Who is responsible for Product Recalls? The risk of the entire supply chain.
Faulty Dell laptop batteries, prone to overheating and catching fire, caused Sony to issue a worldwide recall of more than 4 million of them.
A few years ago, Nokia had to recall an astounding 46 million batteries when it was discovered they were faulty and could explode.
Children’s toys are often subject to product recall due to the risk of lead poisoning as a result of the paint that’s been used; this was the case with wooden Thomas and Friends railway toys in 2007 and a worldwide recall was issued.
The very popular painkiller Synap Forte was withdrawn from the market in December 2010 after it was discovered a key ingredient could cause the heart to go into an abnormal heart rhythm – its manufacturer has lost R200 million in annual revenue as a result, let alone the costs incurred for the withdrawal and disposal of millions of tablets.
Toyota’s with sticky accelerator pedals, Honda’s with window switches prone to catching fire and car bonnets flying open on Renault Clio’s are just some of the recent vehicle recalls that have cost manufacturers a fortune.
Food, causing poisoning; baby equipment causing infant injury and death; yo-yo’s resulting in hundreds of near-strangulation cases – the product recall list goes on and on.
The question is, who’s liable when things go wrong; who’ll end up footing the bill: the manufacturer or producer of the product, or the retailer who sold it?
“Under the new Consumer Protection Act (CPA), which came into force on 1 April 2011, a consumer can sue everyone in the product supply chain for damages which resulted from a product being dangerous, hazardous or faulty,” explains Jan Drahota, head of Specialist Risk and Project at Indwe Risk Services. “Even inadequate usage instructions, or failing to warn against potential hazards, can be grounds enough to sue should an accident occur.”
Damages can be claimed for injury and loss of life, damage to, and loss of, property and any financial losses that may result from any of those.
“In addition to that,” continues Drahota, “producers, importers, distributors and retailers will now have to prove they are NOT responsible for damages caused. Beforehand, it was up to the consumer to prove negligence – the entire product supply chain is now deemed guilty of negligence until they can prove themselves innocent.”
This is a big win for the consumer, but could spell financial ruin for those who fail to make proper insurance provision against this new level of Product Liability risk.
“You must make sure your Product Liability policy adequately covers your business risk. Product recall provision, for example, is very often a policy exclusion,” warns Marnelle Ward, a liabilities specialist at Indwe Risk Services. She continues: “Not being covered for product recall will prove to be very costly and can often mean the end for smaller businesses along a supply chain.”
Products can be recalled for any one of the three Rs: Replacement, Repair or Refund – whichever is appropriate, the costs associated with any product recall are considerable: Advertising alerting the public to a recall, tracking down affected products, contacting consumers and compensating them for the cost of the item, funding necessary repairs, or issuing replacements, all need to be taken into account. Transportation costs covering the collection or return of products and, in certain cases, the proper destruction and disposal of them, must also be considered.
“Product Recall doesn’t just deal with the return of products and financial compensation to consumers,” notes Ward. “Products requiring modification also come under the product recall banner.”
Bumbo, South African manufacturers of a very popular baby seat, are recalling more than 4 million of them following reports of injuries, including skull fractures in the USA and Canada, but not for return – instead a safety belt attachment is being issued, free of charge.
An adequate Product Liability insurance policy, with provision for product recall, would cover Bumbo’s recall costs, plus any investigation, defence and award costs made, should a claim be brought against them. Anyone else involved in the Bumbo supply chain would need their own insurance cover to limit their risk.
When Toyota recalled millions of vehicles with sticky accelerator pedals, they suffered an estimated loss in excess of $2 billion (R17.3 billion). With another 7.4 million vehicles currently being recalled across the UK, USA and China, it’s the biggest single recall across the vehicle industry since 1996.
Remember Nokia and the exploding batteries? Although the public were exposed to them by Nokia, they were manufactured by a company called Matsushita who ended up footing the $172 million (almost R1.5 billon) recall bill.
Under the new CPA, everyone along those supply chains would be liable for any damages caused – from Nokia and Toyota to the manufacturer, the importer, the distributor and the retailer.
Guilty until proven innocent of damage caused by your negligence. Product Liability insurance, with specialist risk Product Recall cover included, is essential for any business bringing goods to the marketplace.
For more information visit www.indwerisk.co.za
Released by: Stratitude
On behalf of: Indwe Risk Services
Contact: Sheryl Allan
011 449 7333/ 083 626 2660/