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Between October 1, 1998, and September 30, 1999, the Consumer Products Safety Commission (CPSC) estimates that more than 11.5 million people received emergency room treatment associated with the use of consumer products. It shouldn’t be surprising, then, that once every two hours, manufacturers recall products ranging from robes to Christmas ornaments to cars — most recently, and notoriously, some 6 million Firestone tires that came as original equipment on Ford sport utility vehicles. Even with scrupulous attention to product design and manufacturing processes, most companies dealing in products will sooner or later face the grim prospect of a product recall. Understanding the recall process and taking proper precautions now is your company’s best insurance against ruinous recall expenses and punitive damages exposure. The risk of having to undertake a product recall is most immediate for manufacturers and distributors. But private labelers and even non-manufacturers who simply give away promotional products are also, if less obviously, in danger. One of my most recent nationwide recalls was undertaken on behalf of a company that distributed complimentary promotional mugs. A product recall is a form of post-sale duty, distinguishable from other forms of post-sale duty such as retrofitting (post-sale repairs) and post-sale warnings. “Product recall” has a specific meaning. It is a notification to the consumers of a defective product, coupled with an offer to replace the product at no cost. Causes of action based on the failure to undertake post-sale recalls are not generally recognized at common law. This history of jurisprudence is embodied in the Restatement (Third) of Torts, according to which reasonable care must be exercised in conducting a recall. Most product recalls are voluntary. But often they are taken to avert action by a federal agency empowered to take more severe action. Although different agencies have varying recall powers, the similarities far outweigh any differences. Even recalls in foreign countries often are conducted following the same approach. PLANNING THE RECALL Few companies can expeditiously and efficiently order a recall without advance planning, and there isn’t much in the way of published recall guidelines. Waiting for conclusive engineering determination of an alleged defect, or debating technical points with the regulating agency, are potentially costly mistakes when the defective product injures someone in the interim. A company risks much more in actual and punitive damages exposure by unduly delaying the recall decision or choosing to rationalize inaction. Being candid and committed to solving a problem goes a long way with the public and can help defuse later claims of corporate irresponsibility. So first adjust your mind-set. Every aspect of the recall decision-making process, execution, and follow-up must be viewed from the standpoint of the consumer to be protected. A reasonably conducted recall is good insurance against a claim for punitive damages; however, one deemed unreasonable due to corporate indecision or poor execution offers little protection. All jurors are consumers, and few will be sensitive to a corporate executive’s preoccupation with market concerns in the face of a recall product-related injury. Time is of the essence, and the clock starts ticking with notice of the allegedly defective condition. The first step to minimize your recall exposure is to check all applicable insurance policies. If your company merely distributes products made by others, now is the time to review the relevant supplier agreements to be certain that the supplier assumes all costs and responsibilities for conducting a recall campaign. Perhaps you can be named as a coinsured under the supplier’s applicable insurance policy. Obtaining recall insurance is advisable. But it’s not a panacea; rarely are all recall-related expenses covered. And recall insurance policies vary significantly. Some cover only the administrative cost of the recall, while others cover lost profits and promotional expenses incurred in proving damage to business reputation. Significantly, many recall policies require that the recall be ordered by a governmental body. Be aware of the “sistership” exclusion contained in most policies. Although recall insurance obligates the insurer to pay specified recall-related costs of a defective product, the sistership clause excludes from coverage the cost of withdrawing “sister” (related or similar) products from the market that potentially contain the same or a similar defect. The rationale is that general liability insurance applies typically only to damages claims against the insured by third parties and not to the first party losses of the insured itself. The sistership clause excludes from coverage the recall expenses of products that have not yet failed. You also should check the all-risk policy to ascertain which coverages may apply. Defects leading to recalls affect not only the product, but also a company’s goodwill and trademark. Where the recall causes substantial business interruption, insurance may help soften the blow. An effective product recall plan must create clear policy and lines of responsibility for every facet of the process. Most important: Who makes the recall decision? This authority may be vested in an individual or a group. The possibilities include a recall team, in which all decisions are made by committee; a cabinet, in which one person makes decisions with input from others; or a single member of management. In my experience, the “cabinet” form works best, given the typical gridlock of committees; also, individuals may lack a sufficiently broad base of facts and strategic considerations. The point is to decide this in advance with as much specificity as possible, commit it to writing, and make it policy. IMPLEMENTING THE RECALL Whatever method is chosen for recall decision-making, the process itself is necessarily multidisciplinary. Engineering input is needed to ascertain the product’s history and design, and to investigate the alleged defect. Marketing personnel are indispensable to establish the product distribution and economic impact of the recall. Attorneys often do not have direct profit responsibility for the company, so their objectivity in gathering and assessing facts is crucial. Attorneys are also very useful in negotiating the recall response with federal agencies, and resolving disputes between marketing and risk management concerns. (Lawyers should first contact a manager