Liability Law - Economic analysis of defective products

III. Liability Law: Economic analysis of defective products

A. Introduction

The Stella-Liebeck-Award^[1], annually conferred to the most absurd but successful US-lawsuits in tort and especially products liability, shows plainly the controversy inherent in product liability: on the one hand, it is an effective means of protecting consumer’s legitimate interests more intensely than warranty alone would allow. On the other hand, people willing to extract enormous sums of money are readily served when filing a claim for alleged product liability, however small the liability of the producer (and however large their own liability) may be. Whether such outcomes are economically tolerable and which forms of products liability prove socially and economically efficient will be discussed in the following paper after having outlined the basic German and US product liability rules.

B. German product liability law

I. Product liability

Apart from warranty, which is not subject of this paper, and judicially developed tortious liability (see below), German legislation moulded EG-directive 85/374/EWG into the Law of Liability for defective products (ProdHaftG), which came into effect 1990. Aiming at consumer protection, the law states producers’ strict liability for damages resulting from a defective product^[2] and therefore does not contain the elements of fault and illegality of conduct. Furthermore, it is mostly classified as indispensable and compulsory law^[3]. The elements of a claim will be shortly defined in the following.

1. Product

A product according to § 2 ProdHaftG is every mobile item according to § 90 BGB, even if it is fixed to an immobile item^[4] ; a prior use of a product does not change this quality^[5]. For specific products, numerous judicial decisions exist^[6]. Services are not to be deemed as a product^[7].

2. Product defect

A product defect as defined in § 3 ProdHaftG is the deviation of the product’s security from the standard justly expected from the form of its presentation, its usage and the time of its launch – an objective standard defined by a vague legal term^[8] to fit the average consumer (or, as another legal opinion argues, the general public^[9] ), not a personal expectation of security^[10]. As legislation conferred the criteria of faults developed in producer’s liability upon ProdHaftG, defectiveness is defined as fault of construction, of manufacturing or of instruction^[11] and is to be judged at the time of its market launch, which leads to two conclusions: the later launch of an improved product does not invoke defectiveness of the former version^[12] and, secondly: insights concerning product security resulting from the producer’s duty of surveillance after the market launch do not thereinafter change the product’s evaluation as safe^[13]. Although the duty of instruction is a much extended one, it does not exist in cases of the danger’s being known to the average customer^[14] or being provoked by misuse or unintended use^[15]. Thus, the producer can exculpate when a fault was prompted by distribution^[16], was due to legal provisions^[17] or sufficed the stand of scientific and technical knowledge when put in circulation^[18].

3. Infraction on an object of legal protection

§ 1 ProdHaftG enumerates a narrow range of objects of legal protection: only infractions on life, bodily integrity and health are suitable to bring about liability. As to infractions in rem, the item has to be different from the product itself^[19] and must have been used for private reasons, excluding professionals from exhibiting product liability for infractions on property^[20]. Due to the fact that product liability is tort liability, a contractual or other relationship between the injured party and the violator is not an element for liability^[21].

4. Indemnifiable violators

Firstly, the producer, i.e. the manufacturer of the product itself, its parts and any basic material is held liable. § 4 I 2 ProdHaftG extends this liability to quasi-manufacturers, i.e. those persons or entities who mark a product with their name or trademark, § 4 II to importers. Jurisprudence included as well assemblers and licensees^[22], but not distributors except in the case that the producer is unidentifiable^[23].

If several persons or entities are liable, they will be held jointly and severally liable, but with the obligation of compensation among them^[24].

5. Default and burden of proof

§ 1 IV 1 ProdHaftG states that the plaintiff assume burden of proof for the fault of the product, damage and causation between fault and damage, whereas the defendant has to demonstrate disclaimers and limitations to liability. Although this distribution seems fair, the plaintiff’s burden of proof involves a higher risk and higher cost, as the proof requires profound knowledge of the development and the production process – which both lie in the sphere of the producer, and will not be openly conveyed, but only be determinable by expert witnesses^[25]. The producer, on the other hand, is able to establish proof based only on knowledge and recordings already available in his sphere. Because of this inequality, judicially recognized facilitations for the proof of a product defect or causality, like the prima facie evidence, are not excluded^[26].

