Imported Products

In early 2015, CBS’s Sixty Minutes program launched a national furor over a flooring retailer’s laminate flooring by alleging that it contained unsafe concentrations of carcinogenic formaldehyde. This scandal had the feeling of déjà vu: many journalists and members of the public thought of the Chinese drywall scandal that came to light just a few years earlier and is still being litigated.

In 2018, a widely sold Chinese-manufactured drug became the subject of a global recall when it was discovered that it may contain a carcinogenic substance.
American consumers and companies often have little recourse against the manufacturers of faulty imported products if they are injured: One interest group charged that foreign manufacturers continue to export products worth billions of dollars of merchandise into the U.S. while avoiding legal responsibility by claiming they were not subject to U.S. legal processes; some manufacturers may simply refuse to pay. Forcing compliance can be difficult. Insurance is essential, but complicated, as more products and product components are sourced overseas.

Background

Drywall is a widely used construction material also known as gypsum board, wallboard, plasterboard, sheetrock, and gyproc. In 2006 and 2007, U.S. builders and suppliers imported 100,000 homes’ worth of Chinese drywall in response to shortages resulting from the housing boom and post-Hurricane Katrina building demands. Some of the drywall was found to be potentially hazardous to human health or potentially damaging to objects or systems within homes. The Consumer Product Safety Commission (CPSC) received thousands of reports of unsafe drywall and estimated that thousands of additional homes might be affected. A large multi-district litigation was soon underway.

Laminate flooring imported from China came under scrutiny in relation to its use of what are normally low levels of formaldehyde to bond layers together when it was discovered that some laminate flooring had been manufactured with excessive amounts of formaldehyde. This practice decreased manufacturing costs but raised off-gassing above standards set by the California Air Resources Board (CARB), a proxy for safety in the absence of a national standard. Formaldehyde, which is present in trace amounts in many homes, is widely considered to be a carcinogen. Excessive formaldehyde in floors is particularly concerning because infants and young children spend so much time sitting and crawling on floors. As of 2018, a national flooring retailer that sold the product is in the process of settling a multi-district litigation without admitting liability.

Some drugs containing Chinese-made Valsartan, a component of certain heart-related medications, have been recalled in 2018 after it was discovered that the drugs may have been tainted by the NDMA, a substance linked to an increased risk of cancer. Twenty-two other countries have also recalled certain drugs listing Valsartan as an ingredient. NDMA is an organic chemical that is sometimes used in liquid rocket fuel manufacturing and can be a byproduct of pesticide manufacturing and fish processing.

Injuries and Damages

A variety of imported products have caused concern and led to lawsuits or received significant attention and may generate litigation, including those addressed below.

Chinese Drywall
Complaints generally allege that the Chinese drywall off-gassed excessive levels of sulfur, a tendency that is particularly prone to happen in warmer, more humid climates. The compounds are alleged to cause odors and corrode copper wiring, which is an element that is critical to the safe functioning of electrical wiring and appliances, particularly air conditioners. Homeowners alleged that the sulfur compounds emitted a noxious odor, like rotten eggs, and that the presence of Chinese drywall devalued their homes. Some allegations focus on health concerns. The off‐gassing allegedly caused allergic reactions, coughing, respiratory problems, sinus problems, throat infections, eye irritation, and nosebleeds in individuals living in Chinese-drywalled homes. [MDL-2047 Chinese-Manufactured Drywall Products Liability Litigation (E.D. La.)]

Laminate Flooring
In 2018, flooring distributor Lumber Liquidators agreed to settle, for $36 million, a multidistrict litigation brought in 2015 involving allegations that some of its Chinese-made laminate flooring contained dangerously high levels of formaldehyde, a carcinogen, and was not as durable as promised. The flooring sold by Lumber Liquidators allegedly contained up to seven times the legally allowed amount of formaldehyde, exposure to which can trigger eye, nose and throat irritation, nausea and headaches. [n re: Lumber Liquidators Chinese-Manufactured Laminate Flooring Products Marketing, Sales Practices and Products Liability Litigation, Case No. 1:15-md-02627, and In re: Lumber Liquidators Chinese-Manufactured Laminate Flooring Durability Marketing and Sales Practices Litigation, Case No. 1:16-md-02743 (E.D. Va.)]