knowledgeable about applicable insurance policies and notice requirements.) A media relations manager is very important to field questions and to help shape public awareness about the potential problem. The decision maker should seek out everyone’s input. Once a recall team is designated, you should define and commit to writing all areas of responsibility. Important logistical considerations include identifying the product involved and its locations; the immediate cessation of the product manufacture and distribution; developing a plan for notifying the media and every individual or entity in the product distribution chain; establishing a toll-free line for product inquiries; receipt and disposal of returned product; and deciding upon a replacement product for the object of the recall. The plan should be as detailed as possible and rehearsed as soon as there is notice of a defect and well before the actual recall. The recall notice is the centerpiece of this process. Most regulating federal agencies specify the content of the notice or provide guidance, but often the actual language is negotiated between the company and agency. The notice, in newspapers and other publications, must comply with all federally mandated requirements, and if none apply, should communicate clearly the nature of the product defect, the consequences of continued use, and what action the end user should take to return the defective product. The notice must be graphically designed to draw attention to it, and, where possible, contain a picture or drawing of the recalled product. A sometimes significant issue for the recalling company is how to immediately replace the lost shelf space of the recalled product, particularly in competitive market niches. Despite the marketing incentive to act quickly, the company should be careful to ensure that the replacement product does not have a similar defect. Rushing to market may be doubly damaging to the company’s reputation, and is certain grist for the punitive damages mill. THE PAPER TRAIL The average recall generates a mountain of paper. Document destruction related to the recalled product should cease upon receipt of notice of a possible defect. Documents to be retained should include all advertising and press releases related to the product in question, any related mailing lists, product test results, graphic depictions of the product used in the recall, any shipping documents relating to replacement products, and all relevant correspondence and notices. All documents created in the process should be viewed as potential exhibits in subsequent litigation, and all persons involved in the process as potential witnesses. Document creation should be tightly controlled, and outside counsel should supervise any investigation to provide attorney-client protection to at least some of the documents and communications. Unnecessary members of management and other personnel should be shielded from the recall’s maelstrom. Recall efforts are sometimes later evaluated by federal agencies. The paper trail of a well-orchestrated recall documents effectiveness for regulators, plaintiff’s attorneys, juries, and management. It is also proof of the overall cost of the recall, which can be painfully expensive, especially if not well-planned. The documentation may be crucial to refute a plaintiff’s claim of injury from the recalled product or a retailer’s third-party claim that it never received notice. How long the documents should be retained depends on the type of product and should be determined with counsel. The useful life of the product is a good rule of thumb in most cases. PRODUCT TRACEABILITY Product traceability is the sine qua non of product recall cost containment. The more specific the knowledge of a product’s whereabouts, the less general the means necessarily employed to reach targeted product users and retailers. General recalls targeting entire regions or the whole country, when specific knowledge is lacking, are very expensive. Identifying products in the manufacturing process by product identification numbers, or lot and serial numbers, allows the recalling company to focus only upon affected product from a production run, and not all similarly designed products in the absence of a distinction. The use of product codes, which should be indelible and easily readable on the product, minimizes the scope of the recall and will result in significant savings. The significance of a well-organized distribution process cannot be overemphasized. So, obviously, thinking about the recall should begin in the production phase of a product. Systems for tracking manufacturing and testing data from raw material to finished product should be evaluated from the standpoint of traceability. There is generally insufficient time to reconstruct this data during a recall, and the scope and expense of the recall is substantially magnified as a consequence. Finally, given the rapidity of most recalls, proper monitoring and follow-through are sometimes left on the cutting room floor. Making the extra effort to assure follow-through for every aspect of the recall will make the difference between a reasonable recall that protects the company and an incomplete one that opens the door to punitive damages. Potential problems abound; warehouse lots of the defective product are shipped after the recall is announced; returned product is not segregated and winds up back in the stream of commerce, etc. Retailers can be notoriously inconsistent in removing and returning products from shelves, particularly when they have received no economic incentive to do so from the manufacturer or distributor. Without competent follow-through, the recalling company is ill-equipped to respond to a plaintiff’s assertions that aspects of the recall were poorly and unreasonably executed from the standpoint of public safety. The basic message is this: With proper advance planning and a proactive attitude when the need to recall arises, countless companies have emerged from the process relatively unscathed. Don’t deny the problem or engage in time-wasting technical debates. Recall problems merely compound and fester with inactivity. Never forget: The ostrich with its head in the sand is most likely to be rear-ended. Jerry Blackwell is a founder of Blackwell Igbanugo Engen & Saffold, in Minneapolis, where he specializes in product liability and commercial litigation. He serves as a mediator in product liability, personal injury, employment, and commercial disputes in both state and federal courts.

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