Product Recalls - What Every Company Needs to Know - "Step 1: To Report, or Not to Report?"
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Product Recalls - What Every Company Needs to Know - "Step 1: To Report, or Not to Report?"

June 1, 2012

In this third edition of our continuing series, we evaluate the first step in complying with CPSC reporting requirements – determining if and when to report hazardous consumer products and non-compliance with CPSC guidelines.

Step 1: To Report, or Not to Report?

There are three main categories under the Consumer Product Safety Act (“Act”) which require reporting to the CPSC upon identifying either non-compliance with a guideline issued by the Commission or actual knowledge of a potentially hazardous product.  The first falls under Section 15(b) of the Act.  This section governs the reporting requirements for manufacturers, importers, distributors and retailers of consumer products, or other products or substances over which the Commission has jurisdiction. 

Notification Requirements:

Under this category, you must notify the Commission immediately if a product:

  1.  Fails to comply with an applicable consumer product safety rule or with a voluntary consumer product safety standard upon which the Commission has relied under Sec. 9 of the Act (which governs the manner in which the Commission establishes product safety rules and identifies specific rules pertaining to a host of products, including lawn mowers, automatic garage door openers, bicycle helmets, durable nursery products, and toys, among others);
  2. Fails to comply with any other rules, regulation, standard or ban under the CPSA or any other Act enforced by the Commission;
  3. Contains a defect which could create a substantial product hazard; or
  4. Creates an unreasonable risk of serious injury or death.

The assumption underlying the reporting requirements is that companies would develop a system for collecting information about their products that indicates that a “defect or unreasonable risk of serious injury or death” exists.  Companies must serve as the first line of defense for the public in light of their receipt of consumer complaints, warranty returns, insurance claims or payments, reports of production problems, product testing, and product liability lawsuits.

It is important to note that simply reporting potential hazards to the Commission under Sec. 15 does not automatically result in a finding by the Commission that a product creates a substantial hazard, or that corrective action is necessary.  The CPSC will evaluate the issue and arrive at its own conclusion.  Thus, under many circumstances, notification to the Commission is kept confidential.

When, What, and Where to Report:

When an employee or official of a company receives product safety information, who is capable of appreciating the significance of that information, the Commission considers a company to have obtained the required knowledge.  At this point, a five (5) day clock begins ticking in which time the information must reach the chief executive officer or the official assigned responsibility for complying with CPSC reporting requirements.  It is critical to note that the Commission will not simply look to what the company knew, but what the company should have known about any product safety issues.

The company must then immediately – within twenty-four (24) hours – notify the Commission.  Under certain circumstances, a company may have up to ten (10) days to conduct an independent investigation to determine whether information received mandates reporting, but the Commission still encourages simultaneous notification.

The information required by the Commission and the manner of reporting is quite specific under the Act.  For example, the notification must include a description of the product; the manufacturer of the product; the defect, failure to comply or risk at issue; and the injury or risk of injury involved, among other factors. 

Under most circumstances, notification must be made directly to the Commission via internet, telephone, or mail, although different requirements apply to retailers and distributors, as they may notify the manufacturer or importer of the product and forward a copy of the correspondence to the Commission.  

As you can see, the pitfalls in adequately complying with the Act and the Commission are many.  Competent legal counsel can greatly assist a company in compiling the necessary information and properly transmitting it to the Commission when the duty to report arises.

Please return to this continuing series next Friday for “Step 1 Continued: What’s a Defect?”

For more information, please contact any member of Goldberg Segalla’s Global Insurance Services Practice Group.