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Doing Business in the U.S. - Product Liability and Risk Management

From| February 25,2007

When people think about product liability in the United States, most often they think of a huge number of companies getting sued for millions of dollars in compensation every day. While this picture is not completely wrong, it is also not representing the reality very well. Some extreme cases like those exist, but you should have a much more differentiated picture on which parts of the US legal system are relevant to your business and which are not. This article is giving a few inputs about the principles of U.S. product liability and risk management.

USA Product Liability Basics
Legal entities and individuals in the United States have a very high degree of freedom on when, how and what kind of legal transactions they perform. The legislation is not very restrictive at all in defining or regulating business-to-business relationships. Still, when it comes to a relationship between businesses and consumers, the American Legal System is putting all "help" on the side of the consumer to protect him or her against businesses. Therefore liability issues are major issues especially when consumers are involved. Whenever personal injury of consumers is involved, product liability in the United States is a serious issue.

The protection of consumers with USA product liability can go very far. When companies sell their products to U.S. consumers, it does not matter through which channels the consumer bought the products. If consumers are having a case of product liability in the United States, they typically have the right to sue the manufacturer of the product directly, independent through how many sales channel the actual product may went.

Interestingly, companies are also liable for damage to consumers if they misuse the products deviant from the original purpose. Out of that reason, most products have long lists of disclaimers and indications what should not be done with the products.

Understanding USA Law
America is the country where it is actually very easy to sue and to get sued. A lot of lawyers are actively acquiring new customer which gets for example injured by products and agree on aggressive compensation models in case they win a case or can agree on a financial settlements.

In recent history, some lawyers are even sueing companies even if they have a very weak point and only a little chance to win their case. However, if they sue a company for $1,000,000 based on a weak case, a lot of companies are willing to offer a settlement of a couple of thousand dollars to get that issue off their plate.

Another point to consider when dealing with American Product Liability is state law. Since the United States are consisting out of 50 single states, the place of jurisdiction becomes an important issue. State laws are determining the rules. Many legal contracts are therefore containing a clause where companies try to define the place of jurisdiction in their favor.

USA Liability Issues and Documentation
When a company is getting sued, it is important to be able to provide documentation: What went on within the company? Did the company do anything they could to prevent consumers getting injured? When a law suit is filed, it is necessary to provide internal company data and there is usually no confidentially at all. Therefore it is essential to have a good and reliant internal documentation of all processes at any time. Always make sure that everything related to product safety is not only taken seriously and taken care of immediately, but also is documented very accurate.

USA Risk Management
A way to effectively deal with the area of product liability is to be well prepared at any time. The most effective way to prepare one's business against risks is to acknowledge the possibility to get sued at any time. A good risk management is working before one is getting sued and some simple rules should be applied at any time. First of all - and this is the most important issue of all - every business should do anything humanly possible on earth to avoid that people are getting injured by using their products. In addition, the following points may be considered:
 Having a formal risk management process in place: Once getting sued, it is a bonus point if a business is able to show the judge for example what have been done over the last five years in order to avoid anything which leads to people getting injured.
 Having guidelines on how to advertise: Product liability is often always including the way, products are getting advertised.
 Insurances: Having good insurance policies which could protect the business against liability.
 Dealing with errors: Once a problem or threatening situation is detected. How will it be addressed? Who will be involved? How is the information policy?
 Having a good internal documentation: In case of a court case, there is no privacy or confidentiality. It is important to have good and meaningful documentation.

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