Product Liability Webinar 1

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Service Liability Exposure Navigating the Legal
Risks and Protections
Presented to the NAED Western Region
Meeting January 22nd 2009 Bernd G. Heinze,
Esq. The Heinze Group, LLC King of Prussia,
PA This Session may well save your business.
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Background

• This presentation, the supporting research and
  White Paper are brought to you by the NAED
  Foundations Channel Advantage Partnership
  initiative.
• 44 visionary electrical distributors and
  manufacturers examine industry issues and
  commission research to improve profitability and
  efficiency in the supply chain.
• White paper and articles are in final editing
  stage and will be distributed to NAED members,
  and made available on the NAEDs website,
  www.naed.org. Training sessions will be provided
  at each NAED regional conference.
• Webinars on selected topics from the findings and
  recommendations made will all be provided.
• For additional information, please contact Alexis
  Mead, NAED development manager, at 314.812.5306
  or at amead_at_naed.org

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Objectives of the Project

• Survey and interview NAED and channel members on
  nature and extent of providing additional
  services to customers
• Build on 2005 White Paper Value Added
  Assessing Service Offerings of Electrical
  Distributors by Benfield Consulting
• Evaluate related insurance provisions and review
  exposures with insurance underwriters and brokers
• Research the manner in which parties can be held
  liable in a lawsuit based on provision of
  services
• Negligence
• Professional negligence
• Breach of Contract

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Objectives of the Project

• Draft White Paper reviewing issues and
  opportunities
• Examine nature of claims and damages that can be
  sought and awarded
• Review current trends in case law and applicable
  statutes
• Develop recommendations to eliminate or mitigate
  exposures
• Serve as an adjunct to the Products Liability
  Exposure How to Mitigate the Risks in Todays
  Global Market white paper published by NAED
  Education Research Foundation in 2007
• Appendix with more technical details

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Project Methodology

• Survey sent to NAED members
• Follow-up telephone interviews
• Research conducted in all 50 states on
• prospective liability and damages
• Case law
• Statutes
• Examined use of written agreements
• Drafting and editing of White Paper
• Development of articles (3)
• and webinars (5)

Liaising with Task Force
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(No Transcript)
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Bottom Line

• In today's increasingly competitive electrical
  distribution channel and the parallel
  compensation culture arising out of the litigious
  business climate, justifiable reliance by a
  customer on expressed or perceived
  expertise/experience and the distributors
  performance of an added service will subject the
  distributor to legal exposures.
• The ability to limit and manage exposures is a
  key element between financial success and failure.

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Survey Results
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Findings

• Market dynamics and competitive forces drive
  increasing number of distributors to pursue
  providing added services
• Most distributors are not fully aware of inherent
  liability or incumbent legal risks
• Most distributors are unaware that legal
  liabilities imposed for negligent service
  performance or contractual breach may not be
  covered by commercial general liability insurance

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Interviews

• Hybrid services e.g. training
• included in the sale to a customer of new
  products and offered as an additional or stand
  alone service (both as it relates to products
  already sold to a customer, or to new products in
  the market that the distributor wants to sell to
  customers).
• Services performed by
• employees
• third-party contractors
• Use or Non-Use of written agreements,
  contracts, POs, hold harmless agreements

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Interviews

• 70 of the respondents believed that the
  additional services were covered by their
  liability insurance but were not certain
• 5 replied that they were not covered, and
• 25 indicated that they didnt know
• 100 said they would be checking on the issue
  immediately after getting off the phone.

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Scenario 1

• Electrical distributor sells components or
  products to a contractor
• Offer to take over site inventory for a major
  upcoming project as a professional courtesy
• Distributors employee visits site several times
  per week to ensure adequate materials on hand and
  to order/stock product sold by others
• Who pays for the unused inventory/restocking fees
  since distributors employee was tracking the
  product and ordering materials?
• Who prevails in the lawsuit between the
  contractor and distributor?

