California Seeks to Expand Manufacturers’ Liability

Currently, in California, when a product performs as promised through an express warranty, there is generally no liability risk for manufacturer. The law governing warranties is clear: A warranty is a contractual promise from the seller that the goods conform to the promise. If they do not, the buyer is entitled to recover the difference between the value of the goods accepted by the buyer and the value of the goods had they been as warranted.

Absent proof of a health or safety risk, courts have been unwilling to expand liability, given concerns that all defects would result in a “material” omission. Specifically, in hindsight, any failure of a product would always be considered “material” in the eyes of a consumer and would have influenced his or her decision to purchase the product if the potential defect had been disclosed at that time.

The plaintiff’s bar and consumer groups have complained that manufacturers may escape liability for concealing known product defects, so long as the defect does not pose a safety risk to consumers. California Senate Bill 1188, which passed the Senate and awaits action in the Assembly, seeks to eliminate this possibility.

SB 1188 provides liability protection against a manufacturer who commits fraud by failing to disclose a known defect, whether or not it poses a safety risk to the consumer.

The California Chamber opposes SB 1188, identifying it as a “job killer,” given the significant expansion of frivolous litigation it likely will create regarding alleged product defects that arise after an express warranty has expired.

SB 1188 essentially does exactly what the courts have thus far been unwilling to do. It expands the Consumer Legal Remedies Act and the Unfair Competition Law by defining the term “material” for purposes of omissions to include any information that a reasonable person “would attach importance to its existence or nonexistence in determining a choice of action in the transaction in question.”

SB 1188 further specifies that materiality is not just limited to health and safety issues, as courts currently require. This definition will significantly expand product defect litigation, especially class actions, as any alleged product defect deemed “material” once it has occurred, and the buyer will undoubtedly claim knowledge of this defect would have impacted the decision to purchase it. Such an expansion of liability would render warranties meaningless, as all manufacturers and sellers would have to ensure a product’s everlasting lifetime. This guarantee will drive up costs for manufacturers and sellers, which will trickle down the line to higher prices for consumer products.

Members in California who are interested in contacting their Assembly Member, or members outside the state who would like tracking info on this legislation, should call Vernon Schmidt in the Association office or email him at vernon@farmequip.org.