After Welding Fumes, What Next?

Take steps to manage your product liability risk in 2007.

Product liability laws have long held sellers and distributors in the chain of distribution potentially liable for defective products, regardless of fault. During the last 30 years, however, the mass tort plaintiffs’ bar hijacked laws originally designed and intended to allow persons with legitimate injuries caused by defective products to recover fair compensation. Mass tort, through sheer numbers of claims, allows plaintiff lawyers to shake down an industry, forcing settlement to avoid the ruinous cost and burdens of protracted litigation. Asbestos litigation, now the longest and most expensive mass tort in U.S. history, has involved more than 6,000 defendants and over 600,000 claimants. It has been estimated that the total cost of asbestos litigation will eventually top $200 billion in this country alone. The stakes have risen considerably, and the plaintiffs’ bar is always searching for the next mass tort bonanza.

Welding Fume Litigation
The welding and gases industry understands this reality all too well. The plaintiffs’ bar has invested millions to market and promote a welding fume epidemic in the hopes that it will become the next wave in mass tort litigation. As a result, more than 10,000 welding fume cases have been filed across the country, despite the fact that there is no credible scientific basis to support the claim that exposure to welding fumes can cause permanent neurological injury.

The good news is that juries have been rejecting these claims, at least so far. The welding industry has prevailed in 16 of the 17 cases tried to date. In addition, plaintiffs have suffered a number of behind-the-scenes setbacks that have further eroded the credibility of this mass tort. Three of the initial cases chosen by the plaintiffs to be tried in the multi-district litigation (MDL) were voluntarily dismissed after defendants discovered significant problems in each of those cases. Furthermore, it was discovered that a staggering 70 percent of plaintiffs in the MDL had never sought medical treatment for their alleged welding fume injuries, and 40 percent of the plaintiffs had never been diagnosed with any of the neurological impairments plaintiffs claim are caused by exposure to welding fumes.

Three Steps for Managing Product Liability Risk

STEP 1. Understand the product liability laws applicable to your business.

STEP 2. Examine and evaluate your business practices to limit risk.

STEP 3. Protect your assets.

While these developments are certainly good news, the threat posed by welding fume litigation remains very real. Thousands of cases are still pending. The tide can and will quickly turn if plaintiffs start winning verdicts. But it is not too soon to draw lessons from the industry’s experiences with fume litigation. The next litigation risk cannot be predicted with any better accuracy than the current rash of welding fume litigation, which was unforeseen just a few years ago. The next litigation threat could involve nearly any of the products carried by your company.

The hard lesson to be drawn from welding fume litigation is that your business will always be a target, whether from mass tort liability or ordinary defective product claims. While it is not possible to eliminate your product liability risk entirely, you can take steps to reduce the extent of your risk.

Step 1: Understand the Product Liability Laws Applicable to Your Business
The laws governing product liability vary significantly from state to state, so it is important that you consult with legal counsel to advise you on the applicable product liability laws in the states where you sell or distribute products. Have an attorney review your warranties and disclaimers, as well as examine your sales and marketing practices to determine whether and where you may be subject to jurisdiction outside of your home state.

Step 2: Examine and Evaluate Your Business Practices to Limit Risk
Risk management is only one of several factors to consider when making strategic business decisions, but you should examine and evaluate your business practices in light of your product risk to determine whether they need to be adjusted.

Avoid Repackaging and Relabeling. While private labeling and co-branding can be effective marketing practices, they can expose your business to greater risk. In many states, the repackaging or relabeling of products imposes additional liability for distributors. To the extent possible, products should be sold in the same packaging and in the same manner received from the manufacturer, with all original product and warning labels intact.

Police Your Marketing Practices. Your company can be held liable for representations made in your marketing materials or by your sales force regarding the products you sell. Direct all inquires regarding the safety or safe use of products you carry to the manufacturer’s printed materials, including MSDSs, or to the manufacturer itself. If you sponsor training seminars, have company representatives on hand to demonstrate proper product use and to field use- and safety-related questions.

Review Your Warranties and Disclaimers. Most states allow sellers to limit liability and damages through limited warranties. Make sure your sales documentation includes an effective, conspicuous warranty limiting your exposure to the fullest extent possible. Have your warranties reviewed by counsel to make sure they comply with the law. A written disclaimer that, as a distributor/seller of products, you make no assessment of, or any representation regarding, the design, safety or proper use of any product sold is also a good idea. Where possible, have your customer sign or acknowledge receipt of your disclaimer. While a disclaimer may not insulate your company from liability, it will provide some protection against persons who claim reliance on representations from your company, express or implied, regarding the safety or safe use of products you sell.

Recommend Safety Equipment. Another sound practice is to recommend appropriate safety equipment when selling products. However, be sure to state that the safety equipment is recommended by the manufacturer. Refer to manufacturer MSDSs for recommendations regarding ventilation, respiratory protection, eye protection and protective clothing.

Avoid Hostile Jurisdictions. Tort reform has not been uniformly embraced, and businesses in many industries have been forced to take a hard look at whether the benefits of doing business in certain jurisdictions hostile to business outweigh the risks. Distributors doing business in several states should factor the litigation risk of doing business in jurisdictions hostile to business when deciding whether to expand or continue doing business in those states.

Step 3: Protect Your Assets
Because you cannot eliminate the risk of liability associated with product sales, you must take steps to protect your assets.

Insurance. The first line of defense should always be general and product liability insurance. Have your insurance broker periodically assess your operations to ensure you have adequate coverage. Remember that insurance coverage you have now, as well as coverage you purchased in the past, is a valuable asset that should be protected and preserved. Maintain all insurance policies that have covered your business at any time. Keep information regarding historical insurance coverage readily available, as you may need to notify multiple carriers of a single lawsuit that alleges exposure or injury over time.

Supplement Your Coverage. Coverage for welding fume liability from current operations is generally not available from traditional insurance carriers. Many, if not most, current policies now expressly exclude coverage for welding fume exposure. Fortunately, several distributors have established a risk retention group to cover this gap in current coverage. While not traditional insurance, it provides limited coverage for welding fume risks moving forward, and may be retroactive to the expiration of coverage under existing insurance.

Indemnity Agreements. Ask your manufacturers to agree to defend and indemnify you in the event you are sued for selling their products. Some welding rod manufacturers have agreed to defend or indemnify distributors from liability arising from welding fume litigation. Review the terms carefully. Determine whether the manufacturer has agreed to indemnify you against any judgment, to defend you if sued, or both. Determine whether the manufacturer is bound to defend and indemnify, or if it has the option to defend and indemnify, or if it reserves the right to revoke its agreement. These terms may not be negotiable, but you need to a least understand what level of protection is being provided.

Structure Your Business Assets. Many small businesses retain significant earnings and assets in the business. This strategy may put years of your success and hard work at risk from a single judgment. Consult counsel for ways that your company can be structured to protect and shield your assets in the event of catastrophic liability.

Consider these tips and remember the adage: An ounce of prevention is worth a pound of cure.

Gases and Welding Distributors Association
Meet the Author
Michael Degan is GAWDA’s Joint Defense Fund Coordinating Counsel for Welding Fume Litigation and a partner with Blackwell Sanders Peper Martin LLP in Omaha, Nebraska. Members can reach him at (402) 964-5000 and at mdegan@blackwellsanders.com.