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Product Liability

PA ET RHC 20

A manufacturer is not through with his customer when a sale is completed. He has then only started with his customer.

Henry Ford, founder of Ford MotorCompany, in My Life and Work (co-written with Samuel Crowther, 1922)

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Learning Objectives

• Explain what is required to create an express or implied warranty

• Identify major categories of product liability claims based in negligence

• Differentiate strict liability claims from those based on negligence theory

• Describe the role of comparative negligence

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• Product liability law refers to the body of legal rules governing civil lawsuits for losses and harms resulting from a defendant’s furnishing of defective goods

• Rule was caveat emptor (buyer beware), but has shifted over the past century to caveat venditor (let the seller beware) since sellers are better able than consumers to bear the costs of defective products

Development of Product Liability Law

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• Product liability law is partly grounded in contract law and partly grounded in tort law

• Contract theories are based on an express or implied warranty

• Tort theories are based on arguments of negligence or strict liability

Product Liability Theories

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• UCC 2–313(1): express warranty may be created in any of three ways:– If affirmation of fact or promise about

goods becomes part of the basis of the bargain• Statements of value or opinion and

sales puffery do not constitute a warranty

• Advertisements may contain statements of warranty as well as sales puffery

Express Warranty

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• Royal Indemnity Co. v. Tyco Fire Products, LP: Apartment complex fire linked to defects in sprinkler system and plaintiff insurer sued Tyco on breach of express warranty theory

• Technical data sheet expressed a one-year warranty, not an warranty of future performance for an indefinite amount of time

• Trial court’s dismissal of express warranty claim affirmed

Example of Express Warranty

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• Two other express warranties:– A description of the goods that

becomes part of the bargain creates an express warranty that the goods will conform to description

– A sample or model of goods to be sold creates an express warranty that goods will conform to sample

Express Warranty

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• Implied warranties are created by operation of law rather than seller’s express statements– Warranty of merchantability [UCC 2-314(1)]

• Seller must be a merchant in the goods of the kind sold

– Warranty of fitness for a particular purpose [UCC section 2–315]

• Seller must know the goods are to be used for special purpose

Implied Warranties

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• In implied warranty cases, plaintiff argues that seller breached warranty by selling unmerchantable goods and plaintiff should recover damages– Privity of contract between consumer and

manufacturer is not required

• Merchantability, essentially, is that goods must be fit for the ordinary purposes for which such goods are used

Implied Warranty of Merchantability

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• Crowe v. CarMax Auto Superstores, Inc.: – Couple bought car from CarMax with express

warranties. Car required many repairs, all covered by warranties, but couple sued CarMax claiming unmerchantability

– Court found for CarMax: goods need not be perfect to be fit for their ordinary purposes, but must only meet reasonable expectations of average consumer

• Couple had unreasonable expectations

Meaning of Merchantability

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• Newton v. Standard Candy Co.: – Demonstrates disagreement over standard

for food products alleged to be unmerchantable because they contain harmful objects or substances

– Under foreign–natural test, defendant is liable if object or substance is “foreign” to the product, but not liable if it is “natural” to the product

– But reasonable expectations test increasing in use

Meaning of Merchantability

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• Warranty of fitness for a particular purpose implied if: (1) seller has reason to know a particular purpose for which buyer requires the goods; (2) seller has reason to know that buyer is relying on seller’s skill or judgment for the selection of suitable goods; and (3) buyer actually relies on seller’s skill or judgment in purchasing the goods– See Moss v. Batesville Casket Co.

Implied Warranty of Fitness for a Particular Purpose

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• Product liability suits based on negligence allege that manufacturer or seller breached a duty to plaintiff by failing to eliminate a reasonably foreseeable risk of harm:– negligent manufacture of the goods (including

improper materials and packaging) – negligent inspection– negligent failure to provide adequate warnings – negligent design

Negligence Theory

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Croskey v. BMW of North America, Inc.

• Facts and Procedural History: – Croskey severely burned when plastic

neck on car radiator failed and spewed scalding radiator fluid

– Croskey pleaded two theories: negligent design and negligent failure to warn

– Evidence of similar incidents existed, but court excluded for negligent design claim

– Jury returned verdict in favor of defendants

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• Appellate Court: – Primary issue is design

defect, which requires plaintiff to show that the product was not reasonably safe for its foreseeable uses and a risk-utility analysis favored a safer design

– Trial court wrongly excluded evidence of similar incidents

– Reversed and remanded

Croskey v. BMW of North America, Inc.

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• American Law Institute published section 402A of Restatement (Second) of Torts (1965) – Most important reason is socialization-of-

risk strategy: strict liability makes it easier for plaintiffs to prove breach of duty and sellers pass on costs in higher prices

– Another reason: stimulates manufacturers to design and build safer products

Strict Liability Theory

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• Published in 1998, basic rule is: “One engaged in the business of selling or otherwise distributing products who sells or distributes a defective product is subject to liability for harm to persons or property caused by the defect.”

