Product liability: retention and risk management solutions: records managers should take the lead in developing a cross-functional team to prepare for possible product liability litigation issues.

A 15-year-old boy disassembles his new paintball- gun after using it. His friends hear a hissing sound and then a "pop." The carbon dioxide container that powered the paintball gun detached and struck the teenager above his eye, causing a frontal head injury.

Who is responsible?

* The boy for not following safety procedures when disassembling the gun

* The parents for not properly supervising the gun use

Who can be sued?

* The manufacturer for defective assembly of the product

* The component manufacturer for producing a defective product

* The retailer for selling a dangerous product

When can a lawsuit be initiated?

* Within one year of the incident

* Within one year of the sales transaction

* Within 15 years of the sales transaction

* Whenever injury occurs

Where can a lawsuit be initiated?

* Only in the state/country where the sales transaction occurred

* Only in the state/country where the incident occurred

* In any state/country where the product is/was sold

* In any state or country

Does it matter if the paintball gun is one year old or 10 years old? What if the boy is 12, 21, or 45 years old? Does the answer change if the incident occurred last year or 20 years ago? The answers lie in product liability law--an area with implications for records management programs.

Product Liability Defined

An overview of this topic from Wex, a collaborative online legal dictionary/ encyclopedia hosted by the Legal Information Institute at Cornell Law School, states that "Products liability refers to the liability of any or all parties along the chain of manufacturing of any product for damage caused by that product. This includes the manufacturer of component parts (at the top of the chain), an assembling manufacturer, the wholesaler, and the retail store owner (at the bottom of the chain). While products are generally thought of as tangible personal property, products liability has stretched that definition to include intangibles (gas), naturals (pets), real estate (houses), and writings (navigational charts)."

The Wex overview states that defects in design, manufacturing, and marketing are the three types of product defects for which manufacturers and suppliers incur liability. "Strict liability wrongs do not depend on the degree of carefulness by the defendant," according to Wex. "It is irrelevant whether the manufacturer or supplier exercised great care; if there is a defect in the product that causes harm, he or she will be liable for it."

The authors of a 2004 article in Insurance Journal concurred, "... products liability is generally considered a 'strict liability' tort, i.e., liability doesn't depend on showing negligence; simply showing a defective product, or a failure to give adequate warnings, and a resultant injury is enough to establish a prima facie case of liability. It's irrelevant that the defendant used great care, etc."

Product Liability Legal Remedies and Their Effects

Litigation in the United States is most notable for its spiraling costs and insurance rates. But, according to the law firm of Monheit, Silverman, and Fodera, "A products liability lawsuit is the best, if not the only, remedy for consumers injured by unreasonably dangerous products ... The products liability lawsuit is the consumer's most effective weapon against unreasonably dangerous products. Regulations often lack teeth and offer little more than a wrist slapping to the manufacturer ... Because of the consumer's right to personally enforce the law through his or her decision to bring a products liability lawsuit, manufacturers know that if they create a product that is unreasonably dangerous, they subject themselves to serious liability."

Randall Goodden, a product liability prevention specialist says, "The epidemic of product liability lawsuits in the United States results in many corporations now being required to pay substantial risk insurance premiums or defense costs, forcing what might have been healthy organizations into major deficits, if not bankruptcy. Insurance premiums for U.S. companies are twenty times greater than that of companies overseas."

Who Is at Risk

Product liability laws can be applied to any organization that operates within the supply chain. This includes:

* Component manufacturers

* Finished goods manufacturers

* Distributors

* Retailers/Wholesalers

* Repairers

* Assemblers

* Testing Laboratories

* Designer/Engineering Firms

An organization that can be classified in one or more of these categories maybe a target for product liability litigation. Organizations that include research and/or manufacturing of consumer products--and especially those in highly regulated industries--may respond to product liability litigation on a frequent basis. Other organizations may respond to relatively few cases.

Sources of information needed in product liability cases may reside in unlikely places. Accounting records, for example, may contain the information needed to prove or disprove that a company has sold a specific product on a specific date to a particular customer--the very information that a risk management group may need. Therefore, it may not be possible to destroy such records on schedule, even though they have met all applicable regulations and the required legal, tax, and accounting managers have signed off. The issue becomes one of developing an effective records retention requirement without resorting to assigning permanent retention to all records series. Under the circumstances, then, it is beneficial to be proactive and establish a program for identifying and managing the affected records series. This can be done by:

1. Identifying applicable statutes of limitations and statutes of repose

2. Identifying target records series

3. Identifying risk levels for the organization and records series

4. Collaborating with key business units

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Statutes of Limitation and Statutes of Repose

U.S. statutes of limitation and statutes of repose determine the time limits for initiating litigation. The statute of limitations measures the time limit from when the injury occurred. The statute of repose measures the time from when the product was sold.

These statutes vary greatly. For example, in Illinois, the statute of repose on products liability action is 10 years. An example provided by attorney John Lucas is of a person who is injured by a defective saw purchased 11 years earlier being unable to bring action against the manufacturer--even if it was the first time the saw was used. "Such limitation periods serve an important function by bringing litigants into their attorneys' offices and into court at the earliest possible time to insure that evidence is preserved, that witnesses' recollections are fresh, and that neither party is prejudiced by undue delay," Lucas said.

Based on the statutes of repose, it appears that a 10-year retention requirement is adequate. However, the statute of limitations is not as precise. The time limit for this law is based on "when an injury occurs or when the injured party discovers that he or she has been injured." If the statute of limitation applies to the injury, the lawsuit can be initiated as long as the product is in use.

Lawsuits are filed in the state where the incident occurred, so it is necessary to consider the laws of all states where the product might be used. In addition, each state may have either or both laws and may specify the industries or product categories included. Global organizations must also factor in the international laws that apply.

These limitations provide a type of boundary for litigation. But if an organization is involved in more than one type of product or services--and, if that same organization operates in more than one state (or country)--the records retention decisions become much more complex. [See Sidebar: Consumer Protection Laws, page 57.]

There are several resources that summarize these statutes of limitations and statutes of repose for each state. [See Sidebar: Resources, page 57.] Records managers need to be familiar with these, but more importantly, records managers need to discuss these statutes with their legal organization before deciding which laws to apply to the retention analysis.

Identifying Target Records Series

To identify the necessary or potential target records requires answering this question, "What documentation or information will prove or disprove a potential allegation?" This requires serious discussion with litigation attorneys and/or the risk management team.

Product liability prevention programs prescribe a methodology of identifying, organizing, and retaining documentation from a variety of business functions. This may he a response to a lack of records management at the creation level. Many organizations have not deliberately designed the creation of their business records based on business needs such as operational, legal, fiscal, or historical. As a result, they are not sure they have adequate documentation, and they may not be able to locate or access the documentation when it is needed. A proactive records management program can solve this problem.

Goodden, in his article "Understanding the Focus of Product Liability Prevention" in The CEO Refresher, says a product liability prevention program identifies documents and records series from various business functions such as

* Customer contracts/agreements

* Product design

* Marketing/advertising

* Reliability testing