The Massachusetts Supreme Judicial Court has upheld a $20.6 million verdict against a retailer for selling a defective inflatable pool slide manufactured in China. Aleo v. SLB Toys USA, Inc., et al., SJC-11294, Sept. 13, 2013. The ruling underscores the need for retailers to be vigilant in insuring that products manufactured abroad meet relevant regulatory requirements, and to have written agreements with independent testing laboratories that identify the specific standards and regulations that should guide inspection and testing.
The facts are unfortunate: in 2006, a 29-year old woman visiting relatives went headfirst down an inflatable slide into an in-ground pool. The slide buckled as the woman went down, causing her head to strike the pool deck; she died as a result of her injuries. The woman’s family filed an action in state court in 2008 alleging negligence, breach of the implied warranty of merchantability, wrongful death, and violation of the Massachusetts Deceptive and Unfair Trade Practices Statute, Mass. G.L. c. 93A. After a tw0-week trial, a jury found the retailer liable for negligence, breach of warranty, and wrongful death, awarding compensatory damages in the amount of $2,640,000. The jury also found that the was retailer grossly negligent and awarded punitive damages in the amount of $18 million. See G.L. c. 229, § 2 (punitive damages available for gross negligence in wrongful death action).
Before being imported and sold, the slide was evaluated by an independent testing laboratory hired by the retailer. The laboratory certified the slide had been tested for compliance with federal regulations and toy industry standards; however, there was no mention of whether the slide had been tested for conformity with a federal safety regulation applicable to all swimming pool slides, 16 C.F.R. s. 1207. The regulation requires that such slides be capable of supporting 350 pounds and tested for head-first sliding. But the slide’s instruction manual, as well as a warning label on the slide, stated that the slide could support only 200 pounds, and that head-first sliding may result in serious injury or death.
At trial, the retailer argued that the slide manufacturer warranted its slide was free from defects, and the independent laboratory was responsible for identifying the relevant standards and regulations. These assertions, however, were undercut by the lack of written agreements, as well as testimony that the laboratory performed only those tests it was instructed to by the retailer. In addition, the plaintiff introduced evidence showing that the retailer had only one employee in its safety assurance department, who was tasked with reviewing approximately 4,000 certificates of compliance per month. The plaintiff also seized on an indemnity provision in the alleged vendor agreement between the retailer and the Chinese manufacturer, arguing that the provision showed the retailer was indifferent to the safety of the slide because it believed it would not be financially liable for any defects. Against this backdrop, the Supreme Judicial Court upheld the jury’s verdict and award.
For retailers, there are definite takeaways from this case that could help to avoid punitive damages in the future. First, the importance of having written agreements with independent laboratories that clearly identify all applicable federal and state standards and regulations, as well as the specific inspections that the laboratory is expected to perform before certification. Second, do not overlook the import of internal safety compliance departments and mechanisms, particularly with respect to adequate staffing. In Aleo, the size of the retailer’s compliance department relative to the number of monthly product certifications appeared to factor into the jury’s verdict. Third, though indemnification clauses are standard fare in many vendor and supplier agreements, they can be vulnerable to misinterpretation by plaintiffs who attempt to construe them as “get out of jail free” cards; this line of attack should be kept in mind during drafting so as to avoid using language that is not helpful.
Although these suggestions are not a guaranteed recipe for avoiding a product liability suit, they reinforce a theme that we frequently revisit here at the Monitor: risk management should be an integral part of any manufacturer’s business strategy.