern product liability in India, including the Consumer Protection Act of 1986, Sales of Goods Act of 1930, and laws around torts. The document also discusses the civil and criminal liability imposed on manufacturers for defective products. It provides an example case regarding compensation awarded for deficiency in service. Overall, the document provides a high-level overview of the legislative framework and key concepts regarding product liability in India.

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 one
is liable for a debt, they are responsible for paying the debt or settling a wrongful act they may
have committed. For example, if John hits Jane's car, John is liable for the damages to Jane's
vehicle 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 may
be sued and held legally liable for something such as malpractice, injury or negligence. Liability
insurance policies cover both legal costs and any legal payouts for which the insured would be
responsible if found legally liable. Intentional damage and contractual liabilities are typically
not covered in these types of policies.
Liability insurance is very important for those who may be held legally liable for the injuries of
others, especially medical practitioners and business owners. A product manufacturer may
purchase product liability insurance to cover them if a product is faulty and causes damage to the
purchasers or any other third party. Business owners may purchase liability insurance that covers
them if an employee is injured during business operations.
There are many different types of insurance policies available, but liability insurance is one of
the most popular because it costs much less than many other options. For example, in regard to
auto insurance policies, liability insurance costs far less than full coverage. The reason for this is
because full coverage insurance must pay for both your vehicle and any other vehicle involved in
a collision, as well as property damage and medical expenses due to injuries to you or another
party.
On the other hand, liability insurance is only responsible for the other party's losses. There are
different types of liability insurance, including general liability, which works in much the same
way as auto liability insurance, but covers businesses. General liability protects a company from
third party claims. Aside from general liability, there is also D & O liability, employer liability,
and professional liability insurance.

2. D & O liability stands for "directors and officers" liability and is intended to cover the acts or
omissions of those in the director or officer position. An entire company should not be held
liable for the statements, actions, failure to act, or other mistakes that are the responsibility of an
officer or director.
Employer liability is also known as worker's comp, and it is a mandatory form of liability
insurance coverage that all businesses must carry. While it sounds like it is intended to protect
the employee, which it does to some degree, it is actually protection for the employer in case of
injury, 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 as
comprehensive as some malpractice policies in different fields. The purpose for professional
liability insurance is to protect those seen as professionals or "experts" in a given field, who may
not be protected by general liability due to their expertise. When one is seen as a professional, he
is held to a higher standard and is therefore often considered to hold greater liability towards his
clients. Consequently, he needs more coverage than general liability insurance offers.
The simplest definition of liability insurance is insurance which protects a person or entity from
claims initiated by another party.

3. PRODUCT LIABILITY
In India, Product liability law, also called ―products liability‖, governs the liability of
manufacturers, wholesalers, distributors, and vendors for injury to a person or property caused by
dangerous or defective products. The goal of product liability laws is to help protect consumers
from dangerous or defective products, while holding manufacturers, distributors, and retailers
responsible for putting into the market place products that they knew or should have known were
dangerous or defective.
The responsibility of a manufacturer or vendor of goods to compensate for injury caused by
defective merchandise that it has provided for sale.
When individuals are harmed by an unsafe product, they may have a Cause of Action against the
persons who designed, manufactured, sold, or furnished that product. In the United States, some
consumers have hailed the rapid growth of product liability litigation as an effective tool for
Consumer Protection. The law has changed from caveat emptor ("let the buyer beware") to Strict
Liability for manufacturing defects that make a product unreasonably dangerous. Manufacturers
and others who distribute and sell goods argue that product liability verdicts have enriched
plaintiffs' attorneys and added to the cost of goods sold.
Product liability insurance protects your business assets from legal proceedings for injury or
property 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 of
people in contact with their products on a daily basis.
Civil Product liability in India is, essentially, governed by:
a) The Consumer Protection Act, 1986
b) The Sales of Goods Act, 1930
c) 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 goods
The laws relating to product liability, in India, have been constantly evolving, by way of judicial
interpretations and amendments, to become one of the most important socio-economic
legislations for the protection of consumers. The legislation, in respect of product liability in
India, though was enacted to protect the interest of consumers but the same was, earlier,

