product liability

product liability

product liability: see liability.

Product liability is the area of law in which manufacturers, distributors, suppliers, retailers, and others who make products available to the public are held responsible for the injuries those products cause.

Product liability in the United States

In the United States, the claims most commonly associated with product liability are negligence, strict liability, breach of warranty, and various consumer protection claims. The majority of product liability laws are determined at the state level and vary widely from state to state. Each type of product liability claim requires different elements to be proven to present a successful claim.

Product liability and negligence

A products liability claim is usually based on one or more of the following causes of action:

  • design defect,
  • manufacturing defect,
  • a failure to warn.

The claims may succeed even when products were used incorrectly by the consumer, as long as the incorrect use was foreseeable by the manufacturer (or other party in the "supply chain").

In general, products liability claims are based not on negligence, but rather on strict liability. Under the theory of strict liability, a manufacturer is held liable regardless of whether it acted negligently. It allows recovery for an injured customer who might be in a difficult position to prove what a manufacturer did or did not do wrong in its design or manufacturing process. It is presumed that a manufacturer with its deep pockets may be better situated to absorb the cost of liability and would consider such expense in setting price for its products.

Some legal commentators consider claims of failure to warn to be based on negligence.

A basic negligence claim consists of proof of

  1. a duty owed,
  2. a breach of that duty,
  3. an injury, and
  4. that the breach proximately caused the plaintiff's injury.

Over time, negligence concepts have arisen to deal with certain specific situations, including negligence per se (using a manufacturer's violation of a law or regulation, in place of proof of a duty and a breach) and res ipsa loquitur (an inference of negligence under certain conditions).

Products Liability and Strict Liability

Products liability claims are, in general, not based on negligence, but rather on a liability theory called "strict liability."

Rather than focus on the behavior of the manufacturer (as in negligence), strict liability claims focus on the product itself. Under strict liability, the manufacturer is liable if the product is defective, even if the manufacturer was not negligent in making that product defective. Because strict liability is a harsh regime for a manufacturer, who is forced to pay for all injuries caused by his products, even if he is not at fault, strict liability is applied only to manufacturing defects (when a product varies from its intended design) and almost never applied to design and warning defects. The first case to openly discuss the application of strict liability to manufacturing defects involved an exploding Coca-Cola bottle (though the case actually upheld the plaintiff's res ipsa loquitur theory).

There is some confusion in judicial opinions as to whether strict liability is being applied in cases of design and warning defects. The courts may even state that they are applying strict liability. However, when the court proclaims to apply strict liability while determining product's defectiveness through the use of a consumer expectations test or risk-utility test, it is applying the negligence principles and not strict liability. Although the tests are not based on the conduct of the manufacturer, rather focusing on the product itself, they attempt to determine if the product's design or warning is reasonable. It is widely known that reasonableness is the staple of negligence, not strict liability.

History

Product liability under United States common law first relied on the standards developed in Winterbottom v. Wright, an English case about a driver who suffered injuries from an accident involving a defective mail coach. The holding in Winterbottom confirmed the legal standard of the time that recognized negligence only in the context of a breach of contract. Because the plaintiff in the case (a coach driver) was not in a contract with the defendant, the court ruled in favor of the defendant on the basis of the doctrine of privity of contract.

In the 1940s and 1950s, many American courts departed from the Winterbottom standard and decided that it was too harsh to require seriously injured consumer plaintiffs to prove negligence claims against manufacturers or retailers. To avoid having to deny such plaintiffs any relief, these courts began to look for facts in their cases which they could characterize as an express or implied warranty from the manufacturer to the consumer. Over time, the resulting legal fictions became increasingly strained.

Of the various U.S. states, California was the first to throw away the fiction of a warranty and to boldly assert the doctrine of strict liability in tort for defective products, in 1963 (under the guidance of then-Associate Justice Roger J. Traynor). See Greenman v. Yuba Power Products, 59 Cal. 2d 57 (1963) The importance of Greenman cannot be overstated: in 1996, the Association of Trial Lawyers of America celebrated its 50th anniversary by polling tort lawyers and law professors on the top ten developments in tort law during the past half-century, and Greenman topped the list.

Since then, many jurisdictions have been swayed by Justice Traynor's persuasive arguments on behalf of the strict liability rule, for example the European Union, and have adopted it either by judicial decision or by legislative act.

Although the Supreme Court of California has since become more conservative, it continues to endorse and expand the doctrine. In 2002 it held that strict liability for defective products even applies to makers of component products that are installed into and sold as part of real property.

