If it's broke, don't use it: manufacturer not liable when user knew that product was defective

Are you a manufacturer, or a corporate user of products which are critical to your business? A recent case highlights some important lessons for all on product liability.

What was the case about?

In Howmet Ltd v Economy Devices Ltd and others, the Court of Appeal held that a manufacturer of a defective product was not liable for £20 million of damage caused by a factory fire where the product was used. The claimant knew the product was defective, and that there was a risk of fire, but still continued to use the product together with a system the claimant had put in place to prevent further fire.

This case contains valuable lessons for manufacturers, corporate users of business critical products and insurers which could help mitigate risk moving forward.

Facts of the case

The product in question was a probe, which had already failed twice previously, failing to switch off the heater in the water tank in which it was immersed, and causing fires as a result. Employees of the claimant managed to extinguish the fire on both prior occasions and no damage was sustained. The employees also developed a system to reduce further fire risk, and purchased a different device which would switch off the heater in the tank in certain situations. However, the different device had not yet been installed at the time of the third fire, which caused the damage forming the basis of the claim.

The claimant claimed that the fire damage was caused by the defective probe. The Court of Appeal held that the cause of the fire was not the defective probe, but the system that had been put in place after the claimant found out the product was defective. Or, in the alternative, that the claimant’s knowledge of the defect meant the manufacturer no longer owed the claimant a continuing duty.

A great result for the manufacturer, a dreadful result for the claimant. But what can we learn from this?

For manufacturers

No two ways about, this is a win for manufacturers whose products are used commercially and latterly are discovered to be defective. Of course, this in no way removes the continuing duty of manufacturers to monitor products placed on the market, and take corrective action if they become defective. This will include communicating with users of the products to let them know of defects and what steps need to be taken. However, where that duty has been carried out, yet the defective products are still used, in the full knowledge they are defective, then the manufacturer’s arguments for avoiding liability are much stronger.

Lessons learned?

1. If you discover a product is defective, follow your normal defective product procedures and ensure that you identify and take appropriate corrective action as soon as possible – clear communication with those affected is key (whilst obviously taking care over what you are saying). That clear communication could be the very thing which helps limit or even avoid liability down the line. 
2. When on the receiving end of claims by commercial users for significant damage, take the time to query whether the user knew the product was defective prior to the damage occurring (they may know because you told them, or they may know from their own experience), and query what they had done to deal with the risks this presented.

For corporate users of business critical products

This is clearly less good for corporate users of business critical products – the things that make the business function on a day to day business; that protect, preserve, save. One of the major difficulties in this case was the fact that a group of employees were aware of the risk with the probe, and tried to deal with it, but their system failed and their actions were ultimately held to be the actions of the company as a whole. Normally, companies don’t wish to stymie employee’s innovation and desire to take responsibility. But equally, there need to be robust processes in place to deal with defective products which are being used in business critical environments; and decisions which are being made on behalf of the business, which later bind the business.

Lessons learned?

1. You need to have a robust procedure in place for dealing with defective products which are vital to your business. If they fail, you need to ensure that you have notified the manufacturer, and that any backup plan is carefully thought through: not just in terms of business continuity, but also to minimise risk exposure if there is any damage caused latterly by the defective product.
2. Revisit, review and revise who is responsible for making decisions in the business. Decisions around replacing defective equipment, and implementing measures pending their replacement, may seem like everyday tasks for mid-level and junior employees. However, given the significant impact if those measures are not up to scratch (in this case, should the business really have continued to use the water tank when they were awaiting the different device?), consider whether you need more senior level scrutiny.