Four Ways to Reduce Products Liability Claims to Your Franchise System

September 9, 2013

A recent article in Franchise Times illustrated the lengths to which plaintiff’s attorneys are going to hold franchisor’s responsible for vicarious liability claims. In this article, GNC Stores, are being sued for a supplement they sold in one of their stores that the plaintiffs claim are responsible for their son’s death. This tragic event illustrates that attorneys are not only going after the manufacturer of the product but are now trying to include the retailers that sell these products in a products liability claim.

The point is not whether the attorney ultimately prevails in this suit. There are two other issues that concern me: First, attorneys are trying to hold franchisors liable for products that are being sold in their stores; and second, entire franchise systems need to know more than ever about their approved suppliers. This type of issue won’t affect just the franchisor, but the franchisees and the brand as well.

Here are a few quick points to know to help reduce your vicarious liability risks due to a product’s liability exposure:

  1. Make sure you have products liability insurance coverage included as part of your general liability policy. Not all GL policies provide products liability coverage and/or provide it at the proper limits.

  2. Know where the products you sell are manufactured. If they are manufactured oversees, China for example, and they don’t have a US distributor, then liability for the product(s) may fall solely on you since it is difficult to sue manufacturers based solely oversees.

  3. Check the insurance of your approved suppliers. What type of products liability coverage do they carry? Can they list you as Additional Insured?

  4. Also, review your supplier agreement and understand what type of hold harmless and indemnification language is in those contracts. Have your insurance broker review that language to make sure it matches the exposure.

Vicarious liability exposures are becoming more prevalent for franchisors and, unfortunately, products liability is one more area to take action on to reduce risk to you and your franchise system. Following the four steps above is a good place to start.

Avoiding product liability claims is important for franchise systems now more than ever, as attorneys are beginning to seek damages from product retailers in addition to manufacturers.