The Insurance Times 2020, The Insurance Times December 2020

CONSUMER PROTECTION ACT 2019: CHANGING TIME TO OWN PRODUCT LIABILITY INSURANCE?

Abstract

The consumer protection act 2019 has come into effect from 20 Jul 2020 which has replaced the three-decade-old act.  New mechanisms to protect the rights of consumers, the establishment of the Central Consumer Protection Authority (CCPA), easier to file the complaints are a few of the steps which shall protect the rights of the consumers.

The manufacturer, the retailer may be liable for compensation if the products or services sold caused harm or injury to the consumer.  The product liability insurance which aims to protect the insured from huge legal expenses including compensation awarded by courts may come to the rescue and can save from huge financial losses to the insureds for inadvertent goofs.

Consumer Protection Act, 2019

Consumer Protection Act 2019 (CPA 2019) received the assent of the President of India on 09 Aug 2019 and came into effect from 20 Jul 2020 thus replacing the three-decade-old Act. There has been a continuous rising of court cases also digital era and e-commerce services have been increased manifolds, thus a strong need to have changes in the act was deliberated over some time.  To protect the rights of the consumer and smoothen the process of filing cases CPA 2019 will ease the process of redressal of grievances and bring consumer awareness.

Highlights of CPA 2019

  • New terms like advertisement, product, product liability, e-commerce has been introduced in the act.
  • The definition of the consumer has been widened to cover the e-commerce transaction. In the earlier version of the act, e-commerce transactions were not specifically included.  This lacuna has been redressed in the act.  Now all types of e-commerce entities related to the sale of goods, services& their returns, refunds have been brought under the ambit of the act.
  • Enhanced pecuniary limits

District Commission (formerly District forum) now can entertain consumer complaints up to Rs. 1 crore which earlier was up to  Rs. 20 Lakh only. Likewise, pecuniary limits of State Commission revised for more than Rs. 1 crore to Rs. 10 crores (earlier Rs. 20 Lakh to Rs. 1 Cr).  National Commission has jurisdiction above Rs. 10 crores.

  • Electronic filing- Earlier consumer had the right to file the complaints at the place of purchase of merchandise or at a place where the seller has the registered office. Now this condition has been done away with.  This act covers the electronic transactions explicitly which were not covered in the earlier act. Now complaints can be filed electronically and hearing can be using video conferencing.
  • Establishment of the Central Consumer Protection Authority (CCPA). CCPA has been constituted with the vision to protect, promote and enforce the rights of the consumer.  It is having powers to investigate, impose penalties, recall, refund, regulate cases pertaining to unfair trade practices, misleading advertisements and protection of consumer rights.
  • Penalties for misleading advertisements. Fine of up to Rs. 1 crore and/or imprisonment upto 2 years on the manufacturer, endorser for false and misleading advertisements can be imposed by CCPA
  • This act provides resolution of disputes through Alternate Dispute Resolution (ADR) methods. Mediation cells shall be formed under the aegis of consumer commissions for early settlements of disputes. This will make adjudication simpler and quicker and alleviate the pressure of an increasing number of cases on courts who already have numerous cases pending before them. If the mediation fails normal hearing will resume at the commission. Source: https://economictimes.indiatimes.com/

 

Liability Insurance in India.

Liability insurance policies are typically meant for coverage for legal costs and payouts imposed by lawsuits, if found legally liable.   In India, we see statutory liability policies i.e. Third Party motor (TPL) Policies and Workmen compensation (WC) are prevalent as these are mandatory in nature by compulsion of motor vehicle act and workmen compensation act.  Other forms of liability policies like professional indemnity, CGL, D & O, Product liability are lesser prominent.

In India, before the enactment of CPA 2019, there was no specific statute that can exclusively cover the disputes pertaining to product liability.  In the absence of  statutory law, courts were guided by the principles of justice, equity and a good conscience and frequently guided by the provisions of English Law.

The famous cited case of Donoghue v. Stevenson lays down the position where one owes a duty of care to another, and if such duty of care is breached, there is negligence irrespective of whether any contractual relationship exists between the parties or not.

In this famous case, Mrs. Donghue went to the café along with her friend.  Her friend bought ginger beer.  The bottle containing ginger beer was opaque.  Mrs. Dongue drank a little beer from the bottle & then pour the rest into a glass.  Along with beer, a dead snail lands in the glass.  Mrs. Donghue suffered from gastroenteritis and shock.  She sued the manufacturer of ginger beer.

