Anyone who has followed the news in the past year likely has noticed the increasing problems with products manufactured in, and imported from, China, including millions of recalled products ranging from toothpaste to toys. Aside from the concerns you have as a public consumer, you might also wonder what potential liability distributors face if they sell defective products as members of the distribution channel. Here's a quick refresher on product liability law as it relates to distributors:

Traditionally, and especially beginning in the 1960s, all manufacturers and distributors who participated in the production and commercial transfer of a defective product were strictly liable for injuries caused by that product. This included products that were defective, products that had a defective design and cases in which a party to the supply chain failed to warn of a known danger.

The potential reach of that liability included primary distributors who sold the product through the manufacturer's normal distribution channels, regardless of whether the distributor acted reasonably. Courts and legislatures were not so much concerned with whether an actual sales transaction occurred, but rather that the defendant was in the business of placing the allegedly defective product into the stream of commerce.

The early rationale behind this strict liability rule was that it was justified on the grounds that a distributor's position in the marketing process enabled them to exert pressure on the manufacturer to improve the product's safety. The only reprieve distributors received from this strict liability rule was that it only applied to injuries caused by known dangers. Thus, if a product had a latent defect or other invisible design flaw, the distributor was not responsible for inspection of the product.

In addition to strict liability for the distribution of patent defects, a distributor or other “middle man” in the manufacturing, distribution and sales process could also be held liable for negligence. In other words, a distributor could be deemed to have a duty of reasonable care with respect to the distribution of products and was liable for any breach of that duty. This included, for instance, failure by a distributor to warn of the dangers connected with the product's use.

Under either theory of recovery, the threshold requirement for a product liability action was that the plaintiff be able to identify the manufacturer or supplier responsible for placing the injury-causing product into the stream of commerce. Identified parties were potentially subject to liability for compensatory damages, which include out-of-pocket financial expenses and losses and/or damages for pain, suffering and emotional distress and punitive damages—penalties with the potential to amount to millions of dollars.

However, since that time and particularly within the past quarter-century, significant tort reforms have been enacted. Many states have passed product liability statutes with outright limits to a distributor's liability. For instance, under Georgia law, the manufacturer of any personal property is liable for any defective product, but strict liability is not imposed on a “product seller,” which includes anyone involved in placing the product in the stream of commerce. Thus, the Georgia statue excludes a distributor from liability. In Illinois, the law provides for a “seller's exception” to strict liability, which allows defendants whose sole basis of liability is their role in the distributive chain to remove themselves from a product's liability action at an early stage. And under Missouri Law, a seller may be dismissed in a product's liability action if a manufacturer is also named as a defendant. Similarly-themed statutes exist in states including, but not limited to, Nebraska, Colorado, South Dakota and Tennessee.

As legislative tort reformers con-tinue to question the fairness of holding retailers and other non-manufacturing distributors strictly liable for the dissemination of defective products, more and more states have begun following the approach of the Model Uniform Product Liability Act. This statute relieves non-manufacturing product sellers of strict liability unless the manufacturer is not subject to the court's jurisdiction or is likely to become insolvent. Many states also offer non-manufacturing distributors common-law protection from strict liability in tort (and implicitly from negligence) if they have acted as mere conduits of goods that they have no reason to believe may be defective.

While the environment of tort liability for distributors has improved, there are four things all distributors must keep in mind.

1. Be sure to always specifically identify all manufacturers of any and all of the products you distribute;
2. Make sure you've executed due diligence in making yourself aware of any known defects in the products you distribute;
3. Know and undertand the law in each state in which you do business regarding potential liability for distributors;
4. Finally, ask your insurance carrier whether you have adequate product liability coverage and purchase such coverage if your policy doesn't contain it.

Distributors who take these relatively simple steps can avoid being caught up in a potentially devastating defective product liability lawsuit.