Canadian Underwriter

The Proof is in the Pudding

September 30, 2010   by

Print this page Share

Any party involved in a product’s production, distribution or preparation for use — manufacturers, wholesalers, retailers, jobbers, repairers and installers — can potentially be held liable for injuries and damage caused by the products they manufacture, fix or sell. Product liability claims may be based on breach of contract or in tort the breach of a legal duty — the loss adjuster assesses the eligibility of the injured party to make a claim according to the approach chosen. This article focuses on the bases of such claims in common law provinces.

Suppose that a consumer buys a sofa bed from a retailer and then is injured when the bed collapses. The buyer might have two options for pursuing redress:

• Sue the retailer who sold the sofa bed for breach of contract, alleging that the item was not fit for the purpose for which it was intended. The buyer will need to prove that the sale was made, prove breach of the warranty of fitness and prove the amount of damages that resulted.

• Sue the manufacturer in tort for the negligent manufacture of the sofa bed. The buyer will need to prove negligence and prove the amount of damages that resulted.

Liability under contract

When a product is purchased, privity of contract is established between the buyer and the seller, and the seller makes certain warranties to the buyer. Only parties to the sales contract, the buyer and the seller, can enforce warranties; if the product injures a third party, the action must be brought in tort instead.

A seller must warrant to the buyer that the item sold is reasonably fit for the purpose for which it is purchased. An adjuster investigating such a claim must therefore know the conditions under which the product was sold. Did the seller describe the product to the buyer? Did the buyer tell the seller why they were buying that product? In other words, was the buyer relying on the seller for guidance in selecting and purchasing the product? Representations made in advertising and marketing are also implied warranties that could form the basis of a claim in contract. Loss adjusters should gather documentation on such representations.

Not only does a contract exist between the buyer and the retailer, but similar contractual relationships may also exist between the retailer, the wholesaler and the manufacturer. Any intermediary handling the product may have damaged it during preparation for sale. A loss adjuster must investigate whether anyone else in the chain might have contributed to the injury.

Finally, the bill of sale between any of the parties may contain special provisions or express warranties that attempt to narrow the liability — for example, limiting liability to repair or replacement of the product and excluding any resulting injury or economic loss. Conversely, greater liability may be assigned when special qualities of the product are claimed on the invoice, in manuals or in brochures. In other instances, a manufacturer may agree to indemnify a wholesaler or retailer against any liability arising out of a product it manufactures.

Liability in tort

A manufacturer owes a duty to any third party who might reasonably be affected by the product, even if no contract is made between them. The manufacturer has a duty to exercise reasonable care in designing and manufacturing products, and must also label them appropriately.

Design and manufacture

To investigate a claim that the product was negligently designed or manufactured, a loss adjuster must examine quality control processes to show that they were reasonable for the product. The required standard of care for the insured would be reasonable care in the circumstances. The nature of the product, its capacity to do harm, and the intended users can all influence the level of care considered reasonable. For example, the level of care required for children’s products is generally higher than for products aimed at the general public.

Governing statutes can be a useful guide to standards of care. Loss adjusters may also look to a manufacturer’s peers in the industry to determine what product standards could be considered reasonable. However, there is a risk in this approach: courts sometimes decide that an industry’s standards are inadequate.

Where a manufacturer has sent out a recall notice to its customers, this constitutes proof that the product was indeed defective.

Special cases

For food and beverage products, medical products, and products considered inherently dangerous (firearms, gas furnaces, noxious chemicals, etc.), strict liability applies: The burden of proof shifts and the manufacturer must prove it was not negligent. Taking reasonable care is not a defence in a claim subject to strict liability.

Labels and warnings

Manufacturers have a duty to warn consumers about products that are defective or that could pose a danger to them. This duty includes providing adequate instructions on how to use the product and providing specific instructions on how to deal with an accidental injury if it occurs. The foreseeable risks associated with the use of the product must be made known. And if a defect is discovered after a product is released into the market, then consumers must be alerted to the problem.

It is often difficult for an injured party to prove that a product was defective, whereas it may be comparatively simple to establish that labels or warnings were inadequate.

For warnings to be adequate, enough information must be presented to allow the consumer to make an informed decision as to whether to accept the risk of using the product. A general warning is not adequate; the warning must specifically outline the dangers and consequences associated with the product. In addition, packaging and labelling must meet legislated criteria.

Loss adjusters should request the original packaging and any other material that was sold with the product in order to analyze the information that was provided. It can also be useful to compare the labelling and packaging of similar products from other manufacturers.

In the next issue of Claims Canada, Education Forum looks at defences to product liability claims.

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.


In a product liability claim, questions to consider include:

• Was the product used in accordance with any instructions or warnings accompanying it?

• How likely is this product to cause harm?

• Was the consumer aware of the potential dangers?

• How easily could the consumer have avoided being injured?

• Was the product defective or the design flawed?

• Did the defect or design flaw cause the injury?

• Did the manufacturer fail to exercise reasonable care?

• How easy would it have been to design the product differently?

• Are competing products similar in quality and safety of design? Are they distributed with similar instructions and warnings?


Res ipsa loquitur

This rule of evidence (a Latin phrase meaning “the thing speaks for itself”) allows an injured party to construct a prima facie case on circumstantial evidence implying that the insured was negligent. As with strict liability, the burden of proof is shifted and the manufacturer or retailer must disprove negligence.

Print this page Share

Have your say:

Your email address will not be published. Required fields are marked *