“CAUTION: HOT COFFEE!”

Product Compliance, Safety, and Liability in the U.S. vs. Europe

By Rutger Oldenhuis (Legal Consultant | RecallDesk) and Kenneth Ross (Of Counsel | Bowman and Brooke LLP)

Published on 4 April 2024 in Sporting Goods Intelligence Europe.

In Europe, the United States is often viewed as a land of opportunity for many companies in the consumer products market. The rise of online sales has significantly reduced the barriers to entry into this vast market across the ocean. However, what may be holding European companies back is the unfamiliarity with regulations regarding product compliance and safety in the U.S. In addition, the U.S. has a unique product liability framework that can sometimes deter companies from entering the U.S. market. The prevailing perception of the U.S., in this regard, sometimes appears to be an exaggeration of the European context. Warnings such as ‘Caution: Hot Coffee’ or ‘Do Not Place Pets in the Microwave’ are standard examples illustrating that in the U.S., it appears necessary to provide consumers with warnings even for the most apparent product hazards. Or do you?

In this piece, I will engage in a conversation with Kenneth Ross, an accomplished product safety and liability attorney in the United States. The primary objective of this interview is to explore the basic disparities in the product safety and liability regimes between the United States and Europe. For example, did you know the U.S. does not have a ‘single market’ principle as we know it in the EU? And interestingly, in the eyes of U.S. lawyers, it’s not the U.S. but it is Europe that has the strictest product regulations. Read more about this and other questions in the interview below.

 

1. Introduction

Rutger: Can you tell us about yourself and your experience as a product safety and liability attorney?

Kenneth: I have been practicing product liability and product safety law for 50 years. I spent 12 years as an in-house lawyer at two big companies and the rest of the time at law firms where I have always represented product manufacturers and sellers. I have helped to defend manufacturers in many lawsuits, but for the last 35 years, I have been a counselor to manufacturers and product sellers on how to minimize the future risk of a product liability lawsuit, and how to deal with a product safety problem and a regulatory problem with the government.  I represent entrepreneurs, small manufacturers, and huge companies, many of them well-known companies who are having safety problems in the U.S. or around the world. In addition, I have lectured all over the world and have written hundreds of articles on these subjects (see www.productliabilityprevention.com).

 

2. Product compliance and product safety

Rutger: Numerous product regulations have been harmonized within the European Union (EU). If a product adheres to such Union-level legislation, it is typically permissible for it to be marketed across the entirety of the EU, without individual Member States imposing disparate product standards. How does this framework operate in the US concerning the interplay between federal law and regulations within individual states? Consider, for instance, Proposition 65 as an example.

Kenneth: The federal government has several agencies that regulate the safety of some products.  These are mostly vehicles, boats, airplanes, consumer products, food, medical devices and pharmaceuticals. There are no agencies that regulate the manufacturers of industrial equipment, construction equipment, and farm equipment. While manufacturers of the regulated products are required to comply with any mandatory requirements issued by these government agencies in order to sell their products, it is possible that there are state laws or regulations that require additional safety measures be designed into these products.  While state law cannot diminish the requirements of the federal government, it can supplement them.  In that case, the manufacturer must keep track of any safety related requirements for all fifty states.

However, laws and regulations are viewed as minimum not maximum requirements. Thus, even if the manufacturer complies with all applicable federal and state requirements, the injured party in a product liability lawsuit can still argue that the manufacturer should have exceeded these requirements. In addition, the government agency can say that the compliant product creates a substantial product hazard and must be recalled.

Rutger: So if I understand this correctly, the US do not have a ‘single market’ as we know it in the EU. Engaging product lawyers in each state can become a costly endeavour. What practical guidance would you provide to European manufacturers seeking to expand into the US market? How can they ensure that their products comply with the minimum requirements of all states?

Kenneth: It is correct that product liability is not a federal law, but is left up to each state to establish their own laws.  And there are many differences from state to state.  Since you don’t know in what state you will have to defend yourself, it is not useful to design a product for one particular state.  More likely, you consider designing your product to the most stringent legal requirements that exist in any state and applicable standards and hope that this will be defensible if your product is challenged in the future.  Of course, for the regulated products, there is a federal law for product safety and the manufacturer must comply with those laws, regulations, and standards.