4. construed narrowly, thereby frustrating the object sought to be achieved. The trend, however, has
changed in the recent times with the Courts adopting a pro-consumer approach. The Courts, in
India, have now started awarding compensation and damages which are more punitive than
compensatory 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, a
technical fault, which occurred during warranty period, in his new Montana car and then not
delivering the same for a period of 4 years. A sum of Rs. 30, 000/- with interest @ 18% per
annum from 2/7/1988 to 7/5/1992, was awarded as compensation, in favour of the complainant
for his suffering, both professionally and otherwise, on account of non availability of car for a
period of 4 years. Further interest, at the same rate for the same period, was also awarded on an
amount of Rs. 82, 000/-, being the price of the car as well as an amount of Rs. 55, 00/- towards
costs and, last but not the least, an amount of Rs. 50, 000/-, which was deposited by the
Respondent 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 in
case of non-compliance with the provisions of each of the below mentioned Acts. The said Acts
are in addition to and not in derogation of any other laws in force, which implies that an action
imposing penal liability can be simultaneously initiated along with a claim under civil law. Some
of 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 an
action 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 , 1986
Each of the aforesaid Acts provides for imposition of fine and/or imprisonment in case of supply
of defective products or adulterated consumables.
The Food Safety and Standards Act, 2006 is the most recent legislation which comprehensively
deals with food and safety standards which are to be complied with by manufacturers and
1
MANU/CF/0280/2002

5. producers, non-compliance of which imposes a liability, upon defaulters, of fine, extending upto
Rs. Ten Lakhs and/or imprisonment.
The provisions of Indian Penal Code (IPC), on the other hand, in respect of product liability, are
attracted 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 the
car sold by the opposite party was not only accidental but the price, for the same, was also
overcharged. The Court, in response to the allegations made by the complainant, directed arrest
of the Directors as well as the manager of the dealers/agents who sold the said defective car to
the complainant and remanded them to judicial custody. Subsequent thereto, the said officers of
the opposite party were released on bail and were directed to replace the disputed car with a new
car.
Provisions of IPC are also attracted to provide punishment to offenders for false weights and
measures , adulteration of goods ( food, drugs etc -6 months imprisonment, fine of 1000 rupees
or both), and false property marks ( one year imprisonment, fine or both). The period of
limitation as per Section 468 of the Criminal Procedure Code is 6 months if offence is punishable
with fine only , and one year if offence is punishable with upto one year imprisonment and three
years 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 any
false packaging, weight or measure which does not conform to the standards established by or
under the said Act and breaches the mandatory declaratory requirements on a package. If any
mandatory declaration is found missing on the package a fine of up to 2000 rupees shall be
levied 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 and
producers of medicinal products or cosmetics etc, which do not adhere to the prescribed
standards.
Product Liability Law (Defective Products Law) falls under personal injury/tort law and is
closely related to litigation law. It refers to the claims against any parties along the chain of
manufacture (designers, manufacturers, distributors and retailers) of products which have defects
that 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 have
enacted 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 recovery
for a product liability claim:
2
(2003) CPJ 90(MRTP)

