US Product Liability and Criminal Sanctions

The recent Ford/Firestone litigation in the US, relating to the alleged defectiveness of certain of Firestone's tyres, coupled with the corporate shock waves still reverberating within the US as a result of Enron's collapse, has resulted in the US Congress placing a greater emphasis on corporate accountability.

Legislation is now in the process of being introduced within the US, with proposals to criminalise the manufacture and distribution of defective products, and to penalise corporate officers and directors of such companies for the design and distribution of such products. The proposed legislation includes large fines and/or imprisonment for knowingly introducing a defective product onto the market. Clearly, the implications of this proposed legislation are far reaching, not only in relation to the risk management activities which will need to be reviewed by US manufacturers (or European-based manufacturers with US subsidiaries), but also in relation to both product and directors and officers' liability insurers.

On 1 November 2000, the Transportation Recall Enhancement Accountability and Documentation Act was signed into law by President Clinton. The Act imposed stiff criminal penalties on any officer or director of a motor vehicle manufacturer who made a false or misleading statement with the specific intent to mislead the US Secretary of Transportation about a defect in the company's products that may cause death or serious bodily injury. Penalties for breach of this particular legislation include criminal fines, or imprisonment of up to 15 years or both.

Following that Act's introduction, several further (and more wide-reaching) Bills were brought before Congress which, once enacted, will impose criminal sanctions on corporations, corporate officers and directors for knowingly manufacturing and distributing defective products. By way of example, the proposed Defective Products Penalty Act 2000 would make it a Federal criminal offence knowingly to manufacture and distribute:-

''A product with some flaw in design, manufacture, assembly or instruction that renders the product dangerous to human life and limb beyond the reasonable and accepted risk associated with such or similar products lacking such a flaw''.

Similarly, the proposed Motor Vehicle and Motor Vehicle Equipment Defect Notification Improvement Act 2000, would establish criminal penalties against manufacturers that knowingly introduce onto the market place any motor...