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Tip: Learn Liability Laws to Mitigate Risk

Distributors and manufactures can both be held liable for faulty products.

Distributors must understand how liability laws apply to them to mitigate that risk, says William Marler, managing partner with law firm Marler Clark, in The Growing Cost of Product Liability.

Marler warns of the dangers of not paying attention to "that microscopic fine print at the end of purchase orders" or accepting new terms without legal advice.

It is important to know which liability laws apply to your company. In some states, only manufacturers can be held “strictly liable," which means they can be held responsible for faulty products without plaintiffs having to prove they were somehow negligent, but in about 40 percent of states the entire chain of distribution is strictly liable, according to Marler.

Distributors may also be at risk if manufacturers have insufficient money or insurance to pay for injuries or damages because plaintiffs will often look for compensation elsewhere in the chain, says Marks who notes that many wholesaler-distributors haven’t adjusted pricing to account for the additional expense.

Marler recommends that distributors form reasonable indemnity contribution contracts between wholesalers and upstream suppliers, as one way to help protect each party from unbalanced liability.

Read more about the risk of product liability and ways to protect against it in The Growing Cost of Product Liability.

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