How to handle a product liability claim

If your business is involved with the manufacturing, distribution or retail of products, it’s important to have an understanding of how the law works in the event that your company is faced with an action against it for the supply of a defective product. This guide is focused on explaining important considerations for your business and offers practical suggestions and strategies on how to handle a product liability claim, to help you get the right preventative systems in place.

Do you have existing systems in place to deal with a product liability claim?

This is your first consideration for planning purposes. It is strongly recommended that your company has a designated member of staff to deal with the legal aspect of product liability claims, and that all other staff are made aware that this person is the point of contact for such matters. This is crucial in order to maximise the opportunity for claims to be dealt with quickly and efficiently. This individual’s role would also involve being the point of contact for any external dispute resolution lawyers that may be appointed.

What if you run a large business?

In larger firms, a team responsible for dealing with claims is recommended; including but not necessarily limited to the following:

• A dedicated lawyer.
• A senior manager/director with technical 'know-how' of the product.
• A PR officer, who would handle the media implications of details of the claim entering the public domain. This is important because of the wider implications of this on the business as a whole.

Practicalities in the event of litigation

Litigation in product liability claims is often a time-consuming process, both in terms of gathering evidence and the court hearing itself. Depending on the size and complexity of the claim, you will need to bear in mind the implications for the efficient functioning of the company when certain staff are absent due to the need to go through witness evidence with your lawyers, and where staff are obliged to physically attend a trial to give oral evidence, for example.

Do you have any document policies in place to support handling a claim?

If your business doesn’t have such policies in place, getting the right advice on ensuring that the company satisfies the requirements of all jurisdictions in which the companies and its subsidiaries operate is essential. Additionally, you need to have a system in place for storing and retrieving documents and data.

Document retention

A 'document' is classed as anything on which information is recorded in a tangible or intelligible form. This includes (but is not limited to) the following:

• Electronic communications
• Diaries of directors and employees
• Photographs
• Films
• Videos
• Tape recordings
• Documents which have been deleted from a computer, but can be retrieved from its hard drive

Evidence and litigation

For the purposes of litigation, you need to ensure that any policy put in place covers the need for documents that may be produced as evidence in product liability proceedings to be safely retained. This should be the case until the risk of litigation in relation to the product in question has disappeared.

What about day-to-day documents?

There is no overarching legal obligation for your business to keep all of the documents it produces in the day-to-day running of the company. However, it is advisable to carry out risk assessments to determine which documents ought to be kept and for how long. Beyond any applicable limitation period or time limits imposed by relevant legislation, you may need to decide if certain documents should be kept for even longer. This is because particular documents may be needed as key evidence if product liability claims are instigated against the company in the future.

Examples of suggested documents to retain are those in relation to:

• Quality control
• Warnings
• Product designs
• Safety checks
• Any 'near misses'

Additional benefits of a successful document retention policy

All documents relevant to legal proceedings will need to be disclosed to the other party, so a successful document retention policy will assist with and streamline the often cumbersome disclosure process.

Destruction of documents

Policies on document destruction should link seamlessly with those on document retention, and are of equal importance. Any timeframes set for the destruction of certain categories of documents should be in line with time limits stipulated in any relevant regulations and limitation periods.

Below are some examples of categories of documents it would be wise to consider having destruction policies for:

• Marketing materials
• Customer complaints
• Quality assurance documents
• User manuals
• Technical documents

In order to avoid allegations of deliberate destruction of documents if litigation is potentially on the horizon, you should always destroy documents in line with your policy as opposed to on an ad hoc basis.

Pending litigation

As soon as your company becomes aware that litigation is even contemplated, it should ensure that all routine destruction of documentation is halted. There is a duty in line with the Civil Procedure Rules to preserve all disclosable hard copy and electronic documents in these circumstances. It is vital to highlight that disclosable documents include all documents, whether they help or hinder your case.

Consequences of document destruction

Destroying documentation always carries a risk, whether it is done in good faith or deliberately. This is due to the fact that it could prejudice a litigant’s case and result in a claim being struck out. There is an increasing trend of the courts being more likely to scrutinise a company’s policies in this regard, so you should ensure that your firm’s document destruction (and retention) policies are as watertight as possible.

Areas of high risk in document retention and destruction policies

As it is common to find the below two high-risk areas in circumstances where companies already have policies in place, it would be prudent to take heed of these if you need to create new policies, or modify existing ones:

• Implementation: Failing to train staff properly so that they are not fully aware of how the policies work, or of their obligations in relation to them.
• Electronic documents: Failure to adapt existing policies to take into account the fact that most business communications are now electronic.

Emphasis for staff training on policies

Below is some guidance on what any staff training on policies and document creation ought to include:

• Discouraging staff from creating their own personal documents (for example, diaries, notes and files – both hard copy and electronic).
• Teaching employees to keep personal opinions to a minimum and, should opinions be necessary, recording those opinions with supportive reasoning.
• Providing basic training on the principles of legal privilege.
• Encouraging employees to consider whether creating a document is absolutely necessary and if not, not to do so.

Do you have a strategy in place to handle any product liability claims effectively?

It is extremely important that your business has a strategy in place for dealing with any potential product liability claims, from the moment a complaint is received right up until the conclusion of litigation. The key elements of this strategy should include the following:

1. Check the limitation period at the outset and note when it expires.
2. Investigate whether the claimant has any links to your company.
3. Review all the evidence that the claimant has provided to you in support of their claim.
4. Consider whether your company is potentially liable, i.e. is there any merit to the claim?
5. Check any relevant insurance policies: firstly, will it cover this claim and secondly, do you need to notify the insurers at this stage? If so, what will they need from you?
6. Manage the reputational effects upon your business; bearing in mind that product liability disputes often get into the media. Ensure your PR strategy is in place.
7. Appoint external lawyers with experience of this particular type of litigation.
8. Check whether the claimant has adhered to any applicable Pre-Action Protocol before proceedings were issued, in accordance with the Civil Procedure Rules.
9. Conduct an internal investigation.
10. Check whether you need to notify any third parties (for example, distributors, manufacturers, suppliers, regulatory authorities, and other buyers of the product).
11. Consider whether alternative dispute resolution (ADR) may be appropriate.

Handling your insurance provider

You should contact your insurance provider straightaway once you become aware of a product liability claim against your business – the majority of policies stipulate this as a term, so it is extremely important that you act immediately in notifying them, so as to avoid the risk of the policy being invalidated.

Take the time to review your policy carefully to ensure that you are complying with its terms fully in respect of the claim.

A structured approach to handling a product liability claim

The below provides a handy guide as the basis for your approach to handling a product liability claim:

1. Designate an employee as the claims handler and provide them with all details of the claim immediately.
2. Suspend all document destruction policies pending the resolution of the dispute.
3. Check any insurance policies and notify insurers as soon as possible.
4. Notify any relevant third parties.
5. Diarise key dates (for example, expiry of limitation period, the date you were notified of the claim, the date by which a response to the letter of claim is required, the date the defence is due and all other dates in the timetable set by the court).
6. Implement your PR strategy.
7. Instruct lawyers where necessary.
8. Conduct an internal investigation, and take stock following the outcome of this.

It is clear that there is a need to act quickly – and in a structured manner – when your business is faced with a potential product liability claim. Having the right policies and being proactive are of crucial importance, as is training your staff thoroughly so as to minimise the risk of any errors being made that might jeopardise your company’s position.

Our team of specialist litigation solicitors have a wealth of experience in this technically complex area, and are able to provide the right advice tailored to the needs of your business.