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A auto manufacturer found that the ignition switches was faulty and could shut off the engine during driving, disable power steering and brakes, and prevent airbags from inflating. The faulty switches caused several deaths and car accidents. After receiving several complains from all over the country, auto manufacturer decided to recall the vehicles.
The automanufacturer had a product liability policy covering only the bodily and property damages caused to the third party but it did not cover caused incurred in recalling product.
Various meaures can be worked out which can reduce the cost of recall.
Product Liability Policy should be designed to pay liability arising to third party along with defence cost and product recall cost.
A tobacco manufacring company faced a suit filed by a woman who had lung cancer and claimed that smoking cigarettes had caused her sickness and that her tobacco addiction was caused by the tobacco company's failure to warn her of the risks of smoking. The company was ordered to pay punitive damages of a whopping $28 billion and $850,000 in compensatory damages. Philip Morris appealed the case and nine years later the amount was reduced to $28 million.