• Three kinds of product defects: manufacturing defects, inadequate warnings or instructions, design defects

Restatement (Third) of Torts

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• Plaintiff was passenger in Ford Bronco involved in a rollover and sued Ford for defective seatbelt sleeve and handling and stability design defect

• Jury awarded damages and Ford appealed

• In design defect cases, plaintiff must show existence of reasonable design alternative and risk-utility test, with objective factors, provides best means to analyze whether product is designed defectively– Affirmed in part, reversed in part; case remanded

Branham v. Ford Motor Co.

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• Federal Magnuson-Moss Warranty Act applies to sales of consumer products more than $10 per item:– If written warranty, it must be full or limited– Full warranty promises to (1) remedy any

defects in the product and (2) replace product or refund purchase price if, after reasonable number of attempts, it cannot be repaired

– Seller who gives a limited warranty is bound to whatever promises it actually makes

Other Product Liability Theories

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• A seller’s misrepresentation about a material fact about the product — a fact that would matter to a reasonable buyer – may invoke liability to a buyer

• Industrywide liability: plaintiffs bypass problems of causation that exist where several firms within an industry manufactured a harmful standardized product, and plaintiff cannot prove which firm produced the injurious product

Other Product Liability Theories

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• Consequential damages: personal injury, property damage, indirect economic loss (e.g., lost profits or lost business reputation), and noneconomic loss, such as pain and suffering, physical impairment, mental distress, loss of enjoyment of life, loss of companionship or consortium, inconvenience, and disfigurement

Damages

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• Basis-of-the-bargain damages: – Buyers of defective goods loss of full value

for the goods’ purchase price is direct economic loss (value of goods as promised under the contract minus value of goods as received)

• Punitive damages:– Intended to punish defendants who have

acted in an especially outrageous fashion, and to deter them and others from so acting in the future

Damages

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• Product liability disclaimer is a clause in the sales contract whereby the seller attempts to eliminate liability it might otherwise have under the theories of recovery described earlier in the chapter

• Wilke v. Woodhouse Ford, Inc.: court upheld implied warranty disclaimer, but possible liability for negligent failure to inspect product

Disclaimers

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• Remedy limitation is a clause attempting to block recovery of certain damages– Example of time limitation: “30 day

warranty”

Disclaimers & Limitations

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• Three main defenses in a product liability suit are the overlapping trio of product misuse, assumption of risk, and contributory negligence– What could happen on a

construction site? What defenses would exist?

Defenses

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• Most states require fact-finder to apportion damages based on relative fault of plaintiff’s and defendant’s percentage shares of the total fault for the injury– Plaintiff is awarded total provable damages

times defendant’s percentage of fault • Green v. Ford Motor Co.: fact-finder shall

apportion fault to injured person only if fault of injured person is a proximate cause of injuries for which damages are sought

Comparative Negligence

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• Preemption defense rests on a federal supremacy premise, that federal law overrides state law when the two conflict– Riegel v. Medtronic, Inc.: state claims by

plaintiffs preempted by federal statute dealing with medical devices

• Courts mixed whether to treat regulatory compliance as full defense or mere factor in determining defendant’s liability

Preemption and Regulatory Compliance

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Test Your Knowledge

• True=A, False = B– Implied warranties are created by seller’s

conduct rather than express statements– Merchantability, essentially, is that goods

must be fit for the ordinary purposes for which such goods are used

– A disclaimer is a clause in the sales contract in which seller attempts to eliminate liability seller might otherwise have under law

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• True=A, False = B– Under foreign–natural test, defendant is

liable if object or substance is “foreign” to product, but not liable if it is “natural” to the product

– Under the Restatement of Torts (Third), three kinds of product defects exist: manufacturing defects, inadequate warnings, design defects

– The Magnuson-Moss Warranty Act requires every written warranty to be a full warranty

Test Your Knowledge

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• Multiple Choice– Express warranty may be created by

________ that becomes part of the basis of the bargain for the agreement:

a statement of fact or promise about goodsa)a description of the goods indicating goods

will conform to the descriptionb)a sample or model of goods to be sold

indicating goods will conform to the samplec)all of the aboved)both A and B, but not C

Test Your Knowledge

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• Multiple Choice– Drew was injured when his car rolled

over after the tires delaminated and caused him to lose control. Drew could sue, claiming: a) negligence (design or manufacture)b) strict liabilityc) breach of warrantyd) all of the above

Test Your Knowledge

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Thought Question

• What is your opinion of product liability lawsuits? If you were injured by a defective product, would you file a lawsuit against the manufacturer?