Legal Environment for Business – Questions / Case Examples Please review the attached PDF (Chapters 10 & 11 from textbook) and the attached Word doc with t
Legal Environment for Business – Questions / Case Examples Please review the attached PDF (Chapters 10 & 11 from textbook) and the attached Word doc with the case problems and questions for answer. Use the materials from the PDF to answer the questions. 10
CHAPTER
PRODUCT LIABILITY
INTRODUCTION
DEFINITION OF PRODUCT LIABILITY
Product liability is the legal liability manufacturers and sellers have for defective products that cause injury to purchasers, users, or bystanders, or their property. Liability extends
to anyone in the chain of distribution: manufacturers, distributors, wholesalers, and retailers.
Today, the majority of states have adopted strict product liability, whereby an injured person may recover damages without having to show the defendant was negligent or
otherwise at fault. No contractual relationship between the
defendant and the injured person is necessary. The injured
person merely needs to show that the defendant sold the
product in a defective or dangerous condition and that the
defect caused his or her injury.
CH APTER OV ERVIEW
This chapter discusses the evolution of the strict liability
doctrine, beginning with its origin in warranty and
negligence theories. It then focuses on the bases for strict
liability, including manufacturing defect, design defect, and
failure to warn. The chapter examines who may be held liable
for defective products and the allocation of liability among
multiple defendants. It discusses defenses to product
liability claims, including the courts’ increasing acceptance
of the preemption defense to preclude state-law product
liability claims and legislative reforms designed to correct
perceived abuses in the system. The chapter concludes with
a description of the law of product liability in the European
Union.
101 THEORIES OF RECOVERY
The primary theories on which a product liability claim
can be brought are breach of warranty, negligence, and
strict liability.
10-1a Breach of Warranty
In a warranty action, the reasonableness of the manufacturer’s actions is not at issue. Rather, the question is whether
the quality, characteristics, and safety of the product were
consistent with the implied or express representations
made by the seller. A buyer may bring a warranty action
whenever the product fails to meet the standards the seller
represented to the buyer at the time of purchase.
Common Law Warranties and Privity
of Contract
A common law breach of warranty action is based on
principles of contract law. To recover, an injured person
must be in a contractual relationship with the seller, a
requirement known as privity of contract. It necessarily
precludes recovery by those persons, such as bystanders,
who have no contractual relationship with the seller.
UCC Warranties
As explained in Chapter 8, a warranty under the Uniform
Commercial Code (UCC) may be either express or implied.
An express warranty is an affirmation made by the seller
relating to the quality of the goods sold. An implied warranty is created by law and guarantees the merchantability
of the goods sold and, in some circumstances, their fitness
for a particular purpose. The UCC includes alternative
provisions regarding the need for privity, from which
adopting states may choose. These range from (1) provisions limiting liability to those in privity with the seller
(as well as members of the seller’s household and guests
who may reasonably be expected to use, consume, or be
affected by the goods and are personally injured by breach
of the warranty) to (2) provisions extending liability not
only to those in privity but also to “any person who may
reasonably be expected to use, consume or be affected by
the goods and who is injured by breach of the warranty.”1
1. U.C.C. § 2-318.
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254
UNIT II
THE LEGAL ENVIRONMENT
10-1b Negligence
In the following landmark case, the New York Court of
Appeals found the defendant manufacturer liable for negligence even though there was no contractual relationship
between the manufacturer and the plaintiff. Although
liability in MacPherson was still based on the negligence
principles of reasonableness and due care, the New York
Court of Appeals abandoned the privity requirement in
this case, making it an important forerunner to the doctrine of strict product liability.
A CASE IN POINT
SUMMARY
MacPherson v. Buick
Motor Co.
Facts!MacPherson purchased a new Buick car with wooden wheels from a Buick Motor
Court of Appeals of New York
111 N.E. 1050 (N.Y. 1916).
CASE 10.1
Company dealer who had previously purchased the car from its manufacturer, Buick Motor
Company. MacPherson was injured when the car ran into a ditch after one of the car’s wheels
collapsed due to defective wood used for the spokes. The wheel had been made by a manufacturer other than Buick.
