How Product Liability and Workers Compensation Interact

When a product – anything that is manufactured – fails to perform its intended function, and the failure of the product causes an injury, the person injured has a products liability claim against the manufacturer. When the product fails while being used by an employee causing a workers compensation claim, the workers compensation insurer can bring a subrogation claim (the right to recover) against the manufacturer.

To illustrate this, think of the Warner Bros. cartoon Road Runner where the main character, Wile E. Coyote, is always going about his job of catching the Road Runner. As Wile E. describes himself in some of the cartoons as “super genius”, he realizes he has a dangerous occupation, and therefore, even though he is self-employed, he has purchased workers compensation insurance. Wile E. often purchases products from the Acme Corporation (even though many of the products failed to perform as intended). One of his favorite tools in his business of trying to catch the Road Runner is the stick of dynamite. If Wile E. lights the fuse on the stick of dynamite, and Wile E. ends up in the wrong place at the wrong time, he gets a blacken face from the stick of dynamite. He has a work comp claim, but he does not have a products liability claim. On the other hand, if Wile E. is holding the stick of dynamite and the dynamite’ fuse malfunctions blowing Wile E. up, he has both a workers’ compensation claim and a products liability claim.

The product that malfunctions, like Wile E’s stick of dynamite, is the most common several types of products liability claim, but product malfunctions are not the only cause of product liability claims. In general, there are four types of product liability claims. They are:

1. Products that are defectively manufactured
2. Products that have a design flaw, also known as defective design.
3. If a defect cannot be designed out of a product, a “fail safe” safety guard must be installed.
4. Products that fail to provide adequate warnings of their danger if misused

The most common product liability claims that are also workers compensation claims is the manufacturing defect. In the construction industry employees are often working with various pieces of equipment that can malfunction, for example – ladders and scaffolding. If the employee is climbing the ladder and half way up one of the ladders rungs was installed incorrectly when the ladder was manufactured, resulting in the employee falling and being injured, the manufacturer of the ladder has a products liability claim to contend with. If the scaffolding’s cross brace is not welded correctly, and the scaffolding collapses causing injury to the employee(s), the manufacture has a products liability claim. [As a side note: There were so many subrogation claims from work comp insurers in the 1970s and 1980s against ladder manufacturers and scaffolding manufacturers, that some went bankrupt, but others improved their product quality to a much higher level, resulting in much safer equipment]. Not to get too complicated, but the locking mechanisms on casters on the scaffolding can also fail; since these are typically manufactured by a different company than the scaffolding manufacturer, this would also result in a product liability claim.

Defective equipment can also lead to employee injuries. The most common example of this is the older hydraulic press or the hydraulic punch used in a factory. The hydraulic press would cut a form out of a flat sheet of metal or leather or other material. With the older equipment the employee pushed a button and the hydraulic press punched/cut the design in the material. After the press hits the material being cut, the employee reaches in and removes the cut-out piece. Combine this process with the employee being paid by the number of pieces produced and you end up with a lot of one-hand employees. While this is human error, it was also a design flaw that was easily fixed. The hydraulic presses manufactured today have two buttons, set wide apart, and both buttons must be pushed at the same time, forcing the employee to have both hands on the buttons, away from the hydraulic press, when press operates.

Some equipment has guards that can be removed for machine maintenance, or faster or easier operation. The machine should be manufactured “fail safe” so if the guard is removed the equipment will no longer function. In other words, if the guard fails, it fails safe. Failure to guard is a separate cause of action.

Almost all product liability claims now have a component for failure to adequately warn. There are workers compensation claims that arise out of the failure to warn by product manufacturers. For example, many janitorial cleaning supplies work great when utilized in accordance to the manufacture’s recommendations. However, as most cleaning supplies contain chemicals, often they cannot safely be mixed with other cleaning chemicals. If the janitor mixes bleach with ammonia from two different cleaning products, a dangerous chloramines fume, which can be toxic or even fatal, is released. If the manufacturer of the bleach does not have a warning label on the bottle to not mix it with other cleaning products containing ammonia, the manufacturer of the bleach has a products liability claim and the workers compensation insurer that covers the janitor has a work comp claim with subrogation rights.

The workers compensation adjuster (the employer, too) should always review the cause of injury to determine if there is subrogation – the right to recover – against the manufacturer of the product, item or equipment the employee was using at the time of the injury. If the product malfunctioned, was designed poorly, or, failed to warn about the potential hazards of using it, and the employee is injured, the insurer has a right to pursue the recovery of the cost of the claim from the products manufacturer. Now, I wonder if the insurer of Wile E. Coyote will pursue all the subrogation claims against the Acme Corporation.

As an employer, you must include a provision in your account instructions that all workers compensation claims involving products or premises of another person or company must be reviewed for subrogation potential. Don’t rely totally on the insurance company (or TPA) to do this, your in-house counsel or litigation manager should take a look at these large claims to make sure the claim has been reviewed by a competent person at the insurance company and that you agree with their assessment of the potential to name a third party in an action to recover your payments — in other words, was another company more responsible for the injury than your company. In some states the damages are apportioned between responsible parties; however, in other states if the employer has ANY responsibility then there is no subrogation potential.

Although, it is much more complex than the discussion above, and involves numerous defenses, be aware that many workers compensation claims – particularly those that occur on machines and industrial equipment – have a component of product liability exposure under at least one of the four legal theories above. Your outside counsel or in-house legal department can provide more complete information about product liability claims.

Author Rebecca Shafer, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. See www.LowerWC.com for more information. Contact: [email protected]

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