Warranties

PRODUCT RECALL – how would you survive?

“We need to do a product recall.” Whether you are a large OEM, or one of its Tier 1 or lower suppliers, the words “product recall”, signal an unexpected and often uncontrollable liability exposure. For the OEM this exposure is comprised of the direct cost of the recall plus the loss of company goodwill, loss of use of the product by upset end-users, and perhaps a precipitating traditional bodily injury or property damage claim. Product recalls are a significant financial risk for all OEM’s – witness the recent flurry of automaker recalls. For the supplier who provided a defective part or component, the results can be more devastating. Typically there is just not enough profit margin in the supply of a part or component to cover the risks of a recall. Unlike a standard warranty claim remedy, the supplier not only has the obligation to repair or replace the defective part or component, but will likely be saddled with the costs of removal and reinstallation plus the other direct and indirect recall costs incurred by the OEM and end-user. This exposure could be a terminal financial blow for many part and component manufacturers.

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Website Content Not Mere Puffery – Case Study

Your new company website looks great. The Marketing Department staff is thrilled with the content. The VP of Sales is happy with the “look and feel” and improved functionality. The word comes down from senior management – “go live”. Now fast forward to a time after a customer suffers a loss and seeks to recover its damages. Guess what “content” is front and center in the customer’s suit against the company? Right – text from the new website that among other things states that the company “has instituted the most stringent safety standards.”

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Maintenance Responsibility – Case Study

Aircraft operators are generally familiar with the requirements for “scheduled” or “depot” maintenance on their airframe and engine(s).  Technical requirements are in production approval holder and original equipment manufacturer maintenance manuals; operator compliance helps ensure continued airworthiness under Federal Aviation Administration (FAA) regulations.

“Day-to-day” or “routine” maintenance is another side to the airworthiness coin.  It is widely accepted that these activities will be performed by FAA-certificated mechanics pursuant to the latest maintenance manuals and accepted industry practices.  The mechanics may be employed directly by the operator or by another maintenance provider.  In either event, certificated entities are very familiar with their responsibilities to the FAA for performing and recording maintenance properly no matter the title used for the particular activity.

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A Case Study in Rental Engine Warranties – Agape v. Covington

For aircraft owners planning is the key to a successful scheduled engine overhaul event.  Owners seek estimates, select an overhaul shop, arrange for a rental engine and set the date for an engine exchange months in advance of a scheduled overhaul.  Typically there will be at least two significant legal documents associated with this event.  One is the engine overhaul agreement which sets forth the key liability terms, the detailed scope, a schedule and the expected cost associated with the engine overhaul.  The second is the engine lease agreement which governs the lease of a substitute engine for use during the period needed to complete the engine overhaul.  This “rental”, as they are commonly referred to, is often supplied by an overhaul shop as an accommodation while the customer’s engine is in the shop so that their aircraft can remain operational.  The accommodation, which is not free, is an alternative to being grounded.

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Warranty and Standard of Care

Do you repair, overhaul or manufacture goods?  Do you provide professional services?  Does your company offer mixed goods and services?  Regardless of the nature of your business keeping your obligations and remedies for non-conformance consistent with industry practice takes some diligence and sharp thinking.

Engineers and other professionals typically provide services in accordance with a generally accepted professional standard of care.  That standard of care does not guarantee perfection.  If it did medical professionals would be on the hot seat every time a patient, despite well grounded advice and care, took a turn for the worse.  The same logic applies to other professionals such as design engineers or financial consultants.  Presented below is an example of a professional standard of care:

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