The House of Lords held that the manufacturer was liable to pay damages to Mrs. Donghue.  This case laid the foundation of the modern law of negligence. In the Indian context, following certain laws touches the issue of product liability such as

  • The Consumer Protection Act, 1986;
  • The Indian Contracts Act 1872;
  • The Sale of Goods Act 1930;
  • The Drugs and Cosmetics Act, 1945; and
  • The Prevention of Food Adulteration Act, 1954.
  • Food Safety and Standards Act, 2006;
  • Bureau of the Indian Standards Act, 1986;
  • Agricultural Produce (Grading and Marking) Act, 1937;

 

Product Liability and Consumer Protection Act, 2019

With the enactment of the Consumer Protection Act, 2019, the ambit of the earlier Consumer Protection Act, 1986 has been broadened with the aim to simplify the dispute redressal process, cater to fill the gap due to the ushering of the digital era, overhaul the process and settlement of consumer disputes, establishment of Central Consumer Protection Authority are provisions which may necessitate having product liability insurance for manufacturers, retailers etc.

The Act defines product liability as “the responsibility of a product manufacturer or product seller, of any product or service, to compensate for any harm caused to a consumer by such defective product manufactured or sold or by a deficiency in services relating thereto.”

This will impact not only the manufacturer who will be liable to compensate a consumer but also the seller if it fulfills the conditions mentioned in the Act. The Act allows a person to raise a product liability action by means of filing a complaint before a District Commission or State Commission or National Commission electronically, making the process simpler and consumer-friendly.

Each year few products keep on making news sometimes due to wrong reasons, it may be exploding battery of famous mobile phone company or issue of undesired content in famous noodles in recent times.

Product liability insurance is a branch of liability insurance.  Product Liability insurance protects the insured against the claims which may arise due to personal injury, property damage harm by the products sold or supplied through the business.  The cost of product liability insurance varies on various factors, coverages etc.  However, the following case may be of help to ascertain the importance to own adequate liability insurance.

The famous case of product liability in the US history is the case of Liebeck vs. McDonald’s in 1994.  In this case, Stella Liebeck accidentally poured hot coffee bought from McDonald’s over her thighs and groin area.  The spillage of hot coffee caused third-degree burns.

Liebeck’s lawyers argued that the company served coffee at a temperature of 180 to 190 degrees Fahrenheit while other companies served coffee only at around 140 degrees. Liebeck was awarded a jury verdict of $2.7 million in punitive damages and $160,000 for medical expenses.

In the wake of CPA 2019 which broadly covers product liability, the time has come to ponder the necessity of product liability for any business big or small it may be, which manufacture, supplies the products as wholesaler/ retailer.  The products which appear entirely safe sometimes have a tendency to go wrong or to cause damage due to product failure.

Manufacturers and suppliers can be held liable jointly or severally as per the merits of the case. In Ram Shankar Yadav vs JP Associate Ltd I (2012) CPJ 110 NCDRC paragraph 5, the NCDRC observed: ‘In any case, it is settled law that for any manufacturing defect in a product, it is the manufacturer and not the dealer who could be held liable.’

When it is difficult to held manufacturer liable due to many other reasons like presale storage (e.g. storage of cement, chocolates, ice-creams etc.) then manufacturer, dealer, retailers can be held jointly or severely liable (Bhopal Steels vs Govind Lal Sahu & Others III (2008) CPJ 89 NCDRC & Mrs. Rashmi Handa, & Ors v OTIS Elevator Company (India) Ltd & Ors I (2014) CPJ 344 (NC) In Tata Motors vs Rajesh Tyagi and HIM Motors Show Room-II (2014)(1) CPC267, the NCDRC held that:

“We have also taken a view that onus shifts to the manufacturer to show that the vehicle does not suffer from manufacturing defect once the complainant has proved and discharged the initial onus that the vehicle was defective on the basis of large number of job cards showing that vehicle was taken on many occasion for removing one defect or the other. goods sold to the consumer is not only defective but also suffers from manufacturing defect.”

 

The action for product liability can be invoked under CPA 2019 against manufacturer/ supplier if the Product is defective and/ or consumer is charged excessively and/or there are unfair trade practices by the trader.