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Scenario 2

• Distributor provides training on product for free
• training becomes very popular so begin charging
  for it, even if product is purchased elsewhere
• customer who attended training is injured while
  using product and brings a lawsuit
• who will prevail?

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Scenario 3

• Distributor sells goods for use in panel
  construction to customer
• to get competitive advantage, distributor offers
  services of a trained engineer employee to assist
  in panel design
• services gain in popularity, distributor hires
  outside engineering contractor
• third-party injured while using panel designed by
  contractor and files lawsuit
• who can be held liable?

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Insurance

• Before undertaking ANY added service activities,
  be sure they are covered by your existing
  insurance policy
• if they are not, be sure to obtain coverage
• Consult with your risk manager, CFO and broker
• proceeding with an added service outside the
  scope of existing insurance policy runs the risk
  of having any a loss, lawsuit or injury excluded
  from coverage

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Sources of Liabilities

• Case law precedent
• Duty to third persons based on training provided
• Duty to third persons based on providing design
  and engineering services
• Duty to third persons based on the failure to
  properly inspect/service
• Duty to customer for justifiable reliance on
• Website information
• Marketing/Promotional materials
• Sales hype

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Sources of Liabilities

• Restatement of Torts (Second) 324A
• the rendering of services for a third person or
  his things is liable for physical harm resulting
  if
• there is a failure to exercise reasonable care
  which increases risk of harm
• the wholesaler undertakes to perform a duty owed
  by a customer or manufacturer to a third person
  or
• harm or damages are suffered or sustained because
  of reliance of the customer or manufacturer upon
  the undertaking by the wholesaler
• Contractual

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Nature of Service Liabilities

• Liability for negligence in the performance of
  added services
• Liability for services attendant to the sale of
  products
• Liability (strict liability) for assembling
  various component parts into a finished product
  rendering the wholesaler into the potential
  category as the products manufacturer
• Liability for breach of contract in the rendering
  of services, including any express or implied
  warranties accompanying the contractual agreement

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Nature Extent of Damages

• Compensatory Damages
• Lost profits
• Loss of business opportunities
• Property damages
• Bodily injuries
• Punitive Damages
• Loss of Goodwill
• Loss of Contract with Manufacturer

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Training Liabilities

• Prospective liability for
• Person improperly trained
• Person injured based on conduct of person who
  was trained
• Property damage due to conduct of person who was
  trained
• Use of out of date training materials/information
  
• damages to manufacturer of product due to
  improper training

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Training Recommendations

• Use only fully certified and trained employees or
  third-parties
• If using third-parties obtain
• copies of current certifications
• hold harmless/indemnification
• additional insured status
• certificate of insurance
• valid and collectible insurance, if possible
• Remember due diligence is only valid if you do
  it diligently

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Training Recommendations

• Obtain signed agreements as to the exact nature
  and extent of the training project
• If providing a certificate of completion, be
  sure the attendee has physically, spiritually and
  mentally attended each session
• Consider offering a test on the basic principles
  at the completion of session and before awarding
  the certificate

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Energy Audits

• Nature of Activity
• Preliminary/Simple Audit
• minimal interviews with site operating personnel,
  a brief review of facility utility bills and
  other operating data, and a walk-through of the
  facility to become familiar with the building
  operation and identify glaring areas of energy
  waste or inefficiency.
• Potential Liabilities
• Failure to identify major problem area
• Failure to have properly certified and trained
  personnel conduct the audit
• Recommendation of
• improper corrective measures
• implementation costs
• potential operating cost savings, and
• failure to advise of more thorough audit as
  deemed warranted from the preliminary survey

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Energy Audits

• Nature of Activity
• General Audit/Site energy audit
• collects more detailed information about
  facility operation and performing a more detailed
  evaluation of energy conservation measures
  identified
• review of utility bills to evaluate the
  facility's energy/demand rate structures, and
  energy usage profiles
• in-depth interviews with facility operating
  personnel
• able to identify all energy conservation
• Potential Liabilities
• Failure to identify major problem area
• Failure to have properly certified and trained
  personnel conduct the audit
• Negligent financial analysis or operating
  parameters
• Negligent development of detail required to
  justify project implementation