6. Recoverable damage

As product liability guarantees (private and professional)^[27] consumer’s interest in integrity of objects of legal interests^[28], recoverable damages are all which resulted in an infraction to life, bodily integrity and health, which are e.g. cost for recovering, for increased needs or as compensation for decreased earning capacity^[29]. Since the Reform of the law of obligations in 2002, § 253 II BGB expressly includes as well compensation for pain and suffering^[30]. For personal injury, § 10 I ProdHaftG caps damages to € 85 Mio. As far as damages to an item are claimed, the item must have been used privately and § 11 ProdHaftG provides a fixed deductible of € 500.

7. Disclaimer and limitation to liability

§ 1 II, III ProdHaftG states several disclaimers to liability: among others, the producer can exculpate if he did not deliberately put in circulation the product, which avoids liability for abstracted products, debris^[31] and parts delivered for further production^[32], and if he did not produce/market the product for business reasons^[33]. Liability is as well limited in temporarily: claims arising from ProdHaftG expire ten years after market launch^[34] and become time-barred in the course of three years after the injured party’s knowledge of damage, fault and indemnifiable violator^[35]. If the conduct of the injured party contributed to the damage, § 6 I ProdHaftG states a proportional reduction of liability according to the principle of § 254 BGB^[36].

II. Producer’s liability - § 823 I BGB

Prior to the adoption of ProdHaftG, German jurisprudence based claims on product liability on tort liability, especially § 823 I BGB. Liability is founded on the violation of the legal duty to take care^[37], which led to the definition of several types of faults: defective development or construction, defective manufacturing and lack of instruction^[38]. As in ProdHaftG, § 823 I BGB is only applicable if the injured object of legal interest is an enumerated one.

Although § 823 I BGB demands the injured party to prove the violator’s default, jurisprudence assumes default as soon as a duty of care was not duly observed, which shifts the burden of proof to the producer^[39]. Proof of other elements, i.e. fault and causality, is as well facilitated by the admission of prima facie evidence^[40]

Altogether, the criteria developed for the so-called producer’s liability are in accordance with those later introduced in ProdHaftG. Differences occurring are the following:

- In producer’s liability, a duty of surveillance and recall^[41] extends producer’s liability: whereas ProdHaftG judges liability only to faults prior to the market launch, producer’s liability demands continuing observation and immediate reactions, if faults are detected^[42].
- The producer might seek exculpation for outliers and inevitable faults in development in producer’s liability, but not in product liability^[43].
- Quasi-Producers and importers, according to producer’s liability exempt from liability, can be claimed against in ProdHaftG, which considerably extends the range of indemnifiable violators.
- Damage to the item itself or an item other than the product itself, which was used in a professional background, can only be recovered by producer’s liability only^[44].
- Producer’s liability is not limited to a period of ten years after the market launch of a product as stated in § 13 I 1 ProdHaftG.
- With producer’s liability, no caps on damages or fixed deductibles as in §§ 10, 11 ProdHaftG exist^[45].

III. Other bases for claims

§ 823 II BGB protects all and every object of legal interest and bases liability on the deliberate or negligent lesion of a protective law and assumes default^[46]. Protective laws, which must not only aim at the protection of the general public, but as well at the protection of special interests of individuals or a small group of persons, exist in a wide range, for example the law on security of products and devices (GPSG)^[47], the law on the security of medical products (AMG)^[48] or trade regulations (GewO).

In cases of deliberate breach of a duty to take care, § 826 BGB states liability for unconscionable behaviour, unconscionability involving serious disproportionateness of the used means and the intended aim^[49]. Not allowing a shift of the burden of proof, jurisprudence imposes a high risk of proof on the injured party^[50].

If not the producer itself, but its vicarious agent has provoked an injury due to a defective product, § 831 BGB allows to attribute the agent’s default to the producer, as the means of exculpation provided is mostly failing or leading to liability according to § 823 I because of a lack of organisation in the production process (invoking defectiveness in the product)^[51]. Liability of the employee himself is narrowly limited to superior managers^[52].

Furthermore, specialised laws such as the law on the security of medical products (AMG), the law on nuclear power (AtomG) and the law on genetic engineering (GenTG) provide bases for claims, which are to be classified as strict liability, but contain caps on damages^[53].

[...]

^[1] http://www.stellaawards.com.

^[2] Schlutz, Produkthaftungsgesetz, p.791.

^[3] Westphalen, Das neue Produkthaftungsgesetz, p.92, Kullmann; Produkthaftungsgesetz p.155 et seq.

^[4] Kullmann, Produkthaftungsgesetz p.67.

^[5] Kullmann, Produkthaftungsgesetz p.68.

^[6] Pott/Frieling, ProdHaftG, p.107 et seq.

