Product Recalls and Managing Product Liability Claims

1
Product Recalls and Managing Product Liability
Claims

• Jonathan Clark - Crawford Company
• February 2003

Any enquiries Contact 44 (0)207 265 0611
or jonathan.clark_at_crawco.co.uk
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Introduction

• Product liability claims pose a problem of
  management
• Can be very public and damaging to brand
• Assessing total exposure - where has the product
  gone and how many claimants will there be?
• Commercial considerations - most claims are
  between trading parties and under contract
• For many cases policy issues will be at the
  forefront of planning response- what is covered
  and is there damage?
• If in doubt follow the product - see where the
  product goes and see if any claim is an isolated
  one off or the tip of the iceberg

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A case study

• Flavorisus plc - food ingredients and flavourings
• Fax received
• Customer (Safebury) analysis shows contamination
  with nuts in speciality product - toffee
• Trace elements found by new techniques
• Some customer claims already received by them
• Looks like an intermittent fault
• Recall requested
• First intimation to us(?)
• Q1 results due in two weeks so financial impact
  needed

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Critical issues

• Is a recall needed?
• Speed of response
• Network of customers
• Industry specific knowledge
• Traceability - developing a view of total
  exposure
• Interrelationships of customers and their
  customers
• Global nature of manufacturing and supply chains
• Insurer attitude

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Investigation

• Initial crisis / fact finding meeting
• Examine third party evidence
• Initial appraisal - what is risk class
• Likely causation-testing regime if needed
• Search for inferred causal relationship -
  epidemiological approach
• Potential scale of problem - where has the
  product gone?
• Potential cost / reserve
• Get all documents together

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The crisis management team

• Does the organisation have the internal resources
  to deal with recall issues
• Advise on best course of action - act swiftly
• Provide support and resources to deal with recall
• Manage organisational response - decide
• Minimise impact of recall on daily running of
  business
• Ensure customer relationships are maintained -
  regain trust

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Recall options

• None
• Withdrawal - total market
• Voluntary or mandatory - remedy or replace
• Public
• Open
• Targeted
• Information release
• Trade only
• Silent
• Targeted

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Flavorisus-the network of loss
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Exposure - financial picture

• Understand where product has gone - who has it
  and in what quantities? Find out batches at risk
• Need to form view of use and inclusion in users
  products
• Are we sole supplier to claimant?
• Any linked sales for the product which increases
  exposure i.e. product used by insured in own
  other products
• Any contractual impact - any viable defences
• Develop a budgeted model based on facts known

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Heads of claim

• Supermarkets and Processco
• Direct Recall
• Product cost
• Product in stock
• Profit - sales lost
• Disposal
• Management Time
• PR
• Advertising

• Flavorisus plc
• Product in Stock
• Recall own Brand
• Recall others
• Profit - business lost
• Disposal
• Management Time
• PR
• Advert
• Legal

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Brand management

• Brand equity at risk, reputation at risk
• Prevent chaos in a crisis - keep in control
• Communicate the brand
• Apologise or explain
• Dont wait
• Dont create a news vacuum
• Organisational structure can impede empowered
  action
• Fear of lawsuits should be balanced against long
  term brand damage

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Risk management

• Pre-planning
• Awareness of relevant statutes and regulations
• Supplier registration programme or similar to
  facilitate recovery
• Policy cover across the board - liability,
  guarantee, recall
• Traceability
• Full product knowledge

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Managing the loss - a route map
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Use of Call Centre as a filter for recall -
consumer durables
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Recall summary

• Have a plan
• Enact the plan
• Be sure it is the insured product at fault
• Dont await the writ
• Manage the situation - deal direct with end
  consumers?

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Some insurance and legal issues
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An investigation route

• What happened and why?
• SOLUTION - what can be done?
• COST - is this the right way forward?
• POLICY - does the policy respond and to what
  degree?
• LEGAL - is there a liability at law?
• Key issues to consider as separate lines of
  enquiry
• QUANTUM
• POLICY
• LEGAL
• (Facts found may bear on each item of enquiry but
  benefit from individual consideration)

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Nature of claims

• Multi-claimant
• Consumer Protection Act
• Class action
• Policy cover
• Recall costs - third party and own?
• Subrogation - contract and jurisdiction

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Exposure - reserving

• Understand where product has gone - who has it
  and in what quantities? Find out batches at risk
• Need to form view of use and inclusion in users
  products
• Any linked sales for the product which increases
  exposure i.e. product used by insured in own
  other products
• Any contractual impact - any viable defences
• Are we sole supplier to claimant? - check if this
  is credible against their known production output
• Develop a model based on facts known

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The Product Liability Policy

• Any product sold, supplied, prepared, serviced or
  tested
• Damage to material property - has there been
  damage?
• Incorporation cases - e.g. defective ink printed
  on paper, car part built into car is defective
  car otherwise perfect
• Failure to perform intended function - efficacy
• Excess - single action with series of claims one
  claim or more
• Exclusions-own product, contractual loss, design

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Exclusion and Limitation of Liability

• The Unfair Contract Terms Regulations 1994 -
  applies to consumers
• The Unfair Contract Terms Act 1977
• Section 2(1) Death or personal injury
• Section 2(2) Subject to reasonableness
• Section 11
• The requirement of reasonableness...is that the
  term shall have been a fair or reasonable one to
  be included having regard to all the
  circumstances...in the contemplation of the
  parties when the contract was made.

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Adjusting the loss - a route map
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Summary - the need for a partnership approach

• Insurer - pre planning of policy response
• Policyholder - records and responsiveness
• Damage limitation - PR response
• Causation - good technical and analytical support
• Management of quantum - clear view of what is at
  risk