Beyond product liability: When quality failure can lead to jail time

Insureon Staff.
By Insureon Staff
October 14, 2015
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The sentencing of key players at Peanut Corporation shows that product liability can end in jail time if defects were known before products hit the market.
Man standing behind bars in jail cell.

You probably remember hearing about the huge salmonella outbreak between 2008 and 2009. To jog your memory, the CDC states it all started at the peanut processing plant Peanut Corporation in Georgia, and the contamination spanned 46 states, killed nine people, and made 714 seriously ill.

But there's a sinister twist to this story: Insurance Journal reports that the managers and owner of the plant knew about the contamination before the products ever hit the market. Still, that didn't keep them from distributing tainted peanuts. The report states they even faked the lab results meant to screen for salmonella and passed the peanuts off as safe. Those very peanuts were shipped out to manufacturers and used in everything from snacks to pet food, and it led to one of the biggest food recalls the country has ever seen.

Luckily, the court made an example of these negligent folks. The report notes the judge sentenced:

  • The two former managers Daniel Kilgore and Samuel Lightsey to six years and three years in prison respectively
  • The quality-control manager Mary Wilkerson to five years in prison
  • The owner's brother and food broker Michael Parnell to 20 years in prison
  • The Peanut Corporation owner Stewart Parnell to 28 years in prison

The owner has the distinction of having the stiffest penalty ever imposed in a food-borne illness case in the United States, according to Insurance Journal.

The case shows that when consumer health and safety are on the line, the price of noncompliance goes beyond just money. If you knowingly put dangerous products on the market, you may risk your freedom, and there's no insurance coverage that can spare you from that.

The line between product liability and criminal action

Product liability is one of the few situations in which you can be held accountable for injuries your wares cause even if you had no idea they were defective. That's true no matter where you fall in the process of putting those items in consumers' hands – manufacturers, distributors, and retailers can all be held accountable.

Fortunately, if you are sued over injuries your product causes, general liability insurance can typically address the lawsuits, so long as it has product liability insurance. It may cover:

  • Legal defense expenses
  • Settlements
  • Judgments
  • Other court costs

But there's a big difference between not knowing a product is defective and knowing that a product is defective but putting it on the market anyway.

The latter is criminal behavior that can result in lawsuits and prison time, and there's no insurance that covers criminal activity or allegations. So long as there's evidence that you knew about the defective goods and sold them anyway, your coverage is voided. As Insurance Journal notes, in the Peanut Corporation case, investigators found evidence (in emails and records of the actual lab results) that the managers and owner knew about the salmonella contamination before they distributed the products.

Prioritize quality control to limit product liability exposure

Because faulty products can often be a matter of life and death, you must comply with federal and state regulations and strictly monitor quality to minimize your liability exposure and avoid criminal charges. Be sure to:

  • Understand your state's laws regulating your products
  • Comply with those laws (you may want to enlist an attorney's help on this one)
  • Train all employees on processes to oversee and enforce quality control
  • Include warnings and instructions so the consumer can make informed decisions and use the product appropriately
  • Create a quality assurance program
  • Keep thorough records of all your quality control activities
  • Have a plan in place for potential product recalls

Remember, even when you comply with laws and take every action to ensure the safety of the product you make, distribute, or sell, you can still be held accountable for injuries it causes. Be sure to add product liability coverage to your insurance plan as a failsafe. To learn more about this policy, read "What is product liability insurance?"

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