Valsartan
In 2018, it was reported that Valsartan, a Chinese-manufactured blood pressure drug sold worldwide may have contained an impurity known as N-nitroso dimethylamine (NDMA) since 2012. NDMA is classified as a probable human carcinogen. The European Medicines Agency (EMA) raised the issue in July 2018 and the U.S. Food and Drug Administration (FDA) took action to recall impacted valsartan-containing medicines. Industry observers have noted that the situation shows how heavily consumers rely on drugs that contain active pharmaceutical ingredients manufactured in China, accordingly, lawmakers have been intensifying the oversight of foreign drug factories.

Legislation and Regulation

Product liability refers to a manufacturer or seller being held legally responsible for placing a defective product into the hands of the consumer.

Manufacturers of products operate under regulations intended to ensure that the products meet the ordinary expectations of the consumer. If an imported product liability issue cannot be addressed by governing law or by the contract between the parties, private international laws may apply. Safety standards for products have steadily increased in several countries, including Europe and Asia, and lawmakers have sought to harmonize the laws as much as possible.

Most product liability laws in the U.S. are based on a theory of strict liability. The concept of strict liability also applies under European Union (EU) laws, holding producers and manufacturers responsible for damages caused by product defects, while imposing a cap on compensation per defect. Australia’s laws are similar to EU mandates. Taiwan imposes strict liability whereas Japan does not; Japan’s laws allow a manufacturer a defense on the grounds of not knowing about the defect at the time of sale, and a time limit for claimants seeking compensation. Hong Kong applies a “reasonable safety” product law to toys that references international toy safety standards.

Under a Chinese law enacted in 1994, manufacturers must uphold certain standards for products and insure that the product does not pose an unreasonable danger to the consumer -- or risk being held liable for damages to property and individuals. Time limitations within which to submit claims apply, and claims may be defended if the maker did not put the product on the market, did not know about the alleged defect at the time of sale or if the defect was not present at the time of sale. The law was amended in 2014 to provide that the consumer no longer had to prove non-conformity with quality warranties if the non-conformity was discovered within six months. Also, products purchased at a distance became returnable under certain circumstances.

Liability and Insurance

Sourcing products and manufacturing capability overseas is a common strategy employed by U.S. companies to keep costs down, but that makes it difficult to control the quality of raw materials and production methods. The procurement of all types of applicable insurance becomes a critical issue; insurance for defective products, particularly defective products that are recalled, is particularly problematic. U.S.-based importers must confront issues such as whether they can control, or at least participate in, the defense of any product liability lawsuit.

Ideally, the insurance company used should be U.S.-based and demonstrably solvent, and the insurance policy should require a low self-insured retention of the insured. It must be verified that the insured will agree to jurisdiction in the U.S., and it must be clarified as to what happens if the foreign manufacturer goes bankrupt and stops paying the insurance premiums. To be safe, the foreign manufacturer must agree to provide required documents in English and qualified personnel in the case of a U.S.-brought products liability case.

Litigation

Litigation over imported products may include allegations of negligence, strict liability, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, and violation of certain state unfair trade practices acts. Such litigation is certain to be complex, lengthy and expensive. For example, while some claims against certain Chinese drywall producers have been resolved over the past few years, the consolidated case in federal court in Louisiana involving liability from multiple manufacturers is still active.

Future Outlook

The number, complexity and cost of product liability claims for imported goods is rising as globalization rises, putting considerable pressure on insurers to provide customized products and advice to protect U.S. importers.

In the News

2018

• Chinese drywall still haunting Norfolk court, residents, 10 years later - Kimberly Pierceall, The Virginian-Pilot (12/26/2018)
  It was January 2009 when Michelle Germano found out the Ocean View condo she bought at the height of the housing market was making her ill. . . . Its Chinese-made drywall harbored hydrogen sulfide, which destroyed electrical wiring, fried appliances, corroded personal items and sickened residents. . . . And nearly a decade after Germano became the lead plaintiff in a federal lawsuit against the drywall maker Taishan Gypsum Co. and Beijing New Building Materials Public Limited, she sat in a Norfolk courtroom still waiting for resolution. . . . The case is back in Norfolk's federal court after spending years in Louisiana as part of a class-action suit, and now Germano is joined by 174 other plaintiffs. At a hearing Dec. 18, it took more than an hour for lawyers to simply catch up two federal judges on the case’s long history.

