Products Liability & the Middle Market

Products Liability (PL) & the Products Liability (PL) & the Middle Market:Middle Market:

A Programmatic Structure for Loss A Programmatic Structure for Loss Control & Claims Defense Control & Claims Defense

Damon P. SchneiderDamon P. Schneider Consultant, Loss Control Consultant, Loss Control

(SELC)(SELC)

AGENDAAGENDA

The “big issues”.The “big issues”. Risks from the past.Risks from the past. Products liability in the news.Products liability in the news. Why is a structure / process needed?Why is a structure / process needed? Programmatic elements.Programmatic elements. Products Liability – LC survey Products Liability – LC survey

perspective.perspective. Conclusion.Conclusion.

The “big issues”The “big issues”

Scalability of controls for the exposure.Scalability of controls for the exposure. Confidence in agents to “field underwrite” Confidence in agents to “field underwrite”

& effectively pre-qualify risks with higher & effectively pre-qualify risks with higher PL exposure.PL exposure.

Internal recognition of issues (exposure, Internal recognition of issues (exposure, frequency, severity).frequency, severity).

Functional area staff support: (is there a Functional area staff support: (is there a “wheel”?)“wheel”?) Underwriting Underwriting Loss ControlLoss Control

Risks with varying levels of Risks with varying levels of exposure exposure

Manufacturing:Manufacturing: Beauty products.Beauty products. Dog food.Dog food. Woven material for use in parachutes.Woven material for use in parachutes.

Craft breweries.Craft breweries. ““Picker-packer-grower-shipper”.Picker-packer-grower-shipper”. ““Killers”- poultry processing industry.Killers”- poultry processing industry. Wood frame wall systems (3 hr fire rating).Wood frame wall systems (3 hr fire rating). Modular high rise construction.Modular high rise construction.

PL “in the news”PL “in the news”

Liquid fuel gel. Liquid fuel gel. ““Green” building & “energy mgmt” devices:Green” building & “energy mgmt” devices:

Performance guarantees & LEED.Performance guarantees & LEED. ““Smart” devices are making me sick (EMF?).Smart” devices are making me sick (EMF?).

Asbestos in engine gaskets (China / Australia).Asbestos in engine gaskets (China / Australia). Exterior Insulation Finishing Systems (EIFS):Exterior Insulation Finishing Systems (EIFS):

IAQ, moisture intrusion, mold.IAQ, moisture intrusion, mold. Baby strollers – strangulation hazard:Baby strollers – strangulation hazard:

8 yrs between death & official recall!8 yrs between death & official recall!

Trends in Million Dollar VerdictsTrends in Million Dollar Verdicts

Why is a formal structure Why is a formal structure around PL needed?around PL needed?

Identify/Evaluate:Identify/Evaluate:• Exposures / Hazards.Exposures / Hazards.• Assess the potential for loss.Assess the potential for loss.• Controls in place?Controls in place?• Develop Recommendations.Develop Recommendations.

Planned Service Approach:Planned Service Approach:• Gather Facts.Gather Facts.• Evaluate Facts.Evaluate Facts.• Set a Plan of Action.Set a Plan of Action.• Recommendations.Recommendations.• Follow-through (P-D-C-A).Follow-through (P-D-C-A).

Why is a formal structure Why is a formal structure around PL needed?around PL needed?

Active Participation:Active Participation:• Question.Question.• Observe.Observe.• Maintain records.Maintain records.• Collaborate.Collaborate.

The 14 Basic Elements of a Products The 14 Basic Elements of a Products Liability Loss Control and Claim Defense Liability Loss Control and Claim Defense

ProgramProgram

1.1. Corporate Policy Statement.Corporate Policy Statement.2.2. Products Loss Control Products Loss Control

Committee.Committee.3.3. Products Liability Coordinator.Products Liability Coordinator.4.4. Product Design Review.Product Design Review.5.5. Manuals & Procedures.Manuals & Procedures.6.6. Quality Control.Quality Control.7.7. Packaging & Shipping.Packaging & Shipping.

