1. Product Liability SAI KRISHNA CHARY KUMBOJU SRIKANTH BANDARU DAVID DRISKO

2. Introduction Estimated that 50 million product accidents occur annually Estimated that 50 million product accidents occur annually Costs businesses and organizations $50 billion (U.S.) Costs businesses and organizations $50 billion (U.S.) Causes increase in insurance costs Causes increase in insurance costs Large companies can pass the expenditure to the customers Large companies can pass the expenditure to the customers Small businesses often go bankrupt Small businesses often go bankrupt

3. Product Liability the responsibility of manufacturers, distributors and sellers of products to the public, to deliver products free of defects which harm an individual or numerous persons and to make good on that responsibility if their products are defective the responsibility of manufacturers, distributors and sellers of products to the public, to deliver products free of defects which harm an individual or numerous persons and to make good on that responsibility if their products are defective

4. 3 Main Areas of Product Liability Behavior and knowledge of the user Behavior and knowledge of the user Environment where the product is used Environment where the product is used Design flaws Design flaws The first two are difficult to mitigate The first two are difficult to mitigate Design flaws is the area that TQM has the greatest control over Design flaws is the area that TQM has the greatest control over

5. Brief History Ancient Times Ancient Times Sample of grain covers whole harvest Sample of grain covers whole harvest 14 th Century 14 th Century Very difficult to sue manufacturer, simple products Very difficult to sue manufacturer, simple products Mid 1700’s Mid 1700’s Caveat emptor was the prevailing legal mindset Caveat emptor was the prevailing legal mindset

6. Caveat Emptor Buyer Beware – based on Smith’s economy policies Buyer Beware – based on Smith’s economy policies Privacy of contract Privacy of contract Allowed lawsuits only one step Allowed lawsuits only one step Fostered Industrial Revolution by limiting manufacturers liability Fostered Industrial Revolution by limiting manufacturers liability Step of Products Manufacturer Wholesaler Retailer Customer “Customer” refers to the person who actually bought the item

7. Government Steps In Inherent or imminently dangerous products need regulation Inherent or imminently dangerous products need regulation 1906 Congress passes Federal Food and Drug Act 1906 Congress passes Federal Food and Drug Act Creates government oversight of food and drugs Creates government oversight of food and drugs Allows product liability lawsuits to be brought against drug manufacturers Allows product liability lawsuits to be brought against drug manufacturers

8. MacPherson v. Buick Motor Co. 1916 Landmark case for products liability 1916 Landmark case for products liability Made manufacturer liable to final customer Made manufacturer liable to final customer This case is the reason tires are not covered under car warrantees This case is the reason tires are not covered under car warrantees

9. Product Safety Law Consumer Product Safety Act 1972 Consumer Product Safety Act 1972 Protects consumers from unreasonable risk Protects consumers from unreasonable risk Establishes uniform safety standards Establishes uniform safety standards Research and investigation into cause and prevention of related deaths, injury, or illness Research and investigation into cause and prevention of related deaths, injury, or illness Only covers products used in or around household and schools and for recreation Only covers products used in or around household and schools and for recreation Exemptions Exemptions Cars, boats, planes, food, drugs, tobacco, and poison Cars, boats, planes, food, drugs, tobacco, and poison

10. Product Liability Law Tort of negligence Tort of negligence Tort of strict liability Tort of strict liability Contract law of sales or warranty Contract law of sales or warranty

11. Tort of Negligence Classic theory of products liability Classic theory of products liability Must prove manufacturer was careless Must prove manufacturer was careless Focuses on manufacturer’s conduct Focuses on manufacturer’s conduct Varies from state to state Varies from state to state Most states going away from allowing product liability under negligence Most states going away from allowing product liability under negligence

12. Tort of Strict Liability One who sells a product in a defective condition that is unreasonably dangerous to a consumer is liable for harm caused to the user or the user’s property One who sells a product in a defective condition that is unreasonably dangerous to a consumer is liable for harm caused to the user or the user’s property Product Liability sued under this tort in many states Product Liability sued under this tort in many states Allows the injured party to sue all the way through the steps of products Allows the injured party to sue all the way through the steps of products Allows user of product to sue not just purchaser of product Allows user of product to sue not just purchaser of product

