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Great article about the risks of an organization creating standards for members of the industry – and I did not write it

The article exams the ways that standards can come back and be a liability for the organization that created them.

The Center for Association Leadership is the trade association for non-profit association directors. Its purpose is to provide information and education for non-profit associations, their directors and their boards. Part of that education is articles by attorneys to outline the risk areas of association.

One article was sent to me by one of my trade association clients. It is titled Certification and the Law. The title is a little misleading. The article is really about standards rather than certification. If you read the article you will see the term certification is used interchangeably with standards.

The article talks about the risks of doing so first and discusses the National Spa and Pool Institute litigation in the late 90’s that put the association in bankruptcy. The legal costs alone exceeded the insurance available to pay the claim.

Thankfully, full-scale judicial attacks are relatively rare, but as the cases involving the National Spa and Pool Institute show, such claims can be devastating. NSPI lost a jury trial in 1998 which, inter alia, alleged that NSPI had failed to exercise a duty of using “reasonable care” when it promulgated its swimming pool standards. NSPI’s legal defense costs greatly exceeded its insurance coverage. To avoid being shut down by the jury’s verdict and in order to post a bond for the appeal of the case, NSPI filed for Chapter 11 reorganization.

There are many other legal issues discussed in the article including educational programs etc. but I’ll quote sections concerning creating standards that I think are important.

Antitrust. Certification programs beg antitrust scrutiny, given that the object of standard setting is to bring competitors together to set criteria for, among other things, restricting entry into a field. Antitrust law prohibits anyone from unreasonably creating a barrier to practice in a profession. Therefore, the certification organization must make sure that all of its eligibility requirements are reasonable-that is, relevant to determining the professional’s skill level and not so high as to block the majority of professionals from being eligible to apply for certification.

The article discusses the liability requirements to hold an association liable for its standards.

Third-party reliance. If a customer, patient, or employer is injured by a certified product or professional, it is possible that the certifying organization will be held liable for negligence or negligent misrepresentation. The argument follows that the person relied on the certification as a guarantee of competence; because the certified product or professional did not perform competently, the certification should not have been granted. Thus, it is argued, the standard-setting organization should be liable to the injured person for its mistaken or negligent grant of certification.

In order to find liability, the injured party generally must prove that

    the organization should have known better than to grant certification;

    the organization should have known that its mistake could result in the injury; and

    the injured party was justified in relying on the certification as a guarantee of competence.

There are very few of these types of lawsuits. The article discusses lawsuits that have been filed.

Among those that have arisen, several have held that the organization is not liable in the case of products when it did not manufacture the product that caused the injury and did not exercise control over the manufacturer. Nevertheless, it is clear that liability may be found when certification is negligently granted or maintained. The deciding factor is the degree of control that can be shown that the standard-setting program exercised-or should have exercised-over the product or professional.

As the article points out, lawsuits against trade associations are rare, however, if they do occur, they can be devastating.

See Certification and the Law

What do you think? Leave a comment.

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