MacPherson sued Buick Motor Company directly. He proved that Buick could have discovered
the defect by reasonable inspection and that such an inspection had not been conducted. No
claim was made that the manufacturer knew of the defect and willfully concealed it. After the
trial court found in favor of MacPherson, Buick appealed.
Issue Presented!May a consumer who purchases a product from a retailer sue the
manufacturer directly for negligent manufacture of the product even though there is no contract between the consumer and the manufacturer?
Summary of Opinion!The
New York Court of
Appeals held that Buick could be held liable for negligence.
As a manufacturer, it owed a duty to any person who could
foreseeably be injured as a result of a defect in an automobile it manufactured. The court stated that a manufacturer’s
duty to inspect varies with the nature of the thing to be
inspected. The more probable the danger, the greater the
need for caution. Because the action was one in tort for
negligence, no contract between the plaintiff and the defendant was required.
To prove negligence in a products case, the injured party
must show that the defendant did not use reasonable care
in designing or manufacturing its product or in providing
adequate warnings. A manufacturer can be found negligent even if the product met all regulatory requirements
because, under some circumstances, a reasonably prudent
manufacturer would have taken additional precautions.2
As discussed later in this chapter, the only exception is
when a federally mandated standard is deemed to have
preempted state product liability law.3
It can be difficult to prove negligence. Moreover,
injured persons have often been negligent themselves in
their use or misuse of the product. This precludes recovery
in a contributory negligence state and reduces recovery in
a comparative negligence state.
Courts will not permit a plaintiff to prove negligence by
introducing evidence of subsequent remedial measures
taken by a defendant after an injury to improve a product.
2. See, e.g., Brooks v. Beech Aircraft Corp., 902 P.2d 54 (N.M. 1995).
3. See, e.g., Horn v. Thoratec Corp., 376 F.3d 163 (3d Cir. 2004).
Result!New
York’s highest court affirmed the lower
court’s finding that the manufacturer, Buick Motor Company,
was liable for the injuries sustained by the plaintiff. Buick
was found negligent for not inspecting the wheels and was
responsible for the finished product sold by its dealer.
Comments!This case established the rule, still applicable today, that a manufacturer can be liable for failure to
exercise reasonable care in the manufacture of a product
when such failure involves an unreasonable risk of bodily
harm to users of the product.
This rule is designed to encourage companies to continually strive to improve the safety of their products. If
subsequent safety measures could be used to establish negligence, companies would be deterred from improving
their products.
10-1c Strict Liability in Tort
Strict liability in tort allows a person injured by an unreasonably dangerous product to recover damages from the
manufacturer or seller of the product even in the absence
of a contract or negligent conduct on the part of the manufacturer or seller. Because the defect in the product is the
basis for liability, the injured person may recover damages
even if the seller exercised all possible care in the manufacture and sale of the product.
In 1963, in Greenman v. Yuba Power Products, Inc.,4 the
California Supreme Court became the first state supreme
4. 377 P.2d 897 (Cal. 1963).
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CHAPTER 10
court in the United States to adopt strict product liability.
The case involved a consumer who was injured while using
a Shopsmith combination power tool that could be used
as a saw, drill, and wood lathe. Claiming that the tool was
defective and not suitable to perform the work for which
it was intended, Greenman sued the manufacturer and the
retailer who had sold the power tool to his wife for breach
of express and implied warranties and for negligent construction of the tool. The California Supreme Court ruled
that a manufacturer is strictly liable in tort when it places
an article on the market, knowing that the product is to be
used without inspection for defects, and it proves to have a
defect that causes injury to a human being.5
Rationale
The legal principle of strict product liability is grounded
in considerations of public policy. The rationale has four
basic parts:
1. The law should protect consumers against unsafe products.
Consumers are often unable to insure against all risks. In addition, consumers should be able to rely on the marketing of
manufacturers.
