Preventing Product Liability

Gaye L. McNutt is an associate with the products liability group of Perkins Coie ( Seattle ).


While most scrap processors are aware of the potential liability for hazardous waste cleanup costs under Superfund and similar state statutes, they may overlook equally worrisome exposure under product liability laws.

If a scrap processor unknowingly sells a load of contaminated scrap and the scrap consumer does not detect the problem before using the material, any injuries or damages that might result would be governed by the state's product liability law. Product liability cases can arise in myriad situations and the results can be financially devastating to the responsible party.

Since the potential for product liability is ever present, scrap processing companies--and their employees--should acquire a basic understanding of product liability laws and learn what they can do to prevent lawsuits.

Under product liability laws, manufacturers-including scrap processors and recyclers-can be held liable based on three main counts:

Negligence. All states hold manufacturers responsible for injuries caused by their employees' negligence or failure to exercise reasonable care for the safety of potential users of the company's product. For example, if a processing firm's inspector negligently fails to detect contamination and the scrap later causes damages, the supplier might be obligated to pay for the damages.

In instances of negligence, the scrap processor would be treated no differently than defendants in other negligence lawsuits, such as a careless surgeon or an inattentive automobile driver.

Breach of Warranty. All states also require manufacturers to pay damages if they sell a product based on a warranty or claim it will meet certain specifications or possess certain qualities, and then the product falls short of those standards and causes damage or injury. The warranty may be written or oral, or implied by the circumstances of the sale.

The most common warranty implied by law is that the product is suitable for the ordinary purposes for which it is used. This, in turn, implies a promise that the product does not have any defects that would render it dangerous. A warranty may also be implied by claims made in advertisements. Such implied warranties can be disclaimed by a careful drafting of the contractual language in the sales agreement between the supplier and its consumers.

Strict Liability. Almost all states have adopted a standard commonly called strict liability for the sale of defective products. To hold a manufacturer responsible under strict liability, a party injured by one of the manufacturer's products-a plaintiff-must prove that the product was defective, the defect existed at the time the product was delivered, and the defect caused the plaintiffs injuries. Depending upon state law, a Product may be considered defective under several circumstances: if it is not made according to its specifications and is consequently unsafe; if it is more dangerous than an ordinary consumer would expect; if the benefits of the way the product is designed do not outweigh its risks; or if the product's manual, instruction booklet, packaging, labels, or placards fail to provide adequate warnings. Strict liability frees plaintiffs from having to prove that the defendant or its employees acted without due care, as required by the negligence standard.

In many states, manufacturers may also face joint-and-several liability, which stipulates that each person or company that contributes to an injury can be responsible for the entire amount awarded as damages in a lawsuit. Even when several people or companies have each contributed only a small amount to the injury, the plaintiff can recover the entire loss from any one of them. That one party, however, may be able to sue the other parties that share responsibility for the accident by bringing a "contribution" lawsuit. This suit is useful only if the other parties have resources to satisfy the award, are not immune from suit, and have not already settled with the plaintiff.

When a manufacturer is found legally responsible for injuries suffered by a plaintiff, the injured party is entitled to an award of money, or damages, as compensation for both economic and noneconomic losses. Economic losses are the actual out-of-pocket monetary expenses, such as medical costs or the cost of repairing a damaged furnace, that have been or will be incurred by a plaintiff due to his or her injuries. Noneconomic losses are the nonfinancial hardships that have been or will be experienced by the plaintiff, such as mental and physical pain and suffering,

Most states also permit an award of punitive damages, depending on the nature of the manufacturer's conduct. Punitive damages are intended to punish the defendant for the actions on which its liability was based and to deter the defendant and others from acting similarly in the future. To make punitive damages particularly effective, a number of states require that defendants, not their insurers, pay the awards.

Such damages are most often awarded when the plaintiff can show that the supplier or manufacturer knew about a safety hazard but did nothing to remedy the situation. Punitive damages are awarded infrequently, but when they are, the amount is often substantially higher than the compensatory damages, sometimes several million dollars for a single injury.

The potential for product liability may be an unavoidable aspect of doing business, but, fortunately, scrap processors and other manufacturers can take several steps to minimize their liability exposure.

Appoint or hire a product liability prevention manager to oversee pre-accident and postaccident measures, and ensure that the company's response is consistent and well-organized.

Establish a product liability education program to alert employees to the company's liability exposure.

Include warranty limitations and disclaimers in sales agreements to allocate risk favorably in contracts.

Keep written records, particularly noting the product's condition when it left the company, any inspection and testing procedures used on the product, and disclaimer or indemnity agreements relating to the product.

Consider how a product is marketed to prevent promotions from being construed as either expressed or implied warranties.

Obtain adequate product liability insurance coverage.

Note: To obtain more information or to order a copy of a product liability primer, write to Perkins Coie, Attn: Susan Awad, Products Liability Group, 1201 Third Ave., Seattle, WA 98101.

Example 1

A steelmaker buys two different kinds of scrap from a processor--tin ammunition scrap and aluminum washer scrap--and requests that the two be shipped separately. When the ferrous scrap arrives, the steelmaker inspects it, determines that it meets specifications, then loads part of the shipment into two open-hearth furnaces. Within a few hours, the molten material explodes, damaging the furnaces and the mill building.

Upon inspecting the remaining part of the shipment, the steelmaker discovers that the supplier had compressed together part of the ferrous and nonferrous orders, a mistake that caused the explosion.

The supplier could be obligated to pay for damages to the facility.

A mill purchases scrap contaminated with lead, which is released as a gas when the scrap is melted. Some employees are hospitalized from exposure to the lead fumes, others quit, and the mill is forced to shut down to ventilate the facility and scrub the furnace.

Depending on local law, the supplier of the contaminated scrap could be held responsible for the entire cost of the ruined heat, even though its scrap may have only accounted for a small percentage of it. The scrap supplier could also be forced to pay for the furnace cleanup, compensate the mill for its lost production time, and pay the medical expenses of each employee injured in the incident.

A scrap processor sells scrap iron contaminated with aluminum dust, which causes the scrap to explode when it is heated, injuring several employees and killing two. The supplier faces claims on all damaged property and could be forced to pay compensation to the injured employees and the estates of the employees killed.  •

By taking a few preventive steps, scrap suppliers and processors can minimize their chances of facing product liability lawsuits.