Products Liability - When the Unthinkable Happens

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Products liability - the phrase invoke images of a burden some, arduous and exorbitant litigation process, tarnished corporate reputation and concomitant lost revenues. Yet determining whether a company has potential products liability exposure can be a difficulty process, declared Richard C. Reynell, senior vice president at Becher & Carlson Risk Management, Inc. in Marietta, Georgia. Speaking at the session "Thinking the Unthinkable - When Products Go Boom!" Mr. Reynell stated that many of us know that this unknown dimension of catastrophic product losses lurks within our companies, but we've never had such a loss, so we don't how to deal with one when one occurs."

Fortunately, risk managers can devise a strategy to help them determine if their companies have a potential products liability exposure, as well as how to effectively and proactively respond should such a loss occur. The first step is to realize that despite high visibility incidents such as mass illness arising from tainted food, most product failures occur gradually, so the level of damage is initially not severe. "In these cases, the claims start as a small trickle, then develop into a huge waterfall,' said Mr. Reynell. This is very important to recognize, because many companies have insurance that allows them to batch claims, thus forming them into one occurrence. Risk managers therefore need to recognize when this type of loss is forming so they can put all their carriers on notice."

Detecting a products loss trend can be a great challenge; doing so, however, allows the risk manager to mitigate the losses and report them in a timely manner. In many cases, the risk manager can identify a loss trend by "reviewing all of the company's products losses to see if any similarities between the losses exist," said Mr. Reynell. Once a problem with a product has been identified, he noted that the risk manager should report all incidents to the carriers.

When sorting out a large products liability claim, Mr. Reynell recommended brokering the claim and presenting it to the claims handlers in an accurate, organized presentation. Throughout this process, the risk manager needs to gather as much information on the product as possible, and to establish a list of all the organizations that had anything to do with that product."

This process requires getting the names and addresses of each of these organizations, their states of incorporation, the degree of each organization's involvement in the product, and any information pertaining to the key individuals involved. This list should include manufacturers, component parts manufacturers, assemblers, wholesalers, distributors, repair and service companies, transporters, jobbers and installers," said Mr. …