Product Liability Risks and Strategies Liability Risks.pdf · General liability insurance only...

Steel Founders Society of America

Product LiabilityRisks and StrategiesgSeptember 10, 2013

Gordon (Chip) DavenportGordon (Chip) DavenportTheresa A. NickelsFOLEY & LARDNER LLP150 East Gilman StreetMadison, WI [email protected]

©2013 Foley & Lardner LLP • Attorney Advertising • Prior results do not guarantee a similar outcome • Models used are not clients but may be representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500

[email protected]

Wh W AWho We AreFoley & Lardner LLP– National law firm, offices across the country– Began in Wisconsin, long history of representing

manufacturersmanufacturers– Leader in assisting clients with legal needs for Next

Generation ManufacturingGeneration Manufacturing

Gordon (Chip) Davenport– Chair, Insurance and Reinsurance Litigation Practice , g

Group– Practicing 30 years

Insurance litigation commercial litigation product

©2013 Foley & Lardner LLP

– Insurance litigation, commercial litigation, product liability litigation, class actions

Wh W A ( t )Who We Are (cont.)Theresa A. Nickels– Member, Insurance and Reinsurance Litigation,

Distribution and Franchise Practice GroupsP ti i g 8 – Practicing 8 years

– Insurance litigation, product liability litigation, distribution litigation, commercial litigation


Wh t W A G i T D T d What We Are Going To Do Today

Talk about product liability risks and Talk about product liability risks, and strategies for managing themSeries of scenariosSeries of scenariosEach scenario will pose a questionYou make the call!Prizes!


YOU MAKE THE CALL


Scenario No. 1: Casting To The C t ’ D iCustomer’s Design

You cast impellers for large industrial pumpsYou cast impellers for large industrial pumpsCustomer provides the designYour casting is perfectYour casting is perfectImpeller fails, destroying the pumpCustomer has to replace the pump under warrantyCustomer has to replace the pump under warrantyCause of failure is improper designAre you liable?Are you liable?


Scenario No. 2: Casting to the C t ’ D i P t 2 Customer’s Design – Part 2

You cast casings for the industrial pumpsYou cast casings for the industrial pumpsCustomer provides the design, but asks you to add welded lifting ringsg gLifting ring weld breaks, customer’s employee is injuredjCause of failure is defective weldEmployee sues youp oyee sues youAre you liable?


Scenario No. 3: Casting To The C t ’ D i P t 3 Customer’s Design – Part 3

Same impeller for industrial pumpsSame impeller for industrial pumpsCustomer provides the designYour salesperson proposes design and engineering p p p g g gservices to check the designCustomer declines, says just tell me if you see anything obviously a problem salesperson says anything obviously a problem, salesperson says okay. No design services included in contractImpeller fails, destroying the pumpp , y g p pCustomer has to replace the pump under warrantyCause of failure is improper design


Are you liable?

Scenario No. 4: Casting To Your D i Design

Same impeller for industrial pumpsSame impeller for industrial pumpsCustomer hires you to propose improved design, then cast itYou propose new design, customer’s engineers approve itImpeller fails, destroying the pumpCustomer sues, claiming design was defective. You disagree. You believe the failure was caused by misaligned shaftA li bl ?


Are you liable?

L L d Lessons Learned

No design involvement = your liability No design involvement your liability exposure is limited to your castingAny design involvement = potential liability Any design involvement = potential liability for design defects


S i N 5 I C Scenario No. 5: Insurance Coverage You cast a component part for John Deere combinesYou cast a component part for John Deere combinesJohn Deere does a production run of 100 combines incorporating the partBefore the combines ship, it is determined that the part is defectiveJohn Deere has to replace the part in all 100 John Deere has to replace the part in all 100 combines, which requires extensive disassembly and reassemblyJohn Deere sues you for costs of doing the replacementsYou have typical general liability insurance policy


You have typical general liability insurance policyAre you covered?

Scenario No. 6: Insurance Coverage P t 2 – Part 2 You offer design and engineering servicesYou offer design and engineering servicesYou are hired to design a new and improved impeller for a customer’s industrial pumpsp p pImpeller fails, destroying the pumpCause of failure is defective designCause of failure is defective designCustomer replaces pump under warranty, sues youYou have typical general liability insurance policyYou have typical general liability insurance policyAre you covered?


Scenario No. 7: Insurance Coverage P t 3 – Part 3 You store a customer’s toolingYou store a customer s toolingYour contract with the customer requires them to maintain insurance coverage on the toolingg gYour employee accidentally runs a forklift into the tooling, damaging it beyond repairg g g y pThe damage is covered by the customer’s insuranceAre you in the clear?


L L d Lessons Learned General liability insurance only covers you when General liability insurance only covers you when your product causes injury to a person or damage to other property– Does not cover your product itself

Standard general liability policies may not cover design and engineering services– May need professional services endorsement, or

separate professional services policyseparate professional services policy

Consider waiver of subrogation provision in customer contracts


customer contracts

Scenario No. 8: Insurance Coverage B Q ti – Bonus Question You cast a component part for John Deere combinesYou cast a component part for John Deere combinesPart fails, combine is damaged and knocked out of serviceFarmer gets a lawyer, who files a class action against John Deere and youY ti g f t f il t f ltYour casting was perfect, failure was not your faultBut you have to defend the lawsuitYou have a general liability insurance policy with a You have a general liability insurance policy with a $100,000 retention, so the first $100,000 of defense costs are on you


How can you avoid this situation?