13. Contract Law of Sales or Warranty Express Warranty Express Warranty Material statement made voluntarily by a manufacturer or merchant in sales brochures or sales talk to induce sales Material statement made voluntarily by a manufacturer or merchant in sales brochures or sales talk to induce sales Implied Warranty Implied Warranty Implies that the product is reasonably fit for the general purpose for which the product was designed Implies that the product is reasonably fit for the general purpose for which the product was designed Cannot be waived; required by law Cannot be waived; required by law

14. Defenses to Product Liability Defendant tries to prove Defendant tries to prove Plaintiff’s bad judgment Plaintiff’s bad judgment Plaintiff’s failure to maintain the product properly Plaintiff’s failure to maintain the product properly Plaintiff’s improper use of product Plaintiff’s improper use of product Comparative Negligence Comparative Negligence Assumption of Risk Assumption of Risk Misuse Misuse Statutes of Repose Statutes of Repose

15. Financial Loss Product Liability suits cost a lot of money Product Liability suits cost a lot of money Court judgment is larges financial loss Court judgment is larges financial loss Attorneys’ fees Attorneys’ fees Technical expert fees Technical expert fees Investigation fees Investigation fees Other costs Other costs Increased liability insurance Increased liability insurance Recall, replacement, or repair of product Recall, replacement, or repair of product Damage to reputation and customer base Damage to reputation and customer base Hold or delay in production due to potential defect Hold or delay in production due to potential defect Increased quality efforts for prevention appraisal Increased quality efforts for prevention appraisal

16. Prevention 17 Areas for Prevention 17 Areas for Prevention Organization Organization Education Education New-Product Review New-Product Review Initial Production Review and Periodic Production Audits Initial Production Review and Periodic Production Audits Control of Warranties, Advertisements, Agreements, and the Like Control of Warranties, Advertisements, Agreements, and the Like Warning Labels and Instructions Warning Labels and Instructions Complaints and Claims Complaints and Claims Retention of Records and Document Control Retention of Records and Document Control ISO 9000 Documents ISO 9000 Documents Product-Recall Plan Product-Recall Plan Subrogation, Risk Criteria, Standards, Audits, Customer Service, Redress Subrogation, Risk Criteria, Standards, Audits, Customer Service, Redress

17. Organization Organizational structure must specify responsibilities and have the necessary authority to achieve those responsibilities Organizational structure must specify responsibilities and have the necessary authority to achieve those responsibilities Formal product-safety committee should be established Formal product-safety committee should be established Organization should have a safety engineer, either hired or selected from within Organization should have a safety engineer, either hired or selected from within

18. Education Cornerstone of effective program Cornerstone of effective program Emphasize the importance of product safety to all employees Emphasize the importance of product safety to all employees Ensure education of new or transferred employees Ensure education of new or transferred employees Continuing education is part of a plan of action Continuing education is part of a plan of action

19. New-Product Review Establish product review team that has no preconceived notions about the product Establish product review team that has no preconceived notions about the product Should check for the following: Should check for the following: Crushing Hazards Shearing Hazards Cutting Hazards Entanglement Hazards Drawing-in or Trapping Hazards Impact Hazards Puncture Hazards Abrasion Hazards Exposed live part – electrical hazards Electrostatic Exposure Thermo Hazards (exposed high temperature parts) Noise Hazards (exposed to high sound frequencies) Exposure to gases or fumes hazards Fire or explosion hazards Unexpected start-up hazards Attorneys have won many cases because organizations did not consider reasonably foreseeable uses of the product

20. Initial Production Review Usually conducted on prototype Usually conducted on prototype The review evaluates the manufacturing plan to determine adequacy of: The review evaluates the manufacturing plan to determine adequacy of: Failure Mode and Effect Analysis (FMEA) Tooling and work-holding devices Production machinery Materials handling Test Equipment Inspection system Sampling plan Packaging and Shipping Operating instructions Safety warnings Advanced service information for distributors and dealers Inherently hazardous products should have a limited production run and controlled distribution to collect better information Periodic audits should be conducted to verify or validate quality control systems as part of ISO 9000 requirements

