When a product fails and causes damages to other property, a straightforward property damage claim takes on a whole new dimension. Recovering property damage claims related to a product liability defect are some of the most complicated, challenging, and difficult recoveries to make in the field of subrogation. Often, you are dealing with a manufacturer that has an entire department dedicated to defending these types of claims. They have adjusters, engineers, and seasoned experts at their beckon call who are familiar with the exact failure that took place and know all of the arguments to make your claim appear inadequate and flawed. Their job is to make you feel as though you don’t have a chance. They have been down this road many times and know exactly which defenses and excuses they will throw in your path. The success or failure of your subrogation efforts depend on the amount of time and energy you are willing to commit.
Actually, you often have an advantage because you get to bat first. You get the first crack at compiling investigation evidence long before the manufacturer even knows one of its products has caused damage. You can portray your claim in the best possible light, early in the proceedings. In order to do so, you should take note of key pieces of information that can be gathered in the early hours of a property loss.
First, an abundance of information can often be gathered from the product itself and should be immediately noted by the adjuster or expert that is initially handling the product (please contact the author for further discussion or questions regarding the initial scene inspection and what should occur). The following information should be noted for the file:
- Any markings that would help identify the product manufacturer, including markings on the product itself, and any tags or stickers that may be on the product.
- The model number and serial number of the product, and if given, the date of manufacture.
With the wide array of information available on the Internet, the model number and serial number can often be used to determine the date of manufacture (if it is not apparent), and product manuals, installation instructions, warranty information, marketing literature, and other useful information can be gathered to bolster your case.
Next, the insured should be questioned regarding further information related to the product:
- Where was the product purchased?
- When was the product purchased? (It may not necessarily be close to the date of manufacture that you determined earlier.)
- Are there any records of the purchase?
- Who installed the product?
- When was the product installed?
- Are there any records related to the installation?
- Was the product delivered by a separate company?
- Are there any delivery records?
- Where was the product located?
- Where was the product used? What were the conditions related to the usage?
- Was the packaging kept? How about the product manuals or installation manuals?
Knowing the answers to these questions can often help you expand or limit your recovery strategy immediately upon opening the file, without having to scramble for information and delay a response to your demand correspondence. For instance, when dealing with Everlotus-brand supply-line failures, our experience is that the value of the claim depends directly on whether a manufacturer’s tag can still be found on the subject supply line.
Whether a claim is large or small – the burden is the same. The subrogated carrier must prove:
- that the product was defective (manufacturing, design, or marketing defect);
- that this product was in the same condition as when it was manufactured;
- that the product was rendered unreasonably dangerous as a result of the defect;
- that this defect proximately caused the damages for which you are subrogating; and
- the nature and extent of those damages.
Liability carriers and product manufacturers are quick to latch on to weaknesses in subrogation files and often deny claims simply because the demand letter doesn’t address these elements satisfactorily. A subrogation claim is only as strong as its weakest link and that weakest link is almost always discovered or created early in the claim, when memories are fresh and evidence is available. The first few days after a loss are critical – the first and often only chance anyone may have to identify, retain, document, investigate, and record valuable information on which a future subrogation lawsuit will depend. Things which may seem to have little or no meaning or importance may turn out to be the lynchpin of an entire subrogation action.
An ancient parable illustrates the above and goes something like this:
A group of traveling nomads was preparing to make camp for the evening, when suddenly they were surrounded by a great light. They knew instantly they were in the presence of a celestial being. A loud voice spoke from the heavens, “Gather as many pebbles as you can. Put them in your saddle bags. Travel a day’s journey. Tomorrow night you will be both glad and sad.” Then, as quickly as it had appeared, the voice and the light disappeared. The nomads looked at one another in disbelief. They had expected the revelation of a great universal truth – the key to great wealth or happiness. But instead, they were given a menial task that made no sense. Dejected, each one did pick up a few pebbles and put them in their saddle bags. The following morning they broke camp and traveled a day’s journey. That evening, while making camp once again, they reached into their saddle bags and discovered that the few pebbles they had gathered the night before had turned into beautiful and brilliant diamonds! Indeed, they were both glad and sad, just as the voice had promised. They were glad they now had beautiful and valuable diamonds. But, they were very sad they had not gathered and filled their saddlebags with pebbles when they had the opportunity.
Subrogation investigation is much like the opportunity the nomads had to gather pebbles. You don’t know which pebbles might turn out to be valuable, so you conduct your investigation promptly as though they are all valuable. It is important to lock witnesses into positions and testimony favorable to your subrogation case, before the other side gets a hold of them. It is sometimes urgent and legally necessary to place government entities on notice of your claim. Early and thorough investigation often uncovers additional third parties and sources of recovery, including the occasional existence of other insurance which may be available to contribute to the loss.
There are three types of product defects, each requiring a different approach to subrogation investigation:
- Design Defects: Design defects are mistakes or inherent flaws in the engineering of a product which are present from the day the product is sold. The flaws are built into the product’s design when it’s first manufactured. Example: The designers of a toaster oven fail to insulate a wire, which caused the appliance to catch fire.
- Manufacturing Defects: Manufacturing defects occur during the product’s manufacture or assembly of a product and are unintended by the manufacturer. They can exist even if the product’s design was not faulty. The product deviates from its intended design. Example: A bicycle is manufactured with a crack in the frame, which fails.
- Marketing Defects (“Failure to Warn”): A product can be flawless in its design and manufacturing, and still be defective. This occurs when the manufacturer doesn’t provide the user with enough information to use the product safely, or misstates a product’s benefits. The manufacturer is responsible for what it says and what it doesn’t say with regard to a product and its use. Example: An over-the-counter drug that lacks a warning on the hazards of using it with certain other drugs.Good standard operating procedures related to initial evidence retention and inspection, following a property damage claim, can often be the difference between gathering the key pieces of information that can win the day versus having to discount the value of the subrogation claim.
Finally, with product liability matters, unless you are well-versed with the product, how it is manufactured, and how it failed, you will need an expert to examine the product and advise as to the cause of failure. Please be sure to ask the expert about other potential causes of failure and why he or she was able to rule them out. The expert will also have to provide rebuttal arguments to any defense arguments provided by the manufacturer.
If you would like a free review of your company’s procedures related to evidence inspection and collection, or would like to discuss the topic further in an in-house meeting, subrogation file review, or web presentation, please contact Gary Wickert at [email protected].