The 14 Basic Elements of a Products The 14 Basic Elements of a Products Liability Loss Control and Claim Defense Liability Loss Control and Claim Defense

ProgramProgram

8.8. Labeling & Instructions.Labeling & Instructions.9.9. Sales & Advertising.Sales & Advertising.10.10. Recordkeeping Procedures.Recordkeeping Procedures.11.11. Complaint Analysis & Handling.Complaint Analysis & Handling.12.12. Claim Analysis & Handling.Claim Analysis & Handling.13.13. Development of Expert Development of Expert

Witnesses.Witnesses.14.14. Auditing Results.Auditing Results.

1.1. Corporate Policy Corporate Policy StatementStatement

Management commitment.Management commitment. Concise.Concise. Clear.Clear. Conveyed to all employees.Conveyed to all employees. ““Produce the safest product Produce the safest product

possible”.possible”. Live the values (restate the policy)Live the values (restate the policy) Motivate employees to comply.Motivate employees to comply.

2.2. Products Loss Control Products Loss Control Committee MembersCommittee Members

Must be cross-functional & have Must be cross-functional & have management support / commitment:management support / commitment: Management, Engineering, Purchasing, Management, Engineering, Purchasing,

Manufacturing, Quality Control, Safety, Manufacturing, Quality Control, Safety, Legal, etc.Legal, etc.

Activities: Activities: Review – Accident Reports, Test Results, Review – Accident Reports, Test Results,

New Products, Complaints, New Standards, New Products, Complaints, New Standards, QC & Safety.QC & Safety.

Frequency of Meetings: Frequency of Meetings: Based on need but … at least annual basis.Based on need but … at least annual basis.

3.3. Products Liability Products Liability CoordinatorCoordinator

Position should be appointed by Position should be appointed by management.management.

Authority to act & oversee is needed.Authority to act & oversee is needed. They must be a conduit, not a bottleneck:They must be a conduit, not a bottleneck:

Establish & maintain communication between Establish & maintain communication between functional areas.functional areas.

Measures results & document.Measures results & document. Assess plans for recalls, retrofitting, Assess plans for recalls, retrofitting,

alteration of product(s).alteration of product(s).

4.4. Product Design Product Design ReviewReview

1.1. Defective Product – Strict Liability.Defective Product – Strict Liability.2.2. Not Reasonably Fit for Purpose for Which It’s Not Reasonably Fit for Purpose for Which It’s

Sold/Used.Sold/Used.3.3. Presents Condition Presents Condition UnreasonablyUnreasonably Dangerous to Dangerous to

User – or – Others.User – or – Others.4.4. Defects Traced Back to Engineering and Research Defects Traced Back to Engineering and Research

& Design.& Design.5.5. Consider Safety in All Aspects of Consider Safety in All Aspects of

Design/DevelopmentDesign/Development6.6. Document Alternative Designs.Document Alternative Designs.7.7. Design Considerations.Design Considerations.8.8. Fit for Reasonably Foreseeable Use.Fit for Reasonably Foreseeable Use.9.9. Researched Thoroughly & Tested.Researched Thoroughly & Tested.10.10.Designed Not to Cause Accidents.Designed Not to Cause Accidents.

4.4. Product Design ReviewProduct Design Review

1.1. Adequate Safeguards.Adequate Safeguards.2.2. Misuse Considered.Misuse Considered.3.3. Environmental ConditionsEnvironmental Conditions4.4. Reliability.Reliability.5.5. Life Expectancy – All Components.Life Expectancy – All Components.6.6. Conform to Standards (ANSI, ASME etc.)Conform to Standards (ANSI, ASME etc.)7.7. State of the Art.State of the Art.8.8. Adequacy of Warnings of Dangerous Qualities.Adequacy of Warnings of Dangerous Qualities.9.9. Wear & Tear.Wear & Tear.10.10.Installation, Operation & Maintenance Installation, Operation & Maintenance

Instructions Complete & Understandable .Instructions Complete & Understandable .

5.5. Manuals & Procedures – Manuals & Procedures – Two TypesTwo Types

1. Within the manufacturing area:1. Within the manufacturing area: These establish the company policy, These establish the company policy,

programs & operating procedures. Intended programs & operating procedures. Intended for the day-to-day operation of the company.for the day-to-day operation of the company.

