Generac to Pay US$15.8 Million in Civil Penalties for Alleged Reporting Delay

On May 5, 2023, in its second civil penalty announcement this year, the U.S. Consumer Product Safety Commission (CPSC or the Commission) announced that Generac Power Systems, Inc. (Generac) has agreed to pay a US$15.8 million penalty. The settlement resolves CPSC staff’s allegations that Generac failed to timely report to CPSC, as required by 15 U.S.C. § 2064(b) (Section 15(b) of the Consumer Product Safety Act, CPSA) (Section 15(b)), that certain of Generac’s portable generators allegedly contained a defect that could create a substantial product hazard or created an unreasonable risk of serious injury or death.

CPSC alleged that, beginning in October 2018, Generac received reports that consumers had fingers partially amputated or crushed by the generators’ handle, a grievous bodily injury under 16 C.F.R. § 1115.12(d). CPSC further alleged that, from October 2018 into 2020, Generac tried to prevent future amputation and crushing injuries by (1) evaluating whether a handle hinge guard could be added to existing models, (2) redesigning the handle in new models, (3) including warning labels near the handle hinge, and (4) adding instructions and warnings to the owner’s manual regarding engaging the locking pin when moving the product. Before notifying CPSC, Generac apparently received five reports of finger amputations.

On July 29, 2021, Generac and CPSC jointly announced the recall of 32 different models of portable generators due to finger amputation and crushing hazards caused by unlocked handles. By that time, Generac received eight reports of injury, including seven reports of finger amputations. After Generac reported a post-recall incident with a repaired but unlocked generator handle, Generac and CPSC re-announced the recall over a year later on November 10, 2022 with a revised repair remedy and instructions.

CPSC charged that Generac had information that constituted “actual and presumed knowledge” that the portable generators contained a defect or created an unreasonable risk of serious injury or death, but failed to immediately notify as required under Section 15(b) of the Consumer Product Safety Act. Curiously, the settlement agreement does not indicate the date upon which Generac filed its Section 15(b) report, thus obscuring CPSC’s position as to the full extent of the alleged delay.

The Commission approved the settlement agreement in a 4-0 vote. Though Commissioner Peter Feldman voted in favor of the settlement agreement, his statement notably questions the Commission’s process in arriving at a penalty figure, which is just shy of the US$16.025 million civil penalty maximum. Calling on CPSC to use a “consistent methodology” in calculating penalty amounts, Commissioner Feldman stated 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.”

In addition to the US$15.8 million civil penalty, the settlement agreement requires Generac to implement and maintain a compliance program and a system of internal controls and procedures to ensure compliance with the CPSA, including the reporting provisions of Section 15(b). Generac must also submit three annual reports regarding its compliance program. Not long ago, such a requirement was not typically included in CPSC settlement agreements. However, mandated compliance program annual reports have been included in each of CPSC’s settlement agreements since July 2022. Consumer product companies should closely examine their product safety compliance programs and internal controls to determine whether enhancements are appropriate to help identify and timely report potential product safety issues.

For questions about this post, CPSC enforcement practices, or other product safety matters, please reach out to the authors or any of their colleagues on Arnold & Porter’s Consumer Product Safety team.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.