Hunton Retail Law Resource

The CPSC has flexed its regulatory muscle during the first months of 2018 with respect to products that pose risks to children. With the U.S. Department of Justice’s (“DOJ’s”) help, the CPSC secured a $5 million civil penalty against a drug company for its allegedly deficient child-resistant packaging. In December, the DOJ filed a complaint in federal court against the drug company alleging that it knowingly violated the Poison Prevention Packaging Act and the Consumer Product Safety Act by distributing five household prescription drugs with non-compliant child-resistant packaging and failing to report the noncompliance to the CPSC. The complaint alleges that the drug company’s engineers drafted a “risk analysis” memo identifying the packaging as non-compliant. Rather than halt distribution and immediately report the non-compliance to the CPSC, the drug company continued distribution with non-compliant packaging while concurrently developing compliant packaging. The company also waited nearly 15 months before notifying the CPSC of its non-compliant packaging. In January, the federal court entered a consent decree for the matter. The drug company agreed to pay a $5 million civil penalty, implement and maintain a compliance program, and maintain and enforce a system of internal controls and procedures.

In a rare move, the CPSC filed an administrative complaint in February against a distributor who refused to recall three-wheeled jogging strollers. The CPSC alleges that the strollers have a design defect because consumers can operate them without securing the front wheel, allowing it to detach suddenly during use. The CPSC further asserts that about 200 consumers reported front wheel detachments causing injuries to at least 50 children and 47 adults, but the distributor refused to recall or repair the strollers. After obtaining the CPSC’s approval, the CPSC’s staff initiated an administrative enforcement proceeding seeking a determination that the strollers’ defective design presents a “substantial product hazard” and an order that requires the distributor to (1) stop distributing the strollers; (2) notify state and local public health officials; (3) give notice to the public regarding the defect; (4) offer consumers a repair, replacement or refund; and (5) submit a corrective action plan and monthly reports and maintain records for a five-year period.

Recent recalls further reflect the CPSC’s focus on products associated with children. January featured recalls for cribside space heaters, infant rattles, fidget spinner keychains, bassinets and high chairs. February added recalls for infant bodysuits, children’s rompers and children’s sleepwear. With eight recalls, a huge civil penalty and an administrative enforcement action already this year, importers, distributors and retailers should expect the CPSC to continue its heightened focus throughout 2018 on consumer products that may harm children.

Attorneys from Hunton & Williams LLP’s Insurance Coverage practice group weigh in regarding a recent insurance coverage lawsuit involving product contamination claims.

In Blessings, Inc. d/b/a Blessings Seafood v. Houston Casualty Co., No. 1:18-cv-00262-LTS (S.D.N.Y. filed Jan. 11, 2018), a seafood distributor, Blessings, filed a coverage complaint seeking to recover losses associated with a product contamination claim involving Blessings’ raw shrimp product. In processing raw shrimp at its facility in Tucson, Arizona, Blessings discovered that certain shrimp had been exposed to excess sodium during a routine salt bath due to an error in the production process. Subsequent testing and sampling of the contaminated product concluded that the entire batch of shrimp was impaired and unusable.

Blessings sought coverage under its contamination policy with Houston Casualty, which provided coverage for, among other things, the value of contaminated products up to $3 million per insured event. Houston Casualty issued partial payment for Blessings’ direct losses associated with the value of contaminated shrimp, but refused to pay the balance of the claim. Blessings asserts that it is entitled to payment of the balance of its outstanding losses associated with the contaminated shrimp up to the policy’s $3 million limit. In addition to demanding full payment of its losses under the policy, Blessings alleges that Houston Casualty breached its duty of good faith and fair dealing by failing to property and fully investigate the claim, failing to investigate the scope of contamination in a timely manner, and failing to process the claim in a timely manner. The complaint seeks a declaration of the parties’ rights under the contamination policy and compensatory damages for the full amount of its losses, including all sums incurred in investigating and adjusting the claim.

Total Recalls: 23

Hazards: Fire/Burn/Shock (11); Fall (4); Laceration (3); Choke (2); Crash (2); Violation of Federal Standard (1)

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