With the passage of House Bill 2503, the State of Arizona significantly limited when manufacturers and sellers can be liable for punitive damages. Under the new statute, a manufacturer, service provider or seller is not liable for exemplary or punitive damages if any of the following applies:
1. The product . . . was designed, manufactured, packaged, labeled, sold or represented . . . according to the terms of an approval, conditional approval, clearance, license or similar determination of a government agency.
2. The product . . . complied with all statutes of [the State of Arizona] or the United States or standards, rules, regulations, orders or other actions of a government agency . . . that are relevant and material to the event or risk allegedly causing the harm and the product, activity or service complied at the time the product left the control of the manufacturer or seller.
3. The act or transaction forming the basis of the claim involves terms of service, contract provisions, representations or other practices authorized by, or in compliance with, the rules, regulations, standards or orders of, or a statute administered by, a government agency.
However, there is no such safe harbor if the claimant establishes that the manufacturer, service provider or seller, at any time before the activity or event that allegedly caused the harm, did any of the following:
1. Sold the product, activity or service after the effective date of a final order of a government agency to remove the product from the market, to withdraw its approval of the product, activity or service or to substantially alter its terms of approval of the product, activity or service in a manner that would have avoided the claimant’s alleged injury.
2. Intentionally, and in violation of applicable regulations . . . withheld from or misrepresented to the government agency information material to the approval or maintaining of approval of the product, activity or service, and the information is relevant to the harm that the claimant allegedly suffered.
3. Made an illegal payment to an official or employee of a government agency for the purpose of securing or maintaining approval of the product, activity or service.
4. After the product was sold or the service was provided, a government agency found that the manufacturer, service provider or seller knowingly violated applicable regulations requiring the reporting to that government agency of risks of harm and the unreported information was material and relevant to the harm that the claimant allegedly suffered.
Manufacturers in Arizona should thus take advantage of all government-certification processes for their products, whether mandatory or voluntary, and ensure proper documentation of their compliance with government requirements and regulations.
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