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Jun 2014
06
June 06, 2014

Read the Fine Print: The Devil and Defense for Product Liability or Warranty Claims Often Lurk in Contracting Documents


Producing automotive parts means dealing with numerous documents, from quotes and purchase orders to SOWs, DVP&Rs and PPAPs and all of the attachments, deviations and signoffs they may include. Those documents contain seemingly endless minutiae about where, when, how and under what conditions parts will be produced, but critical supplier liability considerations are often hidden among those details.

Think about the now-notorious Chevrolet Cobalt ignition switch or other situations where it is clear that, in addition to possible driver error, someone connected to the design and development of the vehicle made a mistake that may have contributed to the loss of life. Who on the vehicle-side of such a situation is ultimately liable?

Setting bankruptcy protections aside in the current GM fiasco, how do you know if liability for injury or death lies with the OEM, the supplier of an assembly, or the supplier of an allegedly defective part? The answers are often found in contracts or design, validation and production documents.

Under Michigan law, a component manufacturer is liable for harm caused by the product into which the component is integrated in two situations: (1) when the component itself is defective and causes harm; or (2) when the component seller substantially participates in the integration of the component into the design of the product, the integration of the component causes the product to be defective, and the resulting defect causes the harm.

It is common sense that a supplier could be liable for producing a defective component. The trickier situation arises when parties try to determine post-hoc whether the component seller “substantially participated in the integration.”

Fortunately, there is an answer. Suppliers must demand clear language in all of the relevant design and production agreements. That language must state that the supplier is not substantially participating in the integration of its component parts into the end product, and that the supplier is not responsible for system integration.

In our experience, some OEMs have been willing to agree to those terms if pressed.

Of course, simply pasting that language into an agreement does not create an impenetrable barrier to liability. Reality must align with the agreement.

Suppliers need the right language in their agreements and then they must not actually participate in the integration. One way to limit that participation is to require detailed specifications from the OEM and then design and validate the product to those specifications. The more decisions the OEM makes, the less the supplier substantially participates.

For some suppliers, participation in design integration is inevitable. For those regularly participating in integration, it is critical to document every design proposal the supplier made or agreed to, along with every specification or change the OEM mandated, was informed of, and ruled out or countered.

Any deviation from the agreed-upon plan can result in exposure to liability, so paper the file with every communication dealing with specifications and validation obligations.

In all of these situations, the key is to execute detailed agreements that clearly delimit responsibility for design, integration, validation and production standards.

Contact one of our experienced Automotive Industry Group attorneys if you have questions about possible exposure to product liability.

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