2. The cost of injury should be borne by the parties best able to
prevent, detect, eliminate, and insure against product defects:
manufacturers and others in the chain of distribution. Because
the manufacturers and sellers of products can insure against
the losses caused by their products and pass these costs on
to all consumers in the form of higher prices, they are in the
best position to bear and spread the costs of product liability.
3. Imposing strict liability encourages manufacturers to go the
extra mile to produce safer products and to improve existing
products by investing in careful product design, manufacture,
testing, and quality control. Manufacturers should not escape
liability simply because they typically do not sign a formal
contract with the end user of their product (or with nonusers
who might be injured by their product). Negligence liability
alone does not provide sufficient incentives to induce manufacturers to make safe products.
4. The law should give sellers an incentive to deal with reputable
manufacturers.
In short, the goal of strict product liability is to force
companies to internalize the costs of the injuries caused
by their products.
Elements of a Strict Liability Claim
For a defendant to be held strictly liable, the plaintiff must
prove that (1) the plaintiff, or the plaintiff’s property, was
harmed by the product; (2) the injury was caused by a
defect in the product; and (3) the defect existed at the
time the product left the defendant and did not substantially change along the way. Most states have followed the
5. Id. at 901.
PRODUCT LIABILITY
255
formulation of section 402A of the Restatement (Second)
of Torts (1965), which states:
1. One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property
is subject to liability for physical harm thereby caused to the
ultimate user or consumer, or to his property, if
a. the seller is engaged in the business of selling such a product, and
b. it is expected to and does reach the user or consumer
without substantial change in the condition in which it
is sold.
2. The rule stated in Subsection (1) applies although
a. the seller has exercised all possible care in the preparation
and sale of his product, and
b. the user or consumer has not bought the product from or
entered into any contractual relation with the seller.
In some cases, the plaintiffs may base their suit on the
anticipation of becoming ill or suffering physical injury as a
result of being exposed to a toxic product, such as asbestos.
In 2003, the U.S. Supreme Court ruled that asymptomatic plaintiffs exposed to asbestos could sue if they had a
reasonable fear of developing cancer and had at least some
physical injury.6 In Petito v. A.H. Robins Co.,7 the Florida
Court of Appeal required manufacturers and sellers of the
weight-loss drugs Fenfluramine and Phentermine to pay
for a court-supervised program of medical testing, monitoring, and study of a class of asymptomatic patients.
The American Law Institute (ALI) promulgated the
Restatement (Third) of Torts: Products Liability in 1998.
Like the Restatement (Second) of Torts, the Restatement
(Third) imposes strict liability for manufacturing defects.
In the case of design defects and defects based on inadequate instructions or warnings, however, it imposes a
standard predicated on negligence. Because a majority of
states still follow the Restatement (Second), the discussion that follows is based on that restatement, except as
otherwise noted.
102 LITIGATION STRATEGY AND
THE AVAILABILITY OF PUNITIVE
DAMAGES
Although negligence and breach of warranty are alleged
in most product liability cases, they play a secondary role
compared with strict liability. Under strict liability, the
injured person does not have the burden of proving negligence and does not have to be in privity with the seller.
Thus, strict liability is easier to prove than either negligence or breach of warranty.
6. Norfolk & Western Ry. Co. v. Ayers, 538 U.S. 135 (2003).
7. 750 So. 2d 103 (Fla. Dist. Ct. App. 1999).
