Product Liability Law in the United States: A Primer for Chinese Product Manufacturers

Introduction

This article is intended to provide an overview of product liability law in the United States to assist Chinese product manufacturers that are selling products in the American marketplace to better understand their potential liability in U.S. litigation.  The article addresses the following topics:

• The product liability law that a judge applies in a lawsuit;
• The types of product liability claims and requisite proofs;
• Potential defenses to product liability claims;
• Those entities in the chain of distribution that are potentially liable in a product liability lawsuit;
• Jurisdiction;
• General principles of indemnification;
• Damages; and
• Early dispute resolution options.

Applicable Law

A product liability lawsuit refers to a claim for either personal injury or property damage caused by a product.  There is no uniform product liability law in the United States.  Rather, each of the 50 U.S. states has its own body of product liability law.  Some states have specific product liability legislation (i.e., statutes) that govern product liability lawsuits. In other states, common law (judicial precedent) governs product liability lawsuits. As a result, it is important to be familiar with both the forum state’s choice of law rules (the rules applied to determine which state’s product liability law applies) and the applicable state’s product liability law.

Types of Product Liability Claims and Requisite Proofs

There are generally three types of product liability claims: negligence, strict liability, and breach of warranty.

Negligence:
Negligence is the breach of a duty of care by failing to exercise ordinary care to avoid injury.  Product manufacturers have a duty to supply safe and non-defective products to anyone who could foreseeably use their product.  This duty of care includes a duty to exercise reasonable care in product design, manufacture, and warnings.  In order to prove a product liability claim based on negligence, a plaintiff must prove: (1) breach of a duty of care based on the manufacturer’s failure to take action that a reasonable person would take in similar circumstances; and (2) that this breach rendered the product unsafe, resulting in injury.

Strict Liability:
Strict liability refers to the imposition of liability when a product defect results in an injury.  Unlike a negligence claim, a plaintiff can establish strict liability without a finding of fault.  There are three types of product defects: (1) manufacturing defect; (2) design defect; and (3) failure to warn.

A manufacturing defect is established when a plaintiff shows that the product does not conform to design specifications or performance standards, or it deviates in a material way from identical units in the same product line, and that deviation caused the plaintiff’s injury.

A design defect is established when a plaintiff shows that the design makes the product unreasonably dangerous, taking into consideration all reasonably foreseeable uses and safer alternative designs.  An expert is often necessary to prove such claims.  Two of the most common tests for establishing design defect are the “consumer expectation test” and the “risk/utility test.”  Courts base the consumer expectation test on whether a product failed to perform in a manner expected by an ordinary consumer when used as intended or in a reasonably foreseeable way.  If the product performed as expected, it is not defective.  The risk/utility test assesses whether the benefits of the product outweigh the risk of danger inherent in the design.  If the benefits outweigh the risks, the product is not defective.  Industry standards can be helpful in defending a design defect claim. Proof that a product is “state of the art” (that the product complied with the existing level of technological expertise and scientific knowledge relevant to a particular industry at the time the product was designed) may be an affirmative defense in some jurisdictions.

A failure to warn claim requires proof that the product did not have adequate warnings, instructions or product labeling when it left the manufacturer, and that the inadequacy of the warning caused the plaintiff’s injuries.  Sellers are not required to warn of known dangers and there is a presumption that warnings will be read and heeded.

Breach Of Warranty:
Contract law governs warranty claims.  In the product liability context, a warranty is a guarantee that a product will perform in a specific way or up to a specific standard.  There are three kinds of product warranties: (1) express warranty; (2) implied warranty of merchantability; and (3) implied warranty of fitness for a particular purpose. The Uniform Commercial Code, which every state has adopted, governs product warranties.

The express language of a written contract, affirmations of fact or promise by the seller, descriptions of the product by the seller, or samples or models of the product can all create express warranties.   Implied warranties are implied as a matter of law.  The implied warranty of merchantability guarantees that the product meets the minimum standards of quality and safety.  The implied warranty of fitness for a particular purpose guarantees that the product is fit for the purchaser’s particular purpose.  In order to establish a breach of warranty claim, a plaintiff must show breach of the warranty and that the plaintiff was injured as a result.