Rutger: To comply with specific harmonized legislation in the EU, harmonized standards have been established for many product categories. Harmonized standards are usually prepared by recognized European standardization bodies, in collaboration with national standardization bodies and stakeholders from industry, consumer organisations, trade unions and other interest groups. These standards are intended to provide technical specifications that are in accordance with the essential requirements of the relevant European directives or regulations. When a product complies with a harmonized standard, it is presumed that it also complies with the relevant essential requirements of the applicable European legislation. Do the US have a similar system? How can economic operators ensure their product is compliant and safe according to relevant federal and/or state law?

Kenneth: Similar to laws and regulations, compliance with voluntary consensus standards issued by U.S. or international standards development bodies, is viewed as a minimum. Therefore, compliance with these standards does not guarantee that the product is safe enough and the injured party can still argue that the standards should have been exceeded. Despite that, if the manufacturer’s products comply with all applicable laws, regulations and standards, and the product is as safe or safer than any competitor’s product, in most cases, that should be enough to defend the product. However, standards, laws and regulations are not comprehensive and many of them are open to interpretation or are just unclear.  So the injured party can still argue that the manufacturer did not comply and that this non-compliance resulted in a defective product.

Rutger: Do the US have an equivalent system to the CE marking used in the European Union?

Kenneth: There are several third-party certification programs that are used by manufacturers to signify that the product complies with a particular standard. The most well-known ones are UL, ETL (Intertek), and CSA (Canadian Standards Association). But the use of these designations merely means that the product complies with a standard issued by UL or CSA. The ETL logo usually signifies compliance with UL requirements.

Also, the manufacturer can place a decal on the product indicating that the product complies with a voluntary consensus standard issued by groups such as the American Society of Testing and Materials (ASTM), the American National Standards Institute (ANSI), and the National Fire Protection Association (NFPA).  While none of these certifications provide absolute protection in case of an injury or lawsuit, they can provide good evidence that the product was tested and does comply with certain requirements. There are numerous testing laboratories in the U.S. and elsewhere that will test products and certify compliance, however, with most products, a manufacturer could state that its products comply with certain requirements without getting a third-party laboratory to confirm compliance.

In addition, U.S. federal law requires manufacturers and importers to test some consumer products for compliance with consumer product safety requirements. Based on receiving passing test results, the manufacturer or importer must certify the consumer product as compliant with the applicable consumer product safety requirements in a written or electronic certificate.  Certificates are required to accompany the applicable product or shipment of products covered by the certificate, and a copy must be provided to retailers, distributors and, upon request, to the government.

Rutger: In the EU, determining the competent authority responsible for product safety hinges on the product type, encompassing both Union-wide and individual Member State levels. How is this framework established in the US, and what entities serve as consumer product safety regulators within the US? What is their role pertaining to product compliance and safety and what powers do they have?

Kenneth: The U.S. Consumer Product Safety Commission (CPSC) governs all consumer products except for tobacco, motor vehicles, pesticides, firearms, aircraft, boats, drugs, medical devices, cosmetics, and food.  The CPSC states its authority and activities as follows:

• Issuing and enforcing mandatory standards or banning consumer products if no feasible standard would adequately protect the public;
• Obtaining the recall of products and arranging for a repair, replacement or refund for recalled products;
• Researching potential product hazards;
• Developing voluntary standards with standards organizations, manufacturers and businesses;

Some states have product safety-related legislation that is enforced by that state’s Attorney General.  This legislation cannot conflict with the legislation and actions of the CPSC.

Rutger: The consumer products market is experiencing increased globalization. Imagine a scenario where a manufacturer aims to broaden the sales reach of their consumer products to include the US market. What guidance would you offer from a product compliance point of view? Is it typically advisable to create a distinct product line for the US, or is it feasible to design consumer products in a manner that allows them to be marketed in both the EU and the US?

