Shock & Advise

Scary messages, helpful advice for retailers at CSP Risk/Liability Forum

OAK BROOK, Ill. -- The product-liability insulation surrounding retailers is not as cozy as it used to be. Because more and more products are manufactured abroad, the burden of responsibility when defective items cause injury or sickness falls increasingly on the domestic end of the supply chain: vendors and retailers.

This was the eye-opening message sent to the 16 retailers at the CSP Liability and Risk Forum held in Chicago in late August. The meeting was sponsored by BIC Consumer Products, Patco Food Safety Consultants and Tidel Engineering. There [image-nocss] was also calming advice from attorneys who specialize in liability defense, as well as from former long-time employees of the Consumer Products Safety Commission (CPSC).

The latter group told retailers above all to be educated about what constitutes a risk, how to report it and how to protect themselves. Based on the numbers given by BIC vice president and general counsel Steven Burkhart, the question is more when than if a retailer would need the advice.

There are 25 categories of products, and 100 subcategories, Burkhart said. What isn't regulated? What isn't subject to some sort of industry standard? I find none.

Burkhart went on, showing the audience that there are more than 300 federal agencies involved with regulating business, and more than 3,000 when state and local entities are included. When a product causes a problem and an injured customer seeks relief and damages, he or she is more likely to find the biggest and closest target.

When they were all here in the country, everyone had an address, Burkhart said of manufacturers.

Besides the change in where products are made, Burkhart said that when liability law began in the 1960s, the wealthiest companies were manufacturers. These days, there are plenty of retailers near the top of the Fortune 500 list. In addition, there were 8,000 convenience stores in 1964; today, there are well over 100,000.

One of the most important protections is liability insurancemake sure your vendors' insurance is from a solid company, is up to date, can include your company and can stomach a large dollar amount, should the defendant win. Most agreed that $1 million coverage is not enough.

The best thing I can do is insist on insurance endorsements, said David Bridgers, vice president and general counsel for retailer Thorntons Inc., Louisville, Ky.

Retailer can also be fined for selling products that violate patent infringement laws or for failing to report products that may be defective; 15 retailers and manufacturers of consumer products paid nearly $12 million in fines or settlements for failing to report sale of products alleged to be defective after the CPSC brought charges through the Department of Justice.

The problems can also include packaging not examined or approved by an authorized agency, failure to mark or label packaging, and failure to prepare shipping papers. Much of the danger can be handled by education and caution, according to Burkhartdeal with only reputable partners, understand insurance issues, insist on proof of compliance by vendors with applicable laws and standards, and control purchasing. If nothing else, Burkhart said, retailers being educated and showing that they did all the right things might spare them the jury's wrath when it decides damages.

That was a real turn-on for me, Carlos Perez, risk manager of 14-store Arguindegui Oil Co., Laredo, Texas, said of the liability insurance of vendors. I'm going to go back and make sure of all my certificates of insurance.

Consultants Roy W. Deppa and Nicholas V. Marchica of Marchica & Deppa LLC shared their knowledge as former CPSC employees now in business to help businesses with product-liability issues. When Marchica asked how many in the audience were aware of their reporting obligations, no one raised a hand. He advised that assuming that just because a product is on the market it is safe is a mistake. The CPSC does not review products, and others in the supply chain may or may not have.

Only exoneration [of defects] is proof of such reporting, Deppa said.

Also, reporting potential problems does not ensure against liability, nor does it always result in a product recall; however, not reporting or reporting late can result in an $8,000 fine per product, with a cap of $1.825 million. More likely are fines in the low six figures.

The numbers are steep when you find a corporation that has not been behaving, Marchica said. He suggests an organizational policy and plan of action for reporting, getting documentation from vendors and manufacturers. Trust, but verify, he said. There's nothing wrong with double-checking. You're in the position of power.