2017

• Safety standards reveal double standards by IKEA - Sun Xiaobo, Global Times (11/30/2017)
  Child safety can never be over-emphasized and all children deserve equal care. However, after another tragic toddler death by way of an IKEA furniture item, IKEA has announced it will be again recalling the dangerous drawer sets in the US and Canada, yet not in China - clearly showing the company's double standards. . . . The Swedish furniture company re-launched a recall of all Malm dressers and chests and some other items on November 21 in the US and Canada, in all around 22 million products, after a 2-year-old boy in California died in May when he was crushed by the poorly designed IKEA Malm chest. This is the eighth death from a fallen IKEA dresser around the globe since 1989. . . . It seems that IKEA's efforts to recall chests and dressers in June and November last year were not enough and the message was not well spread. IKEA didn't include China in its recall list last year until quality watchdogs in China stepped in, yet the latest reminder of recall again failed to include the company's biggest market.
• Nationwide sues hoverboard importer, sellers over fire - Mark Williams, The Columbus Dispatch (05/18/2017)
  
  A hoverboard that caught fire nearly a year ago and caused more than $75,000 in damage to a house in western New York has led to a lawsuit filed by Nationwide. This week, the insurer sued two companies and an individual that sell and distribute hoverboards. The Columbus-based insurer aims to recover the money that it spent on the claim along with the deductible that the homeowner paid. Nationwide alleges the hoverboard was defective. Hoverboards resemble a motorized skateboard. Fictional hoverboards that float over the ground and operate like a traditional skateboard were depicted in the "Back to the Future" movies. The lawsuit, filed in federal court in western New York, alleges that the hoverboard was bought by a child related to Catherine Burton-Girandi, who purchased a Nationwide policy to insure her home in the town of Horseheads, New York.

2015

• Chinese drywall suit and Chinese government agencies - Janet McConnaughey, YahooNews (09/07/2015)
  More than a year after suing the Cabinet agency that oversees China's biggest state-owned companies, lawyers for people who say their homes were ruined by drywall made in China are still trying to get the lawsuit served on the State-Owned Assets Supervision and Administration Commission.
• 'Legal firewall' shields Chinese firms from lawsuit - AP, Daily Mail (05/05/2015)
  The report published Tuesday by the U.S.-China Economic Security Commission says that Chinese companies operating in the U.S. have built a legal firewall that keeps them largely immune from the jurisdiction of U.S. courts and regulatory agencies.

2014

• U.S. companies wary of suppliers’ conflict minerals - Teresa F. Lindeman , Pittsburgh Post-Gazette (07/09/2014)
  U.S. public companies have been studying their supply chains for the past year or more trying to figure out whether their suppliers — or their suppliers’ suppliers — might be using minerals mined in a part of the world where armed conflict has created a humanitarian crisis…The various company filings bring home the global nature of the supply chain that brings goods to Americans.

2012

• $13M settlement reached in Chinese drywall cases - Josh Brown, Virginian-Pilot (06/21/2012)
  In one of the most important steps in the local saga over tainted Chinese-made drywall, attorneys announced Wednesday that a $13 million settlement has been reached between homeowners whose properties were built with the product and some of the companies they sued.

Additional Items

• FDA widens its recall of tainted blood pressure drugs
  Do you know someone with high blood pressure? Be aware that the FDA has widened its recall of tainted blood pressure medication containing the drug valsartan. A limited recall began in July but has since been expanded to this list of drugs. . . . The impurity in question, N-nitrosodimethylamine or NDMA, which was detected in several batches, is considered a possible carcinogen by the Environmental Protection Agency. It is an organic chemical that has been used to make liquid rocket fuel, and it can be unintentionally introduced through certain chemical reactions. It’s also a byproduct of the manufacturing of some pesticides and fish processing, according to CNN.