Product recalls are occurring more and more often. Product recalls can be financially devastating not only for a manufacturer, but also for its wholesalers and distributors.
Wholesalers and distributors are regulated by dozens of laws related to product liability. These laws vary State to State. Exposures from products include bodily injury and property damage. These losses may result from defective products, labeling, information or directions. Generally the manufacturer is held liable for product related claims. However, any person or entity involved in the production or sale of the product can also be held liable in the US.
In today’s litigious society with current tort liability, you can guarantee plaintiff lawyers will sue everyone involve, in and certain cases may win damages against the wholesaler or distributor as well.
There are several factors that increase a wholesaler’s or distributor’s risk:
- Providing installation, service, or repair
- Any modification, packaging, or labeling of the products
- Selling under its own private label
- Sale of foreign imported products, especially if the foreign manufacture has no US assets.
- Selling for smaller manufacturers or those financially at risk
- Providing instruction or training
- Recommending incorrect products
What’s more, a consumer may choose to only file suit against the wholesaler or distributor, even if the wholesaler or distributor never actually physically touched product. Granted, the wholesaler/distributor may bring the manufacturer into the law case for defense, this relies on having a proper contract in place, still requires legal costs, and even still isn’t always defective. In some instances, the manufacturer may refuse to provide defense, forcing the wholesaler to sue the manufacturer in order to be defended. As you can imagine, this can be very costly without the proper insurance to cover it.
The US issues over 1,000 product recalls each year. The costs involved from the recall alone can reach millions of dollars. Often these recalls can lead to shareholder lawsuits as well.
Despite all these risks, many wholesalers and distributors are not adequately covered for products liability. Protecting your company from these type of claims should be priority.
For more information on the services Kirkwood provides check out our wholesaler and distributor insurance program.