Defenses to Product Liability Claims

Common defenses to product liability claims include lack of product identification, substantial modification of the product after it left the manufacturer’s control (which modification caused the injury), unforeseeable misuse of the product, statutes of limitation (the time period a plaintiff is required to bring the claim or be barred from doing so, as provided by the applicable state’s law), unavoidably unsafe products (those products incapable of being made safe for their intended ordinary use), assumption of risk (voluntarily and knowingly using a product despite knowledge of danger), product misuse, intervening negligence, and failure to mitigate damages.

Chain of Distribution

All parties in the chain of distribution may be liable for harm caused by a defective product.  This includes the manufacturer, the component part supplier, the party that assembles or installs the product, the wholesaler of the product, product distributors, and the retail store that sells the product.

Personal Jurisdiction

Personal jurisdiction refers to the power that a court has to hear a particular case. To be sued in a particular state, a court must have personal jurisdiction over a company.  Personal jurisdiction can be general or specific.

A court has general jurisdiction over a company in a product liability case only when the company’s contacts are so continuous and substantial as to render it at home in a particular state, which is almost always the state in which the company is incorporated or its principal place of business.  Where general jurisdiction exists, a court has jurisdiction regardless of the nature of the claim.  Given the nature of this standard, it is unlikely that a U.S. court would be able to establish general jurisdiction over a Chinese product manufacturer.

Jurisdiction over a Chinese product manufacturer is more likely to be based on specific jurisdiction.  A court has specific jurisdiction over a foreign manufacturer when the manufacturer has “minimum contacts” with the forum state related to the claims at issue.  By way of example, minimum contacts exist where a foreign manufacture “purposefully avails itself of the privilege” of conducting business in that state.  Whether specific jurisdiction exists is a complex question determined by the extent of the manufacturer’s involvement in the sale of its products in the United States.

Chinese product manufacturers can take measures to reduce the risk of invoking specific jurisdiction in a given state, such as:

• Avoid marketing or advertising in that state;
• Refrain from soliciting business in that state;
• Not register to do business in that state;
• Not maintain a physical presence in that state (e.g., no offices or employees);
• Have no involvement in distribution of products in that state

Indemnification

Indemnification provisions are commonly included in agreements for the sale of products in the United States between the manufacturer and retail sellers.  These indemnification provisions typically require one party (the indemnifying party) to pay or compensate the other party (the indemnitee) for specified liabilities or losses, and often includes an obligation to either provide or pay for the indemnitee’s legal defense costs.  While it may be difficult for plaintiffs to obtain jurisdiction over Chinese product manufacturers in United States courts, larger Chinese product manufacturers often honor indemnification agreements regardless of jurisdiction as part of their U.S. business strategy.  Manufacturers should carefully review all applicable indemnification provisions, and during contract negotiations, eliminate language exposing the manufacturer to liability resulting from the U.S. distributor’s own negligence or wrongdoing.  However, many of the largest U.S. retailers do insist on such provisions.  Moreover, even in the absence of a contractual indemnification provision, retail sellers may assert claims for common-law indemnification (where the retailer is entirely without fault) or contribution (requiring the manufacturer to pay his share of liability).

Some agreements between Chinese product manufacturers and United States distributors include arbitration provisions, which are enforceable in China and, therefore, may expose Chinese product manufacturers to liability, even if there is no jurisdiction in the United States.

Damages

A person injured by a product may seek two types of damages resulting from a product: compensatory and punitive.  Compensatory damages are comprised of both economic damages and non-economic damages.  Economic damages are financial losses caused by the product and may include past and future medical expenses, life care costs, lost income, property damage, and other out-of-pocket costs.   Noneconomic damages are emotional losses caused by the product and may include pain and suffering, emotional distress, loss of enjoyment of life, fear of future illness, and the spouse’s loss of love and affection.

Punitive damages require a finding that the manufacturer acted with malice, gross negligence, or with a conscious disregard of a known safety risk. Punitive damages awards often significantly exceed the compensatory damages award and courts may reduce them in some instances.  Damages awards in the United States are among the highest in the world and are often unenforceable in other countries, including China.

Early Dispute Resolution

Product liability litigation in the United States is very costly, uncertain, and can take years to resolve.  For that reason, it is important to consider early dispute resolution, which may shorten litigation, eliminate risk and significantly reduce litigation expenses.  We have had success resolving many litigations through court-administered early resolution programs and private non-binding mediations, and can guide Chinese product manufacturers selling products in the U.S. on how best to use these resources to resolve litigation in an efficient manner.  As with all litigation, it is important to consult with a law firm early in the litigation.  There are many early procedural deadlines important to a defense, which may be waived if not timely met.