PRODUCTS LIABILITY

Text – Chapter 20

Learning Objectives

• Evolution of product liability law• Theories of product liability recovery:

–Express warranty, implied warranties, negligence, strict liability

• Other theories of recovery• Time limitations, disclaimers, defenses • Damages

20 - 2

• Product liability law refers to the body of legal rules governing civil lawsuits for losses and harms resulting from a defendant’s furnishing of defective goods

• Rule was caveat emptor (buyer beware), but has shifted over the past century to caveat venditor (let the seller beware) since sellers are better able than consumers to bear the costs of defective products

Development of Product Liability Law

20 - 3

• Product liability law is partly grounded in contract law and partly grounded in tort law

• Contract theories are based on an express or implied warranty

• Tort theories are based on arguments of negligence or strict liability

Product Liability Theories

20 - 4

• UCC 2–313(1): express warranty may be created in any of three ways:– If affirmation of fact or promise about goods

becomes part of the basis of the bargain• Statements of value or opinion and sales puffery

do not constitute a warranty• Advertisements may contain statements of

warranty as well as sales puffery

Express Warranty

20 - 5

• Felley v. Singleton: Felley bought a used car from the Singletons based on statement of “good mechanical condition”

• Car actually was in poor condition• Court: “In the context of a used car sale,

representations by the seller such as the car is ‘in good mechanical condition’ are presumed to be affirmations of fact that become part of the basis of the bargain

Example of Express Warranty

20 - 6

• Two other express warranties:– A description of the goods that becomes

part of the bargain creates an express warranty that the goods will conform to description

– A sample or model of goods to be sold creates an express warranty that goods will conform to sample

Express Warranty

20 - 7

• Implied warranties are created by operation of law rather than seller’s express statements– Warranty of merchantability [UCC 2-314(1)]

• Seller must be a merchant in the goods of the kind sold

– Warranty of fitness for a particular purpose [UCC section 2–315] • Seller must know the goods are to be used for

special purpose

Implied Warranties

20 - 8

• In implied warranty cases, plaintiff argues that seller breached warranty by selling unmerchantable goods and plaintiff should recover damages

• Merchantability, essentially, is that goods must be fit for the ordinary purposes for which such goods are used

Implied Warranty of Merchantability

20 - 9

• Crowe v. CarMax Auto Superstores, Inc.: – Couple bought car from CarMax with express

warranties. Car required many repairs, all covered by warranties, but couple sued CarMax claiming unmerchantability

– Court found for CarMax: goods need not be perfect to be fit for their ordinary purposes, but must only meet reasonable expectations of average consumer

• Couple had unreasonable expectations

Meaning of Merchantability

20 - 10

• Hong v. Marriott Corp.: – Demonstrates disagreement over standard for

food products alleged to be unmerchantable because they contain harmful objects or substances

– Under foreign–natural test, defendant is liable if object or substance is “foreign” to the product, but not liable if it is “natural” to the product

– But reasonable expectations test increasing in use

Meaning of Merchantability

20 - 11

• Warranty of fitness for a particular purpose implied if: (1) seller has reason to know a particular purpose for which buyer requires the goods; (2) seller has reason to know that buyer is relying on seller’s skill or judgment for the selection of suitable goods; and (3) buyer actually relies on seller’s skill or judgment in purchasing the goods– See Bako v. Crystal Cabinet Works, Inc.

Implied Warranty of Fitness for a Particular Purpose

20 - 12

• Product liability suits based on negligence allege that seller or manufacturer breached a duty to plaintiff by failing to eliminate a reasonably foreseeable risk of harm:– (1) negligent manufacture of the goods (including

improper materials and packaging)

– (2) negligent inspection

– (3) negligent failure to provide adequate warnings

– (4) negligent design

Negligence Theory

20 - 13

Jarvis v. Ford Motor Co.

• Allegations of Plaintiff: – A new Ford Aerostar suddenly accelerated and,

despite attempting to brake, acceleration resulted in an accident injuring Jarvis

– Witnesses to the incident supported Plaintiff’s efforts to control van

– Witnesses recounted similar Aerostar incidents– Expert witnesses testified that vacuum powered

brakes would fail with sudden acceleration and design flaws existed in the Aerostar system

20 - 14

Jarvis v. Ford Motor Co.

• Defense of Defendant: – Acceleration due to driver

error, mistaking accelerator for brake pedal

– As shown in driver’s manual, pumping action Jarvis applied to brakes was improper for the situation

– Expert witnesses stated the Aerostar system was not defective and had a safety backup

20 - 15

Jarvis v. Ford Motor Co.

