Products Liability Notes

Products liability deals with who to sue when a product defect causes harm.
Before the products liability era, consumers had to prove negligence to recover damages.
Products liability shifts the focus, arguing consumers shouldn't need to inspect new products for defects.

Scenario: A car's wheel shatters due to a manufacturing defect, causing an accident.
From the consumer's perspective, it shouldn't matter who is at fault; recovery should be possible.
It's unreasonable to expect consumers to disassemble and inspect new cars for defects.

Defines 'unreasonably dangerous' as dangerous beyond what an ordinary consumer would contemplate with common knowledge of the product's characteristics.

Scenario: A table saw manufacturer is liable for consumer injuries under strict liability but only if negligent under a negligence rule.
Question: How does this affect the table saw's design?

BPL (Burden, Probability, Loss): A formula to determine negligence.
The manufacturer is negligent if the burden of making the product safer is less than the probability of loss. B < PL.
Example: Spending $25$ in precautions to avoid $25$ in anticipated consumer injury means you are NOT negligent if you spend, for example, $30$ .
It might be better to increase the product price to compensate consumers for injuries.

Products liability functions like insurance, with everyone contributing to a pool to compensate those injured.

Scenario: A table saw has a 1 in 10,000 chance of causing $250,000$ in damages.
Calculation: $250,000 / 10,000 = 25$ . The price of each table saw is increased by $25$ , which is put into an account for injury compensation.
Under negligence, the manufacturer must litigate to prove they weren't negligent, incurring legal costs for both parties.
With strict liability, legal costs and uncertainty are avoided, benefiting both consumer and manufacturer.
Strict liability is predictable for the manufacturer.

Insurance can lead to moral hazard, where insured parties take more risks.
Example: Driving faster because of car insurance
In some instances, the insured may deliberately cause an accident to receive an insurance payout.

Insurance costs can price some people out of the market, raising costs for those remaining.
This can cause the market to unravel.
Example: 1,000 people opt out due to price → 9,000 left paying → $28$ dollar premium (instead of $25$ ) -> 8,000 left paying → $31$ dollar premium -> 1,000 left paying → $250$ dollar premium (not sustainable)

1980s insurance crisis in products liability is attributed to adverse selection.
Example #1: Adventure activities like downhill skiing became very expensive due to serious injuries and the high-income demographic of skiers.
Example #2: Child-care and baby-related products became difficult to keep on the market due to high insurance costs.

Home appliance fires are often investigated as fraud.
Homeowners may tamper with appliances to cause fires, destroying evidence of tampering.
Forcing manufacturers to provide insurance opens the door for opportunistic behavior.

The rule: a seller is liable for injuries caused by a product with a manufacturing defect, even with all possible care, when the product departs from its intended design.
Consumer injured by your product → you are liable for that injury if it had a manufacturing defect.

Consumers shouldn't need to inspect products for manufacturing defects.
Impracticality: Consumers often can't inspect without disassembly, which can be dangerous.
Knowledge Gap: Consumers lack the design knowledge to inspect meaningfully.

Scenario: A product design calls for 1/2 in. screws, but 1/4 in. screws are used. The motor comes loose and causes injury.
Outcome: The manufacturer is liable regardless of how the product was used because the product did not match the design requirements.

Scenario: A freezer design calls for a 1000 $Ω$ resistor, but a 100k $Ω$ resistor is used, causing the compressor to fail and damaging stored products.
Outcome: The manufacturer is liable regardless of use or contents stored, because there was a deviation from the intended design.

History: In the 1950s-1980s, strict liability applied if a product's design was dangerous beyond what an ordinary consumer would contemplate.
Today: Increasingly uses a negligence standard for defects: A product is defective in design when the foreseeable risks of harm posed by the product could have reduced or avoided by the adoption of a reasonable alternative design (Reasonable Alternative Design Standard).

Basic Idea: Warning users about dangers can be better than redesigning the product (if redesign is impossible/infeasible).
A seller is liable if harms could have been reduced or avoided with reasonable warnings, and the omission of warnings renders the product not reasonably safe.

Table saw: Generally known to be dangerous, so warnings may not be necessary right next to the saw due to potential distractions.
Hot Coffee: McDonald's was sued for not warning about the coffee's high temperature, arguing a warning label was necessary for drive-thru coffee.

The Third Restatement of Torts: Courts must consider many factors when evaluating warning adequacy, as there is no perfect level of detail.
General Guideline: When a safer design can reasonably eliminate risks, it's preferred over a warning that leaves a residuum of such risks.