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April 25, 2007

WHO’S LIABLE FOR PET FOOD CONTAMINATION – THE RISK OF PRODUCT LIABILITY

China the source of the problem

Pet food contamination has been traced to Chinese suppliers. Wheat gluten purchased from company in Xuzhou, China, north of Shanghai, contained the hazardous material, and other Chinese companies are now implicated.

Food product sellers have a special product liability exposure which is highlighted by this incident. This applies to all players in the supply chain from farmers to manufacturers to retailers. Liability arising from death or injury can be substantial, and with products in general, and food products in particular, there is the likelihood that the defective product will affect large numbers of victims, resulting in multiple claims.

With respect to components (or ingredients) purchased from suppliers outside the US, there are the further problems of uncertainty re quality control, and possibly lack of recourse against the supplier. Some foreign suppliers may not have substantial assets or may not carry any or enough product liability insurance (this of course could also be the case with a US supplier). Furthermore, distance and difference in legal systems could prevent recovery. Plaintiffs who cannot reach the ultimate culprit will go after the US company. These same recovery problems would apply to your insurer as it tries to subrogate after paying your claims.

Risk Management

Consider the following in managing your product liability risk:

• Know the ultimate source of components you buy from K
Ksuppliers; consider your immediate supplier may not be
Kthe originator.

• Know the level of product quality, and government oversight
Kof same, of the source country.

• Obtain indemnification and insurance protection from suppliers
Kif you are simply a downstream distributor.

• Review your product liability limits for adequacy with an
Kunderstanding of how your limits apply: per claim or aggregate.
KIf your limits are on an “aggregate” basis, this is all the
Kprotection you will have for all claims in total.

• Make sure there is full disclosure to underwriters of the
Kexposure, and this could include disclosure of suppliers.

• Don’t necessarily rely on inspection or analysis provided by
Kthe foreign supplier; it may be necessary to have this verified
Kin the US.

 For more information, or to attend, contact Debora Wu, at DWu@LicataRisk.com

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April 25, 2007 WHO'S LIABLE FOR PET FOOD CONTAMINATION-THE RISK OF PRODUCT LIABILITY

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