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Who’s Product liability litigation commonly involves

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					                                                                                                             Who’s
Product liability litigation commonly involves                                                              multiple defendants, namely the
                                                                                                            product’s manufacturer and the
                                                                                                            seller, and possibly others in the
                                                                                                            chain of distribution. Out of all the
                                                                                                            defendants, the manufacturer is
                                                                                                            generally the party with the ulti-
                                                                                                            mate responsibility in producing a
                                                                                                            reasonably          safe     product.
                                                                                                            Recognizing this, Arizona has an
                                                                                                            “indemnification” statute that shifts
                                                                                                            the cost of the defense of the law-
                                                                                                            suit and the burden of paying the
                                                                                                            judgment away from the seller and
                                                                                                            to the manufacturer.1
                                                                                                                At first blush, this indemnifica-
                                                                                                            tion statute appears straightforward
                                                                                                            in its application. Under most cir-
                                                                                                            cumstances, the manufacturer has
                                                                                                            to pay for the defense of a product
                                                                                                            and any judgment. The exception
                                                                                                            would be when the seller has some
                                                                                                            blame—for instance, if it modified
                                                                                                            the product or knew about a defect
                                                                                                            but sold the product anyway.
                                                                                                                Unfortunately, when applied to
                                                                                                            real-life litigation, the indemnifica-
                                                                                                            tion statute isn’t always so straight-
                                                                                                            forward. These ambiguities greatly
                                                                                                            complicate litigation and create
                                                                                                            uncertainty as to who will pay the
                                                                                                            costs and judgment. If the manu-
                                                                                                            facturer does not accept the tender
                                                                                                            but the court ultimately decides it
                                                                                                            should have, the financial conse-
                                                                                                            quences can be devastating.
                                                                                                                This article analyzes a specific
                                                                                                            recurring problem with modified
                                                                                                            products and offers an interpreta-
                                                                                                            tion of the statute to eliminate it.

                                                                                   The Modified Product
                                                          One deeply confusing situation occurs when someone modifies the product or adds
Craig Logsdon is an                                       a component after it leaves the original manufacturer but before the ultimate seller
associate in the Phoenix                                  receives it. This can easily happen when a seller deals in used products.
office of Snell & Wilmer,                                     Assume the first owner of a car had new brakes installed, and then traded the car
LLP.     His     practice                                 in to a dealership. The dealership then resold the used car with the modified brakes.
includes product liability                                    If the modified brakes become an issue in litigation involving the used-car dealer,
defense.                                                  there’s a problem. Because the used-car dealer did not modify the brakes, or even
                                                          know about it, the dealership gets to invoke the indemnification statute and wash its

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on Defense?
                                                                                                                                         BY CRAIG LOGSDON




                                                                                              Indemnifying
                                                                                              Modified Products

