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Companies that make products have a general duty to ensure that the products they sell are reasonably safe when used as the manufacturer intended to be used. Typically, they do not have to foresee every possible way a product might be misused, and attempt to minimize the associated hazards.
For example, if someone buys a gas-powered lawnmower, the maker of the lawnmower probably expects the buyer to use it for one purpose: mowing his or her lawn (it's in the name of the product, after all). Of course, we all know that people have an amazing capacity to injure themselves in ridiculous ways. In one case, a man bought a lawnmower and tried to use it as a hedge-trimmer by picking it up and holding it against his hedges. Predictably, he seriously injured himself, and sued the maker of the lawnmower. Of course, he lost.
Types of Defects
Some products, however, suffer from defects making them needlessly dangerous, even when they are put to their intended use. There are 3 basic types of product defects: manufacturing defects, design defects, and warning defects.
A manufacturing defect occurs when a product is of sound design, but some error in its manufacturing makes it dangerous. For example, a car accidentally shipped without brakes (even though the design obviously calls for breaks to be installed) suffers from a manufacturing defect. Note that the defect must actually make the product dangerous. A car shipped with a botched paint job may be "defective," but such a defect cannot cause injury, and therefore cannot give rise to liability.
A design defect occurs when a product is needlessly dangerous, even if it is manufactured exactly as the design specifies. For example, a car that is designed to not have brakes suffers from a design defect: no matter how well it's manufactured, it's inherently dangerous, because it doesn't have brakes.
When determining if a product's design is defective, a court will generally look at whether or not the product could have been made safer, without significantly reducing its usefulness, or making it significantly more expensive. In one case, a company manufactured baby pajamas treated with an ineffective flame retardant. Predictably, there were a few tragic injuries caused by this. It was discovered that the company could have used a much more effective flame retardant, which would only increase the manufacturing costs by a few cents per unit. This is clearly an example of a design defect: the product could have easily been made safer without significantly increasing its price.
On the other hand, we all know that kitchen knives are very sharp, and therefore dangerous. However, the very thing that makes them dangerous is also what makes them useful. It would be impossible to make kitchen knives safer without making them extremely dull, thereby making them useless. Therefore, an extremely sharp kitchen knife is not defective, even if a user does cut himself with it.
Finally, there are warning defects. If a product has some danger which is inherent to it, and cannot be eliminated without reducing its usefulness, the manufacturer has to warn consumers about the danger, especially if the danger isn't obvious. If a product could have been made much safer by the inclusion of a warning, it is defective.
In general, if any of these defects exist at the time a product leaves the manufacturer's control, and the defect causes an injury, the manufacturer is liable for the injury. In most states, products liability is judged by a standard of strict liability, meaning that the fault of the defendant is irrelevant. All that a plaintiff needs to prove in a products liability case is that the product was defective, and that the defect caused an injury. It doesn't matter how careful the defendant was.