On May 5, 2023, the U.S. Consumer Product Safety Commission ("CPSC") announced that it agreed to a civil penalty settlement with Generac Power Systems, Inc., ("Generac") to resolve charges that Generac failed to report immediately to the CPSC under Section 15(b) of the Consumer Product Safety Act ("CPSA"). Specifically, the CPSC alleged that certain models of Generac's portable generators contained a defect that could create a substantial product hazard and unreasonable risk of serious injury to consumers. This settlement includes a $15,800,000 civil penalty, and requirements that Generac (1) implement and maintain a compliance program and system of internal controls and procedures designed to ensure compliance with the CPSA; and (2) file annual reports with the agency for the next three years regarding the Company's compliance program, internal controls and procedures, internal audits of the effectiveness of the new compliance program and internal controls.
This announcement comes almost two years after Generac and the CPSC jointly announced a voluntary recall of certain models of the Generac® and DR® 6500 Watt and 8000 Watt portable generators ("Generators"). According to CPSC, Generac had received reports as early as October 2018 claiming that an unlocked handle could pinch consumers' fingers against the Generator's frame when the Generator moved, posing finger amputation and crushing hazards. Upon receiving these alleged incident reports, Generac allegedly began evaluating designs to add a handle hinge guard for existing models of the Generator, redesigning the handle for new models, adding warning labels near the handle hinge, and revising the owner's manual to include additional instructions and warnings regarding the importance of engaging the locking pin when moving the product. Generac did not report the hazard to the CPSC until 2020.
After the initial recall in 2021, Generac reported a post-recall incident involving a repaired but unlocked Generator. Subsequently, the CPSC and Generac jointly re-announced the recall of the Generators on November 10, 2022 with a revised repair remedy consisting of a set of spacers to move the handle away from the frame, eliminating the pinch point, and instructions for consumers to stop using unrepaired Generators, unless the locking pin has been inserted to secure the handle in place before and after moving the Generator.
The CPSC sought a civil penalty against Generac due to the company's alleged failure to immediately report that the Generators contained a defect and/or created an unreasonable risk of serious injury or death. In his statement on the settlement agreement, CPSC Chairman, Alexander Hoehn-Saric, applauded his fellow Commissioners for accepting the civil penalty settlement unanimously by a 4-0 vote. While Chairman Hoehn-Saric described this settlement as a demonstration of the "CPSC's commitment to hold companies accountable when they put the public at risk," Commissioner Peter A. Feldman expressed concern with the perceived lack of coherence in the CPSC's approach to civil penalties. While Commissioner Feldman appreciates that a civil penalty is appropriate in any case where there is delayed reporting, he believes that "[a] reasonable reading of the evidence in this case could support a conclusion that the initial reporting delay was born out of a failure to appreciate the nature of the hazard rather than a concealment of the problem from CPSC." As such, Commissioner Feldman believes that "by applying a near-maximum penalty in this case, with these facts, the Commission misses yet another opportunity to speak with clarity about what conduct it considers to be most egregious" and that maximum civil penalties in "failure-to-report cases" are more appropriate "where a product hazard results in death, poses a significant risk of death from incidents such as fires, or where there are aggravating factors such as a history of misconduct by the company's senior management."
While CPSC Commissioners may disagree on certain aspects of civil penalties, this settlement emphasizes that civil penalty assessments remain an important enforcement tool of the Commission. Companies should take this as notice that the CPSC expects product manufacturers to have compliance processes in place to ensure that customer feedback is regularly monitored for signs of potential safety hazards and trends. If a company obtains information that suggests a product may present a substantial product hazard or could create a risk of serious injury or death, the company is expected to report that information to the Commission immediately (i.e., within 24 hours).
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