ART offers light at the end of the liability tunnel
- Herman Schoeman, MD of Guardrisk

Alternative risk transfer (ART) suppliers are ideally placed to provide manufacturers, suppliers and distributors of products with alternative ways to insure the significantly increased liability risks that the impending Consumer Protection Bill will impose on them.

South Africa is becoming an increasingly litigious society; and consumerism coupled with increased regulation, fuelled by a series of acts/bills like the new National Credit Act and the Consumer Protection Bill, is at an all time high. The Consumer Protection Bill protects consumers' fundamental rights and specifically promotes the protection of consumers from injuries due to defective and inferior goods, thus creating strict liability for manufacturers, suppliers and distributors of products.

Currently, under South African law, the liability of a manufacturer or seller if he sells a defective product is either a contractual or delictual basis. The former requires a contractual link between the manufacturer or supplier of the product and the person harmed by the defective product. A merchant who sells goods he manufactures is liable to the purchaser for damages caused by the latter, due to any defect in the goods. Ignorance of the defect does not excuse the seller and this liability attaches unless the seller contracts out of it. If there is no contractual link between the manufacturer and the injured party, then compensation from the manufacturer for bodily injuries due to defective goods would need to be sought in terms of the law of delict. In respect of delictual actions, the normal requirements of a delict would need to be proved to the satisfaction of a court. These requirements incorporate both wrongfulness and fault (negligent or intentional conduct on the part of the wrongdoer). Because the production and design processes are, by their very nature, complicated and not easy to evaluate, it is often difficult to prove fault on the part of the manufacturer on a delictual basis if there is no bodily injury or property damage.

But this will change with the Customer Protection Bill, consumers will now be able to sue a manufacturer for compensation caused wholly or partly as a consequence of a product failure, defect or as a result of inadequate instructions or warnings, without having to prove fault. This may be construed as a positive move in the context of globalisation as it brings South Africa into line with foreign jurisdictions, and augurs well for the export market. However, it does create a significant potential liability for manufactures who will have to find ways to mitigate the risk.

The problem is that it will take some years for traditional insurers to properly rate this risk. Insurers may review their policy wordings once the legislation is finalized and, until the risk is correctly rated, manufacturers, suppliers and distributors may find themselves paying for the uncertainty. Supporters of strict liability would contend that the manufacturer can build the cost of insurance into the price of the product. South African consumers tend, however, to be extremely price sensitive and manufacturers may not necessarily be in a position to pass these costs on, due to affordability considerations.

This sets the stage for the ART market to provide some relief, affording product providers the opportunity to create vehicles within which they can assess and price their own risk, and decide how much of it they can afford to carry themselves.

Within a culture of assuming liability, the need for risk control and management is paramount and those organisations that buy into this paradigm will find a comfortable fit in the ART market.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: +27 11 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: +27 11 615-3309 / +27 83 225 7450