Most manufactures are familiar with the concept of defense and indemnity in connection with contracts between parties.  However, certain states have enacted statutes that require manufacturers to pay for the defense and indemnity of “innocent retailers” where a legal claim arises about their product.  And while not all capture construction products, where they do, these statutory schemes can be very one-sided and often impose unrecognized burdens on manufacturers for completely frivolous claims.

Strict product liability is a legal theory that generically imposes responsibility for harm done by a product on all parties in the chain of commerce that put that product into the market.  This includes the parties from the original manufacturer, downstream to the selling retailer.  As one might expect, this has led to many situations where sellers of products are faced with responsibilities for products they did not design or manufacture.

In response to lobbying from retail groups, many states enacted statutory protections for retailers to help shield them from the burdensome imposition that strict product liability can bring.  States like Arizona, Arkansas, Idaho, Texas and more have enacted statutory programs that are intended to help shield innocent retailers from having to bear extensive claim-related costs for the products they sell.  And while the programs vary, and the exceptions are many, these statutes tend to stand for the idea that when a retailer simply sells a product, without modification or other change, they are entitled to protection from the legal costs and any judgment due to that product from the product’s manufacturer.

As an incorporated component, windows and doors in certain kinds of mass produced homes can be considered as products in various states.  This brings them headlong into a space where the concepts of strict product liability are a risk consideration for residential window and door manufacturers.  And that being so, manufacturers selling into states with statutes protecting innocent retails can find themselves on the hook for defense or indemnity costs to dealers, distributors, or big box vendors.

Manufacturers who are subject to these statues and indemnity demands must take care to cautiously evaluate tenders and demands from those selling their products.  Not only must the statute apply to construction products, but the role of the “seller” must also align with the parties the statute was intended to protect.  Modification or improper use of the product can also disqualify a retailer.  At the end of the day, however, many states require defense and indemnity regardless of whether the claim is valid or supportable.  Some will require defense cost reimbursement even where there is ultimately no finding of defect in the product itself.

Managing these kinds of tenders requires a careful balancing of the statutory obligations between customer relationships and the facts of a claim.  Callous dismissal of a tender, even in the face of a baseless defect allegation, can subject manufacturers to later claims of reimbursement of fees, costs, or awards, for which they had no input or ability to manage.  Good counsel and proactive risk management are essential to avoiding these unbound exposures.