Kenneth: Manufacturers would prefer to have one design for worldwide sales. However, the EU usually has safety requirements that are more stringent than U.S. laws, regulations, or standards.  In that case, many U.S. manufacturers would try to sell a product that complies with the most stringent requirements. If compliance with EU requirements makes the product too costly or difficult to use, then the U.S. manufacturer could consider selling a product in the U.S. that just complies with U.S. requirements. However, there is a risk in doing so in that the EU product could be considered safer and the U.S. version less safe and in a product liability case, the injured party and their expert could argue that the manufacturer could have made the U.S. product safer and chose not to do so. They would argue that this makes the product defective, that there is a reasonable alternative design, and that the manufacturer should be liable for any injuries or damage.

 

3. Corrective actions (including recall)

Rutger: In the EU, risk assessment is a crucial step to determine the appropriate course of action in case of a suspected unsafe product. Specific risk assessment guidelines apply, which may differ from pre-market risk assessment procedures. Risk levels can be low, medium, high or serious. With a serious or high risk in a consumer product, measures to reduce the risk may include withdrawal from the market or recall. Lower levels of risk normally lead to less rigorous measures. It may then be sufficient to add warning labels on the product or to improve the instructions to make the product safe. The risk assessment process involves considering the consumers at risk (especially vulnerable groups like children), the severity of potential harm, and the probability of its occurrence. The goal of the EU risk assessment guidelines is to standardize the approach market surveillance authorities take across the EU, ensuring that products are evaluated consistently and effectively for the safety of European consumers. Risk assessments carried out by economic operators are not binding on Member State authorities who are responsible for carrying out their own risk assessment. It is therefore possible for an authority of a Member State to come to a different conclusion regarding the risk assessment. How does this process operate in the US? How should economic operators determine the appropriate course of action? What criteria do US authorities employ to determine whether a product warrants a recall?

Kenneth: CPSC law says that a report to the CPSC is necessary if the product has a defect which could create a substantial product hazard or if the product, even if there is no defect, poses an unreasonable risk of serious injury or death.  A defect could result from:

• a manufacturing or production error;
• the design of, or the materials used in, the product
• a product’s contents, construction, finish; or
• a product’s, packaging, warnings, and/or instructions

After a report is filed with the CPSC, the CPSC staff considers the following factors before deciding what corrective action, if any is necessary:

1) The utility of the product.

2) The nature of the risk of injury that the product presents.

3) The necessity of the product.

4) The population exposed to the product, and its risk of injury.

5) The obviousness of such risk

6) The adequacy of warnings and instructions to mitigate the risk

7) The role of consumer misuse of the product, and the foreseeability of such misuse

8) The Commission’s experience and expertise

9) The case law interpreting federal and state public health and safety statutes

10) The case law in the area of products liability

To determine if there is a substantial product hazard, the CPSC considers the pattern of defect, the number of products distributed in commerce, and the severity of the risk (probability of harm and the severity of the consequences).

If a corrective action is agreed to by the manufacturer or seller, the law requires that the manufacturer or product seller offer one of these remedies – recall, refund, or replacement.

The CPSC does not engage in risk assessment in making this decision and many recalls are undertaken where there have been incidents but no injuries or deaths.

Rutger: In the EU, corrective actions can be done either by a manufacturer on a voluntary basis or through compulsory measures taken by authority. How does this work in the US? Do US authorities have the power to enforce a recall? What guidance would you offer if a company disagrees with a decision by a U.S. authority to mandate a recall?

Kenneth: The CPSC does not have the authority to force a manufacturer to institute a recall or other corrective action. The only way to do this is for the government to sue the manufacturer and ask a judge to order the manufacturer or seller to recall the product. This rarely happens and is a very long process. Instead of suing, the CPSC has recently decided to issue a unilateral press release where the manufacturer refuses to recall the product. This is faster and much easier to do as the manufacturer does not have to approve the press release. The release will describe the hazard and then ask the consumer to stop using the product. The CPSC does not ask the consumer to return the product to the manufacturer for a refund or replacement, but the consumer may do so on their own.

So, if a company disagrees with the corrective action requested by the CPSC, they can just refuse to do a recall and the CPSC might issue a press release. That may be all that happens unless accidents continue.  In that case, the CPSC could decide later to issue another press release or sue the company in court to force a recall.

