Avoiding Product Liability Lawsuits - Management
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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Avoiding Product Liability Lawsuits

CED Magazine, August 2006

Article Date: 08-01-2006
Copyright (C) 2006 Associated Equipment Distributors. All Rights Reserved.

Minimize your risk of product liability lawsuits with a sound risk management strategy.

Think a multi-million dollar product liability lawsuit can’t happen to your dealership? You might be surprised to know that servicing equipment, installing standard or custom attachments, selling used equipment and building custom-engineered products can put your dealership at great risk. The risks:

  • Negligence – Failing to do something a reasonably prudent person would do (e.g. assembling a piece of equipment that breaks and subsequently injures someone).
  • Breach of Warranty – Failing to uphold a claim or promise about a product (e.g. advertising that leads a consumer to believe a product is safe). Warranties may be either implied (unspoken, unwritten promises created by state law) or expressed, formal certificates, etc.). 
  • Strict Liability – The responsibility falls on the manufacturer or seller for injuries or damages sustained, regardless of fault or intent, by a defective product. It must be proven that the product was defective, the defect caused the injury and the defect rendered the product dangerous.
Liability varies based on the dealer’s participation and role in placing a defective product on the market. A dealer that sells products supplied from the manufacturer is not held to the same duty of care as one that prepares, assembles, modifies or repairs a product. As a dealer, the following actions expose your dealership to a product liability claim: participating in product design, altering or modifying products, performing workmanship on an assembly or repair or partnering with a business that becomes insolvent or is outside court jurisdiction (e.g. a foreign manufacturer).

Used Equipment Liability

Your dealership could be held legally responsible if used equipment sold "as-is" proves to be defective or dangerous and causes personal injury.

A dealer sold a 30-year-old tractor in "as-is" condition without the neutral starter interlock system. The sales contract did not list a specific disclaimer for the missing system. The new owner started the tractor while standing on the ground, was run over and was seriously injured. The accident resulted in a $240,000 claim against the dealership.

A dealer sold a used backhoe that was missing the OEM’s warning labels and did not provide an operator’s manual. While using the machine, the operator inadvertently activated a foot pedal control, causing the backhoe boom to swing and resulting in the death of a bystander. The accident resulted in a $7.5 million claim against the dealership.

To help avoid liability, all used equipment should be upgraded to current standards of safety, including warning labels and safety features. Document these upgrades.

Selling equipment "as-is" often provides an implied warranty of merchantability, a promise that the equipment can be used as expected given its type and price range. Most states will allow businesses to disclaim implied warranties, including a written disclaimer with the sale. The customer should sign the form to acknowledge the disclaimer.

Minimize your dealership's exposure to product liability claims by using these eight risk management strategies:

  • Quality Control Programs - The first step to an effective quality control program is hiring and retaining competent, well-trained people. Quality control is about having procedures in place to detect and prevent errors or poor workmanship in manufacturing and assembly, and preventing the sale of products failing to meet manufacturer and/or dealer specifications.
  • Provide Products Liability Education and Training - Make sure your employees (including engineering, marketing and sales personnel) understand product liability exposures, hazard causing accidents and methods to help reduce exposure for product claims.
  • Take Extra Care With Equipment Modification Or Alterations - Don't make equipment modifications without adequate design review, safety analysis and the consent of the OEM. Make sure modifications include all necessary safety features, and meet federal, state, local or industry standards.
  • Affix All Safety Signs And Labels - Ensure product safety signs and labels are affixed to new and used equipment and owner/operator manuals and instructions from the OEM are provided to the customer as intended. Make sure marketing and sales personnel are aware of product hazards and product safety concerns, and that this information is accurately communicated to the customer.
  • Have An Attorney Review Your Marketing Materials - Have an attorney review the content of all your dealership's marketing materials to limit excessive statements or promises about product performance or safety.
  • Implement Recall And Retrofit Plans - Have procedures in place for implementing recall and retrofit notices, and for responding to information you receive about incidents involving possible hazards or failures of products sold. Work with your OEMs and legal council to establish procedures to promptly communicate recall notices. Also be sure communications and follow-ups are handled appropriately.
  • Retain Important Documents - Create a document retention system. Perform adequate inspection prior to sale. Document that the product was sold with recommended safety devices, warnings and instructions. Ensure quality control, inspection and care were exercised during manufacturing or assembly of the product. Also make sure the documentation allows you to identify parts and attachment suppliers whose records may assist in your defense should it be necessary.
  • Inspect And Upgrade Or Replace Safety Devices On Used Equipment - Continuously check for recalls or retrofits. Make necessary repairs or equipment modifications before the sale. Use an equipment safety checklist to record equipment condition and document that safety devices, labels and warnings have been affixed to the product, and instruction manuals were provided to the customer at the time of sale.

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