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Kitting

• Nature of Activity
• Grouping of individually separate but related
  items are for packaging and supply as one unit
• Potential Liability
• Failing to determine/identify the proper items to
  be grouped together
• Failure to check packaging and warnings of
  individual items prior to being grouped and ship
  to ensure compatibility
• Negligent packaging and shipping

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Engineering Support

• Nature of Activity
• electrical and instrumentation services along a
  variety of commercial and industrial applications
• Prospective Liabilities
• improper certificated employees or third-parties
  used to perform service
• negligent performance of services
• failure to properly document nature and extent of
  services performed

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Lamp Recycling Projects

• Nature of Activity
• Recycling prevents broken and crushed lamps from
  being put into in dumpsters and other receptacles
  where mercury vapors escape into the atmosphere
  only to fall back to earth when it rains,
• contaminating the water supply, fish
• and anyone that consumes them.

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Lamp Recycling Projects

• Prospective Liability
• failure to properly dispose of materials
• using non-trained personnel
• causing environmental contamination
• failing to properly encapsulate remains
• bodily injuries for exposure

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Panel Building

• Nature of Activity
• performance of design work using state-of-the-art
  engineering support and workstations
• building and testing of equipment
• use of customer specifications
• Prospective Liability
• failure to use of state of the art materials and
  processes
• failure to follow customer specifications
• failure to advise customer of specs that are not
  state of the art

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Recommendations

• C.Y.A World Requires Documentation of Everything
• Specifications
• Contracts
• POs
• Insurance (valid enforceable)
• Hold Harmless Agreement
• From distributor to customer
• From vendor to distributor
• Certificate of Insurance
• Exclusions

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Recommendations

• Benefit of using employees vs. independent
  contractors
• Educate employees and independent contractors
• Consistency in sales and performance are key
• Obtain/provide contractual documentation
• Always, Always, Always use written contracts

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Recommendations

• Consider utilization of a risk analysis and
  supplier insurance review
• Based on relationship with customer/circumstances
  of use of a vendor

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Recommendations

• Before performing a non-core but added service,
  understand fully the
• nature and extent of the project
• expectations of the customer
• potential exposures and
• proactively implement those actions and documents
  to mitigate prospective liabilities

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Recommendations

• Review insurance policies
• Educate risk management and broker
• Ensure the insurance is consistent and
  comprehensive
• Obtain Additional Insured Endorsement and
  Certificates of Valid and Collectible insurance
  of required limits of liability and aggregate
  coverages

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Want to Learn More?

• To register to attend the remaining Webinars in
  the Series, go to
• www.naed.org and click the Foundation/Research
  link

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Want to Learn More?

• Click the Foundation/Research link at
  www.naed.org to see the archived webinars and
  other related information
• Overview of Service Liabilities Project
• held October 1, 2008
• Added Services Provided by Wholesalers
  Distributors
• held November 5, 2008
• Hybrid Services Where the Sale of Products and
  Services Converge
• Held January 14, 2009

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Products Liability White Paper Information

• The full report is now available for download
  from the NAED Learning Center at
  www.naedlearningcenter.org. To obtain a hardcopy
  of the full report, contact NAED Customer Service
  by email at customerservice_at_naed.org or by phone
  at 888-791-5185.
• Background information on state of the channel
• Specific recommendations to mitigate and manage
  risk exposures
• Appendices are also be available at www.naed.org
  (click on the Foundation/ Research link)
• In-depth review of specific cases and scenarios

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Questions Answers

• Thank You
• Bernd G. Heinze, Esq.
• President CEO
• Heinze Group, LLC
• 150 South Warner Road
• Suite 156
• King of Prussia, PA 19406
• 610.225.2363 (office)
• bernie_at_heinzegroup.biz