Hunton Retail Law Resource

March was an eventful month in the world of recalls. Children’s products have always been a CPSC focus, and for good reason. A recent study by Nationwide Children’s Hospital examined data over a 21-year period and found that a young child visits the emergency room for an accident involving a nursey product about every eight minutes. That is roughly 66,000 children annually. Last month alone, children’s products were the subject of six recalls. That trend continued in March as six children’s products were again recalled—infant caps, toys, games, sleepwear, bibs and rattles. The CPSC also approved unanimously a new federal safety standard for infant bath tubs. This serves as a notable development because, under the 1981 Amendments to the Consumer Product Safety Act, the CPSC must defer to an existing industry standard if it adequately addresses the risk and fosters adequate compliance. Accordingly, the CPSC has only issued 37 safety standards and roughly one-third of them (14) are for children’s products. The new standard serves as additional evidence that the CPSC is taking a more proactive approach to regulating children’s products.

March’s recalls were not limited to just young children’s toys. Hoverboards continued to garner unfavorable headlines. A hoverboard reportedly caused a house fire that resulted in the death of a toddler and critically injured two others in Pennsylvania. This prompted the CPSC to launch a formal investigation into the incident. This tragic tale serves as a reminder that consumer products with an electronic component may cause fires and dramatically increase liability for manufacturers and retailers. Relatedly, another hoverboard manufacturer experienced a recall this month, again due to the tendency of lithium ion battery packs to overheat and pose a fire hazard.

With spring upon us, Do-It-Yourself (“DIY”) projects have become popular hobbies for many consumers. But manufacturers and retailers should take appropriate steps if they learn that consumers are using their products in ways not intended, also known as non-conforming uses. Indeed, a few years ago DIY books were recalled because errors published in them could cause multiple hazards. The issue of DIY projects and non-conforming uses occurred again more recently, when a child was injured from DIY slime after one of its ingredients—a household cleaning product— caused serious skin burns. Whether or not DIY projects incorporating consumer products become the next focus of the CPSC, manufacturers and retailers should keep a watchful eye online for DIY uses of their products because non-conforming uses can still give rise to foreseeable injury and thus create liability exposure.

Recalls continue to prompt insurance coverage litigation as well. A frozen food corporation sued its insurer for $3.5 million in losses sustained when the FDA forced a voluntary recall of 470,000 pounds of frozen peas for possible listeria monocytogenes contamination. The insurer denied coverage based on allegations that the frozen food company failed to disclose a prior recall of another product in its insurance application, and otherwise had knowledge of facts that increased the probability of loss under the policy.

Likewise, a beverage chain and its insurer have been engaged in litigation over losses the beverage chain sustained when numerous customers contracted Hepatitis A from contaminated strawberries used in its drinks, and caused other customers to undergo preventative treatment to avoid lethal illness. In March, the beverage chain sued its insurance broker for negligence, breach of fiduciary duty and breach of contract, among other counts, alleging that the broker was responsible for the alleged misrepresentations in the company’s electronic policy application which caused the insurer to deny coverage and rescind the policy.

As insurers increasingly seek to rescind coverage based on alleged misrepresentations or omissions in insurance applications, product manufacturers and other businesses who use, or are considering, product recall insurance should exercise caution when selecting and applying for coverage. As Hunton’s Insurance Coverage team discusses in a recent article published in Corporate Counsel, businesses must update application materials, familiarize themselves with recent regulatory and case law developments, and be mindful of choice-of-law provisions, which can affect an insurer’s ability to rescind.

Total Recalls: 29

Hazards: Fire/Burn/Shock (12); Fall (6); Laceration (5); Choke (3); Strangulation (1); Impact (1); Suffocation (1).

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