The Defects in Product Recalls

By Denise Johnson | October 15, 2012

Despite the thousands of products recalled each year, whether or not recalls are effective is still debated.

Some experts question the effectiveness of recalls. They say too many recalls are based on inadequate safety testing and undertaken more to satisfy regulators than to improve safety. Often, recalls suffer from poor execution and communication and are inconsistently enforced globally. All the while, the costs of recalls may not be enough to change a product maker’s practices.

Recall Costs and Regulatory Pressure

There have been more than 350,000 products recalled each year since 2008, according to the website wemakeitsafer.com, a company that builds web applications for consumers, manufacturers and retailers to improve communication relating to product safety recalls. While a recall might seem to be an expensive prospect, that’s not always the case.

There are more recalls because there is more responsibility for manufacturers to report to the government.

Kenneth Ross, counsel at the Minneapolis-based law product liability defense firm of Bowman and Brooke, says that just 5 percent of all consumer products involved in a recall are returned to the product maker.

“The cost to the manufacturer is not that great,” Ross said. “Some manufacturers will report to the CPCS [Consumer Product Safety Commission] even if they’ve never had an accident before.”

Angie Puthoff, senior marketing communications manager for Stericycle, a company that has provided recall services to manufacturers and retailers for more than 2,000 recalls to date, said the company doesn’t track costs of a recall because it varies based on a number of factors. Some factors that impact the total cost of a recall include the size of the recall, the length of time for the recall, the location of the products in the supply chain, and the need for additional recall announcements or an expansion of the recall, Puthoff said.

“The costs of a recall are really hard to estimate given all the risks that different companies face,” Puthoff said.

Ross said because recalls are fact specific, figuring out the average cost is pointless.

“Every recall I’ve done is a bit different. I can tell you that the cost can be enormous if you get a lot of products back or if you have to send out lots of letters,” Ross said. For example, a recall for a well-known home improvement retailer involved sending out letters to 35,000 customers and cost the company more than $100,000, he said.

One reason for the noticeable increase in product recalls can be attributed to increased governmental pressure on manufacturers to publicize problems with their products, according to Ross.

“There are more recalls because there is more responsibility for manufacturers to report to the government … and also to foreign governments,” Ross said.

According to Ross, who also serves as an expert witness on recall adequacy, manufacturers believe that recalling a product voluntarily protects them from further action by the CPSC and might help them defend themselves in the event of a future accident.

“What we see is that many recalls are occurring where no one’s been hurt and no one may ever be hurt,” Ross said. “But there’s a defect in the product and it could cause a serious injury, so the companies are deciding for various reasons, both regulatory and product liability, to just recall their product.”

Global Variations in Rules and Enforcement

Product recalls on a global scale in particular can be problematic due to varying reporting requirements and differing legal landscapes among the countries involved.

“What’s kind of goosed everything up here, depending on where you sell your products, is that we now have reporting responsibilities in Australia, the EU [European Union], Canada, South Africa,” Ross said.

The Bowman and Brooke former law firm partner has seen how these differences play out.

“In Canada and Australia you have a duty to report if you’ve had a serious accident and it could happen again. You don’t have to have a defect.” However, in the United States, under National Highway Traffice Safety Administration (NHTSA) and CPSC, there must be a defect, he said.

“There are different reporting responsibilities, different thresholds for reporting. You can have the situation where you would actually have a duty to report in one country and not in another,” Ross said.

The Bridgestone tire recall in 2000 is an example of reporting differences among countries.

“What happened is that Ford recalled the product in Venezuela and Saudi Arabia, and not in the U.S., because it’s hot there, and they were having accidents there. They didn’t report to NHTSA, and they hadn’t taken a recall in the U.S. Well, NHTSA found out about this, and made them report, and made them do a recall. Ford took a hit for that, and they had to defend themselves because they were recalling products in foreign countries and not here,” Ross said.

In addition to reporting requirements, companies must understand the legal landscape of each of the countries where their products are sold.

“When I talk to manufacturers, wherever you sell your product, you have to understand what the laws are, and be prepared to comply with them. Because there may be things that are going on in foreign countries that will adversely affect your U.S. litigation,” said Ross.

For example, a case involving a baby product recalled in both the United States and Europe resulted in litigation being filed in the United States because product liability litigation is difficult to pursue in Europe.

“If I’m remembering correctly, they weren’t that rigorous in Europe, because Europe has very little product liability litigation,” Ross explained. “They didn’t tell the retailers to go get the product back from their customers. One retailer took the product off his shelves, sent it back, but he never communicated to his customers to send the product back.”

After a baby died in Sweden, the mother filed suit in the United States. The company was unable to get the lawsuit moved out of the United States.

“We had to justify why we implemented this recall differently from country to country, and didn’t require a recall among consumers in Sweden, and we did in the U.S. It was a loser of a case, we had to settle it. When you’re defending recalls, these are really hard cases because with 20/20 hindsight you can always do more,” Ross said.

Product liability litigation in Europe is limited as well, Ross said.

“I’ll call it procedural. There are no contingent fees in most countries. There’s no pain and suffering. There are no punitive damages. There’s really no claim for lost wages because the safety net in Europe is such that you’re getting medical expenses and lost earnings if you’re injured. You can’t get a big verdict in Europe. That and the lack of punitive damages and jury trials makes litigation a lot less remunerative than it is here,” Ross said.

Michael Krauss, a law professor at George Mason University School of Law, an expert on products liability and the author of a book on the subject, “Principles of Product Liability,” agreed.

“There’s an increasing amount [of litigation] in Europe and Canada but it is still much less than in the United States,” Krauss said.

One reason is due to the taxpayer funded medical care available in those countries. According to Krauss, an injured person is not out of pocket any money and there is less of a need to find a deep pocket to pay the bills. Another reason, he said, is that jury trials are not common.

“All throughout the western world, apart from the United States, jury trials do not exist in tort law,” Krauss said.

Europe isn’t the only place where product liability cases rarely stick. The same holds true in Canada and Australia.

“We’re [the United States] the champion on litigation, and there’s a reason for it, and the reason is because the attorneys can get money out of it. That’s what drives it more than anything else,” Ross said.

Customer notification is another issue. Despite technology and multiple social media platforms, retailers and manufacturers aren’t communicating well with their customers.

“The retailers are working on it but Target and Wal-Mart, for example, don’t keep track of who buys what. Costco does — Costco knows exactly who buys what, and they can communicate, email or mail to everybody who bought a particular product that’s being recalled,” Ross said.

And while manufacturers are not required to report a recall to their liability insurer, there are reasons they might want to do so, he said.

“We like to tell them if we’re going to do a recall, particularly during pending litigation. But we’re not required to tell an insurance company that we’re recalling our product. That’s not an insurable event,” Ross said.

“People have asked me before, you know, ‘I’m going to recall my product and I’ve got some current claims, should I tell my insurance company?’ Yeah, you probably ought to let them know because maybe you want to go out and settle some cases before the recall becomes public knowledge,” he added.

Was this article valuable?

Here are more articles you may enjoy.

From This Issue

Insurance Journal West

Insurance Journal Magazine