The National Highway Traffic Safety Administration (NHTSA) and the Department of Justice are investigating whether General Motors Co. (GM) waited too long to recall 1.6 million vehicles over an ignition switch problem. The automaker faces a maximum civil penalty of $35 million, possible criminal liability, multiple lawsuits, and unwanted publicity and damage to its reputation due to allegations that it failed to report and take prompt action over this problem that it allegedly knew about more than a decade ago. GM, which has admitted that its review of the problem “was not as robust as it should have been,” has been ordered by NHTSA to respond under oath by April 3, 2014 to 107 specific questions designed to discover “what it knew and when it knew it.” The probe into whether GM violated federal reporting requirements is an important reminder for allmanufacturers (whether of automotive, consumer or industrial products) to promptly report defects to regulators and undertake corrective action.
Ambiguous regulations and the many factors manufacturers must consider can make it difficult to determine when a duty to report and recall arises. For example, under NHTSA regulations a vehicle manufacturer must report a “safety defect or noncompliance” within five working days. Manufacturers are not required to have identified the cause of the defect or noncompliance or a remedy for the issue, and the absence of this information is not grounds to delay reporting the safety defect or noncompliance. Manufacturers must provide NHTSA with a “Defect and Noncompliance Information Report,” which includes the vehicles or equipment to be recalled, a description of the defect or noncompliance, a chronological summary of principal events leading up to the defect or noncompliance determination, identification of the remedy (if available), and a schedule for the recall and corrective action program.
Similarly, consumer products manufacturers are required to report safety issues to the Consumer Product Safety Commission (CPSC) “immediately” (i.e., within 24 hours). They must submit what is known as a Section 15(b) Report to the CPSC within 24 hours after they “receive information that reasonably supports the conclusion that a product fails to comply with an applicable consumer product safety standard; contains a defect that could create a substantial product hazard; or creates an unreasonable risk of serious injury.” 15 U.S.C. §2064. The CPSC expects manufacturers to submit the report if a reasonable person might conclude, given the information available, that a product creates an unreasonable risk based on “the level of exposure of consumers, the nature and severity of the hazard, and the likelihood of harm and utility of the product.” 16 CFR §1115.6(b). The regulation warns manufacturers to “not delay reporting in order to determine to a certainty the existence of a reportable noncompliance, defect or unreasonable risk.” 16 CFR §1115.12(c).
As we previously discussed, federal regulations and product liability laws provide limited guidance on when manufacturers should report and initiate corrective action under specific circumstances. For example, it is often a judgment call as to whether there is a defect that triggers a reporting obligation to federal regulators or a duty to recall. What is a “safety defect” within the meaning of the CPSC regulations? What is a “defect that could create a substantial product hazard”? And what creates “an unreasonable risk of serious injury or death” that triggers a duty to report and eventually to recall? Additionally, the answers to these questions often are determined by looking at the definition of “defect” in product liability law, which allows manufacturers to consider several factors, but does not establish any hard and fast rule or definitive answer. In many instances, the regulations and common law allow manufacturers to consider factors such as the “pattern of defect, number of products distributed in commerce, nature and severity of the risk, likelihood of serious injury or death, utility of the product, level of exposure to consumers, state of the manufacturing or scientific art, availability of alternative designs, and feasibility of eliminating the risk.” See, for example, 16 CFR §1115.6(b)(c) and 1115.12(g). Such open-ended criteria are subject to differing interpretations.
Manufacturers understandably may have difficulty answering these complex questions. For example, a manufacturer may have received unverified complaints relating to the product, the injuries reported may be unrelated to the product’s design, they may not involve serious injury or substantial risk of harm, or they may be caused by unreasonable product misuse. Further complicating matters is that there may be only a few reported incidents when compared to the thousands of similar products that are performing safely in the field. Is there still a reporting obligation under these circumstances? Is there a duty to recall? Because the regulations and common law do not clearly define what triggers a duty to report or recall and there are few cases on this subject, it is often left up to regulators or a jury to determine whether a manufacturer acted reasonably under the circumstances. This provides little comfort for manufacturers who face civil and criminal penalties and punitive damages if they fail to address safety concerns promptly.
As we previously advised, with the changing regulatory environment, increased publicity from high-profile recalls, and recent enforcement activity, companies must adopt effective risk management procedures to monitor and address their products’ performance in the field. They also should involve experienced product liability counsel as soon as they first become aware of product incidents and other risks to ensure proper evaluation of their reporting obligations and whether they should undertake a recall or other corrective action.