• Jury Verdict & Procedural History:– Ford negligently designed Aerostar’s cruise control

system which was a substantial factor in causing the accident

– Jarvis’s negligence also a substantial factor in causing accident

– Apportioned 65 percent of the fault to Ford and 35 percent to Jarvis, awarding $1 million+ damages

– Ford moved to set aside verdict and trial judge granted the motion, entering judgment for Ford

20 - 16

Jarvis v. Ford Motor Co.

• Legal Opinion on Appeal: – A court cannot assess weight of conflicting evidence,

pass on the credibility of the witnesses, or substitute its judgment for that of the jury.

– Conflicting evidence existed and not enough evidence supported Ford’s theory of the accident to satisfy the requirement for judgment as a matter of law

– Ultimate issue of Ford’s negligence is a jury question– Case remanded with instructions to reinstate jury

verdict in favor of Jarvis

20 - 17

• American Law Institute published section 402A of Restatement (Second) of Torts (1965) – Most important reason is socialization-of-risk

strategy: strict liability makes it easier for plaintiffs to prove breach of duty and sellers pass on costs in higher prices

– Another reason: stimulates manufacturers to design and build safer products

Strict Liability Theory

20 - 18

• Published in 1998, basic rule is: “One engaged in the business of selling or otherwise distributing products who sells or distributes a defective product is subject to liability for harm to persons or property caused by the defect.”

• Three kinds of product defects: manufacturing defects, inadequate warnings or instructions, design defects

Restatement (Third) of Torts

20 - 19

• Phillips v. Cricket Lighters– Court held that a manufacturer will not be held strictly

liable for failing to design a product that was safe for use by any reasonably foreseeable user, but remanded negligence issue to jury

• Wright v. Brooke Group Limited– Iowa Supreme Court announced that in design defect

cases, Iowa will follow the Restatement (Third)’s rule rather than previously applied rules of strict liability and negligence

Strict Liability Cases

20 - 20

• Federal Magnuson-Moss Warranty Act applies to sales of consumer products > $10 per item:– If written warranty, it must be full or limited– Full warranty promises to (1) remedy any defects in

the product and (2) replace product or refund purchase price if, after reasonable number of attempts, it cannot be repaired

– Seller who gives a limited warranty is bound to whatever promises it actually makes

Other Product Liability Theories

20 - 21

• A seller’s misrepresentation about a material fact about the product — a fact that would matter to a reasonable buyer – may invoke liability to a buyer

• Industrywide liability: plaintiffs bypass problems of causation that exist where several firms within an industry manufactured a harmful standardized product, and plaintiff cannot prove which firm produced the injurious product

Other Product Liability Theories

20 - 22

• Consequential damages: personal injury, property damage, indirect economic loss (e.g., lost profits or lost business reputation), and noneconomic loss, such as pain and suffering, physical impairment, mental distress, loss of enjoyment of life, loss of companionship or consortium, inconvenience, and disfigurement

Damages

20 - 23

• Basis-of-the-bargain damages: – Buyers of defective goods loss of full value for the

goods’ purchase price is a direct economic loss (value of goods as promised under the contract minus value of goods as received)

• Punitive damages:– Intended to punish defendants who have acted in

an especially outrageous fashion, and to deter them and others from so acting in the future

Damages

20 - 24

• Product liability disclaimer is a clause in the sales contract whereby the seller attempts to eliminate liability it might otherwise have under the theories of recovery described earlier in the chapter– Example: Car sold “as is”

Disclaimers

20 - 25

• Remedy limitation is a clause attempting to block recovery of certain damages– Example of time limitation: “30 day warranty”

• See Trinity Industries, Inc. v. McKinnon Bridge Co.

Disclaimers & Limitations

20 - 26

• Three main defenses in a product liability suit are the overlapping trio of product misuse, assumption of risk, and contributory negligence– What could happen on a

construction site? What defenses would exist?

Defenses

20 - 27

Product Liability Statistics

• Tort claims account for only 5% of the 19.7 million civil claims filed in state courts (Nat’l Center for State Courts, 1992)

• Products liability cases account for 4% of all tort cases in state courts (Nat’l Center for State Courts, 1992)

• The number of lawsuits filed per capita has remained relatively steady over the past several decades

20 - 28

Product Liability Statistics

• Business cases (financial damages) account for 47% of all punitive damage awards (Rand Institute for Civil Justice, 1996)

• In contrast, only 4.4% and 2% of punitive damage awards are due to product liability and medical malpractice cases respectively (Rand Institute for Civil Justice, 1996)

20 - 29