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.  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. THEORIES OF LIABILITY
In most jurisdictions, a plaintiff's cause of action may be based on one or more of four different
theories: 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 that
an individual who had a legal obligation either omitted to do what should have been done or did
something 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 manufacturer's product caused harm. For example, a manufacturing
company might be found negligent if its employees did not perform their work properly or if
management 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, or
representation made concerning the quality or type of the product. The law assumes that a seller
gives certain warranties concerning goods that are sold and that he or she must stand behind
these assertions.
Misrepresentation in the advertising and sales promotion of a product refers to the process of
giving consumers false security about the safety of a particular product, ordinarily by drawing
attention away from the hazards of its use. An action lies in the intentional concealment of
potential hazards or in negligent misrepresentation. The key to recovery on the basis of
misrepresentation is the plaintiff's ability to prove that he relied upon the representations that
were made. Misrepresentation can be argued under a theory of breach of express warranty or a
theory of strict tort liability.
Strict liability involves extending the responsibility of the vendor or manufacturer to all
individuals 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 by
the product. An injured party must prove that the item was defective, the defect proximately
caused the injury, and the defect rendered the product unreasonably dangerous.
Historical Development
The history of the law of product liability is largely a history of the erosion of the doctrine of
privity, which states that an injured person can sue the negligent person only if he or she was a
party to the transaction with the injured person. In other words, a defendant's duty of reasonable
care arose only from the contract, and only a party to that contract could sue for its breach. This
meant that a negligent manufacturer who sold a product to a retailer, who in turn sold it to the

9. plaintiff, was effectively insulated from liability. The plaintiff was usually without a remedy in
tort 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 avoid
denying an injured plaintiff a remedy. Soon privity of contract was not required where the seller
fraudulently concealed the defect or where the products were inherently or imminently
dangerous to human life or health, such as poisons or guns. The decisions then began to expand
these exceptions. Some courts dropped the Fraud requirement. A concealed defect coupled with
some sort of "invitation" by the defendant to use the product was enough. In a few cases, the
term imminently dangerous was construed to mean especially dangerous by reason of the defect
itself and not necessarily dangerous per se. For example, products intended for human
consumption, a defective scaffold, and a coffee urn that exploded would be considered
imminently 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 in
negligence cases. It held that lack of privity is not a defense if it is foreseeable that the product, if
negligently 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. The
MacPherson case quickly became a leading authority, and the privity rule in negligence cases
soon was ignored. Increasing public sympathy for victims of industrial negligence also
contributed to the demise of the rule.
In warranty, a similar privity limitation was imposed, in part because warranties were thought to
be an integral part of the sales contract. Beginning in the early twentieth century, an exception to
the 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 of
express warranties, which could be said to be made to the public generally, the privity
requirement was abandoned during the 1930s. For example, a manufacturer's statement in
literature distributed with an automobile that the windshield was "shatterproof" constituted an
express warranty to the purchaser that the windshield would not break (Baxter v. Ford Motor
Co., 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 New
Jersey Supreme Court abolished the privity limitation generally and held that the implied
warranties run to the foreseeable ultimate user or consumer of the product. The Henningsen
decision, which also invalidated the manufacturer's attempted disclaimer of Implied Warranty
liability, 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. From 1930 to 1960, various legal writers and a few judges discussed the creation of strict
liability in tort for defective products. The best-known judicial exposition of this view was
California Supreme Court Justice Roger John Traynor's concurring opinion in Escola v. Coca
Cola 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 of
actions for breach of warranty; strict liability provides needed safety incentives; the manufacturer
is in the best position to either prevent the harm or insure or spread the cost of the risk; and the
manufacturer of a product induces consumer reliance on the expectation of the product's safety
and should be made to stand behind the product.
Finally, in 1963, in Greenman v. Yuba Power Products, Inc., 59 Cal6., the California Supreme
Court adopted strict tort liability for defective products. Within a short time, strict liability swept
the country and was, as of 2003, the law in all but a few states.
Negligence
The duty to guard against negligence and supply a safe product applies to everyone in the chain
of distribution, including a manufacturer who carelessly makes a defective product, the company
that uses the product to assemble something else without discovering an obvious defect, and the
vendor who should exercise greater care in offering products for sale. These individuals owe a
duty of care to anyone who is likely to be injured by such a product if it is defective, including
the initial buyer, that person's family members, any bystanders, and persons who lease the item
or hold it for the purchaser.
Additionally, the duty to exercise care involves all phases of getting a product to the consumers
or users. The product must be designed in such a way that it is safe for its intended use. It must
be inspected and tested at different stages, made from the appropriate materials, and assembled
carefully. The product's container or packaging must be adequate. The manufacturer must also
furnish adequate warnings and directions for use with the product. The seller is proscribed from
misrepresenting the safety or character of the product and must disclose all defects.
Breach of Warranty
Warranties are certain kinds of express or implied representations of fact that the law will
enforce against the warrantor. Product liability law is concerned with three types of warranties
involving the product's quality or fitness for use: express warranty, implied warranty of
merchantability, and implied warranty of fitness for a particular purpose. These and other
5
24 Cal. 2d 453, 150 P.2d 436 (1944)
6
2d 57, 377 P.2d 897

