April 19, 2021 in Business

E-cigarettes – Smoke and Mirrors

I was asked recently for my thoughts on what the product liability exposure was for a vendor of electronic-cigarettes in South Africa. Could the vendor be held liable for selling the product and what options are open to the vendor to effectively deal with their exposure to the risk? The answer is not as easy as one would think.
Electronic cigarettes are devices that allow users to mimic the ritual of smoking a cigarette while inhaling nicotine. Instead of inhaling smoke from burning tobacco, users inhale vapour containing nicotine. The question is, should these nicotine inhaling electronic cigarettes be regarded the same as tobacco products? Tobacco products are notoriously difficult to insure and the accepted norm in the tobacco industry is to pass the liability exposure for tobacco products back to the cigarette manufacturers. Should the same approach be adopted for e-cigarettes? In South Africa, the general view is that e-cigarettes do not fall under The Tobacco Products Control Act 83 of 1993 because it contains no tobacco as defined in the Act. Consequently, will insurers still exclude these risks from the vendor’s own liability policy? Should the vendor try to pass the liability exposure back to the manufacturer?
I’m of the opinion that attempting to pass the exposure back to the manufacturer is not a solution for the vendor. Firstly, the product is still governed by legislation if not tobacco legislation. In South Africa, anyone involved in the supply chain of any consumer product could be held liable as a result of the Consumer Protection Act (CPA). Section 61 of the CPA renders “the producer or importer, distributor or retailer of any goods is liable for any harm” caused wholly or partially by any product they sell or distribute, including the failure to provide adequate warnings or hazards associated with the goods. The provision also specifies that consumers will be able to sue “suppliers and manufacturers of goods” for “harm suffered by them as a result of using the goods” … “regardless of whether or not a supplier, manufacturer or service provider was negligent.” The “harm” envisaged by the section includes “an illness of any natural person”. Therefore, the vendor cannot escape liability by attempting to pass it on to the manufacturer. Secondly, most manufacturers of these products are based overseas which introduces a multi-jurisdictional dimension to the question. How then does the local vendor pass this liability on to their overseas suppliers or manufacturers? What guarantee does the local vendor have that the electronic cigarette companies will indemnify them? The manufacturer’s insurers may not agree to extend their policy to include cover for all vendors. The question is, will the policy be triggered if it relates a South African matter? Even if the vendor is listed as an “additional insured” on the manufacturer’s policy, the manufacturer’s insurance policy will only act as a secondary policy and not the primary policy to the vendor in the event of a lawsuit. Worst of all, the manufacturer may themselves be uninsured. Thirdly, the above considerations are further compounded by the fact that the data available regarding the side effects of using the product are inconclusive. Much like the Pharmaceutical Industry, there is a considerable amount of publication bias when one looks at various studies that have been conducted on e-cigarettes. The results of studies almost always flatter the sponsor. Consequently opposing lobbying group’s published findings that contradict each other for this very reason. As a result, there is still no conclusive evidence to suggest that the product helps smokers quit, what effects it has on children and what the chemical content of the vapour is or the health impact on users, despite manufacturers claims that e-cigarettes are a smoking cessation tool and should be promoted as a healthy alternative to smoking. In light of the above, to the extent that the claims of the manufacturers of electronic cigarettes cannot be substantiated, the CPA regulatory framework applies. In addition, if it is factually proven that use of electronic cigarettes is hazardous, the failure to warn in relation to such hazards may be further grounds for liability to the manufacturers, suppliers and vendors of electronic cigarettes. All considered, the best solution for the South African vendor will be to obtain their own products liability policy or have their existing policy expanded to include the e-cigarette exposure. However, given the fact that underwriting this risk is very difficult, not every insurer will have the appetite to cover such a risk. Therefore, the vendor or their intermediary will be forced to approach specialist insurers willing to provide the cover or refrain from selling the product completely. As with most commercial ventures, it will boil down to a question of economics in the end. By Ken van Sweeden
Director of Liability Matters (Pty) Ltd

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