2. Product Manuals – Issued with Product2. Product Manuals – Issued with Product Includes a Parts List:Includes a Parts List:

Assembly.Assembly. Installation.Installation. Operation.Operation. Maintenance & Servicing Instructions.Maintenance & Servicing Instructions.

6.6. Quality ControlQuality Control

QC – Provides product/service that QC – Provides product/service that meets design parameters meets design parameters ANDAND protects user by providing product protects user by providing product fit for use.fit for use.

Conception - - Production - - Use.Conception - - Production - - Use. Effective QC Program will decrease Effective QC Program will decrease

(maybe eliminate) (maybe eliminate) the marketing of the marketing of product not fit for use.product not fit for use.

11 Functions of a Quality 11 Functions of a Quality Control (QC) DepartmentControl (QC) Department

1. QC Manual:1. QC Manual: Policies & Procedures.Policies & Procedures.

2. Engineering:2. Engineering: Assist in R&D - Design Specs.Assist in R&D - Design Specs.

3. Supplier Quality:3. Supplier Quality: Conforms to Specs.Conforms to Specs.

4. Manufacturing Quality:4. Manufacturing Quality: Instructions.Instructions.

11 Functions of a Quality 11 Functions of a Quality Control (QC) DepartmentControl (QC) Department

5. Process Control:5. Process Control: Processes change characteristics of the Processes change characteristics of the

product.product. Six Sigma.Six Sigma.

6. Calibration of measuring equipment.6. Calibration of measuring equipment. 7. Sample inspection:7. Sample inspection:

Lots numbered? Samples taken? Lots numbered? Samples taken? Organization?Organization?

8. Non-conforming items:8. Non-conforming items: RJ Reynolds.RJ Reynolds.

11 Functions of a Quality 11 Functions of a Quality Control (QC) DepartmentControl (QC) Department

9. Error /analysis & corrective 9. Error /analysis & corrective action.action.

10. Preservation, packaging, 10. Preservation, packaging, shipping.shipping.

11. Records. 11. Records.

7.7. Packaging & Shipping Packaging & Shipping (P&S)(P&S)

Special P&S considerations Special P&S considerations needed?needed?Timely.Timely.Economical.Economical.Free from damage.Free from damage.Complete in its contents.Complete in its contents.

Last line of defense:Last line of defense:Proper training & quality personnel.Proper training & quality personnel.

8.8. Labeling & Labeling & InstructionsInstructions

Labeling:Labeling: Adequacy of information.Adequacy of information. Clear & succinct.Clear & succinct. Appropriate warnings? (GHS, instructions on Appropriate warnings? (GHS, instructions on

container)container) Compliance with government regulations.Compliance with government regulations.

Instructions:Instructions: Provided with the product.Provided with the product. Proper instructions for use.Proper instructions for use. Highlights potential for misuse.Highlights potential for misuse. Compliance with government regulations.Compliance with government regulations.

9.9. Sales & AdvertisingSales & Advertising Primary contact: Primary contact:

Owner & manufacturer.Owner & manufacturer. Presents accurate picture of user expectation.Presents accurate picture of user expectation. Product performance statements accurate:Product performance statements accurate:

Reviewed by legal personnel & engineering staff.Reviewed by legal personnel & engineering staff. Over performance statements:Over performance statements:

““Fireproof”.Fireproof”. ““Bulletproof” - - really? Bullet resistant.Bulletproof” - - really? Bullet resistant. Non-toxic.Non-toxic.

Are there hazards misrepresented/concealed?Are there hazards misrepresented/concealed? Illustrations of safety featuresIllustrations of safety features Warranties/Guarantees made – Are they Warranties/Guarantees made – Are they

accurate? accurate?

10.10.RecordkeepingRecordkeeping

Document: Start to Finish …Document: Start to Finish …Why? . . Why? . . “If it is not on paper, it “If it is not on paper, it

is vapor!”is vapor!”Support potential claims Support potential claims

defense.defense.Retention (duplicates, samples?).Retention (duplicates, samples?).What records should be kept?What records should be kept?

11.11.Complaint Analysis & Complaint Analysis & HandlingHandling

Indicators of performance:Indicators of performance: Under different environmental/ use conditions.Under different environmental/ use conditions. Errors & abuses that occur.Errors & abuses that occur. Potential for loss.Potential for loss. Which components fail first? Fail frequently?Which components fail first? Fail frequently?

