CPSC Reporting Refresher: When is a company required to report a potential defect?
Recent headlines are making companies increasingly sensitive to potential defective products and their reporting requirements. This advisory is intended to be a short refresher of the legal standards for evaluating whether or not to report a potential defect to the Consumer Product Safety Commission (CPSC). There are two different reporting requirements for products under the jurisdiction of the CPSC:
- Dangerous Products: Manufacturers, importers, distributors, and retailers are required to report to the CPSC under Section 15(b) of the Consumer Product Safety Act within 24 hours of obtaining information which reasonably supports the conclusion that (1) a product does not comply with a safety rule issued under the CPSA, or (2) contains a defect which could create a substantial risk of injury to the public or presents an unreasonable risk of serious injury or death. 15 U.S.C. § 2064(b).
- Lawsuits: Manufacturers are also required to report information about settled or adjudicated lawsuits to the CPSC under Section 37(b) of the Consumer Product Safety Act. 15 U.S.C. § 2084. Only manufacturers of a consumer product are required to report under the second standard. A manufacturer is obligated to notify the CPSC if (1) a particular product model is the subject of three civil court actions, (2) each suit alleges the involvement of the model in death or grievous bodily injury, and (3) the actions result in a final settlement involving the manufacturer or in a judgment for the plaintiff. If all of this happens within a two year period, the manufacturer must report within 30 days of the final judgment or settlement.
The “dangerous product” standard usually creates the most confusion for those trying to determine whether or not they must report a potential defect. Determining whether a defect creates a “substantial product hazard” and whether or not the product creates an “unreasonable risk of serious injury or death” can be difficult. The CPSA Recall Handbook cites to several factors it considers when making these determinations.
Any information obtained by a company indicating a defect, a violation of a safety rule, or an unreasonable risk, could lead to a report. The CPSC has stated that “this information may be in the form of quality control data, product returns, warranty information, customer complaints, lawsuits, or any other information suggesting a product safety problem. Companies should have a system in place to make sure this kind of information is captured and channeled to responsible persons within the company so they may evaluate it and report if appropriate.”
A practical guideline to follow when making such a determination is that the likelihood of the occurrence inversely correlates to the severity of the injury. In other words, the more severe the injury, the less occurrences are necessary to trigger a reporting requirement. See, U.S. v. Mirama Enterprises Inc. d/b/a Aroma Housewares Co., 185 F. Supp. 2d 1148 (S.D. Cal 2002 (upholding a $300,000 civil penalty for failing to report under Section 15(b) until after it had received 23 consumer complaints that allege its electric juicers were exploding because the potential injury was dangerous enough to require earlier reporting). The reverse is also true – the more complaints or occurrences there are, the less severe the injury must be to trigger a reporting requirement. Obviously, if potential injury is highly dangerous and there are frequent occurrences, a company should immediately report to the CPSC.
If a company does report a defect there is fear that the report will fuel unwarranted product liability actions. The CPSC’s interpretive rules offer some protection from such actions by making clear that “[a] subject firm…need not admit, or may specifically deny, that the information it submits reasonably supports the conclusion that its consumer product…contains a defect…or creates an unreasonable risk of serious injury or death.” 16 CFR § 1115.12. In addition, a company that makes timely reports of potential hazards is protected against civil penalties for failure to report and free to demonstrate that its product is neither defective nor unreasonably hazardous. Further, if a recall is necessary, reporting companies can take advantage of the CPSC’s “fast track” program, under which CPSC will not make a preliminary hazard determination if the company promptly began an approved corrective action within twenty working days of the report.
If a company is concerned that it may have a potential defect to report, it should immediately address the issue with legal counsel and product safety experts. As the Court in Mirama stated, “certainty is not the reporting threshold. [Companies] are required to report upon receipt of information which ‘reasonably supports’ the conclusion that there is a defect.”
Additional information relating to reporting requirements can be found on-line at the CPSA website or by contacting Frost Brown Todd LLC.
 The CPSC has jurisdiction over more than 15,000 kinds of consumer products used in and around the home, in sports, recreation and schools. Contact Frost Brown Todd LLC’s team of product liability experts to find out if your company’s product is subject to the jurisdiction of the CPSC.