Posted in News on October 9, 2014
Typically the parts of many products are made throughout the United States. Any party that participates in a product’s supply chain, up to and including the retailer, can be found liable and be held responsible if a product is found to be defective and the defect is directly responsible for injuries to the product user as a direct result of the product’s use.
One way that the retailer can protect themselves from liability claims from the sale of defective products is by requiring the manufacturer to sign an indemnification agreement for the products they sell. Even though it is mandatory in many states for a manufacturer to indemnify any retailer that sells a defective product, it is generally a best practice among retailers to have a policy of requiring manufacturers to sign a well-crafted indemnity agreement for any and all products that they agree to carry in their stores.
Typically manufacturers will agree to sign indemnity agreements so long as they include a clause that releases the manufacturer from holding to the indemnity agreement if there is clear proof that the retailer was negligent. This would also apply if there was willful misconduct on the part of the retailer.
Another equally important provision that should not be overlooked is requiring that the manufacturing agreement include a clause stating that the manufacturer must purchase and maintain sufficient and suitable insurance for a required period of time. A certificate of proof of that insurance is then filed with the manufacturing agreement which should include language that is similar to the provisions in the indemnity agreement. However, it is important to note that if the injured party has no legal recourse against the manufacturer, due to bankruptcy or some other reason, then the indemnification agreement will not protect the retailer from litigation.
When it comes to product liability, in the absence of an indemnification agreement, it may be possible to hold a retailer that sells a defective product liable.
Source: Inside Counsel, “When a defective product becomes a retailer’s problem: Indemnification agreements and available defenses,” Matthew Shindell, Sep. 29, 2014