The risk of product liability when importing foreign manufacturing materials
With rising costs and limited resources for raw materials, we’re seeing more and more manufacturers consider importing materials from foreign countries.
by Tina Jaeger
Commercial Underwriter Senior
Foreign importing can be a viable option for many manufacturing operations. But, there are some unique exposures associated with this practice. Both manufacturers and distributors in the U.S. need to know the added risk of importing materials.
The good news - businesses that take steps up front to manage risk can have success with foreign importing.
The big problem with foreign importing is product liability. So to truly understand the risk of foreign importing, we need to review product liability first. Bear with me for a few moments, and I'll explain.
Product liability is considered strict liability, which means the "producer" is responsible for any defects, whether or not they were careless or at-fault.
If someone is injured because of the product - whether they purchased it themselves or were visitors or simply bystanders at a business that purchased the product - they can sue for damages. Here's the kicker - the injured person does not have to prove how or if the manufacturer or distributor was careless. They only have to prove the product was defective and that the faulty product caused their injury. This greatly expands the chance of a lawsuit.
If you're the producer, you're liable for your products even if the damage was a result of a material you imported and not through your fault or carelessness.
So, are you the producer? You're the producer if you're any of the following:
- The manufacturer of a finished product
- The producer of any raw material
- The manufacturer of a component part
- Any person who places their name, trademark or other distinguishing feature on the product or somehow alters the product
Do any of these describe your business? Then you're the producer.
So, how does this affect your importing relationship? If a foreign company does not have a U.S. location, the U.S. entity who imports a product from that foreign company is considered to be the manufacturer or producer. If you're the one importing from that foreign company … you're the producer. And you're responsible for the liability.
This is a discussion you want to have with your legal advisors and your insurance agent. Talk through your options and your risk, and make sure you have the right risk management practices in place before you start importing.
Standards and product safety regulation also vary by country. If a product is faulty, it can be difficult for you to enforce contracts. It can also be hard to require a foreign manufacturer to indemnify you as a U.S. manufacturer distributor. In some cases, the foreign manufacturer may require jurisdiction to take place on their turf, posing additional expense to your U.S.-based company.
Questions to ask when partnering with a foreign entity
Asking these questions can help protect your business when importing foreign metal manufacturing materials:
- Does the foreign manufacturer have product liability insurance? Do they have or would they be willing to obtain a U.S. product liability policy?
- Does the imported product meet all U.S. standards and regulations? Does the entity have a quality control program in place?
- If there is a known problem with a manufactured product, will the foreign manufacturer contact you to inform you of the defect or issue, so that you may take appropriate action?
- Has the foreign manufacturer ever had any prior products recalled or violated any U.S. regulation?
Addressing the product liability issues up front is critical to your success when importing foreign materials.