In order to file a claim under liability, it is mandatory to prove that product was defected and these defects made the product harmful and caused damages. The defects can be categorized broadly in three categories which may give rise to manufacturer or supplier liability.

Design Defects – The defects are caused at the planning phase itself even before the manufacturing.  Such defects make the product inherently unsafe.

Manufacturing Defects – These defects enter in the product during the manufacturing or assembling of the product.

Marketing Defects – inadequate safety warnings, inadequate or incomplete instructions, improper labeling etc. are marketing defects.

Once the consumer has decided to raise the issue the following doctrines shall come to the aid of the consumer.

Res ipsa loquitur (Latin: “the thing speaks for itself”) is a doctrine in the Anglo-American common law which shifts the burden of proof to the defendant(s).  It means if the doctrine invoked effectively, the consumer has not to establish but it shall be the defendant(s) to prove in the court of law that it was not negligent.

Another rule which becomes handy to plaintiffs (consumer in relevance to CPA 2019) in product liability cases is the doctrine of strict liability. If strict liability applies successfully, the plaintiff needs to prove that product was defective.  There is no further need to prove that a manufacturer/ supplier was negligent. However, the consumer shall not have any defence available if has modified, altered, misused the product or failed to follow the security and warning instructions.

 Product Liability Insurance needs of the hour?

The product liability insurance policies shall indemnify the insured against their legal liability to pay compensation including legal expenses of claimants in accordance with the law of the land.  Most product liability policies shall exclude settlements made in countries that operates under the law of US & Canada.

Product liability policies are a specific form of general liability policies which meant to protect from financial & legal consequences which might be caused by bodily injury, property damage to third party while using the product.  There are always chances to go something wrong and manufacturer or suppliers may be vicariously held liable to own up the damages.

This may give rise to a legal dispute.  Although one may want to fight back and may win the case but the legal expenses to win the battle might be very high.    Thus product liability insurance may protect against any claim made by the customer arising due to injury caused by the use of the product.

Usually, it is assumed that liability policies should be owned by big business houses.  Now when the Indian economy is thriving and society is becoming litigious with the awareness of one’s rights, easy access to various redressal forums, the time has come when every business houses including startups should consider owning a product liability insurance.

A small baker, boutique owners, florists, wholesalers, restaurants, food stores can have liability policies to cover themselves from huge legal expenses.  A claim may be triggered if a child playing with a toy has swallowed part of the toy or scare marks turned on the skin while undergoing a routine visit to a beauty salon.

It shall be kept in mind that such policies shall come with certain warranties. Insurers can impose certain warranties like while taking insurance for swimming pools, the warranties can be pool shall be maintained in hygienic conditions along with proper arrangements of safety and operation, availability of lifeguards when the pool is operational.

For food & beverages the imposed warranties may be like insured shall all time maintain hygienic conditions, insured shall take every precaution to ensure food supplied is contamination-free and fit for human consumption with proper packaging etc.

Liability insurance policies are usually claim made policies and have certain exclusions.  These policies do not cover any pure financial losses like loss of goodwill, contractual liabilities, acts of god, liability arising out of any fines, penalties, deliberate non-compliance of statutory provisions shall remain major exclusions under product liability insurance policies.

 

Conclusion.

The liability Insurance market in India is growing at 10.3% and presently of about Rs. 3000 crores.  Liability insurance like other branches of insurance protects the insured against the huge financial losses which may arise due to huge legal costs & awards.

In the current scenario due to pandemic, the world economy is at the verge of global recession, cyber-attacks, as well as cyber frauds, have increased manifolds and this may spur demand for other types of liability insurance policies.  This is the time when not only manufacturers but whole-sellers, retailers should adequately cover themselves with product liability insurance.

With the enactment of CPA 2019, the consumer shall have various rights and it shall be the duty of manufacturers, retailers to service their clients honestly and diligently.  Rising incomes, techno-savvy younger generation, huge consumer demands shall continue to attract large companies to come and invest in India.

It shall be a win-win situation for consumers as well as companies with the growth of the Indian economy.  Thus CPA 2019 was the need of the hour and also the time has come when all the interested parties to look into &seek coverages against legal expenses which may arise due to any product failure.

The new legislation comes with a bundle of accountabilities and responsibilities on manufacturers, suppliers and retailers to serve the consumer and in a true sense making the consumer the real king.

 

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