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5 Steps for Product Liability Risk Management

Production line with soda bottles

A product with zero defects and zero liability, is impossible, but striving towards that goal, will help your business steer clear of potentially devastating claims.

Many companies have internal auditing systems in place to check products for faults, and make sure that defective products never make it into the market. However, not every audit is 100% and at some point, faulty merchandise will slip through quality control measures and into the hands of consumers.

Manufacturers and businesses of all sizes are vulnerable to producing and distributing faulty products, with some more susceptible than others. While your control over product liability depends on the stage in your product’s life cycle, you can begin to protect your business by following the five steps of product liability protection.

  1. Transfer risk through management of suppliers – A risk transfer program helps your company avoid financial vulnerability to claims and damages due to liabilities caused by others. Working with an attorney who is skilled in liability law to draft a risk transfer agreement at the start of a business relationship, can help assist your manufacturing business transfer risk. Having these decisions documented in writing, at the start of a business relationship helps avoid decisions of liability being made after the fact, in a courtroom.
    • Hold harmless agreements-In the case of a claim, hold harmless agreements will help ensure that your contractors and suppliers are the ones held contractually responsible for their own negligence.
    • Statements of financial responsibility-(certificates of insurance), help your business avoid financial responsibility for product-related claims by confirming that a contractor or supplier has adequate insurance.
  2. Managing supplies and imported goods – Businesses that import products, parts, and raw materials that are later sent onto an end-user, may bear sole responsibility for certain safety requirements. They may be required to verify that the imported product complies with industry standards and government regulations, and confirming that proper safety warnings and instructions are provided for the end user. Importers should attempt to gather all pertinent information from their suppliers, in light of these responsibilities, in the event of a subsequent claim.
  3. Think safety during the design phase – Hazards can be safeguarded against during the product design phase. A safety review built into the design process should take into account how the product will be used and any kind of hazards that could result from it’s use. All products need to comply with industry and government safety standards. Instructions, labels and warnings should comply with these standards and be pronounced and understandable. A safety review should be conducted regularly to confirm that the products are up-to-date and compliant with the latest standards.
  4. Keep essential records – Manufacturing businesses should establish documentation policies to meet applicable regulatory requirements and business objectives, while also being prepared for any possible product liability claims.
    • Keep copies of customer design specifications and product orders, including getting the customer to  sign off on the final design. Establish an engineering change order system to document any changes, and document a clear and complete reason for the change.
    • Develop written procedures and instructions, that document the steps of the manufacturing process and quality control steps. Maintain documentation to verify the quality and conformity at each of the quality control steps.
    • Establish a document retention policy, to help preserve any documents that could be important to any future investigation or in defense of a product liability claim in the future.
  5. Enable and review customer feedback- Each year, defective or faulty products cause serious injuries, property damage and cause business to be interrupted. In some extreme scenarios, product recalls, negative publicity and loss of goodwill may occur. However, many of these issues can be avoided if manufacturers and distributors regularly review customer feedback and complaints. Taking these precautions can help companies take positive steps at an early stage to minimize product issues and exposures. Allowing customers to voice their concerns, helps companies respond to consumer needs, and create opportunities for product improvement.

McSweeney & Ricci’s Risk Specialists work with businesses in a wide range of industries to evaluate the liability of their business. Through our insight and expertise, we help businesses understand the liabilities they face, as they introduce products and services into the marketplace.


Sources:

5 Steps for Product Liability Risk Management” by Travelers Insurance
Manufacturers Must be Prepared for Consequences of Defective Products” From McGowan Excess 01/29/16
Product Liability: You’re More Exposed than You think” by Marisa Manley, Harvard Business Review 09/87

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