University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

266

Pages:

2
Author:

bratrochanter

Key Concepts in Product Liability Law (Pages 545-548) 1. Punitive Damages  Punitive damages are awarded in tort cases to punish defendants who act with reckless disregard for consumer safety and to deter similar conduct. These damages are typically awarded in cases involving severe negligence, such as hiding known product hazards or failing to meet safety standards. Tort reform measures in some states have capped punitive damages or linked them to compensatory damages to prevent excessive awards. Courts consider constitutional constraints, particularly when punitive awards far exceed compensatory damages. In contrast, punitive damages are rarely awarded in contract cases, including those based on warranty claims. 2. Economic Loss Rule  This rule restricts recovery under tort theories (like negligence and strict liability) for economic losses that result solely from a product damaging itself, rather than causing personal injury or harm to other property. In Giddings & Lewis, Inc. v. Industrial Risk Insurers, Kentucky adopted the economic loss rule, aligning with the U.S. Supreme Court’s decision in East River Steamship. The economic loss rule supports distinguishing contract law (which deals with the buyer’s “benefit of the bargain”) from tort law (which focuses on safety). The court dismissed arguments for a “calamitous event” exception, affirming that losses tied solely to the malfunction of the product itself fall under contract law. 3. Defining the "Product Itself" for the Economic Loss Rule  In determining the scope of the economic loss rule, courts must define what constitutes the "product itself." In Giddings & Lewis, the court ruled that the entire Diffuser Cell System, rather than its individual components, constituted the product, as it was purchased as an integrated unit. The court held that claims for damages to any part of this system were contract-based and thus barred under tort theories. 4. The Privity Requirement in Product Liability  Traditionally, only parties in direct contractual relationships (privity) could sue for product-related damages. This rule has been relaxed in tort cases, allowing consumers and even bystanders to claim against manufacturers or distributors regardless of privity if harm from a defective product was foreseeable. However, in warranty cases under the Uniform Commercial Code (UCC), privity requirements still apply in some instances, limiting recoveries for personal injuries to the buyer’s household or guests.   Tort Cases: The privity rule is mostly obsolete, allowing plaintiffs, including bystanders, to pursue tort claims against remote sellers or manufacturers if the harm was foreseeable. Warranty Cases (UCC § 2-318): Privity requirements remain, though Section 2-318 includes three variations: o Alternative A: Extends warranty to household members and guests, covering personal injuries if use was foreseeable. o Alternative B & C: Broaden the scope of privity somewhat, but application varies by jurisdiction. This section provides insights into the evolving standards for damage recovery, the limitation on tort claims for economic loss, and the nuances of privity in product liability cases. The economic loss rule reinforces the distinction between contract and tort law, while privity in warranty claims remains complex under UCC provisions.