Top of Mind: The Cure for Product Liability

Product liability awards continue to swell in the U.S., creating a lack of capacity in the insurance market that has led to escalating insurance costs and extremely strict underwriting standards. Businesses are responding by developing business-specific loss prevention activities that go far beyond ensuring product quality. "It's important to recognize that loss prevention must be utilized in all aspects of a business because a failure to appreciate the need to prevent losses has the potential to cause a business disastrous economic loss," says Mark B. Seiger, an attorney with Edwards Angell Palmer & Dodge in Hartford, Connecticut.

Manufacturers must be concerned with everything from the adequacy of product design to how the end user actually uses the product. The key to minimizing risks in all of the factors relating to product design, engineering, and use is properly documenting how the business has considered each factor -- documentation that can stand up to scrutiny by a jury in the event of a civil lawsuit.

Leading manufacturers have good quality programs and product design efforts in place and meet ISO 9000 standards, which require mandatory documentation requirements within the manufacturing process, thus reducing the risk of loss. But product liability experts say that this is just the tip of the iceberg.

Randall Goodden, a consultant who conducts seminars in product liability prevention, sees the need for a corporate administrative team of three key people and proposes that the CFO be one of them. "Although the CFO isn't going to know the technical product, I see this individual as the intermediary with the insurance company for setting up local insurance representation and counsel when claims surface in different parts of the country," he says.