Data Shows Slight Decline in Federal Products Liability Lawsuits

Product liability cases can send companies into a financial tailspin as they strike at the very core of a business. A company in the midst of a product liability suit can find itself faced with having to pay punitive and compensatory damages, recall and/or redesign products, respond to regulatory actions, make up for lost cash flow because of the devaluation of its stock, deal with negative publicity and try to stem the flood of employees leaving because of bankruptcy fears.

Given all of these damaging consequences, it’s relieving that information compiled by LexisNexis Market Intelligence database shows a downward trend for the second year in a row in the number of total federal product liability lawsuits filed in the U.S. The number of lawsuits dropped 14 percent from 2004 levels to less than 24,000 in 2005.

This downward spiral broke the previous upward trend that had begun in 2001 when just over 5,000 filings were made. That number increased to over 13,000 cases filed in 2002, and continued upward in 2003 when 17,000 filings were made.  The number of filings peaked in 2004 with nearly 28,000 lawsuits.

In spite of this good news, companies aren’t completely out of the woods yet. Product liability lawsuits are still at very high levels from a historical standpoint. Many legal experts are trying to determine if this recent decline is just a temporary aberration or the beginning of a real downturn in the number of new suits.

Whether a temporary stay of execution or a lasting change, your company can still be vulnerable. That’s why every company should have a products liability risk management plan. Use the following questions as a guideline for determining if your company has an effective product liability risk management program:

–    Do we have a product liability plan that is routinely reviewed and updated as necessary?

–    Have we integrated our product liability plan into our corporate strategy?

–    Is our product liability program fully supported by our senior management team?

–    Do we have the policies, procedures, and tools in place to maintain proper documentation throughout the life of the product?

–    Have our business units been tagged with the responsibility to reduce overall product liability costs?

–    Is our product liability plan based on best practices?

–    Is planning for product liability issues part of our product design team and/or product development team?

–    Are we factoring in the potential product liability risk when pricing our products?

–    Have we integrated our product liability plan with our business continuity plan and/or our emergency response plan?

–    Have we incorporated external and internal communication activities within our product liability plan?

–    Do our product liability plans ensure compliance with all applicable regulatory requirements?

–    Do we have the necessary resources to deal with a product liability event?

–    Do we have the applicable tools in place to aid in mitigating any financial impact due to product liability?

–    Do we understand how our vendors/suppliers deal with product liability on those supplies they provide to our manufacturing facility?

Above all, always keep an eye on the marketplace and on your competitors. Knowing what is happening to other members of the industry can help you avoid product liability lawsuits rather than find your company as the defendant.