Identifying tort risks in product liability and applying risk management mitigation processes

Product Liability Tort

RISK AND RESPONSIBILITY

A tort is a civil wrong, loss or harm inflicted by a person's behavior upon another (LII, 2010). While it is not necessarily an illegal act itself, the law allows the person harmed to recover his loss or receive compensation for the harm. It differs from a crime wherein the person's harmful act affects society in general. A claim of tort may be filed in a civil court. The three main elements of a tort are duty, the breach of that duty, and the injury or harm caused by the breach. The four main types of torts are intentional, negligence, strict liability, and nuisance. One type of negligence torts is products liability (LII).

Products liability can be incurred by any or all of the persons involved in the manufacturing chain of a product for the damage it causes (LII, 2010; Lim, 2012). It may be the manufacturer of the components, the assembling manufacturer, the wholesaler, or the retail store owner. The claimant must prove the defect of the product. The three types of product defect are design, manufacturing and marketing defects. Design defects exist before the product is manufactured. Manufacturing defects occur during the construction or production phase. And marketing defects consist of improper instructions or failure to instruct and warn consumers of potential dangers in the use of the product. The claimant must also show or prove that the product was not altered from the time of purchase or used carelessly or in a way for which it was not intended (LII, Lim).

Violations

The potential tort risks found in the product liability transcript are:

Marketing Defects - Non-Linear Pro-sold the editing system to Quick Takes Video for its video editing use at half the time. Non-Linear Pro-should have known that unless the equipment was digitized, it would not perform that fast. The equipment was much cheaper than that of A-Line clearly because it would not function as A-Line equipment would. Another marketing defect is the lack of warning label for the piece of metal, which wounded the finger of Hal's companion. This can be the basis of a claim for personal injury and possible health consequences. The breach of warranty and guarantee that the equipment would run twice as fast are another marketing issues. The resulting loss of productive hours in Quick Takes Video laborers for trying to operate the defective equipment was still another issue. Manufacturing defect -- the insufficiency of the product's memory after only a few minutes' use at high resolution and constant crashes. The system itself is defective. It also has a lot of bugs.

Applying the Risk Management Process

The rationale of Enterprise Risk Management or ERM is well-grounded on facts. These are corporate failures, limited resources and capital; only 25-40% of risks are insurable; global economic uncertainties, and strictness of regulators (Harb, 2008 p 3). Its seven essential elements are management commitment, communications and consultation, policies and procedures, training and education, effective and efficient framework, application of risk management in practice, and ongoing monitoring and review. The auditor of Non-Linear Pro-should train on ERM in re-assessing company risks on its product/s. ERM is said to be increasingly important to manufacturers. Its thrust is that people, systems and processes synergize across the organization to systematically manage a wide range of risks, which hinder the accomplishment of organizational goals and opportunities (Harb). The internal auditor should, in turn, share his new learning on ERM with management and the workforce.

Management commitment as step or element 1 will incline management to set the tone of product risk consciousness from the top (Harb, 2008 p 4-7). At the same time, it will build a strong culture of risk-owning among the employees themselves. Step or element 2, communication and consultation will establish strong partnership among the senior management, line management, risk management, compliance, internal and external audit. Policies and procedures as step or element 3 will align the company audit plan with the risk management plan. Step or element 4, training and education, will build capabilities, empower and share workload among all organizational levels. Element or step 5, effective and efficient framework, will result in a systematic and coordinated approach. Application in practice as element or step 6 will identify, understand and prioritize risks. And element or step 7, ongoing monitoring and review, will create a regular risk review process and establish overall commitment to continuous improvement (Harb).