Product liability and breach of warranty

Warranties are statements by a manufacturer or seller concerning a product during a commercial transaction. Unlike negligence claims, which focus on the manufacturer's conduct, or strict liability claims, which focus on the condition of the product, warranty claims focus on how these issues relate to a commercial transaction. Warranty claims commonly require privity between the injured party and the manufacturer or seller. Breach of warranty based product liability claims usually focus on one of three types: (1) breach of an express warranty, (2) breach of an implied warranty of merchantability, and (3) breach of an implied warranty of fitness for a particular purpose. Additionally, claims involving real estate may also take the form of an implied warranty of habitability. Express warranty claims focus on express statements by the manufacturer or the seller concerning the product (e.g., "This chainsaw is useful to cut turkeys"). The various implied warranties cover those expectations common to all products (e.g., that a tool is not unreasonably dangerous when used for its proper purpose), unless specifically disclaimed by the manufacturer or the seller.

Product liability in the European Union

Moves towards a strict liability regime in Europe began with the Council of Europe Convention on Products Liability in regard to Personal Injury and Death (the Strasbourg Convention) in 1977. On July 25, 1985, the European Economic Community adopted the Product Liability Directive 85/374/EEC. In language similar to Traynor's, the Directive stated that "liability without fault on the part of the producer is the sole means of adequately solving the problem, peculiar to our age of increasing technicality, of a fair apportionment of the risks inherent in modern technological production." However, the Directive also gave each member state the option of imposing a liability cap of 70 million euros per defect.

Rationale for and debate over strict liability

The most fundamental rationale for strict liability is to force producers to internalize the external costs they impose on society. By placing liability for all injuries caused by a product on its manufacturer, the manufacturer is forced to take into account, when deciding whether and how much to produce the product, the harm caused by it. If this internalized harm is so great that the manufacturer cannot profit from producing the product, it will discontinue the product, or sell it only at a higher price to consumers who value it especially highly (in economic terms, modify its activity level). In this way, strict liability provides a mechanism for ensuring that the societal good of products in the marketplace outweighs their societal harm.

Moreover, proponents of strict liability for defective products argue that strict liability is sensible because between two parties who are not negligent (manufacturer and consumer), one will still have to suffer the economic cost of the injury. They argue that it is preferable to place the economic costs on the manufacturer because it can better absorb them and pass them on to other consumers by the way of higher prices. As such, the manufacturer becomes the insurer of consumers that are injured by its defective products, with premiums paid by other consumers.

A related argument arises from the fact that the distribution of information about any given product is highly asymmetrical; the manufacturer of any given product is in a better position than the consumer to know of its particular dangers. Therefore, in order to fulfill the public policy of minimizing injury, it is more reasonable to impose the burden of finding and correcting such dangers upon the manufacturer as opposed to imposing the burden of finding and avoiding unsafe products upon the consumer. These arguments are often mentioned in cases of design and warning defects and less so in the case of manufacturing defects, since the latter are thought to be less preventable by the manufacturer because he is already acting with due care.

Critics charge that strict liability incentivizes product misuse (particularly in jurisdictions where this may not be a defense) and creates a moral hazard problem on the part of potential buyers. Reasoning that consumers will recover regardless of the amount of care they take in using the product, critics assert that consumers will underinvest in care even when they are the least-cost avoiders, thus leading to a lower aggregate level of care than under a negligence standard.

While proponents assert that the producer can build the cost into the price as insurance, critics argue that this assertion is ignorant of economics and only holds true in inelastic regions of the demand curve. As a result of strict liability for their products, manufacturers may not produce the socially optimal level of goods. Particularly with elastic regions of the demand curve, where consumers are very price-sensitive, the manufacturer by definition cannot pass on the economic costs to the consumers as a form of insurance without pricing many of those consumers out of the market for that good. However, because consumers are not willing to pay for this insurance, proponents of strict liability would argue that this is evidence of a product whose harm outweighs its good, in which case it should be removed from the market.

Critics also argue that applying strict liability to products results in substantially higher transaction costs. One example of these transaction costs is the creation of maintenance of legal disclaimers on products that would be unnecessary to the reasonable person such as the improperly algorithmic "lather, rinse, repeat" instructions on shampoos and the ubiquitous "not for human consumption" labelling on an inordinate number of non-food items. This results in a waste of time and resources for the producers who have to create these warnings, decreasing the producer surplus from trade. This also lowers the consumer surplus from these transactions, as all reasonably diligent consumers will read the unnecessary instructions, whereas the consumers likely to misuse the product are unlikely to be sufficiently diligent to read the instructions.

On the other hand, strict liability likely reduces litigation costs, because a plaintiff need only prove causation, not negligence. When it is clear that the product caused the plaintiff's harm, parties under a strict liability regime are prone to settle out of court, because only damages are in dispute.

References

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