Scenario No. 9: Strategies to Manage P d t Li bilit E Product Liability Exposure

You cast casings for large industrial pumpsYou cast casings for large industrial pumpsCustomer provides the design, but asks you to add welded lifting ringsLifting ring weld breaks, causing injury to customer’s employeeCause of failure is disputed either defective weld or Cause of failure is disputed, either defective weld or improper handlingEmployee sues youYour contract with customer contains clause stating that customer “holds supplier harmless from damages”


damagesAre you liable?

I d ifi ti P i i Indemnification Provisions

Be specific as to what is covered Be specific as to what is covered – Example: “Customer agrees to indemnify and

defend supplier against any and all claims defend supplier against any and all claims, lawsuits, or causes of action by any third party relating to products or services provided by supplier, including all costs of defense, unless negligence or other legal fault of the supplier is

bli h d b j d h fi l established by a judgment or other final adjudication in a court of law”V g l g g ill j t b fight


– Vague language will just buy you a fight

I d ifi ti P i i ( t )Indemnification Provisions (cont.)

One sided v mutualOne sided v. mutual– Mutual: “Customer and supplier shall indemnify

and defend each other against any and all and defend each other against any and all claims, lawsuits and causes of action, including defense costs, related to the indemnifying party’s performance or failure to perform under this Contract”

– One-sided: Only to customer or supplier’s benefit


I d ifi ti P i i ( t )Indemnification Provisions (cont.)

Enforceability issuesEnforceability issues– Indemnity provision should be conspicuous

If provision inures to your benefit consider – If provision inures to your benefit, consider having customer initial next to provision


Scenario No. 10: Strategies to Manage P d Li bili E P 2Product Liability Exposure – Part 2

Customer sends out RFP for casting of impellers g pfor large industrial pumpsCustomer provides the design, but requires you to review and approve itYour RFP response contains terms and conditions, including “hold harmless” provision in your favor including hold harmless provision in your favor as to the designCustomer responds with purchase order, with Custo e espo ds t pu c ase o de , tterms and conditions on back side which do not include “hold harmless” provision


Scenario No. 10: Strategies to Manage 2Product Liability Exposure – Part 2 (cont.)

Your casting is perfectYour casting is perfectImpeller fails, destroying the pump Cause of failure is improper designCause of failure is improper designCustomer has to replace the pump under warrantyAre you liable?Are you liable?



You design and cast a component part for John You design and cast a component part for John Deere combinesYour order acknowledgment states “all warranties gare excluded”Your part failspCustomer claims you breached the implied warranty of merchantability Does your disclaimer defeat the customer’s claim?



You cast component for overhead craneYou cast component for overhead craneCustomer uses crane in its manufacturing operationspYour component fails, causing crane to failWhen crane fails, item it was lifting falls and is When crane fails, item it was lifting falls and is destroyed Customer’s operations are shut down for a week Custo e s ope at o s a e s ut do o a eebecause crane is out of service


Scenario No. 12: Strategies to Manage 4Product Liability Exposure – Part 4 (cont.)

Your contract with the customer is silent as to what Your contract with the customer is silent as to what damages are recoverable Are you liable for: (1) damage to crane; (2) the y ( ) g ; ( )item that was dropped; (3) lost profits suffered by manufacturer because operations shut down for a week?


Scenario No. 13: Strategies to Manage Product Liability Exposure – Part 5 (cont.)

You cast a component for circular saws sold to You cast a component for circular saws sold to consumersYour contract with the circular saw manufacturer properly disclaims all warranties Your part fails, consumer severely injures handp y jDo warranty disclaimers prevent claim against you by consumer?


L L d Lessons Learned Indemnification Indemnification – Must be clear as to what claims are covered – Should be conspicuous– If possible (depending on bargaining power) draft

provision to your benefit only. Second best is mutual. Worst is customer’s benefit onlyWorst is customer s benefit only.


L L d ( t )Lessons Learned (cont.)Battle of the formsBattle of the forms– Make sure your purchase documents say you do not

accept contrary terms. – If customer sends an acknowledgment or other

document containing any terms, send the document back with a clear notation that you do not consent to the back with a clear notation that you do not consent to the terms contained in the acknowledgment and the terms in prior document control.


L L d ( t )Lessons Learned (cont.)Disclaimer of warrantiesDisclaimer of warranties– Warranty disclaimers require specific language (e.g.

must mention the word “merchantability”) in order to be enforceable.

– Disclaimer language must be conspicuous. Add bolding and/or underlining and use bigger font and/or underlining and use bigger font.

Limitation of remedies– Consider a provision stating that neither party is Consider a provision stating that neither party is

responsible for consequential damages or lost profits.– Consider a provision stating that customer’s remedy is


limited to repair or replacement of defective part.

L L d ( t )Lessons Learned (cont.)

Consumer claimsConsumer claims– Best way to protect yourself from consumer

claims is with indemnification provisions and claims is with indemnification provisions and insurance.


Product Liability Risks and Strategies Liability Risks.pdf · General liability insurance only...

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Transcript of Product Liability Risks and Strategies Liability Risks.pdf · General liability insurance only...