Canadian Underwriter

Not My Fault:

November 30, 2010   by

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In the last issue of Claims Canada, Education Forum reviewed the legal bases for product liability claims in common law provinces. In this issue, we look at defences to claims brought in tort against a product manufacturer.

Policy coverage issues

Product liability is often covered under a CGL policy, and may be on a claims-made basis or an occurrence basis. Where a loss is suffered months or years after the item was manufactured, one insurance policy, written on an occurrence basis, may provide coverage while another, written on a claims-made basis, may cover only claims that are made and reported by the insured during the policy period, regardless of when the damage occurred. The adjuster must establish when the claim was made, when it was reported by the insured, when the loss actually occurred and what coverage the policy provides.

The CGL policy excludes damage resulting from products in the insured’s care, custody or control. Product liability and completed operations insurance provides coverage for bodily injury or property damage resulting from an occurrence or accident arising out of the product or the work performed, but only applies if the occurrence or accident happens away from the insured’s premises, after control of the product has been relinquished or work has been completed.

Most CGL liability policies insure against liability imposed by law upon the insured for damages resulting from bodily injury to others or injury to the property of others. They do not intend to pay for removing and replacing an insured’s defective work.

In addition, there must be actual physical damage to property, or loss of use of tangible property even though it is not physically damaged, in order to qualify for coverage under the CGL policy. The policy does not cover pure economic loss. For example, it will not cover a decline in a third party’s fund of cash because it was not invested wisely.

Finally, CGL policies may have an aggregate limit applicable to products liability losses. The adjuster must identify the claim accurately to ensure that the claim is allocated properly.

Others responsible for the defect

A consumer may receive a product in the same form as when it left the manufacturer, or the product may have been examined or altered by someone before the consumer received it. When an intervening activity such as inspection, wholesaling, distribution or installation creates or contributes to a defect in a product, this can affect the injured party’s claim against the manufacturer. If it can be shown that the intervention led to the defect, then the insured may have recourse against another party or may be held jointly responsible for the damages.

For example:

• If a negligently conducted intermediate inspection of the goods contributed to the loss, the inspecting party may bear a share of the damages.

• If a product was adequate when delivered but was installed negligently, the installation contractor may be liable instead of the manufacturer.

In addition, the plaintiff may or may not have inspected the product before using it, and this could affect the liability of the parties.

If the manufacturer can show that a party handling the goods, or even the ultimate consumer, should have noticed and corrected an obvious defect, the manufacturer’s liability may be limited.

Contributory negligence

When a consumer knows of a defect in the product yet continues to use it or does not take reasonable care in using it, he or she may contribute to the cause of the injury. Provincial legislation permits damages to be apportioned between the claimant and the defendant when contributory negligence is a factor.

Abnormal use

If the defendant can prove that the product was put to a use that was totally unpredicted, the defendant will be absolved of liability. For example, in Rae v.T. Eaton Co. (Maritimes) Ltd., a can of artificial snow was banged on concrete and it exploded, injuring a child’s eye. No liability was found because the use was considered abnormal.

Voluntary assumption of risk

The defence of voluntary assumption of risk (volenti non fit injuria) rests on the principle that those who waive their rights are not protected by law. When a consumer is provided with information about a product that would lead a reasonable person to fully appreciate the risk associated with the product, and yet the person continues to use the product until an accident happens, then the volenti maxim could be applied: a court would likely rule that the claimant had voluntarily assumed the risk.

Obvious danger

A manufacturer does not have a duty to warn the consumer of an obvious danger. The law assumes that when the consumer decides to use a product and its use leads to foreseeable results, the consumer has voluntarily assumed that risk.

Learned intermediary rule

The learned intermediary rule is another exception to the manufacturer’s duty to warn a consumer about the risks of a product. The rule applies when a product is technical and intended to be used only under expert supervision. Many medical and pharmaceutical products fall into this category. The expert — a “learned intermediary” — generally needs less information about the product than the general public would. For example, a manufacturer selling its products only to veterinarians might provide information about the active ingredients of a medication but not outline their possible harmful effects. The manufacturer could rely on the learned intermediary rule, expecting any competent veterinarian to know the relevant contra-indications.

As in any liability claim, prevailing judicial trends affect the recommendations loss adjusters should make on liability and settlement amounts. It is important to keep up with changes in the law.

This article is based on excerpts from the study material in the Claims Professional Series of applied courses -a core of the CIP Program that helps adjusters learn the functional knowledge and skills required of their profession.


Loss Mitigation

A claimant is required to do everything possible to mitigate any injury and must accept any reasonable treatment that would improve his or her condition. If the claimant declines to do so, deductions are usually made from the claim to reflect the improved state the claimant would have experienced had the treatment been administered.


Sensitivity of User

Sometimes a product that does not harm the majority of the population may nevertheless be harmful to individuals with an allergy or other sensitivity. If one person is sensitive, it does not necessarily mean that the product was defective and that the manufacturer will be found liable. However, where many persons may be affected and the results are more serious, the manufacturer may have a duty to warn the consumer.

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