On August 14, 2008, President Bush signed into law the Consumer Product Safety Improvement Act of 2008. This new law provides the greatest expansion of the Consumer Product Safety Commission's (CPSC) powers since it was established in 1972. The new law gives the CPSC increased staffing and funding, new laboratory facilities, increased enforcement mechanisms and greater oversight of imported goods. It also imposes significant new requirements on children's toys and products.
The high-profile recalls of children's products as well as other concerns raised about the safety of imported products over the last year and their insurance implications were reviewed last fall in Wiley Rein's "Insurance Implications of New Food and Product Safety Concerns" teleconference, held on September 19, 2007. Wiley Rein's Coverage Insights newsletter from September 2007, which also addressed many of the issues presented at the teleconference, is available here. This Coverage Insights Alert updates that information with a review of the framework of the Consumer Product Safety Improvement Act of 2008.
The new law significantly tightens the regulatory requirements governing the manufacture and sale of many types of children's products. Its overall objective is to reduce or eliminate the levels of lead and phthalates in toys and children's products, with an eye toward eliminating the necessity of future recalls. Specifically, it imposes a ban on lead in toys and children's products under the following schedule: (1) 180 days after enactment, the maximum lead level is 600 parts per million; (2) one year after enactment, the maximum lead level is 300 parts per million; and (3) three years after enactment, the maximum lead level is 100 parts per million. It also imposes a ban on phthalates in toys and children's products follows: (1) a permanent ban on the sale of children's toys and child care articles with concentrations of more than 0.1 percent of di-(2-ethylhexyl) phthalate (DEHP) dibutyl phthalate (DBP) or benzyl butyl phthalate (BBP) 180 days after enactment; and (2) an interim ban effective 180 days after enactment on the sale of children's toys that can be placed in a child's mouth and all child care articles that contain more than 0.1 percent of diisononyl phthalate (DINP), diisodecyl phthalate (DIDP) or di-n-octyl phthalate (DnOP).
The new provisions banning lead and phthalate under the statute may help reduce future claims under product recall policies or other insurance policies. However, recognizing that the law sets entirely new maximum lead levels (which reduce over time) and implements a new ban on phthalates, there is a risk of violations of the law (intentional or unintentional) given the realities of international commerce and globalization of markets. This in turn increases the likelihood of insurance claims, either for product recall expense or for defense and indemnity of product liability claims that arise due to violations of the law.
Some of the provisions of greatest interest to insurers in the new law include provisions giving state attorneys general the authority under CPSA and related laws to seek injunctive relief with advance notice to CPSC. There is also a prohibition on any CPSC regulatory activities preempting any damage claims arising under common law and state statutes, or from preempting California Proposition 65 or any other state warning statutes enacted prior to August 31, 2003. In addition, the law mandates that the CPSC establish a searchable, public database that will include reports from certain sources on deaths and injuries reportedly caused by consumer products, and which includes manufacturers' names, product names and other information. Commentators have expressed concern that this database may assist plaintiffs' lawyers seeking to identify new claims. Another provision of special interest to insurers is one which calls for a study to determine the feasibility of requiring that manufacturers, importers and retailers establish escrow funds, purchase insurance or otherwise provide financial security to pay for recalls and/or destruction of recalled products.
Manufacturer responsibilities will change significantly under the new law. For instance, the law eliminates the right of a party recalling a product to elect whether it will offer a refund, repair or replacement for recalled products. Instead, CPSC may require a refund, repair and/or replacement as it determines to be in the public interest. Also, CPSC will conduct a rulemaking to establish requirements for the content and dissemination of recall notices and will be permitted to require recall notices in languages other than English. Further, the law provides stronger prohibitions against the resale of banned or recalled products, or any products that violate product safety regulations, and it establishes whistleblower protection for employees of manufacturers, importers, distributors or retailers who report violations, testify or otherwise provide assistance in consumer product safety.
It is also important to note that the law significantly increases civil penalties for failure to report and for other violations of the Consumer Product Safety Act, the Flammable Fabrics Act and the Federal Hazardous Substances Act. Penalties are increased from $8,000 to $100,000 for each violation, with the maximum penalty increasing from $1,825,000 to $15 million for a related series of violations. Criminal penalties are also strengthened through larger fines, up to five years' imprisonment and forfeiture of assets associated with a violation, and the removal of a requirement that directors, officers and agents be aware of violations before being criminally charged.
In addition to the provisions broadening the CPSC enforcement authority, there are several provisions specifically addressing export-import issues. For instance, the law:
- Imposes mandatory testing and certification for imported children's products.
- Prohibits the export of recalled or non-conforming products to other countries, unless approval has been granted by the receiving country.
- Dispatches 30 CPSC inspectors to ports of entry to oversee admission of foreign products.
- Establishes policies to utilize the International Trade Data System and to increase cooperation with U.S. Customs and Border Protection to prevent unsafe products from entering the United States.
- Establishes procedures to destroy products that have been refused admission into the United States for failure to conform to safety regulations.
- Authorizes further studies to assess the effectiveness of measures and activities intended to prevent the importation of unsafe products into the United States.
The law defines "children's products" as "a consumer product designed or intended primarily for children 12 years of age or younger" as evaluated under CPSC's 2002 age determination guidelines. It defines "children's toys" as products "designed or intended by the manufacturer for a child 12 years of age or younger for use by the child when the child plays." And it defines "child care articles" as "a consumer product designed or intended by the manufacturer to facilitate sleep or the feeding of children age 3 and younger, or to help such children with sucking or teething."
There are additional safety rules affecting children's toys and products. For instance, the law mandates testing and certification of imported children's products for compliance with safety standards, with detailed requirements for laboratory accreditation, use of labs owned or controlled by manufacturers and priorities for testing certain products. It creates a registration card requirement for durable infant and toddler products, including cribs, high chairs, strollers, infant carriers, bath seats, gates, swings and other items and mandates within one year after enactment permanent tracking labels on children's products, including their source, manufacture date and hatch information to enable tracking and identification of recalled products. It also expands warning requirements for choking hazards for children's toys and games.
These sweeping changes will require significant action on the part of manufacturers, importers, distributors and retailers to ensure compliance. These may include: review of current product safety evaluation practices, including product recall plans; evaluation of systems for detecting potential safety concerns, including monitoring of customer complaints, warranty returns and external sources (consumer blogs, CPSC communications, other public sources); negotiating contracts with third party product testing organizations; implementing changes to standard purchase agreements to ensure compliance with CPSC standards and to identify reporting and recall responsibilities; and creating standard operating procedures, both internally and for supply chain partners, to ensure compliance with the law.