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 by
the vendor of the goods to the purchaser relating to the goods, which becomes part of the
bargain; by way of a description of the goods, which is made part of the basis of the bargain; and
through a sample or model, which is made part of the basis of the bargain.7
An express warranty can be words spoken during negotiations or written into a sales contract, a
sample, an earlier purchase of the same kind of product, or claims made in publicity or on tags
attached to the product. An express warranty is created when a salesperson states that the product
is 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 to
goods unless expressly and clearly limited or excluded by the contract. However, with respect to
damages for personal injury, the UCC states that any such contractual limitations or exclusions
are "prima facie unconscionable" and cannot be enforced.8
The implied warranty of merchantability requires that the product and its container meet certain
minimum standards of quality, chiefly that the product be fit for the ordinary purposes for which
such 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 in
which the seller knows or has reason to know of a particular purpose for which the goods are
required and in which the buyer is relying on the seller to select or furnish suitable goods. The
seller then warrants that the goods are fit for that particular purpose10. For example, assuming
that the buyer tells the seller, a computer supplier, that he needs a high-speed computer to
manage inventory and payroll functions for his business. Once the seller recommends a
particular computer to handle these requirements, the seller is making an implied warranty of
fitness. If the computer cannot adequately process the inventory and payroll, the buyer may file
suit.
The action for breach of one of these warranties has aspects of both tort and contract law. Its
greatest value to the injured product user lies in the fact that liability for breach is strict. No
negligence or other fault need be shown. However, in addition to the privity limitation, certain
contract-related defenses have impaired the remedy's usefulness. These include the requirement
that 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 limit
or disclaim entirely the implied warranties. These defenses are most appropriate in cases in
7
(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. which a product's failure causes economic loss. The trend has been away from strict enforcement
of these defenses in personal injury cases in which the action is closer to a tort action.
Strict Liability
The rule of strict liability applied in product liability suits makes a seller responsible for all
defective items that unreasonably threaten the personal safety of a consumer or the consumer's
property. The vendor is liable if he or she regularly engaged in the business of selling such
products, which reach the consumer without any substantial changes having been made in their
condition. The vendor is liable even if he or she exercised care in handling the product and if the
consumer bought the product somewhere else and had no direct dealings with the vendor.
Defects
A critical issue in a product liability lawsuit is whether the product contains a defect, which is an
imperfection that renders a product unsafe for its intended use. Design defects exist when a
whole class of products is inadequately planned in such a way as to pose unreasonable hazards to
consumers. For example, an automobile manufacturer's design of a vehicle with the fuel tank
placed in such a position that it will explode upon low-speed impact can be classified as
defective. In that case, products manufactured in conformity with the intended design would be
defective. 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 be
classified 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 products
should carry warning labels that explain how they should be used, under what circumstances
they are likely to cause harm, and what steps can be taken in an emergency involving the
product.
The principle of proper labeling includes claims made in sales brochures, product displays, and
public advertising. It extends beyond warranty or negligence law, because a seller is strictly
liable 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 the
responsibility 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 or
advertisement. The standard is that if the advertisement is directed toward the public at large and