Rutger: How would you handle a situation in which a multinational company finds itself in a scenario where US authorities deem a recall is appropriate for a particular product, while the EU’s risk assessment suggests a low or medium level of risk?

Kenneth: The first step is to convince the CPSC that there is no defect or, if there is, that it does not create a substantial product hazard. If there is still a disagreement, the company can say no and then a unilateral press release might be issued by the CPSC.

Rutger: How would you try to convince the CPSC?

Kenneth: A company can hire experienced CPSC legal counsel who can, in turn, hire an independent engineering expert to evaluate the product, the incidents that have occurred or could have occurred, and to provide an opinion as to whether there is a defect or substantial product hazard and that no corrective action or recall is necessary.  This report would be provided to the government.  However, obtaining a favorable report does not guarantee that the CPSC will agree with you, but it is a starting point.

Rutger: In the EU, the available remedies for manufacturers in case of a product recall vary depending on the nature of the product and the defect. Typically, these remedies include replacement, repair, or a full refund. A significant shift is on the horizon with the impending introduction of the EU General Product Safety Regulation (GPSR) (see Understanding the GPSR and what it could mean for EU businesses | Article | Sporting Goods Intelligence (sgieurope.com)). Under the GPSR, consumers must be offered at least two remedies, unless such a requirement would be deemed disproportionate in specific circumstances. Furthermore, the GPSR mandates a universal “stop use” policy for all recalled products. Additionally, it stipulates that non-portable items must be retrieved directly from consumers. To illustrate, this means that in the case of e.g. a dangerous car or cargo bike, the manufacturer would be obligated to retrieve the vehicle from the consumer (an aspect that may not yet be widely recognized by various industries). What is the current practice in the US? Based on my own experiences, it seems that organizations like the CPSC tend to prioritize issuing refunds as the standard remedy in recall situations, even though repair may be a more straightforward or sustainable solution. Do you find this to be consistent with your observations? Could you provide insight into the approach being followed by various authorities in this regard?

Kenneth: The CPSC does prefer offering refunds, but it allows for repairs or replacements if the repairs are effective and the replacement product fixes the safety problem. The company does not have to offer alternative remedies as required by the GPSR and rarely would the CPSC require that the manufacturer retrieve the product. However, a product such as an installed appliance that has a safety problem would have to be replaced or repaired by a service company hired by the manufacturer or seller.

 

4. Product liability

Rutger: The EU has established a framework for product liability through the Product Liability Directive (85/374/EEC), which mandates that producers are liable for damages caused by defective products. Within the EU, individual member states implement this directive into their national laws, which means that product liability cases are primarily handled in national courts following the specifics of each member state’s legal system. However, interpretations and nuances can be referred to the Court of Justice of the European Union (CJEU) for clarifications on EU law, ensuring a harmonized approach across member states. How is this framework established in the US?

Kenneth: There is no national product liability law and thus most product liability cases are handled by state courts. The main exception is if the injured party and all of the other parties reside in or are located in different states. In that case, the lawsuit can be filed in federal court, but the case is still subject to the state law that the judge determines is applicable which is usually the law of the state where the injured party lives or the state where the manufacturer or seller are located.

Rutger: As you mentioned, product liability law is viewed as a matter for each state to establish as it is local law. Would it make sense to avoid selling in states with particularly onerous regulations?

Kenneth: Some companies have done that. But the states with the most onerous regulations are usually the big states (i.e. California, Illinois, and Pennsylvania) and therefore not selling in those states could impose a significant financial burden from a reduction in sales. Plus, products can move around, so not selling in certain states doesn’t guarantee that the product will not be used in a state with onerous regulations.

Rutger: In the EU, there is a perception that manufacturers in the United States are required to provide warnings for hazards that are considered self-evident. A common example of this is a microwave manufacturer including warnings against putting live animals into microwaves. Curiously, we’re now seeing the practice in the EU of labeling coffee cups with statements like ‘coffee is hot’ making its way from the US to Europe. While it might seem self-evident that coffee is hot, it’s seems that individuals in the US have successfully claimed damages for burning themselves in such cases. This trend raises questions about whether we may soon witness similar claims here in Europe. What is your perspective on the general perception among people in the EU regarding the seemingly aggressive product liability regime in the US as compared to the legal landscape in the EU? Do you believe this perception reflects the reality, and could you shed light on key differences or similarities in product liability approaches between these two regions?

