For new business owners and entrepreneurs, the law can be a bit complicated. However, if you want to succeed at something, you must understand its rules. That is why understanding business laws and legal terms are vital to avoid any legal issues.
If your company manufactures and sells a product, you need to understand what product liability is and how it is related to your business.
Let’s start with the basics.
What is Product Liability?
Product liability is the legal responsibility imposed on a business for the manufacturing or selling of defective goods. This is one way our society enforces consumer protection or the idea that consumers shouldn’t be harmed by the products we buy.
If a consumer is injured or harmed by a product, they can file a case against those responsible.
There are principles that a customer can build a product liability claim around. These three theories are a breach of warranty, negligence, and strict liability. Each of these will be explained later in the article.
Who Is Responsible for Product Liability?
The responsibility of selling a defective product may lie on any party engaged in the process of delivering the product to the consumer. That includes designers, product manufacturers, component parts manufacturers, distributors, or sellers.
This means that customers can often make claims against a variety of different stakeholders.
In addition to legal damages, when someone makes a product liability claim against your business, chances are you’ll suffer reputational damage. Since this can create serious real world costs, it’s important to understand product liability and how to avoid it.
What are Product Liability Claims?
In order to avoid product defects, as a business owner, you need to know where faults usually occur. The plaintiff must prove that the product was defective and that this has led to harmful consequences.
In other words, the consumer has to prove that defects have made a supposedly “safe product” dangerous. There are three areas where defects usually occur:
- Design defects: These faults exist before the product is even manufactured. The design itself is wrong and does not guarantee safety.
- Manufacturing defects: These are unintended shortcomings which occur during the “making” of a product. This happens when the process of manufacturing does not match the intended design.
- Marketing defects: This is the trickiest one. These defects include any improper labelling, insufficient instructions, or inadequate safety warnings.
In reference to marketing defects, we should highlight that if your company manufactures or sells products which are dangerous by nature, you need to give the consumer a heads up.
For example, companies which sell cigarettes warn their consumers that smoking can cause cancer and can lead to death. Even though it may be obvious that smoking is harmful, the company still has to outline this.
The same thing applies if a company sells knives or medications that should be kept out of children’s reach. The lack of such information would constitute a marketing defect.
The Three Principles of Product Liability Law
Next, you need to know what basis someone can make a product liability claim on. During product liability cases, the plaintiff’s claim must be based on one of those three core principles:
Breach of Warranty
Breach of warranty means that the seller (product manufacturer) has failed to adhere to a promise or a guarantee that he made about the product. This theory is only suitable for cases where there is a signed contract between the seller and the consumer.
However, most of the products we buy do not require signing a contract; this is why this theory is not used very often. It is worth mentioning that there are three kinds of warranties. The first kind is an express warranty.
As the name implies, this means that the seller has “stated or communicated” a guarantee to the consumer, even if the word “guarantee” is not uttered or written. The second type of warranty is an implied warranty of merchantability.
This warranty is concerned with the function which a product is intended to perform. For example, a pair of scissors is supposed to “cut” things. If a pair of scissors is too dull and cannot cut anything, it means that it has failed to commit to its ordinary purpose.
This is a breach of warranty. The third type is an implied warranty of fitness. This one is related to non-ordinary purposes for products.
For example, if a seller recommends some kind of toothpaste for cleaning your old pair of shoes, this seller has made an implied warranty of fitness. In other words, the seller sold this product promising that it fits your specific need, one that is different from its ordinary function.
Negligence is the principle theory upon which a plaintiff may file their claim against a company. Negligence means that any of the responsible parties have been careless, or failed in their duties.
They either have failed to do something they should have done or have done something they should not have done. The theory extends its care towards a wider circle of those who may be harmed.
To put it differently, even if the harm has not affected the consumer himself, but has affected a member of his family, a passer-by, or anyone who holds the product, they still have the right to file a case of product liability.
The plaintiff must prove that the defendant has been careless and that has caused their product to become dangerous.
It is fair to say that the previous two theories make it very difficult for the consumer to prove product liability. Breach of warranty is contract law, therefore it is unsuitable in many cases where a contract does not exist.
Negligence, on the other hand, is extremely difficult to prove. The consumer can never tell when or where the defendant was careless. He cannot prove whether it was the designer’s, the manufacturer’s, or even the retailer’s fault.
For these reasons, the law of strict liability has been developed. The law suggests that “If you have been injured by a consumer product, you are entitled to compensation from the manufacturer or from the business that sold or rented the product directly to you.”
This means that a consumer does need to prove carelessness on behalf of the selling company. There are three conditions that are necessary for strict liability. First, the product must have a defect which has caused harm or injury to a user.
Second, the plaintiff must have used the product correctly and for its intended use. Finally, the product had not been altered by the plaintiff in a way that affects how it performs.
If these three terms apply, the plaintiff is compensated by the company for the injuries their product caused. On a side note, if a consumer is aware of the product defect, yet he has continued to use it, he loses the right to claim injury damages.
How Can You Protect Your Business?
Product liability insurance is an option that many businesses consider. There is always a chance for mistakes. For this reason, some companies prefer to secure themselves by having a product liability insurance which covers the costs of any injuries.
Nevertheless, you are better safe than sorry.
You should always maximize safety policies to decrease risk to the minimum. Make sure your company follows a strict quality assurance policy. In addition, give all your employees regular and intensive training to guarantee the best possible performance.
In particular, make sure that those involved in the process of product manufacture and design understand that their job is not an easy one since it directly affects the consumers’ safety and your company’s reputation.
Your product’s marketing campaigns make promises to your consumers, so you should pay attention to your marketing messages. Your advertisements should be engaging, but still truthful and ethical.
Do not make a promise that your product cannot keep. Furthermore, choose your product distributors and retailers wisely. Make sure they are experienced.
Provide them with enough instructions and details about your product, like how it operates, who it is suitable for, and how to store it safely. Finally, include a reasonable return policy so that your customers can get back to you if there is anything wrong with your product before they use it.