 hands of costs associated with the lawsuit.        ate a logical, comprehensible method to sat-       in product liability actions, and everything is
     But to whom can it tender its defense?         isfy that satisfies everyone.                      now comparative fault.4 Under the State
 The original car manufacturer? The                     Likewise, the indemnification statute and      Farm v. Premier Manufactured Systems case,
 mechanic who installed the defective               the case law interpreting it do not provide        the defendants in the chain of distribution
 brakes?                                            for a logical, comprehensible solution as to       may allocate fault among themselves.
     The indemnification statute does not           which “manufacturer” should indemnify the              But from the perspective of the seller
 address this type of wrinkle. Although the         seller of a modified product. You can make a       who has been sued, the indemnification
 statute does reference instances in which          compelling case for several different manu-        statute gives it a more attractive option than
 products have undergone modification, it           facturers in the chain of distribution.            relying on “comparative fault.” The indem-
 only contemplates the modifier being the               The seller of a used product will probably     nification statute allows the seller complete
 seller. There is no instruction for what to do     try to tender all the way back to the original     indemnification from the upstream manu-
 when someone other than the seller creates         manufacturer. In the case of a modified car,       facturer for all costs in defending the case
 the modification at issue:                         it will be much easier to get the big auto         plus the entire amount of any judgment.
     In any product liability action where the      company to pick up the defense rather than             So, regardless of Arizona’s comparative
     manufacturer refuses to accept a tender        figuring out who modified the vehicle and          fault principles, the used-car dealer will
     of defense from the seller, the manufac-       getting them to defend the case. However,          choose the indemnification statute to extin-
     turer shall indemnify the seller for any       fairness dictates that whomever is responsi-       guish its liability as soon as possible.
     judgment rendered against the seller and       ble for the modification or component at
     shall also reimburse the seller for reason-    issue should pay to defend its work.                                   POSSIBILITY 2:
     able attorneys’ fees and costs incurred by     Furthermore, the party that modified the                 The seller cannot invoke the
     the seller in defending such action,           product is in the best position to defend the          indemnification statute because a
     unless either paragraph 1 or 2 applies:        part of the product at issue. Other manufac-           modification caused the incident.
     1. The seller had knowledge of the             turers involved in the product should not be                   WHY THIS POSSIBILITY FAILS:
         defect in the product.                     unnecessarily drawn into the litigation.                 The seller is still entitled to
     2. The seller altered, modified or                 Therefore, a just, logical and comprehen-         indemnification because it did not
         installed the product, and such alter-     sible solution is to limit its reach to the man-           make the modification.
         ation, modification or installation        ufacturer of the specific component or mod-
         was a substantial cause of the inci-       ification at issue. The other variations of how    The “modification exception” to a seller’s
         dent giving rise to the action, was        the indemnification statute could play out         right to indemnification only comes into
         not authorized or requested by the         contain too many problems.                         play when the seller actually is responsible
         manufacturer and was not per-                  However, there is no shortage of possi-        for the modification.5 And that is the way it
         formed in compliance with the direc-       bilities in the application of the statute.        should be, because the seller should be
         tions or specifications of the manu-       Below is a list of potential interpretations.      responsible if it caused the defect—but not if
         facturer.2                                                                                    someone else is to blame.
 Neither of the two enumerated exceptions                             POSSIBILITY 1:                      So indemnification should be available,
 applies when the seller does not modify the               The seller cannot invoke the                but against whom?
 product and does not know about the defec-              indemnification statute because
 tive modification. Therefore, the only rele-          comparative fault removes the need                                  POSSIBILITY 3:
 vant part of the statute is the first paragraph.             for indemnification.                        The indemnification statute always
 Specifically, who is the “manufacturer” that                   WHY THIS POSSIBILITY FAILS:               reaches the original manufacturer
 faces the choice of accepting the tender of            The indemnification statute gives                   regardless of the nature of the
 defense or later paying the bills and judg-            the seller an even better deal than                         alleged defect.
 ment?                                                           comparative fault.                                WHY THIS POSSIBILITY FAILS:
     Trying to figure out who is this “manu-                                                               The original manufacturer’s work
 facturer” resembles determining which of           Although the Arizona Supreme Court has                       may not be at issue.
 three undefeated college football teams            yet to weight in, the First Division of the
 belongs in the National Championship bowl          Court of Appeals recently held that the            The indemnifications statute says, “The man-
 game. You can make a compelling case for           Uniform Contribution Among Tortfeasors             ufacturer shall indemnify the seller for any
 several different teams. It is difficult to cre-   Act3 did away with joint and several liability     judgment rendered against the seller … .”

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Indemnifying Modified Products

  The statute does not specify which manufac-               manufacturer even if the original manufac-       enough already. There’s a tidier way to
  turer must indemnify the seller. And it does              turer was going to claim a downstream sell-      clean all of this up and make the person
  not exclude manufacturers whose involve-                  er was partially or fully at fault.8 Although    responsible for the accident pay the judg-
  ment is not at issue, such as, in the case of a           unclear under this holding, the defendant        ment without standing the indemnification
  modified car, the automaker.                              manufacturer presumably would be respon-         statute on its head.
       To help it reach the original manufactur-            sible for defending any allegation against
  er, the seller will rely on a series of Arizona           the original product, but not for allegations                      POSSIBILITY 5:
  cases that one could interpret to require the             based on subsequent modifications. In any            The indemnification statute only
  original manufacturer to fund the litiga-                 event, the decision does not say (at least           reaches the manufacturer of the
  tion.6 These cases hold that despite the fact             explicitly) that the original manufacturer has      modification or component alleged
  that an element of a product liability claim is           to pay for the defense of a claim against a            to have caused the incident.
  that a defect must exist when a product                   downstream manufacturer or seller that                  WHY THIS POSSIBILITY ACTUALLY WORKS:
  leaves the hands of a manufacturer, a seller              modified the product.                                 It is the most just result, and is
  still has a right to indemnification even if the               Even though case law does not plainly             consistent with the text of the
  original product is ultimately found not to               give the seller permission to pursue an                      statute and case law.
  be defective. Therefore, it seems that the                indemnification claim against the original
  original manufacturer has to indemnify and                manufacturer, case law also does not rule it     The indemnification statute should put the
  reimburse the seller regardless of whether                out. And, because the seller should be enti-     burden of defending the lawsuit on the
  the original manufacturer’s work is at issue.             tled to indemnification, shouldn’t the seller    manufacturer of the modification or com-
       But that’s not exactly what these cases              receive indemnity from the original manu-        ponent that is at issue. The easiest and most
  say. They only say that a manufacturer has                facturer, and let the various manufacturers      direct way to get the modifier is to read a
  to pay for defending allegations made                     work out who is ultimately responsible for       more precise definition of “manufacturer”
  against that manufacturer’s product,                      the defense of the case and any judgment?        into the statute than the text actually pro-
  regardless of whether the jury ultimately                                                                  vides. Instead of simply reading the word
  determines that the product is defective.                                   POSSIBILITY 4:                 “manufacturer” in the first sentence of the
  These cases do not say a manufacturer is                    The indemnification statute reaches            statute, we should read something to the
  financially responsible for defending a                      all manufacturers, who may then               effect of “the manufacturer of the product or
  modification or a component.                               seek indemnification from each other            component at issue shall indemnify the seller
       For example, in Desert Golf Cars v.                     depending on whose component                  for any judgment rendered against the sell-
  Yamaha, which involved a modified golf                          actually caused the accident.              er and shall also reimburse the seller for rea-
  cart, the jury found that the cart, as origi-                         WHY THIS POSSIBILITY FAILS:          sonable attorneys’ fees and costs incurred by
  nally designed and manufactured, was not                          It needlessly adds parties               the seller in defending such action.”

                                                                                                                              Policies
  defective. Nevertheless, the court held that                         and litigation costs.
  the original manufacturer of the golf cart,
  and not the seller who modified it, had to                Under the indemnification statute, you can       This limited definition is the only way for
  pay the costs of defending the original                   use this approach of allowing the manufac-       the indemnification statute to do what it is
  product. The Court of Appeals did not say                 turers to sort it out amongst themselves.        supposed to do. The reason behind
  that the original manufacturer had to pay                 Manufacturers are also generally “sellers” of    Arizona’s indemnification law is “to place
  for the defense of the modifications to the               the products they make, and as “sellers”         the burden and costs of defending products
  golf cart. Although the original manufac-                 they may qualify for indemnification if there    on their manufacturers” because the manu-
  turer has to pay for the defense of the orig-             is another “manufacturer” out there that         facturer “is best situated to detect, control,
  inal product regardless of whether the jury               made the product defective.                      or prevent the putative defect.”10
  determines it to be defective, there is no                    So you can plug all of these manufactur-         When a modification is at issue, the
  authority that says the original manufactur-              ers and sellers into the indemnification         “burden and costs” of defending the lawsuit
  er has to pay for the defense of after-market             statute, and fix it so ultimately the party      should fall on the manufacturer of the mod-
  components or modifications.                              that caused the accident is the party that       ification, not any other manufacturer associ-
         Another case also skirted this issue.7 In          has to pay.                                      ated with the overall product. It is not fair
  Bridgestone/Firestone v. A.P.S. Rent-a-Car,                   But, in operation, this approach would       to ask one manufacturer to pay to defend
  the tire manufacturer did not accept the                  waste an enormous amount of resources            the work of another. Likewise, a manufac-
  tender of defense of the seller for several               and probably isn’t the way the legislature       turer other than the modifier is not in the
  reasons. One reason is the manufacturer                   intended for the statute to work. The Court      best position to “detect, control, or prevent
  thought it did not have to accept the ten-                of Appeals has stated “the intended opera-       the putative defect.”
  der of a seller if the manufacturer would                 tion of section 684” is that it “entitles the        Desert Golf Cars also recognized that
  end up apportioning fault to a downstream                 downstream seller/modifier to compensa-          when a seller modifies a product, it “steps
  seller for its own negligence. Bridgestone/               tion from the upstream manufacturer.”9 The       into the shoes of the manufacturer as being
  Firestone thought this created a conflict of              indemnification statute, therefore, does not     the one best situated to detect, control or
  interest.                                                 exist so that a seller can tender to a down-     prevent the putative defect.”11 Here, the
         The Court of Appeals held that the                 stream manufacturer.                             “seller” that is taking over responsibility for
  indemnification statute reached the original                  Indemnification law is confusing             the product is not the ultimate seller, but

  24   A R I Z O N A AT T O R N E Y O C T O B E R 2 0 0 7                                                                                       w w w . m y a z b a r. o r g
Indemnifying Modified Products

  the seller of the modification.                           tured. However, the original manufacturer               ufacturer no matter how many times
     Without a narrow definition of “manu-                  did not have to pay the percentage of fault             the product was modified.
  facturer,” the used-car dealer could bring                that the jury allocated to the downstream           • If the plaintiff alleges that the defect in
  in dozens of manufacturers that, although                 seller for failing to inspect the tires before          the product is a modification, then the
  involved in the manufacture of the auto-                  selling them. Likewise, in a case involving a           product liability statute reaches the
  mobile, had nothing to do with the por-                   modified product, the original manufactur-              manufacturer of the modification or
  tion of the product at issue in the lawsuit.              er should not have to pay for the defense of            post-factory component, but not the
  Nobody would argue with a straight face                   the modification, because the modification              original manufacturer.
  that the manufacturer of the nuts and                     occurred downstream after the product left          • If the plaintiff alleges defects in both the
  bolts, paint, seatbelts, or stereo that went              the manufacturer’s control.                             original product and the modification,
  into the original car should have to indem-                   In other words, if the product at issue—            then both manufacturers are responsible
  nify the seller. But without limiting the                 defective or not—is the original product,               under the indemnification statute for
  definition of the word “manufacturer,”                    then the original manufacturer is obligated             their own role.
  anyone who had anything to do with mak-                   to indemnify and reimburse the seller. If the           The question is what part of the final
  ing any part of the car, regardless of how                product at issue is a component or modifi-          product the plaintiffs allege to be defec-
  minor its role, could be on the hook for                  cation, then the manufacturer of the com-           tive—not whether it is actually defective.

                                                                                                                              Conclusion
  someone else’s defective modification.                    ponent or modification is the proper target

                         Authority
                                                            of the indemnification statute.

                                                                    Contrary Authority
                                                                                                                The indemnification statute and case law are
  Although statutory and case law do not pro-                                                                   sufficiently ambiguous for any defendant in
  vide us with this narrow definition of “man-              Remember that once this issue makes sense           the chain of distribution of a modified prod-
  ufacturer,” the narrow definition is never-               in our minds, we’re probably just overlook-         uct to be a target, but also argue the statute
  theless consistent with authority.                        ing something? The Bridgestone/Firestone            reaches someone else. Despite this ambigu-
      The statutes do define “manufacturer”                 decision provides ammunition to shoot               ity, limiting the reach of the indemnification
  as a “person or entity who designs, assem-                down the argument that the indemnifica-             statute to the manufacturers whose work is
  bles, fabricates, produces, constructs or oth-            tion statute only reaches the manufacturer          actually at issue is the most equitable appli-
  erwise prepares a product or component                    of the component actually at issue.                 cation of the statute. In the case of a modi-
  part.”12 But this definition does not say to                  One of the issues in Bridgestone/               fied product, the party responsible for pay-
  whom of all of the manufacturers in the                   Firestone was whether the indemnification           ing the defense of the lawsuit and any judg-
  world the indemnification statute applies.                statute applied to a tire manufacturer that         ment should be limited to the party that
      To find authority for limiting which                  was going to apportion fault to the seller of       made the modification or component at
  “manufacturers” a seller can reach, we can                the product. In addressing that issue, the          issue. AZ
                                                                                                                        AT

  turn to a footnote tucked away in one of the              opinion seems to assume that a seller could
  Arizona cases interpreting the indemnifica-               always tender to the product’s original man-            endnotes
  tion statute. In McIntyre Refrigeration v.                ufacturer unless one of the two explicit
  Mepco Electra, the Court of Appeals stated                exceptions written into the statute applied.           1. A.R.S. § 12-684(A).
                                                                                                                   2. Id. § 12-684(A)(1)-(2).
  in dictum that “a single component manu-                  The court rejected the tire manufacturer’s
                                                                                                                   3. Id. § 12-2506 et. seq.
  facturer which presents unopposed evidence                contention that in order to have the benefits          4. State Farm Ins. Co. v. Premier
  that its component was either not defective               of the indemnification statute, the seller had            Manufactured Systems, Inc., 142 P.3d
  or not a cause of the plaintiff’s injury is enti-         to show that the alleged defect existed at the            1232 (2006); See also Ann Larimer
                                                                                                                      Robertson, When Worlds Collide: Strict
  tled to a final partial summary judgment.”13              time the product left the manufacturer’s                  Liability and Comparative Fault, ARIZ.
      This footnote supports the proposition                control.                                                  ATT’Y, April 2002, at 38.
  that when there are multiple manufacturers                    Even though common law product lia-                5. A.R.S. § 12-684.
  of a product, the ultimate seller has no right            bility principles require that a defect exists         6. Desert Golf Cars v. Yamaha Motor Co., 7
                                                                                                                      P.3d 112 (Ariz. Ct. App. 2000);
  to indemnification from a manufacturer                    when it leaves the manufacturer’s custody                 McIntyre Refrigeration, Inc. v. Mepco
  whose involvement in the product is not at                and control, the indemnification statute has              Electra, 799 P.2d 901 (Ariz. Ct. App.
  issue. Accordingly, if the original product is            no such requirement. Thus, the opinion                    1990); Hellebrant v. Kelley Co., 737
  not at issue because the alleged defect is in a           suggests that the original manufacturer is                P.2d 405 (Ariz. Ct. App. 1987).
                                                                                                                   7. Bridgestone/Firestone North American
  modification, the indemnification statute                 responsible under the indemnification                     Tire, LLC, v. A.P.S. Rent-A-Car
  should not be used to bring the original                  statute when the issue is a modification or               Leasing, Inc., 88 P. 3d 572 (Ariz. Ct.
  manufacturer into the lawsuit.                            post factory component.                                   App. 2004).
                                                                                                                   8. Id. at 580-81.
       In addition, part of the Bridgestone/                    Nevertheless,        this     Bridgestone/
                                                                                                                   9. Desert Golf Cars, 7 P.3d at 116 (empha-
  Firestone holding supports this narrow defi-              Firestone language can still be harmonized                sis original).
  nition of “manufacturer.”14 In that case, the             with the narrow definition of “manufactur-            10. Id. at 115, citing 13 American Law of
  Court of Appeals ruled that the original                  er” set forth in this article. The plaintiff con-         Products Liability 3d § 52:98, at 52-137
                                                                                                                      (1987).
  manufacturer—which had refused the ten-                   trols the allegation of defect:
                                                                                                                  11. Id.
  der of defense and sat out the case—had to                • If the plaintiff alleges that the original          12. A.R.S. § 12-681(3).
  pay for the percentage of fault that the jury                 product is defective, then the indemnifi-         13. 799 P.2d at 905 n.1.
  apportioned the tire as originally manufac-                   cation statute reaches the original man-          14. 88 P.3d at 582-93.


  26   A R I Z O N A AT T O R N E Y O C T O B E R 2 0 0 7                                                                                        w w w . m y a z b a r. o r g

				
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