Be Careful! Your Trade Association Might Be Setting Standards

Date: Oct 25, 2004

All trade associations provide guidance to their members. The question is whether such guidance could ever be interpreted as a "standard" and catapult the trade association into another universe in terms of potential liability.

Standards-development organizations offer an important service to their members and the public by helping to enhance competition through common product criteria and improve quality control, safety and efficiency. Standard setting, however, also provides an avenue for litigation. If a standard followed by the industry is later determined to be inadequate to ensure the health and safety of the public, plaintiffs' lawyers have filed negligence or failure to warn lawsuits against trade associations and their members. Most standards-development organizations recognize this potential liability, have adopted adequate procedural safeguards and purchased sufficient liability insurance to minimize the risk.

Nevertheless, trade associations, even those that do not hold themselves out as "standard setting," may inadvertently engage in "standard setting." This can occur when a trade association undertakes the testing of certain products common to its members (which by itself does not usually create a problem) and then uses the data derived from the testing to draw conclusions and issue advisory reports to its members and the public. Many types of reports or advisory opinions issued by trade associations could be considered "standard setting," so trade associations would be wise to carefully monitor what they release to the public. The problem, of course, is that these trade associations often do not have the necessary professional liability insurance to cover the increased "standard setting" risk. At least one industry group, the National Spa and Pool Industry, was forced to declare bankruptcy stemming from a lawsuit directed at diving board standards it developed.

If your trade association considers itself a standards-development organization, issues interpretations of standards, engages in reporting activities that might be considered "standard setting," there are strategies to minimize prospective liability, including a review of your organizations' insurance policies to ensure that sufficient coverage is available.

For more detailed information on standard setting and ways to protect your trade association, please contact Arthur S. Garrett III at 202-434-4248 or garrett@khlaw.com.