Kenneth: On your first question, injured parties do make claims even when the hazard is obvious.  They always have an excuse. Usually, it is that they didn’t see the warning because of where it was located or the warning was unclear as to the hazard or avoidance procedure or the warning did not adequately describe the severity of the consequences of encountering the hazard. In the coffee example, the injured party won because the coffee was much hotter than coffee served in other restaurants and therefore, the risk of harm was much higher. Just saying “coffee is hot” does not adequately inform the consumer about coffee that is so hot that it can cause severe burns in a few seconds.

Concerning my perception of the two product liability regimes, I am not familiar enough to compare them. It is fairly easy to file a lawsuit in the U.S., and the hope by the plaintiff’s lawyer is that the company or their insurance company will decide to settle the case to avoid the cost of defending it or avoid the risk of a substantial verdict and the resulting bad publicity. That can result in a substantial settlement. There is also the risk that the attorney will file a “class action” on behalf of everyone who owns this allegedly unsafe product even if those consumers have not been damaged or injured.

 

5. Product liability insurance

Rutger: Due to the potential for large awards and settlements in the US, claims can be considerably more expensive than in European countries. This is one of the reasons why European product liability insurance policies by default exclude coverage in the US. Is product liability insurance reasonably priced for small and medium-sized enterprises operating in the US? What categories of damages and expenses are typically encompassed within its coverage?

Kenneth: The cost of insurance is based on many factors such as the return the insurance company makes on its investments. Also, an insurance company has reasons for wanting to insure or not insure a particular company or a particular product. With that said, I believe that companies are able to find adequate insurance in the U.S. at a cost they can afford.

The cost is affected by the amount of the coverage and the deductible (also known as “self-insured retention”) and whether the coverage is based on when the accident occurs or when the claim is made. Coverage includes all direct damages suffered by the injured party, and usually all costs of defense, but does not cover peripheral damages such as lost profits or cost of a recall or other corrective action or punitive damages.

Rutger: Are there specific prerequisites that insurers impose as conditions for obtaining coverage?

Kenneth: Any good insurance company will quickly evaluate a company’s efforts to make a safe product and their ability to defend themselves if some problem arises. Also, the insurance company will be interested in the manufacturer’s and seller’s ability to quickly determine if the product has a safety issue and then undertake some effective corrective action that would minimize future risk to customers. So the manufacturer wants to be prepared to convince the insurance company that the risk involved with  their products is low and that there is no expectation that accidents would occur and claims would be made.

Rutger: Product liability insurance generally excludes coverage for recall expenses. Some companies may opt to obtain supplementary recall insurance, albeit this often comes at a substantial cost. Within several EU jurisdictions, specific recall expenses may be legally covered by a standard product liability insurance policy. Surprisingly, many companies appear to be unaware of this provision. How does this compare to the situation in the US?

Kenneth: Insurance companies have told me that the underlying liability policy (which excludes recall costs) does cover a small amount of costs that could be associated with a recall, but that the amount is so small that if the recall costs any significant amount of money, this liability policy won’t be of much help.

Rutger: To conclude this interview, may I ask for a final piece of advice? Do you have a golden tip for consumer goods manufacturers who are already selling in the US or looking to enter the US market?

Kenneth:  If you are selling in the U.S. market and have had no incidents or injuries, you might have an independent audit done by a product safety lawyer or product safety consultant to see if there are any deficiencies in what you are doing that should be improved.  If you are considering entering the U.S. market, having an experienced product safety person look at the product and the warnings and instructions and marketing literature would be helpful in giving you an idea of future risk.  If the company wants to buy insurance that covers U.S. sales, that insurance company might perform the audit for you.  If you have had incidents and injuries, then you should hire experienced product safety/product liability counsel to review what has happened and tell you whether you have to report to the CPSC, whether you should improve the design of your product, and whether a recall or some other corrective action should be undertaken.

Rutger: Thank you!