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Product Recalls and Managing Product Liability Claims

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Assessing total exposure - where has the product gone and how many claimants will there be? ... Advert. Legal Crawford & Company International 2003. Brand management ... – PowerPoint PPT presentation

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Title: Product Recalls and Managing Product Liability Claims


1
Product Recalls and Managing Product Liability
Claims
  • Jonathan Clark - Crawford Company
  • February 2003

Any enquiries Contact 44 (0)207 265 0611
or jonathan.clark_at_crawco.co.uk
2
Introduction
  • Product liability claims pose a problem of
    management
  • Can be very public and damaging to brand
  • Assessing total exposure - where has the product
    gone and how many claimants will there be?
  • Commercial considerations - most claims are
    between trading parties and under contract
  • For many cases policy issues will be at the
    forefront of planning response- what is covered
    and is there damage?
  • If in doubt follow the product - see where the
    product goes and see if any claim is an isolated
    one off or the tip of the iceberg

3
A case study
  • Flavorisus plc - food ingredients and flavourings
  • Fax received
  • Customer (Safebury) analysis shows contamination
    with nuts in speciality product - toffee
  • Trace elements found by new techniques
  • Some customer claims already received by them
  • Looks like an intermittent fault
  • Recall requested
  • First intimation to us(?)
  • Q1 results due in two weeks so financial impact
    needed

4
Critical issues
  • Is a recall needed?
  • Speed of response
  • Network of customers
  • Industry specific knowledge
  • Traceability - developing a view of total
    exposure
  • Interrelationships of customers and their
    customers
  • Global nature of manufacturing and supply chains
  • Insurer attitude

5
Investigation
  • Initial crisis / fact finding meeting
  • Examine third party evidence
  • Initial appraisal - what is risk class
  • Likely causation-testing regime if needed
  • Search for inferred causal relationship -
    epidemiological approach
  • Potential scale of problem - where has the
    product gone?
  • Potential cost / reserve
  • Get all documents together

6
The crisis management team
  • Does the organisation have the internal resources
    to deal with recall issues
  • Advise on best course of action - act swiftly
  • Provide support and resources to deal with recall
  • Manage organisational response - decide
  • Minimise impact of recall on daily running of
    business
  • Ensure customer relationships are maintained -
    regain trust

7
Recall options
  • None
  • Withdrawal - total market
  • Voluntary or mandatory - remedy or replace
  • Public
  • Open
  • Targeted
  • Information release
  • Trade only
  • Silent
  • Targeted

8
Flavorisus-the network of loss
9
Exposure - financial picture
  • Understand where product has gone - who has it
    and in what quantities? Find out batches at risk
  • Need to form view of use and inclusion in users
    products
  • Are we sole supplier to claimant?
  • Any linked sales for the product which increases
    exposure i.e. product used by insured in own
    other products
  • Any contractual impact - any viable defences
  • Develop a budgeted model based on facts known

10
Heads of claim
  • Supermarkets and Processco
  • Direct Recall
  • Product cost
  • Product in stock
  • Profit - sales lost
  • Disposal
  • Management Time
  • PR
  • Advertising
  • Flavorisus plc
  • Product in Stock
  • Recall own Brand
  • Recall others
  • Profit - business lost
  • Disposal
  • Management Time
  • PR
  • Advert
  • Legal

11
Brand management
  • Brand equity at risk, reputation at risk
  • Prevent chaos in a crisis - keep in control
  • Communicate the brand
  • Apologise or explain
  • Dont wait
  • Dont create a news vacuum
  • Organisational structure can impede empowered
    action
  • Fear of lawsuits should be balanced against long
    term brand damage

12
Risk management
  • Pre-planning
  • Awareness of relevant statutes and regulations
  • Supplier registration programme or similar to
    facilitate recovery
  • Policy cover across the board - liability,
    guarantee, recall
  • Traceability
  • Full product knowledge

13
Managing the loss - a route map
14
Use of Call Centre as a filter for recall -
consumer durables
15
Recall summary
  • Have a plan
  • Enact the plan
  • Be sure it is the insured product at fault
  • Dont await the writ
  • Manage the situation - deal direct with end
    consumers?

16
Some insurance and legal issues
17
An investigation route
  • What happened and why?
  • SOLUTION - what can be done?
  • COST - is this the right way forward?
  • POLICY - does the policy respond and to what
    degree?
  • LEGAL - is there a liability at law?
  • Key issues to consider as separate lines of
    enquiry
  • QUANTUM
  • POLICY
  • LEGAL
  • (Facts found may bear on each item of enquiry but
    benefit from individual consideration)

18
Nature of claims
  • Multi-claimant
  • Consumer Protection Act
  • Class action
  • Policy cover
  • Recall costs - third party and own?
  • Subrogation - contract and jurisdiction

19
Exposure - reserving
  • Understand where product has gone - who has it
    and in what quantities? Find out batches at risk
  • Need to form view of use and inclusion in users
    products
  • Any linked sales for the product which increases
    exposure i.e. product used by insured in own
    other products
  • Any contractual impact - any viable defences
  • Are we sole supplier to claimant? - check if this
    is credible against their known production output
  • Develop a model based on facts known

20
The Product Liability Policy
  • Any product sold, supplied, prepared, serviced or
    tested
  • Damage to material property - has there been
    damage?
  • Incorporation cases - e.g. defective ink printed
    on paper, car part built into car is defective
    car otherwise perfect
  • Failure to perform intended function - efficacy
  • Excess - single action with series of claims one
    claim or more
  • Exclusions-own product, contractual loss, design

21
Exclusion and Limitation of Liability
  • The Unfair Contract Terms Regulations 1994 -
    applies to consumers
  • The Unfair Contract Terms Act 1977
  • Section 2(1) Death or personal injury
  • Section 2(2) Subject to reasonableness
  • Section 11
  • The requirement of reasonableness...is that the
    term shall have been a fair or reasonable one to
    be included having regard to all the
    circumstances...in the contemplation of the
    parties when the contract was made.

22
Adjusting the loss - a route map
23
Summary - the need for a partnership approach
  • Insurer - pre planning of policy response
  • Policyholder - records and responsiveness
  • Damage limitation - PR response
  • Causation - good technical and analytical support
  • Management of quantum - clear view of what is at
    risk
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