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Downstream Liability: Here’s What You Should Know

Downstream Liability: Here’s What You Should Know

March 28, 2019
By Bary Gassman

Downstream liability refers to the risks of inherited liability from responsible parties to others regardless of the degree of fault. In many cases, downstream liability stems from vendors and suppliers. Certain laws can actually increase these risks.

Downstream Liability and Vicarious Liability

Vicarious liability makes a party responsible for the inaction or action of a party that’s culpable depending on the relationship between those parties. Essentially, “duty of care” goes to a third party specifically because of their relationship with the party that’s actually responsible. In many cases, vicarious liability involves the relationship between a parent and child or an employee and employer.

What Culminates in Downstream Liability?

There are three main types of cases that can result in downstream liability, including:

Defective Products

If a vendor’s product has a defect present that can affect the safety of any product or service delivered using it, this can result in the apportioning or assignment of liability. For instance, medical devices may contain a defect when used in medical facilities, but these facilities that use the product could also be found liable for damages.

Disasters and Catastrophes

Disasters and catastrophes that receive a lot of media scrutiny and result in multiple injuries or deaths can lead to a legal focus on finding sufficient assets to provide proper compensation for victims, which could include more minimally negligent parties.

Pollution and Environmental Legal Liability

There are many claims in which vendor work has resulted in business and property owners getting found liable for damages. In a large number of these cases, compromises in indoor quality resulted from construction defects and activities. Others have involved environmental factors in medical facilities, such as mold, causing the deaths of patients.

These are among the many different types of downstream liability cases that involve injury to victims. However, downstream liability could also apply to incidents that don’t result in bodily harm, such as those in which vendors misuse customer or client data.

Ultimately, many unexpected expenses could arise from risks associated with vendors and suppliers. Risk management programs need to include the identification and investigation of exposures that could potentially result in downstream liability. While it is possible to mitigate these risks, it’s best to look further than insurance certificates and supplier audits.

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