Clients who are first introduced to the concept of strict liability in the context of a product liability lawsuit are often shocked to learn they can be held liable for a product defect simply because they sold the defective product. The first question we always hear in these situations is “How can I be held liable if I did not have any involvement in the decisions that went into how the product was designed or built?”
However, in some states, such as Texas and recently Oklahoma, the legislature has heard the cries of these retailers and passed a law that modifies the strict liability standard for defendants in a product liability lawsuit, which provides some relief to the “innocent seller.”
In a nutshell, some states have recognized that the strict liability concept is not good for business. In certain situations, it is unfair to force a retailer to bear the cost of defending litigation involving a product it knows nothing about, when the manufacturer is available to be sued and is the party in the best position to defend its product. Even though the retailer will almost always have the right to seek indemnification from the manufacturer, it is up to the plaintiff to decide who to sue, and in some instances a plaintiff will make the conscious decision to only sue the retailer and not include the manufacturer.
For example, a plaintiff might be able to avoid a certain venue, such as federal court, by not including the manufacturer in the product liability lawsuit. This may mean a more favorable demographic landscape in the jury pool for the plaintiff. There are a number of reasons why a plaintiff may be motivated to not include a manufacturer in a product liability lawsuit, where they already have the deep pockets of the retailer available. As a result, these situations where the retailer can be left holding the bag make it more expensive and more difficult for retailers to manage their product liability risk.
If the retailer does not have the “innocent seller” defense available in the state where they are sued, the plaintiff may be satisfied with not bringing in the manufacturer since they can recover all of their product defect claims against the retailer under the traditional notions of strict liability. Therefore, it is important for the retailer and insurer to be cognizant of their rights in states where the innocent seller defense is available and to plan accordingly for their product liability risk in states where this helpful defense is not available.
Nevertheless, even in states where the innocent seller defense may be available, such as Oklahoma and Texas where I practice, the retailer is not necessarily off the hook. Some plaintiffs’ lawyers have attempted to circumvent this defense through artful pleading. In Texas, plaintiffs will sometimes argue that a retailer should be held liable for a product’s defect that purportedly caused their injury under a provision of the Uniform Commercial Code (UCC). Article 2 of the UCC applies to retailers and creates implied warranties of merchantability and fitness for a particular purpose. The implied warranty of merchantability means that the product is fit to use for the ordinary purposes that buyers would intend to use it. The implied warranty of fitness for a particular purpose applies when the buyer intends to use a product for a specific purpose and the seller knows this, and the buyer relies on the seller’s expertise to choose a product for this specific use.
Wait! Isn’t that just another way to describe product liability?
What does that mean for the big-box retailer who may sell hundreds of different products? Depending on the state and the artful pleading of plaintiff’s counsel, it means being “innocent” in terms of the manufacture of the product may not be enough to avoid the expense of defending product liability litigation. In response, we often counsel our retail clients to consider not only the tort defenses available under state law but also the defenses set forth in the UCC. Both manufacturers and retailers should be mindful of this nuance in the law when engaging in their business practices in states such as Texas and Oklahoma, where this innocent seller defense may exist, to ensure they are adequately prepared for future product liability litigation.