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256
UNIT II
THE LEGAL ENVIRONMENT
Nonetheless, plaintiffs’ attorneys usually try to prove
negligence as well as strict liability. Proof of negligence will
often stir the jury’s emotions, leading to higher damages
awards and, in some cases, to punitive damages.8 For
example, in 2006, a jury awarded $9 million in punitive
damages on top of $4.5 million in compensatory damages
to a plaintiff who had taken Vioxx pain medication, after
the jury found that Merck had withheld information
about the drug’s health risks from the Food and Drug
Administration.9 Jury foreperson Timothy Kile explained
8. Punitive damages are discussed further in Chapters 4 and 9.
9. Alex Berenson, Merck Jury Adds $9 Million in Damages, N.Y. Times, Apr.
12, 2006, at C1.
the jury’s thought process: “[Merck is] responsible for
people taking the medication and putting it in their
bodies. To not put information out there about public
safety that I feel you have a responsibility to put out there,
that’s willful and wanton.”10
Once the plaintiff raises the issue of negligence, the defendant is permitted to introduce evidence that its products
were “state of the art” and manufactured with due care. (The
state-of-the-art defense is discussed later in this chapter.) Such
evidence would otherwise be inadmissible in strict liability
cases governed by the Restatement (Second) and manufacturing defect cases governed by the Restatement (Third).
10. Id.
IN BRIEF
Theories of Product Liability*
What needs to
be shown?
Contract—Breach of Warranty
Tort—Negligence
Tort—Strict Liability
Warranties may be express
(stated in the contract) or
implied (by law). Implied
warranties are merchantability
and sometimes fitness for a
particular purpose.
!1. #The injured party (or property)
was injured (damaged) by the
product, resulting in an actual loss.
!1.! The injured party (or property) was
harmed by a defective product (i.e.,
has a design defect, a manufacturing defect, or a failure to adequately
warn) that is unreasonably dangerous (i.e., the danger extends beyond
that contemplated by the ordinary
consumer who purchases with ordinary knowledge in the community).
2. The defendant owed a duty to the
injured party.
3. The defendant did not use reasonable care in designing the product,
manufacturing the product, or
providing adequate warnings.
4. The defect caused the injury or
damage.
5. The injury was reasonably
foreseeable.
2. The product reached the consumer
without substantial change in the
condition in which it was sold.
3. The seller is engaged in the
business of selling the product.
Is privity
of contract
required?
Yes, for common law warranties; varies by state for UCC
warranties
No
No
Who is
covered?
Only the parties in privity of
contract under common law;
under the UCC, parties in privity,
members of their household and
guests personally injured by the
breach, and, in certain states,
any reasonably foreseeable user
or bystander
Purchasers, users, and bystanders
(Note: Purchasers of used property
generally are not covered.)
Same as Tort—Negligence
Who is liable?
Only the parties in privity of
contract under common law;
seller who made the warranty
under the UCC
The person(s) who acted negligently
Anyone in the commercial chain of
distribution: component manufacturers,
manufacturers, distributors, wholesalers, and retailers (but not casual sellers;
and in some jurisdictions, there are
limits on the liability of component
manufacturers, wholesalers, and
retailers)
Is “fault”
required?
No
Yes—failure to use reasonable care in
designing, manufacturing (including
inspecting for defects in components),
or providing adequate warnings
No
CONTINUED
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHAPTER 10
PRODUCT LIABILITY
257
Contract—Breach of Warranty
Tort—Negligence
Tort—Strict Liability
For express warranties, the
terms of the warranty generally
bar or severely limit recovery.
In contributory negligence states—
no recovery
Contributory negligence does not
apply.
In comparative negligence states—
reduced recovery
In some jurisdictions, comparative fault
can reduce awards.
Unforeseeable misuse will generally
bar recovery.
Unforeseeable misuse will generally
bar recovery.
Generally no recovery
What if the
product was
“state of
the art”?
(Note: States
differ as to the
standard used to
establish “state
of the art.”)
Generally precludes claims for negligent design
Generally irrelevant
What if the
product met
all federal
and state
regulatory
standards?
Generally irrelevant as to
express warranties but may
eliminate any claim under
implied warranties
If the standards do not preempt state
product liability law—no effect
What
damages are
recoverable?
Economic only
Economic damages, bodily injury,
proper…
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