Protecting yourself

By Bob Alpert, Lauren Dugas and Patrick Lowther

As the use of electronic cigarettes, vaporizers, vape pens and other electronic nicotine-delivery system (ENDS) products increases, so too have product liability claims in the United States arising out of the overheating or combustion of e-cigarettes and their component parts, including batteries and chargers. This article provides recommendations for retailers, distributors, manufacturers and others in the chain of distribution of e-cigarettes and their counsel for mitigating potential exposure to an e-cigarette product liability lawsuit through proactive steps before an incident occurs and through an early defense strategy when faced with such a claim.

Proactive risk avoidance: limiting exposure before facing a lawsuit

As e-cigarette product liability cases become more common, proactively considering ways to limit risk before facing a claim is essential. Initial steps include setting up your company in compliance with applicable laws and regulations. Once this is accomplished, there are a number of other steps to take, which are the focus of this article. Examples include negotiating indemnification clauses with suppliers, purchasing appropriate insurance, obtaining assurances regarding product authenticity, issuing warnings and requiring waivers at the point of sale, and ensuring proper record keeping.

Indemnification clauses/assurances of authenticity: Before facing an e-cigarette product liability suit, companies that sell or distribute e-cigarette products should consider negotiating indemnification clauses in their favor into their contracts with suppliers, distributors and manufacturers. Such clauses can shift risk among the parties, allocating it to the entity most able to effectively mitigate said risk (often the manufacturer). Engaging experienced counsel in connection with this process can help ensure that indemnification language is enforceable under applicable law.

In addition, retailers and distributors should consider requiring assurances or certificates of authenticity from their suppliers for the products they purchase, which can limit exposure to a claim based on the sale of a purported knockoff that failed. 

Insurance: In lieu of or in addition to seeking indemnification clauses in contracts with suppliers, companies should consider requesting to be added as an “additional insured” to their suppliers’ insurance policies.

Regardless of whether your company is an additional insured under another policy, companies should also consider purchasing their own insurance. In connection with this, it is important to use an experienced insurance broker to identify the proper type of insurance to purchase—including, for instance, protection against claims arising from products sold or distributed by you related to incidents that occur off the premises of your property. An experienced broker can also help you balance managing insurance premiums with policy limits and deductibles. Equally important is reading the language of the insurance agreement carefully to understand the bounds of coverage and such issues as whether the policy is based on claims made or based on occurrence, which impacts the policy period and when new claims must be reported to your insurer.

Point of sale: E-cigarette retailers should consider providing written and verbal warnings to customers at the point of sale. For example, retailers should consider warning that improper battery storage and use can result in combustion incidents. Such warnings can be a key defense to future product liability lawsuits and can be used to argue that a claimant was aware of the risk she was taking through her improper device or battery usage, which resulted in an injury. The more visible and obvious the warnings are, whether on signs, receipts, pamphlets or on the website, the more powerful they are likely to be in a lawsuit.

Similarly, retailers can consider requiring customers to sign a point of sale waiver of claims, or acknowledgment that the company is not responsible for incidents arising from customer misuse, such as improper device or battery usage, charging or storage. Such documents can potentially limit liability or preclude claims altogether.

Record keeping: Organized record keeping is of the utmost importance to limiting the risk of product liability lawsuits. Companies with clear, organized records are able to easily and quickly identify key facts, including whether they could have sold the product at issue, where they purchased the product, whether the claimant received any warnings or signed documents that could defeat the claims and whether the claimant previously reported to the retailer instances of having misused products. By keeping organized records, it will be more readily apparent whether the case involved a product sold by you, and if so, it will allow for a more focused, cost-effective defense of the case.

You’ve been sued. Now what?

When faced with an e-cigarette lawsuit, developing a comprehensive early defense strategy is crucial to minimizing risk and limiting exposure. There are several initial steps that we recommend companies facing an e-cigarette product liability suit consider.

First, identify the product and your relation to it. Many e-cigarette manufacturers are foreign, often based in China. This can make identifying the proper parties in the chain of distribution difficult for plaintiff’s lawyers, who frequently name any and all possible parties as defendants in a lawsuit, including those who may have had no connection to the product. Accordingly, it is critical to determine at the outset of the case whether you are a properly named party.

In this regard, it is important to investigate whether the product and its component parts are authentic. Many manufacturers include unique product ID numbers on their products, which allow you to identify authentic products on their websites. This can help determine whether a product might be counterfeit. So too can conducting an inspection of the product with an experienced expert.

Even if a product is authentic, you should understand whether it was a product sold by or otherwise related to you. Some retailers require their customers to provide contact information at the point of sale, which can be used to verify a plaintiff’s allegations. This is important for cash purchases in which case a plaintiff’s credit card/bank records would not necessarily refute the claim. Early in a case, a plaintiff should be asked to provide receipts and proof of purchase for their e-cigarette, battery and other device components, some of which may contain waivers of claims/limitations of liability.

Taking the time to determine the authenticity of a product and whether you were involved in the chain of distribution at the outset of the case is one of the best ways to save time and money in connection with defending an e-cigarette claim. Often, it becomes apparent that a plaintiff erred in naming a defendant and a plaintiff may agree to dismiss that defendant early on before they are forced to incur the expense associated with an extensive discovery and motion practice.

The second step we recommend is identifying other potentially responsible parties. If you establish that your company could have manufactured or sold the e-cigarette product at issue, it is important to then consider other potentially responsible parties for a number of reasons. First, it allows you to notify them of the proceeding and ask them to take steps to preserve relevant information. Second, securing their participation and cooperation in any testing of the e-cigarette and battery can be helpful in connection with comparison testing to exemplar products and can spread out the cost of the defense. Third, these parties can often assist in determining your connection to the product through, for instance, their tracking data or purchase records. Fourth, you may also have agreements with these parties that contain indemnification clauses or other provisions that negate your liability. Finally, this helps spread potential risk among the various responsible parties to the extent they are able to contribute to a judgment or a settlement.

Although product liability law varies by jurisdiction, generally speaking, any party in the chain of distribution of a product could potentially be liable. Therefore, we recommend identifying all parties in the chain of distribution for the e-cigarette device and each of its component parts early on, including manufacturers, wholesalers, distributors and retailers. In addition to parties in the chain of distribution of the component part of the device you are alleged to be connected to, you should also investigate parties connected to the device’s other component parts. Oftentimes, such parts are manufactured, distributed and sold by different parties. Because any one of the component parts could potentially cause or contribute to a failure in the assembled device, it is important to identify each distinct component part and all parties in the chain of distribution for each part.

The end user of the device should also be considered a potentially responsible party because a user can cause or contribute to an e-cigarette malfunction in a number of ways. Perhaps the most common user error we encounter is improper battery storage. Keeping batteries loose in a pocket or purse where they can come into contact with metal like loose change or keys can result in a battery short—causing a combustion and the potential for serious injury. Warnings against such storage are frequent in the e-cigarette and vapor industry, and a claimant’s failure to heed these warnings presents an opportunity to argue that the claimant knowingly engaged in dangerous and risky behavior.

Conclusion

As e-cigarette product liability cases become more common, having a proactive business plan before facing a lawsuit can limit exposure before an incident occurs. Once you’re named in a lawsuit, an early litigation strategy focused on product identification issues and identifying other potentially responsible parties allows you to focus your defense on the key issues, which in turn allows for a more narrowly tailored and efficient defense of the case.

This article is intended for informational purposes only and should not be construed as legal advice.