13. makes claims that a normal consumer would take into consideration when deciding to make a
purchase, then the manufacturer must stand behind that claim for every member of the public.
Causes of Injuries
The issue of causation of injuries can be complicated, particularly if the product involved is only
an 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 and
that the defect was the cause of injury. These issues are ordinarily questions of fact to be decided
by the jury.
When the evidence indicates that an injury might have been precipitated by several causes, the
question becomes whether the cause for which the defendant is liable was a substantial factor in
bringing about the injury. A defendant is not necessarily liable if he is responsible for the last
cause or the immediate cause of the injury. For example, a person who was injured by a cooking
pot that fell apart when the person removed it from the stove might not have to show that a
defect in the pot handle was the only possible explanation for the accident. The jury could still
properly consider whether a defect was a concurring cause of the accident, even if they found
that the plaintiff misused the pot by handling it too roughly.
Risks
A manufacturer has the duty to make the product as safe as possible. If the manufacturer cannot
do so, he has the obligation to adequately warn users and buyers of the dangers that exist. The
concept of a reasonably safe product extends to all dangers likely to arise when the product is
being used normally or in a way that can be anticipated, even if it is not the purpose for which it
was sold. For example, a manufacturer might foresee that someone is likely to stand on a table
and might be required either to make it sufficiently strong and stable for people to do so without
sustaining 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 had
unreasonable hopes for a particular product. Frequently, however, a consumer's expectations are
clearly reasonable but are not met. For example, no one expects to find defective brakes in a new
automobile.
In some instances, a defect might not be inherent in the product, but a consumer should be aware
that 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 hazards
will not succeed in an action alleging product liability. However, many manufacturers print
warnings about common-sense hazards to provide added protection from a lawsuit.

14. Traditionally, an individual must be at least as careful as a reasonably careful person. Increasing
recognition has been given, however, to a more realistic standard—the occasionally careless
consumer. Courts are now less interested in how obvious a danger is and more concerned with
discovering 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, a
person who disregards a printed warning that nail polish remover is for external use only cannot
blame the manufacturer for making an imperfect product if he or she ingests it. In addition, the
consumer is precluded from recovery if he or she continues to use a product that is obviously
dangerous. 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 product
they purchase.
Whether a consumer has assumed responsibility for using an obviously dangerous product or
misused a relatively safe product depends on who the user is likely to be. The classic example is
children's clothing, which generally must be at least somewhat flame-resistant, because children
are less able to appreciate the danger of accidental fires.
Unavoidable Dangers
Although manufacturers and sellers have a duty to take precautions and provide adequate
warnings and instructions, the public can still obtain products that are unavoidably unsafe. A
seller is not held strictly liable for providing the public with a product that is needed and wanted
in spite of the potential risk of danger. Prescription drugs illustrate this principle because all of
them have the potential to cause serious harm if used unreasonably.
The duty to warn consumers of unavoidable dangers presents special problems if certain
individuals are likely to suffer allergic reactions. The law considers an allergy to be a reaction
suffered by a minority of people that is triggered by exposure to some substance. Courts used to
reject claims based on allergic reactions, reasoning that the product was reasonably safe and that
the 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 possible
symptoms that suggest an allergic reaction.
Multiparty Litigation
Since the 1970s, groups of plaintiffs have filed consolidated lawsuits against the manufacturers
of certain products. The makers of contraceptive devices, silicone breast implants, asbestos, and
tobacco products have encountered this type of multiparty litigation. In many states, one judge is
appointed to handle all cases involving claims against such a manufacturer. The litigation

15. process can prove costly for defendants because they may have to defend themselves in many
different states. The resulting verdicts or negotiated settlements can also be very expensive to
companies.

