Marsh's Lei Yu on the right cover in the age of product recalls and class actions

Lei Yu, CEO, Marsh Hong Kong and Macau

  • Product recalls and class actions can make product liability cases extremely expensive
  • In Asia, typical cases involve medical equipment, toys and electronic goods
  • Brokers should check what coverage is included - and the deductible should be balanced with the premium

While the US has led the consumer rights crusade against defective products, other countries are becoming increasingly protective, writes Lei Yu, managing director, Marsh Hong Kong and Macau.

Manufacturers and distributors need to be aware of the growing internationalism of consumer advocacy movements.

Recalls and class actions with their litigation costs are often the highest expense components of product liability mitigation. Ranked third in the number of class actions, product liability suits can be extremely expensive to settle.

In the US, extreme examples include the $206bn (£144bn) tobacco master settlement of 1998 and the $3.4bn breast implant manufacturers settlement of 1994. Australia and Canada have also allowed class actions.

US class action spending reached $2.17bn in 2016, with product liability representing 10% of that, according to the 2017 Class Action Survey by Carlton Fields. Only 28% of companies reported that insurance covers a portion of their class action defence costs, and the portion of defence costs that is covered is reported to be less than one-third.

Recently some jurisdictions which had not allowed class action lawsuits have admitted cases with collective litigation; this includes China, France, Germany, and the Nordics. In China, amendments to the Civil Procedure Law have introduced the possibility of public interest litigation, according to international law firm Hogan Lovells.

In October 2017, a private US medical supply and healthcare company was hit with a product liability problem involving its disposable contact lenses shipped to Hong Kong, Japan and Taiwan, necessitating the recall of more than 31,000 boxes.

French baby milk maker Lactalis and health authorities ordered a major international product recall because of fears of salmonella contamination, following 35 cases of children falling sick in France in December 2017.

While the most common large-scale product liability cases tend to be vehicle and health-related cases aimed at large manufacturers, small and medium enterprises are not immune. In Asia, typical cases involve medical equipment, toys and electronic goods either manufactured or transshipped via Hong Kong to Australia, Canada and the US.

Brokers should consider how much cover is needed, the markets that need to be covered, the strength and reputation of the provider, and what coverage is included, including legal fees coverage.

In addition, firms should review safety compliance measures, including product design, manufacturing processes, usage instructions and warning labels against target export market requirements.

Go with international insurers with experience in the chosen export markets; balance the deductible with the premiums; and make sure you understand to what the deductible will apply.

Social media and the internet heighten consumer awareness as well as the risks for manufacturers and distributors of defective products. Businesses need to put in place a clear and consistent worldwide approach towards managing potential product liability and consumer action issues.

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