21. Control of Warranties, Advertisements, Agreements, and the Like Product Safety Committee must continually review all literature and publications for the product Product Safety Committee must continually review all literature and publications for the product Check to determine that terms and conditions of sale are limited to statements of merchantability, product is of good material and workmanship. Avoid phrases like “Safe” or “Ensures the safety of the operator” Check to determine that terms and conditions of sale are limited to statements of merchantability, product is of good material and workmanship. Avoid phrases like “Safe” or “Ensures the safety of the operator” All literature should be reviewed by legal counsel All literature should be reviewed by legal counsel Examination of purchase orders to determine any special warranty provisions Examination of purchase orders to determine any special warranty provisions Analyze dealer distributorship and franchise agreements to determine the handling of “defective” items Analyze dealer distributorship and franchise agreements to determine the handling of “defective” items Determine that words like nonconformity and nonconforming units have been used where appropriate Determine that words like nonconformity and nonconforming units have been used where appropriate Evaluate cost problems of warranties Evaluate cost problems of warranties

22. Warning Labels and Instructions Largest cause of manufacture negligence is inadequate or non-existent warnings Largest cause of manufacture negligence is inadequate or non-existent warnings Warnings and Instructions are separate items Warnings and Instructions are separate items Should be written by someone with no technical knowledge along with a product engineer Should be written by someone with no technical knowledge along with a product engineer ANSI has developed standards for warning labels ANSI has developed standards for warning labels Avoid overuse of warnings as that may detract form the importance of the warnings Avoid overuse of warnings as that may detract form the importance of the warnings

23. Complaints and Claims Complaints and claims alert the manufacturer to the need for corrective action Complaints and claims alert the manufacturer to the need for corrective action Immediately investigate any claim or complaint involving bodily injury, property damage, or product safety Immediately investigate any claim or complaint involving bodily injury, property damage, or product safety Product Safety Engineer should determine the following: Product Safety Engineer should determine the following: The appropriate departments should be notified of the findings of the complaint or claim The appropriate departments should be notified of the findings of the complaint or claim the cause of claim or complaint nature and seriousness of injury, if one occurred the failure mode that caused the situation, if there was one the age of the defect and whether it was present when the product was sold the negligence of the parties

24. Retention of Records and Document control Records and documents will be required if an organization ever has to defend its product Records and documents will be required if an organization ever has to defend its product Types of records that should be kept are Types of records that should be kept are Product development and test records Product development and test records Results of process, product, and system inspections and audits Results of process, product, and system inspections and audits Original design data Original design data Service-life data Service-life data Acceptance and approvals from government agencies or independent testing organizations Acceptance and approvals from government agencies or independent testing organizations Critical Raw material acceptance letters Critical Raw material acceptance letters Documents should be centrally located and protected from loss Documents should be centrally located and protected from loss

25. ISO 9000 Documents A product liability lawsuit represents the ultimate quality failure of a product A product liability lawsuit represents the ultimate quality failure of a product A manufacturer without a formal quality program is viewed as negligent in its internal efforts to prevent product defects A manufacturer without a formal quality program is viewed as negligent in its internal efforts to prevent product defects ISO 9000 documents should be prepared carefully ISO 9000 documents should be prepared carefully

26. Product-Recall Plan An effective recall contingency plan helps minimize the recall costs and the products liability risk An effective recall contingency plan helps minimize the recall costs and the products liability risk Three factors must be considered when determining if a recall is needed Three factors must be considered when determining if a recall is needed The maximum exposure to personal injury or property damage if the product is not recalled. This determination will be based on pattern of defect, the quantity involved, the severity of risk, and the cost of the recall The maximum exposure to personal injury or property damage if the product is not recalled. This determination will be based on pattern of defect, the quantity involved, the severity of risk, and the cost of the recall The form of communication (radio, TV, newspaper, telephone, and registered letter) used to contact the users of the product The form of communication (radio, TV, newspaper, telephone, and registered letter) used to contact the users of the product Determining if the product will be repaired or replaced or if the customer will be reimbursed Determining if the product will be repaired or replaced or if the customer will be reimbursed

