Product Liability and Directors
from Winter 2000
by Henry G. Burnett
Maybe you’re thankful you’re not a director of Bridgestone/ Firestone—but that doesn’t mean you’re out of the product liability woods.
Not surprisingly, given the publicity, Congress leapt on the issue surrounding the allegedly faulty tires made by Firestone and fitted on Ford Explorers. The proposed Transportation Recall Enhancement, Accountability and Documentation Act (TREAD) would require the auto industry to inform the National Highway Safety Administration of any foreign recalls of their products or of claims of personal injury or death in other countries. TREAD mandates jail sentences of up to 15 years for executives who conceal information about defective products. To the chagrin of various consumer groups, the bill would waive that jail time if the company reports or corrects problems within an as-of-yet-unspecified “reasonable time.”
Meanwhile, the threat of civil action is growing. In the past, product liability lawsuits have been based on negligence or breaches of warranty or contract. But the number of grounds for claiming product liability is increasing. Explains John Goldberg, a professor at Vanderbilt University School of Law in Nashville: “Fraud-based claims are being made with increasing frequency as plaintiffs focus on alleged concealment and/or misrepresentations by corporations, their executives, and, possibly, board members.”
According to Goldberg, this increase is “actually consonant with the regulators’ desire to heighten corporate reporting requirements, because the claims focus on how a corporation and its executives deal with known product defects.” Goldberg believes that the number of suits will continue to grow, because lawyers for the plaintiffs will assume companies will settle quickly rather than subject senior executives to time-consuming depositions.
Goldberg and other legal experts advise board members to find out whether the goods or services their company provides have potential defects and the extent of the possible liability to the company and to themselves. In addition to checking their directors and officers (D&O) liability insurance, they should look at their company’s general liability (CGL) policy to make sure they have “products hazard” coverage. Directors should also investigate so-called successor liability, which could come as part of an acquisition, say, with the transfer of the assets of a manufacturer or a provider of services that may prove faulty in the future.
The issue of product liability is complicated by a confusing assortment of state and federal laws—and a mind-boggling variance between how state judges and juries view corporate responsibility. A South Carolina jury awarded $12.5 million compensatory and $250 million punitive damages in a wrongful death action relating to an allegedly defective lift-gate latch on the back door of a Chrysler minivan. The U.S. District Court judge reduced the compensatory award to $9 million but refused to reduce the $250 million for conduct deemed “willful, wanton, or reckless.”
States set different time limits on product claims. Georgia, for example, has a 10-year “statute of repose” that in some cases protects manufacturers against claims involving products more than a decade old. In contrast, New Jersey has a two-year statute of limitation on injury claims, regardless of a product’s age. Thus, if a product that your company makes in New Jersey causes an injury in Georgia 11 years after leaving the warehouse and the injured party sues within two years, you had better hope that the court decides to apply Georgia’s law instead of New Jersey’s. That way, you won’t have to visit either Atlanta or Newark.
Henry G. Burnett is a partner at Owen & Davis PC, a New York City law firm.
