Manufacturers Beware

Under the Texas Products Liability Act, Chapter 82 of the Texas Civil Practice and Remedies Code (CPRC), manufacturers are required to provide defense and indemnity to innocent sellers of their products.  This is true regardless of the specific claim against the seller, so long as the allegations arise out of a products liability action. The lone exception to this very broad indemnity obligation on manufacturers arises when the seller is not “innocent,” i.e., negligent or causes the injury by its own act or omission.  

A seller must satisfy three elements to establish the indemnity obligations between a seller and a manufacturer: 1) the claim must be part of a products liability action; 2) the indemnitee must be an innocent seller; and 3) the indemnitor must be a manufacturer.  Absent a finding of independent culpability on the seller, a manufacturer must provide defense and indemnity to a seller of its products who satisfies these three elements.

Products Liability Action

Determining what types of claims are included in a “product liability action” is an essential part of compelling a defendant manufacturer to provide defense and indemnity.  Since many products liability cases will include allegations about a defective product as well as claims about the seller’s negligence, the scope of a manufacturer’s duty to indemnify was unsettled. The CPRC provides that a manufacturer “must indemnify . . . a seller against loss arising from a products liability action except for any loss caused by . . . seller misconduct or negligence for which the seller is independently liable.” The Texas Supreme Court found the definition in the CPRC sufficiently described a manufacturer’s duty, and required indemnity for any and all direct allegations against a seller related to a plaintiff’s injury in a product liability action, excluding only those loses actually caused by the seller. The court reasoned that if the negligence claim against the seller were not part of a product liability action, there would be no need for the exception. Accordingly, all claims including allegations of negligence against a seller are considered part of a products liability action for determining a manufacturer’s duty to indemnify.

Innocent Sellers and Manufacturers

Generally, under Fitzgerald v. Advanced Spine Fixation Sys., Inc., a seller of a product is innocent if they can satisfy the criteria under CPRC Section 82.003 and the claim includes an alleged sale of the manufacturer’s product. CPRC Section 82.003 includes a laundry list of scenarios in which a seller would not be innocent under the act: 1) the seller participated in the design of the product; 2) seller altered or modified the product; 3) seller installed the product on another product; 4) seller exercised substantial control over the contents of the warning or instructions included with the product; 5) seller made express factual representations about the product; 6) seller actually knew of the defect at the time it supplied the product; or 7) manufacturer is insolvent or not subject to jurisdiction of the court.  If a claimant cannot prove that any of these exceptions apply, the seller will likely be deemed an innocent seller eligible for defense and indemnity from the product manufacturer. Under CPRC Section 82.001, a manufacturer is generally defined as “a designer, formulator, constructor, rebuilder, fabricator, producer, compounder, processor or assembler of any product or any component part thereof who places the product or component part into the stream of commerce.”

Conclusion

In enacting the Texas Products Liability Act, the Texas Legislature created a considerably large escape hatch for sellers of products. Although narrow exceptions exist, a seller of products that can affirmatively show it is innocent under the Act will escape liability for any claim asserted against it in a products liability action.  However, the claimant will not likely be left without a remedy and the manufacturer of the alleged defective product is commanded to defend its product and those who place it in the hands of the end users.  

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