27. Subrogation, Risk Criteria, Standards, Audit, Customer Service, and Redress Visit the supplier plant and audit its prevention program Visit the supplier plant and audit its prevention program A degree of prevention control is based off the degree of potential liability loss A degree of prevention control is based off the degree of potential liability loss Manufacturers should develop design and manufacturing standards Manufacturers should develop design and manufacturing standards Periodic audits are useful tools for measuring progress and providing feedback to improve the prevention program Periodic audits are useful tools for measuring progress and providing feedback to improve the prevention program An effective customer service may reduce the likelihood of a lawsuit. Customer service should report observations on how the product is being used or misused and any near misses An effective customer service may reduce the likelihood of a lawsuit. Customer service should report observations on how the product is being used or misused and any near misses Customers will usually accept failures if redress covers them with: Customers will usually accept failures if redress covers them with: A warranty policy that responds to customer needs A warranty policy that responds to customer needs The availability of information concerning the redress procedure The availability of information concerning the redress procedure Prompt handling of complaints, returns, and claims Prompt handling of complaints, returns, and claims Repair facilities that give prompt, skilled, and fair-priced service Repair facilities that give prompt, skilled, and fair-priced service

28. TQM Principles Leadership Leadership Establishes formal product safety committees Establishes formal product safety committees Customer Satisfaction Customer Satisfaction Ensures a safe reliable product for all customers Ensures a safe reliable product for all customers Employee Involvement Employee Involvement Effective education that allows employees to catch potentially defective products Effective education that allows employees to catch potentially defective products Continuous Process Improvement Continuous Process Improvement All products must be regularly audited to ensure they are defect free All products must be regularly audited to ensure they are defect free Supplier Partnership Supplier Partnership Ensure that all supplied products are of the highest quality to prevent defects Ensure that all supplied products are of the highest quality to prevent defects Performance Measures Performance Measures Allows for redesign before a product goes to market and during production. Allows for safety recall plans Allows for redesign before a product goes to market and during production. Allows for safety recall plans

29. Break Time 10 minutes

30. Activity Time Product warnings but first some examples

31. Good Examples

32. More Examples

33. Bad Examples

34. Different Laws

35. Now it is your turn

36. Quiz Time

37. Benedi v. McNeil-P.P.C. Benedi consumed 3 or 4 glasses of wine a night. Benedi began taking Extra Strength Tylenol for flu like symptoms. Benedi was admitted to the hospital in a coma and near death. He underwent an emergency liver transplant and will have to undergo kidney dialysis for the rest of his life. Blood tests revealed that Benedi suffered from acetaminophen toxicity.

38. Results McNeil-P.P.C., Inc. found guilty for failure to warn and ordered to pay Benedi $7,850,000 for negligence

39. Lakin v. Senco Products, Inc. Senco Products produces pneumatic nail guns. The SN325 discharges special 3.25 in. nails produced and sold by Senco. John Lakin was using a SN325 while building a new home. While using the SN325 it “double fired” causing it to recoil violently backward and discharging a third nail through the cheek and into the brain of Lakin. Lakin now suffers permanent brain damage, can no longer work, and can no longer live with his family.

40. Results Lakin received $3.6 million, his wife received $457,000, and Senco paid $4 million in punitive damages. Evidence disclosed that the SN325 double fired 1 out of every 15 firings. Senco modified an existing model to fire longer nails but did not conduct further testing because it rushed the product to market to maintain its position. This was a design defect.

41. Elsroth v. Johnson & Johnson Diane Elsroth was visiting her boyfriend and complained of a headache. Her boyfriend got a new bottle of Extra Strength Tylenol open the sealed box, removed the shrink wrap seal, and removed the foil seal under the lid and gave Elsroth a couple of them. The next morning Elsroth was dead. The autopsy showed she had been murdered. The Tylenol capsules were contaminated with potassium cyanide. John Elsroth sued on behalf of Diane Elsroth’s estate. He sued for defective packaging.

42. Result Johnson & Johnson was found not liable, even though J & J knew that its product was not tamper resistant to sophisticated means of tampering. This is considered “exotic” tampering and no organization can make a product 100% tamper-proof. Under a utility/risk assessment J & J determined the packaging was not unreasonably dangerous for its intended use. No packaging can boast that it is tamper-proof only tamper-resistant.

43. Any Questions?