The US market is one of the largest in the world and exporting goods or services there brings lots of benefits to any companies. However, the high risk of product liability claims, as well as other factors, means that it is not without challenges.
At Clema Risk Solutions, we aim to protect the business of our clients and help them to identify the risks and prevent these from occurring. When exporting to USA there are some minimum, but important, basic rules to know and respect.
1. Review all government regulations in detail and get expert advice if necessary.
Government regulations are laws. Manufacturers must comply with them otherwise the sale of their products will be prohibited. When technical expertise is required, legislative bodies will delegate lawmaking authority to government agencies, such as FDA (Food and Drug Administration). However, regulations are long and complex and when there is ambiguity, it is best to get help with the interpretation of the regulations.
2. Comply with recommended practices published by industry associations (“standards”)
What we commonly call “standards” are recommended practices. They are voluntary. Nevertheless, if a manufacturer does not comply with recommended practices, it will reflect poorly against the manufacturer in the event of a product liability trial. There would have to be a compelling reason for any failure to follow published standards.
Examples of industry association are the Society Automobile Engineers (SAE), and the National Electronics Manufacturers Association (NEMA). These standards are also published by some publishing houses, such as American National Standards Institute (ANSI) or International Standards Organization (ISO).
3. Establish a data management policy.
Documentation, such as Quality Control records, design test reports (reports showing compliance with regulations), drawings, marketing and sales documentations are very useful should you need to defend yourself against future lawsuits. In front of the court and juries, such documents will help the defendants to show the measures they have taken to ensure they are selling a safe product.
In order to be able to produce all these documents, every company must set up a comprehensive data management policy which is actively enforced and reviewed on a regular basis.
This will also help you to make sure that adversaries cannot criticize you for the failure to preserve data.
4. Customers complaint management.
Organizations receive all sorts of complaints, feedback and questions from their customers about a product or a specific feature of a product.
Even though all customer complaints do not become a claim or lawsuit, records must be kept, and incidents must be properly reported and handled in time. These complaints give the opportunity for the company to fix the problems and to make sure that they will not happen again (such as modifying marketing material, improve the design etc.)
Each company must design a complete and efficient complaint management program with dedicated and well-trained staff.
5. Make the product safety part of the company’s DNA.
Companies must develop strategies to ensure that products will not present harm or hazards to consumers in order to prevent product liability claims. In the USA more than anywhere else in the world, consumers are extremely demanding regarding the safety of the products and increasingly less tolerant of non-reliability in products.
In order to make safety part of the DNA of the company, the management should establish a continuing education program for product safety awareness and train their employees to “write smart”. This means proper draftsmanship of documents so that they do not cause problems and cannot be taken out of context against the company. Companies should also form a ‘Product Liability committee’ in charge of performing case studies to learn from product liability claims, as well as evaluating product designs and warnings.
6. Handle warranty claims in a sophisticated fashion.
When selling a product, manufacturers or retailers offer the customer all sorts of warranty (express or implied) and those warranty generate a huge amount of claim for repair, replacement or compensation for an under or non-performing product.
Warranty history is discovered in every product liability lawsuit and Warranty patterns will become evidence against you in product liability cases.
So, this is important to set up an efficient warranty management process in order to monitor warranty trends, act on them and do not ignore them. On top of preventing a product liability claim, it will as well enable your company to improve the quality of your product.
7. Establish a litigation hold policy.
When a product liability claim is likely to happen or when a company or an employee of the company receive notice that a lawsuit has been filed, it is important to begin to collect and preserve data relevant to the claims or defences in the lawsuit.
Not preserving the records can have a catastrophic impact on the defence so make sure that a litigation hold procedure, part of the data management plan, is in place.
Benchmarking safety features, warnings and instructions of competitors is an easy and simple way to mitigate your liability exposure.
If a competitor has a warnings or instruction that you do not have, it may invite criticism in front of a jury or a court.
9. Properly drafted contract
Contracts with distributors and retailers or suppliers should be carefully drafted in order to protect companies’ interests. For instance, contracts should ensure that distributors and retailers are liable for their own negligence. Contracts with suppliers must acknowledge the fact that they are responsible for their own workmanship.
Review contracts with a USA qualified lawyer is a MUST-TO-HAVE.
10. Vendors’ endorsement in the product liability insurance.
The Vendor’s endorsement protects the seller against claims arising out of the manufacturer’s product. In the US the seller may be held responsible, even though it did not design or manufacture the product, in case of a bodily injury or a property damage arising out of the manufacturer’s product.
To have the seller as an additional insured under an insurance policy might be sensitive in some cases, as the limits insured are shared between the insured (principal) and the vendor. At the worst, it could increase the cost of the defence: it is more expensive to defend two parties in a lawsuit than one and the strategy might not be the same.
When possible, it is better not to add a distributor as additional insured and if you do so, make sure of the following exclusions in the endorsement: contractual liability, unauthorized warranties, repackaging, demonstration or installation and sole negligence.