^[7] Schlutz, Produkthaftungsgesetz, p.791; Wagener, Produkthaftung Deutschland-USA p.33.

^[8] Kullmann, Produkthaftungsgesetz p.83.

^[9] Pott/Frieling, ProdHaftG, p.140 et seq.

^[10] Schlutz, Produkthaftungsgesetz, p.792; Westphalen, Das neue Produkthaftungsgesetz, p.87 et seq.

^[11] Wagener, Produkthaftung Deutschland-USA p.45.

^[12] cf. § 3 II ProdHaftG; Kullmann, Produkthaftungsgesetz p.98.

^[13] Schlutz, Produkthaftungsgesetz, p.792, Westphalen, Das neue Produkthaftungsgesetz, p.88 et seq.

^[14] Katzenmeier, Entwicklungen des Produkthaftungsrechts, p. 946.

^[15] Katzenmeier, Entwicklungen des Produkthaftungsrechts, p. 947.

^[16] as he only is responsible for fault occurring in his sphere, cf. § 1 II Nr.2 ProdHaftG.

^[17] Cf. § 1 II Nr.4 ProdHaftG.

^[18] Cf. § 1 II Nr.5 ProdHaftG.

^[19] Cf. § 1 I 2, Kullmann, Produkthaftungsgesetz, p.33 et seq.

^[20] Cf. § 1 I 2 ProdHaftG; Westphalen, Das neue Produkthaftungsgesetz, p.84.

^[21] Wagener, Produkthaftung Deutschland-USA p.5, 18.

^[22] Schlutz, Produkthaftungsgesetz p.793.

^[23] cf. § 4 III ProdHaftG.

^[24] Kullmann, Produkthaftungsgesetz p.125 et seq.; Pott/Frieling, ProdHaftG, p.235 et seq.

^[25] Wagener, Produkthaftung Deutschland-USA p.15 et seq.

^[26] Kullmann, Produkthaftungsgesetz p.64.

^[27] Westphalen, Das neue Produkthaftungsgesetz, p.83.

^[28] Wagener, Produkthaftung Deutschland-USA p.61.

^[29] Anderle, Haftungsumfang p.54 et seq.

^[30] Wagener, Produkthaftung Deutschland-USA, p.87, 102 et seq.; Westphalen, Das neue Produkthaftungsgesetz, p.92.

^[31] Schlutz, Produkthaftungsgesetz, p.793.

^[32] Kullmann, Produkthaftungsgesetz, p.45 et seq.

^[33] Cf. § 1 I 2 Nr.3 ProdHaftG.

^[34] Cf. § 13 I ProdHaftG; Wagener, Produkthaftung Deutschland-USA p.39 et seq.

^[35] Cf. § 12 I ProdHaftG; Kullmann, Produkthaftungsgesetz p.145 et seq.

^[36] Westphalen, Das neue Produkthaftungsgesetz, p.92; Anderle, Haftungsumfang p.96 et seq.

^[37] Schlutz, deliktische Produkthaftung, p.709.

^[38] Schlutz, deliktische Produkthaftung, p.709.

^[39] Schlutz, deliktische Produkthaftung, p.712.

^[40] Schlutz, deliktische Produkthaftung, p.791.

^[41] Schlutz, deliktische Produkthaftung, p.709.

^[42] Pott/Frieling, ProdHaftG, p.342 et seq.

^[43] Schlutz, Produkthaftungsgesetz, p.791, p.794; Wagener, Produkthaftung Deutschland-USA p.10.

^[44] Cf. § 1 I 2 ProdHaftG; Anderle, Haftungsumfang p.105.

^[45] Anderle, Haftungsumfang p.151; Kullmann, Produkthaftungsgesetz p.142.

^[46] Pott/Frieling, ProdHaftG, p.357 et seq.; Wagener, Produkthaftung Deutschland-USA p.31.

^[47] Wagener, Produkthaftung Deutschland-USA, p.103.

^[48] Wagener, Produkthaftung Deutschland-USA p.8.

^[49] Schlutz, sonstige Haftungstatbestände, p.1812.

^[50] Schlutz, sonstige Haftungstatbestände, p.1813.

^[51] Pott/Frieling, ProdHaftG, p.363ff; Wagener, Produkthaftung Deutschland-USA p.122.

^[52] Wagener, Produkthaftung Deutschland-USA p.80.

^[53] Schlutz, sonstige Haftungstatbestände, p.1813.