Chapter 9 Torts and Product Liability McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Overview The principles of tort law, types of torts, and how each applies in a business context. Rules governing intentional and business competition torts. How liability arises for negligent acts and defenses to liability. Special rules governing products liability.

OVERVIEW OF TORT LAW A tort is a civil wrong where one party has acted, or failed to act, and that action/inaction causes a loss to be suffered by another party. The law provides a remedy for one who has suffered an injury/loss.

SOURCES OF TORT LAW For the most part, tort law is governed by state common law principles. Courts also look to rules articulated by the American Law Institute (ALI) for guidance on applying common law legal principles. (The Restatement of Torts)

CATEGORIES OF TORTS Torts fall into one of three general categories: intentional negligence strict liability

Defamation Defamatory statement Dissemination to a third party Specificity Damages

Special Circumstances Public Figure Standard Privilege Defenses to Defamation Absolute Privilege Qualified Privilege

Belanger v. Swift Transportation, Inc. , 552 F. Supp. 2d 297 (Conn “…the record here contains no evidence capable of showing any improper motive…the employer forthrightness about employee driving records has obvious importance, as evidenced by the federal regulation compelling trucking companies to investigate applicant drivers’ safety records before hiring.” . . .

Trade Libel and Product Disparagement (1) clear and specific reference to the disparaged party or product, (2) knowledge the statement was false, or reckless disregard for the truth, (3) communicated to a third party.

Fraudulent Misrepresentation (1) the misrepresentation was a material fact known to be false by the tortfeasor (or reckless disregard for the truth); (2) the tortfeasor intended to persuade the innocent party to rely on the statement and the innocent party did, in fact, rely on it; and (3) damages were suffered by the innocent party.

False Imprisonment In the business context, a merchant most commonly encounters these circumstances in cases of suspected retail theft. While the merchant has the right to briefly detain a suspected shoplifter-must be cautious about giving rise to a false imprisonment claim when detaining an individual.

Business Competition Torts Tortious Interference with Existing Contractual Relationship (1) had specific knowledge of the contract, (2) actively interfered with the contract, (3) caused some identifiable damages

Mattison v. Johnston, 730 P.2d 286 (Ariz. App. 1986) ‘Under these circumstances a defendant engaged in the same business might induce the employee to quit his job, but he would not be justified in engaging the employee to work for him in an activity that would mean violation of the contract not to compete.” Also consider discussing the Pennzoil/Getty/Texaco case.

NEGLIGENCE When party fails to act reasonably, Even though that party does not intend for harm to occur, The party is still liable for any injuries or damages suffered by another party as a result of the unreasonable conduct.

Elements of Negligence Duty: Did the tortfeasor owe a duty of care to the injured party? Breach of duty: Did the tortfeasor fail to exercise reasonable care? Cause in fact: Except for the breach of duty by the tortfeasor, would the injured party have suffered damages? Proximate (legal) cause: Was there a link between the breach of duty and the damages suffered by the injured party? Actual damages: Did the injured party suffer harm?

Palsgraf v. Long Island Railroad Co., 162 N.E. 99 (Ct. App. N.Y. 1928) “The risk reasonably to be perceived defines the duty to be obeyed, and risk imports relation; it is risk to another or to others within the range of apprehension.”

Comparative Negligence This defense requires a jury to divide up the proportion of negligence committed by the parties in terms of percentage. Successfully asserting comparative negligence reduces (but does not eliminate) the final award to the plaintiff.

Assumption of the Risk (1) the injured party/plaintiff knew or should have known (by virtue of the circumstances or warning signs, etc.) that a risk of harm was inherent in the activity, (2) the injured party/plaintiff voluntarily participated in the activity.

Zeidman v. Fisher, _____A.2d______ (2009 Pa. Super 161) “To grant summary judgment on the basis of assumption of the risk it must first be concluded, as a matter of law, that the party consciously appreciated the risk that attended a certain endeavor. “

STRICT LIABILITY TORTS Strict liability is a concept rooted in the notion that the general public benefits when liability is imposed on those who engaged in certain activities that result in harm to another party, even if the activities were undertaken in the most careful manner possible (without negligence)

Abnormally Dangerous Activities Does activity involve a high degree of risk? Likelihood the harm that results will be great? Is it possible to eliminate/reduce the risk? Is the activity relatively common? Is the location of the activity appropriate? Is there community value that outweighs the danger?

PRODUCTS LIABILITY In a products liability case, the injured party may pursue a legal remedy against the seller under one of three theories: (1) negligence, (2) warranty, or (3) strict liability.

Negligence Courts have found that manufacturers have the duty of care regarding proper design, manufacturing, testing, inspection, and shipping.

Warranty Warranty laws are important protection for purchasers because they impose liability even in the absence of negligence.

Strict Liability The seller is engaged in the business of selling such a product, and The product is expected to and does reach the user or consumer without a substantial change in the condition in which it is sold. Imposed on the seller even though seller has exercised all possible care in preparation and sale of the product.

Defining “Defect” Design or Manufacturing Defect Inadequate Warning Improper Packaging Unavoidably Unsafe

Seller’s Defenses Substantial Change Assumption of the Risk Misuse of Product

learning outcomes checklist 9 - 1 Articulate a basic definition of a tort and identify the source of law governing various types of torts. 9- 2 Give specific examples of how tort law applies in the business environment. 9- 3 Determine the classification of tort based on the conduct of the wrongdoer.

learning outcomes checklist 9- 4 Apply the elements and defenses of the torts of defamation, trade libel, and product disparagement, and discuss its applicability to the business environment. 9- 5 Identify the differences in terms of liability for traditional print defamation and defamation in cyberspace.

learning outcomes checklist 9- 6 Distinguish business competition torts from other intentional torts and understand their applicability in commercial relationships. 9- 7 Recognize conduct that is classified as negligent and identify any potential defenses. 9- 8 Provide alternate theories of liability and defenses when a product is the cause of an injury.