16. LEGAL BACKGROUND
It is necessary to have an understanding of the legal aspects having a bearing on product liability
insurance. The insured may be a manufacturer, a wholesaler or a retailer and claims for injury or
damage may be made against any one or two or all of them by purchase of the goods. Liability
for these claims therefore, arises under contract and some of the provision of the Indian Sale of
Goods 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. PRODUCT LIABILITY REFORM
Businesses have sought relief from state legislatures and Congress regarding product liability,
contending that the shifting legal standards make them vulnerable to even the most suspect
claim. Some states have passed laws that provide manufacturers with the right to defend
themselves 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 task
of attempting to make a perfect product. An injured consumer cannot recover on the theory that
the product would have been safe had the manufacturer incorporated safety features that were
developed after the product was made. Consumer advocates have opposed such laws because
they allow manufacturers to avoid liability. The advocates argue that these laws discourage
innovation because higher safety standards are set as improvements are made.
Businesses have also attempted to set maximum amounts that persons can recover for Punitive
Damages. Some states have capped awards for punitive damages. In 1996, President bill clinton
vetoed a bill that would have limited punitive damage awards to $250,000, or two times the
economic and non-economic damages, whichever amount was greater, stating that it would
deprive 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 with
BMW v. Gore11,. The case involved an automobile purchaser who brought action against a
foreign automobile manufacturer, American distributor, and dealer based on the distributor's
failure 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 $4,000
and punitive damages of $2,000,000. The Supreme Court ruled unanimously the punitive
damages award was excessive. In this case, the Court devised three factors to assist trial judges
in determining whether a jury's punitive damages award were excessive: (1) the degree of
reprehensibility of the defendant's conduct; (2) the disparity between the harm or potential harm
suffered by the plaintiff and the punitive damages award; and (3) the difference between the
punitive damages award and the civil or criminal penalties authorized or imposed in comparable
cases. The BMW case showed that there were limits under the Constitution to the amount of
punitive damages that could be imposed.
Federal Preemption of State Product Liability Law
For the most part, product liability law is governed by state law. Occasionally, the federal
government will move to preempt an entire area of product liability law from state control in
11
517 U.S. 559, 116 S. Ct. 1589, 134 L. Ed. 2d 809 (1996)

18. order to protect a certain group of manufacturers. An example of this is the Federal Biomaterials
Access Assurance Act, a 1998 law that protects suppliers of materials for implantable medical
devices from "unwarranted" suits by laying out the permissible basis of biomaterials supplier
liability. 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; or
3. 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 affected
by a federal law that does not expressly preempt product liability suits but may indicate the
federal government wished such suits to be preempted. For implied Preemption, the Supreme
Court has recognized two subcategories: field pre-emption and conflict pre-emption. Under field
pre-emption, a state statute is superseded when a federal statute wholly occupies a particular
field and takes away state power to supplement it. Conflict pre-emption occurs when compliance
with both the federal and state statute is impossible, and the state law stands as an obstacle to the
legislative objectives of Congress.
An example of conflict preemption was Geier v. American Honda Motor, Inc12., in which the
Court ruled against an injured motorist who brought a defective design action against the
automobile manufacturer under District of Columbia tort law, contending that the manufacturer
was negligent in failing to equip the automobile with a driver's side airbag. The Court ruled the
law suit was preempted in that it actually conflicted with department of transportation (DOT)
standard, promulgated under National Traffic and Motor Vehicle Safety Act, requiring
manufacturers to place driver's side airbags in some but not all 1987 automobiles. The Court
noted the rule of state law imposing duty to install airbag would have presented an obstacle to
variety and mix of safety devices and gradual passive restraint phase-in sought by the DOT
standard.
12
529 U.S. 861, 120 S. Ct. 1913, 146 L. Ed. 2d 914, (2000)

19. PRODUCT LIABILITY INSURANCE
In product liability insurance terms, a product is any physical item that is sold or given away
Products must be 'fit for purpose'. An individual is legally responsible for any damage or injury
that a product you supply may cause.
Responsibilities
If the seller supplies a faulty product, claimants may try to claim from him first, even if he did
not 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 business
Otherwise, the manufacturer is liable - or the processor, where the product involves parts from
multiple 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 systems
What is covered?
Product liability insurance covers the individual against damages awarded as a result of damage
to property or personal injury caused by your product. Product liability insurance also covers the
individual against unforeseen circumstances, such as product faults the quality control system

20. couldn't trace. However, if one simply makes an inferior product, he may be unable to make a
claim, 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