Who would have thought finding a decomposing snail in a ginger beer bottle would open up a new principle – duty of care – which is the basis for product liability? The landmark 1932 case (Donoghue v Stevenson) set down UK common law that continues to underpin Australian liability law. There’s also another Australian link. The judge, Lord Aitken, spent part of his childhood in Brisbane, according to a recent ABC Radio podcast on the case.

Product liability – a quick overview

According to the Product Safety Australia organisation, common law, Federal, and state laws enforce product liability covering:

• Safety defects
• Consumer compensation claims
• Manufacturer liability for goods with safety defects
• Statutory defences to manufacturer liability
• Reducing the risk of action.

The main law for liability is the Australian Consumer Law, which usually applies to manufacturers who supply consumer goods in commerce or trade. That means they make, assemble, import, rebrand, promote themselves (or allows others to do so) as having manufactured the goods. Also covered are those who construct, erect, assemble, install, grow, extract, treat, alter, modify, repair, service, bottle, label, distribute, or import/export products.

Research shows Australia has a persistently high per capita recall rate than counties such as the USA, Korea, and Japan. And our rates are on the rise. The economic cost of unsafe consumer products causing deaths and injuries is $4.5 billion each year, says the Australian Treasury.

The Australian government had looked to update consumer laws with an eye on adding European-style general product safety provisions. For now, the onus is on traders and manufacturers to make sure the products they sell to Australian consumers are safe.

Australian Consumer Law doesn’t cover:

• Losses for claims made for workers’ compensation
• Losses that international agreements regulate
• Damage to commercial property
• Losses resulting from a business relationship, including a profit loss.

Some infamous cases

There are plenty of court judgements to guide manufacturers and keep product liability risks front of mind. We’ll cover four of the worst cases.

McDonald’s restaurants used to sell their coffee drinks at 88oC, which, if spilt on skin, can cause third-degree burns within three seconds. The company had known about the risk; in fact they had 700 injury cases, over the prior 10 years. That was before an elderly woman passenger going through the drive-through with her cuppa had it spill on her, causing severe burns and disability, resulting in several skin grafts and permanent disfigurement. The car was stationary at the time.

In that US case, a jury awarded her US$2.8million, but McDonald’s appealed, resulting in a $640,000 fine. The woman had offered to accept $20,000 before it went to court, though.

Meanwhile, in 2008, car manufacturer General Motors had to pay out US$150 million for a class action filed on behalf of about 35 million customers. The company’s coolant had a chemical that caused leaks and engine damage to customers’ cars.

Closer to home, pharmaceutical behemoth Johnson & Johnson lost its court appeal about pelvic mesh implants. It had to pay out a collective AU$2.6 million compensation to thousands of women for its negligence over the health complications the implants caused. The information the company gave surgeons was found to have understated the device’s harms while exaggerating their benefits.

That payout pales in comparison to the AU$15.87 billion that agricultural chemical manufacturer Bayer had to pay to settle cancer claims for use of its weedkiller Roundup. About 95,000 people formed the US class action settlement. However, thousands more haven’t yet agreed to settle, with the cases ongoing. This doesn’t directly impact an Australian one, though. It’s alleging Monsanto, which Bayer bought in 2018, knew or should have known the herbicide was unsafe and directions for use were inadequate.

Minimising your risks of product liability claims

Responsible business practices and strong quality assurance and governance practices are a vital way for manufacturers and resellers to minimise the risk of being sued under product liability laws. That means having a safety culture, plus robust systems for quality assurance, design, production, record keeping, marketing, and offering good and accessible customer information.

Product liability insurance is necessary to protect your business from the risk of your products causing a third party to suffer a personal injury or property damage. It will cover compensation you need to pay to a third party and your (reasonable) defence costs. This includes legal and expert fees plus court costs that you incur defending a claim. Product liability insurance covers you from the time someone alleges your negligence. However, be sure you understand your policy’s exclusions. Ask us about product recall insurance to cover you for the costs associated with a recall of your products.

Often businesses package this cover with their public liability policies, with coverage available usually from AU$20 million to AU$50 million. Each business and the sector in which it operates is unique. We can help you assess your risks and advise on the best policy to cover the production, supply, or sale of products.