ASP Exam Guide – Product Liability, Insurance, & Risk Transfer
While a manufacturer of a product is not liable for all injuries that could result from use of a product (some risks are implied or readily identified by the product or user), there are some instances in which a manufacturer can be held responsible for the performance of a product that causes injury or harm:
Warranty – When a product does not perform in a manner consistent with implied or explicit claims made by the manufacturer or sales force. Two types of warranty exist, implied and express. Express warranty occurs when a seller makes claims of what the product can do, and is a frequent result of advertising.
Negligence – When a failure is caused by a person or corporation’s lack of due diligence or an action they took. A plaintiff in a negligence case must show that the manufacturer had a duty to provide a defect-free product and was negligent in that duty. This could be a failure to act or a specific act performed by the manufacturer. Negligence is difficult to prove.
Strict Liability – When characteristics of a product are unreasonably dangerous. Strictly speaking, a manufacturer must place the item on the market knowing it is intended to be used without inspection for defects, and the defect must cause injury to a human. 95% of all liability suits are strict liability claims.
Negligence and strict liability are a part of tort laws, meaning that they are acts for which civil action can be brought as a result of wrongful actions or damages. In negligence and strict liability cases, the plaintiff must prove that the product was defective, and was defective at the time it left the manufacturer. The plaintiff must also prove that the defect caused the injury or harm.
CNA has provided additional information on risk transfer through insurance here.
Risk Transfer through Insurance
Although the objective of any safety professionals career is to prevent incidents and injuries, most of us at some point in our career will work incidents in which someone has been hurt or property damage has taken place. Knowing that risks are still present in the workplace, many companies or corporations will seek to transfer that risk to a third part through the use of insurance, and often will be legally obliged to do so.
Worker’s Compensation insurance is one method in which an employer can protect itself from unforeseen (albeit often preventable) incidents. In addition, worker’s compensation acts to actively protect the worker by providing for lost wages, medical and rehabilitation expenses, and compensating workers for loss of limb received on the job. Worker’s compensation protects both parties by preventing costly litigation, which may results in ill will toward employers and employees and a potential loss of employment for a worker. The objective of worker’s compensation laws are too:
- Prevent litigation between employers and workers, so long as the employer was not negligent in protecting the worker.
- Repay employees income lost due to injury and provide medical treatment.
- Prevent workers from needing to pursue charitable contributions following an injury.
- Continually encourage employers to prevent incidents.
- Provide workers with rehabilitation following injuries and ensure they are fit for duty prior to returning to work.
- Encourage incident investigations to prevent recurrence of incidents in the workplace, but don’t find fault.
Now that worker’s compensation is legally mandated, worker’s have for the most part given up the right to sue an employer. In exchange, employers agree to provide compensation for injuries as a cost of producing goods or providing services. Each state has different laws regarding worker’s compensation, but the objectives are essentially the same. Today, worker’s compensation laws provide coverage for about 90% of all employees. Some workers, such as housekeepers / servants, short-term or temporary laborers, farm workers, and professional athletes are excluded. Additionally, self-inflicted injuries and injuries resulting from willful conduct are not covered.
Average costs for worker’s compensation insurance is $2.00 per $100 of payroll, but are based on industry and employment type so vary wildly. Additionally, a number of rating methods exist to determine rates for the insured:
Manual Rates – Premiums are applied directly from the rate book for the applicable state, making premiums the same from all insurance companies.
Schedule Rates – Prior to modern rating systems, employers could seek discounts from set rates by utilizing hazard reduction techniques from a schedule. This method is, for the most part, no longer in use due to the expense of measuring compliance.
Experience Rating Prospective – States determine average losses for employment classifications. An experience modifier is determined by analyzing the losses a company had over the three prior years. If losses are below average (<1.0), a discount is applied. If experience is above average (>1.0), a surcharge is applied.
Experience Rating – Retrospective – This method is similar to the previous method, except that claims affect the rates during the policy year.
Fixed Rate Premiums – For companies to small to qualify for an experience modifier, the manual rate in effect at the time of the policy is used.
Premium Discounts – For large policies, a premium discount may be applied due to the lower administrative cost of managing insurance for larger companies.
Competitive Premium Rates – Until recently, insurance rates from all companies were based on the same manual rate book (I.e. all quotes from competing companies would be the same). Some states have now begun allowing insurers to offer discounts on premiums.
Methods in use to reduce workers compensation claims and put employees back to work quickly include:
- Managing the psychology and behaviors of injured workers
- Evaluating workers capabilities then using specialized programs to rehabilitate the worker or allow for a reduced workload.
- Requiring management and labor participation in a safety committee.
- Rewarding reductions in claims on large projects
While developing new products, manufacturers should be sure to thoroughly evaluate a product for potential hazards, eliminate or reduce as many as possible, and provide guards and warning devices for those which cannot. Appropriate instructions and warning labels also should be provided.