Product Recalls – What Every Company Needs to Know – Step 1 Continued: What’s a Defect?
In this fourth edition of our continuing series, we evaluate what constitutes a “defect” under CPSC reporting requirements which, in turn, may trigger reporting requirements and remedial action.
Step 1 Continued: What’s a Defect?
Having provided information regarding the triggering events and requirements for notifying the Commission of a potential hazard, this week’s discussion is designed to assist you in identifying a “defect” and an “unreasonable risk of serious injury or death” as they pertain to Section 15 reporting requirements (items 3 and 4 in last week’s discussion) where a product:
- Contains a defect which could create a substantial product hazard; or
- Creates an unreasonable risk of serious injury or death.
In many cases, a regulation identified in the Act or other statutory provision will identify a specific risk of injury and, therefore, the reporting requirement. However, where there is no regulation, you and the Commission must identify whether a product defect exists and whether the resulting risk is substantial, as this will determine the appropriate remedial action.
Defects are not only the result of manufacturing or production errors – they result from faulty designs, materials, packaging, warnings, instructions, etc. Moreover, not all products that present a risk of injury are “defective.” An obvious example: a stove top. You may get burned using it, but the heat generated by the product is not a “defect” as it is a necessary element of functionality, so long as it is only “hot” when intended.
The Commission evaluates several factors in determining whether a risk of injury renders a product defective, including: the purpose of the product; type of risk; obviousness of risk; demand for the product; foreseeable use and misuse of the product; and adequacy of warnings and instructions accompanying the product, among others. If the information available to your company does not establish that a defect exists, you need not report to the Commission. However, where there is a defect, or there remains any question as to the existence of a defect, you must conduct step two in the evaluation: Does the defect present an unreasonable risk of serious injury or death?
An unreasonable risk generally occurs due to either the number of defective products on the market or the seriousness and/or likelihood of injury. However, companies are generally ill-suited in coming to this determination as it is difficult to ascertain public exposure or the likelihood of injury until it is too late. The Commission generally looks to the following factors when conducting the analysis: pattern of defect; number of defective products released in the open market; severity of risk; and likelihood of injury. Moreover, where a product fails to comply with a specific safety rule, this will generally be deemed a substantial product hazard.
As a general rule, companies should seek the advice of counsel in attempting to determine whether a defect or unreasonable risk of harm is presented by its product, triggering the duty to report to the Commission. A lapse in judgment when determining whether or not to report may prove quite costly.
Please return to this continuing series next Friday for “Step 1 Continued: Section 37 and Section 102 Reporting Requirements”
For more information, please contact any member of Goldberg Segalla’s Global Insurance Services Practice Group.