Make the process easy! Encourage customers, Make the process easy! Encourage customers, dealers, manuf reps, service techs to report dealers, manuf reps, service techs to report issues:issues: Accidents.Accidents. Malfunctions.Malfunctions. Misuse.Misuse. Abuse.Abuse. Compatibility with components manuf by other Compatibility with components manuf by other

companies.companies.

12.12.Claim HandlingClaim Handling

We have developed a safe product … We have developed a safe product … something went “sideways”. Now we something went “sideways”. Now we have a claim!have a claim!

What do we do?What do we do? Report to Claims Department.Report to Claims Department. Obtain Product – Examine – Document.Obtain Product – Examine – Document. Cooperation with no admission.Cooperation with no admission. Apologize (studies show ….)Apologize (studies show ….) Utilize expert witnesses.Utilize expert witnesses. Is it a valid defect? – Recall/Retrofit/Replace. Is it a valid defect? – Recall/Retrofit/Replace.

13.13.Development of Expert Development of Expert WitnessesWitnesses

Manufacturers can be a source:Manufacturers can be a source:There is also an extensive There is also an extensive

marketplace in this area.marketplace in this area. Opposing counsel WILL provide.Opposing counsel WILL provide. Can be in-house or external.Can be in-house or external. Verify credentials & technical Verify credentials & technical

knowledge.knowledge. Credibility. Have they done this Credibility. Have they done this

before?before?

14.14.Auditing ResultsAuditing Results

Coordinate / disseminate to all Coordinate / disseminate to all company departments.company departments.

Match to design standards & Match to design standards & acceptable criteria.acceptable criteria.

Management system auditors can Management system auditors can verify the internal processes.verify the internal processes.

Adopt a philosophy of continuous Adopt a philosophy of continuous improvement.improvement.

Are the following elements of the Product Liability program formal, informal or in place:1. Corporate Policy Statement YES NO NONE2. Products Loss Control Committee YES NO NONE3. Products Liability Coordinator YES NO NONE4. Product Design Review YES NO NONE5. Manuals & Procedures YES NO NONE6. Quality Control YES NO NONE7. Packaging & Shipping YES NO NONE8. Labeling & Instructions YES NO NONE9. Sales & Advertising YES NO NONE10.Record Keeping Procedures YES NO NONE11.Complaint Analysis & Handling YES NO NONE12.Claim Analysis & Handling YES NO NONE13.Development Expert Witnesses YES NO NONE14.Auditing Results YES NO NONE

Products liability – Products liability – LC survey LC survey guideguide

Products liability – LC Products liability – LC survey guidesurvey guide

19 General Questions in this 7 page 19 General Questions in this 7 page survey guide along with supplements: survey guide along with supplements:

• 13 questions - 13 questions - PRODUCT SAFETY PROGRAM / QUALITY CONTROLPRODUCT SAFETY PROGRAM / QUALITY CONTROL• 2 questions - 2 questions - COMPLAINT & INCIDENT PROCEDURESCOMPLAINT & INCIDENT PROCEDURES• 2 questions - 2 questions - WRITTEN MATERIALSWRITTEN MATERIALS

Class-specific product liability Class-specific product liability considerations (5 sections)considerations (5 sections)

• 7 questions - 7 questions - FOOD PRODUCTSFOOD PRODUCTS• 4 questions - 4 questions - CLOTHING MANUFACTURERSCLOTHING MANUFACTURERS• 5 questions - 5 questions - MACHINE SHOPS / METAL GOODS MACHINE SHOPS / METAL GOODS

MANUFACTURERSMANUFACTURERS• 5 questions - 5 questions - FURNITURE MANUFACTURERSFURNITURE MANUFACTURERS• 3 questions - 3 questions - ELECTRONICS / ELECTRICAL COMPONENT ELECTRONICS / ELECTRICAL COMPONENT

MANUFACTURERSMANUFACTURERS

ConclusionConclusion

PL is a “beast with many heads”…PL is a “beast with many heads”… ……but it can be tamed with education but it can be tamed with education

& experience.& experience. We need to We need to collaboratecollaborate to be to be

effective with this line of business.effective with this line of business.