Liabilities Now and Long Ago

Of all the hazards created by growth, none is more likely to keep you awake at night than liability, for two reasons: Liability litigation threatens virtually every business, small or large, and a single lawsuit can prove ruinous. The courts are increasingly willing to hear lawsuits brought many years after the alleged wrong, says Mark C. Rahdert, associate dean of the Beasley School of Law at Temple University in Philadelphia and a specialist in tort law. This creates what insurers call long-tail liability, and it keeps the business entity on the hook for acts committed in the past, even for acts committed by predecessor companies no longer in existence. Increasingly the courts are granting class-action status to plaintiffs who bundle many small claims into one lawsuit. This poses a threat of "one very large claim that can make the dollar exposure rise to truly enormous levels, potentially billions and billions of dollars,'' Rahdert says. Long-tail liability creates a great deal of uncertainty, particularly for companies developing new products for new markets. "Sometimes it is impossible to predict with a high level of certainty what your risks will be,'' Rahdert says. "Suppose you sell travel services in Italy and you want to offer vacations in Spain as well. The risks associated with travel in Italy are not materially different from those of Spain. But if your services involve travel by airplane and you want to offer travel via high-speed boat, your experience does not allow you to predict with any certainty what risks your customers may encounter.'' Nevertheless, Rahdert points out, someone somewhere understands the risks of high-speed boat travel, so you must find that expertise and use it to head off trouble. Likewise, for manufacturers, enterprise risk management means work before and after your product enters the stream of commerce, Rahdert says. You must predict your risks before you take your product to market -- and then pay attention to what happens after people buy it. You want feedback from the marketplace, gathered and assessed in a systematic way, with appropriate plans in place to manage any risks that emerge. You also need to know how plaintiffs' attorneys think -- or rather, how they hope to get their juries to think, says John W. Johnson, a partner in the law firm Bradshaw Johnson & Hund, Wichita. "Even though a manufacturer exercises due diligence and care in the design and manufacture of a product,'' Johnson says, "if an inherent defect is discovered later on that causes injury, the manufacturer is still liable regardless of [customer] negligence." Put simply, says Johnson -- whose firm was involved in the Dalkon shield liability litigation, among other high-profile lawsuits -- the threat of liability litigation means that business must take enterprise risk management seriously. "It can't be window dressing,'' he says. "You need to have somebody oversee risk and liability concerns as your product moves through manufacturing and into the stream of commerce. We know that things can be done to prevent people from getting injured when they use products -- and they should be.''

TAGS: Legislation
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish