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Bicycle Industry

Foreign Manufacturer’s liability:

How to protect yourself and your bike shop

Written By:

Scott Chapin

Scott Chapin

MMA Bicycle Industry Risk Specialist

Brendan Dolan

Brendan Dolan

Attorney at Stinson Leonard Street, LLP
Former in-house counsel at Quality Bicycle Products, Inc.

As the bicycle industry continues to evolve, we have seen a tremendous increase in foreign-based eBike manufacturers entering the North American marketplace. Many connect with an individual or company based in the U.S. to become the distributor, private labeler or importer of record for their products. Other manufacturers attempt to just sell them from abroad.

At the most recent Interbike tradeshow, we had several individuals inquiring about the liabilities associated with importing eBikes into the U.S. Our advice sounds like a broken record as there are common misconceptions about the risks associated with importing and distributing bicycles.

The importer assumes that the product liability of an Asian-based manufacturer will provide protection for their U.S.-based company. “They said they have worldwide products liability coverage,” is the most common response. When we ask them for a Certificate of Insurance, they either cannot produce one, or it is written with an “unrecognizable” insurer. Seldom, if ever, is it written in English. The limits of liability are not in U.S. dollars, and third parties are most likely excluded from being added as an additional insured based on the underlying policy terms.

For these reasons, the foreign manufacturer's insurance policy is not going to protect you in the event of a product liability claim that causes bodily injury to a customer in the U.S. due to the negligent acts or omissions of the manufacturer and its allegedly defective and/or noncompliant product. The foreign manufacturer will most often not have any operations or employees in the U.S. which means it will have no incentive or legal obligation to respond to a lawsuit outside of its home country. And it is extremely rare for American plaintiffs to sue a foreign manufacturer in its home country. Therefore, if you are the importer of record, distributor and/or domestic private labeler for these products, you become the manufacturer held responsible in the event of a recall or product liability claim which is an extremely heavy financial and risk burden to bear.

Ideally, it is best that the foreign manufacturer have or form a legal entity in the U.S. with U.S.-based insurance coverage and insurer (not surprisingly it is often required to have U.S. operations to secure U.S. insurance coverage) prior to conducting any business with you.

However, in these circumstances, at a minimum, it would be highly recommended that you purchase your own product liability policy with a reputable insurance company (A.M. Best rating A-A++). You should also be requiring your foreign manufacturers to carry occurrence-based product liability insurance with tail coverage from an insurer with a similar A.M. Best rating. Make sure to request that the foreign manufacturer's Certificate of Insurance be provided to you in plain English (or use your own trusted translator) and confirm that the certificate notes "global" or "worldwide" product liability coverage. Additionally, do not hesitate to require to be added as an additional insured to the manufacturer's policy and see proof noting the same.

While these steps will not reduce your chances of being sued in the U.S., it will ensure that your business will survive an unexpected lawsuit or recall, and ultimately give you better leverage in trying to recover your legal costs and insurance losses against the manufacturer in the future.

This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting or legal matters are based solely on our experience as consultants and are not to be relied upon as actuarial, accounting, tax or legal advice, for which you should consult your own professional advisors. Any modeling analytics or projections are subject to inherent uncertainty and the analysis could be materially affective if any underlying assumptions, conditions, information or factors are inaccurate or incomplete or should change.