[Senate Report 104-69]
[From the U.S. Government Publishing Office]
104th Congress 1st SENATE Report
Session
104-69
_______________________________________________________________________
Calendar No. 91
PRODUCT LIABILITY FAIRNESS ACT
__________
Mr. Pressler, from the Committee on Commerce, Science, and
Transportation, submitted the following
R E P O R T
together with
MINORITY VIEWS
of the
SENATE COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
on
S. 565
April 18, 1995.--Ordered to be printed
Filed under authority of the order of the Senate of April 6
(legislative day, April 5,), 1995
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
one hundred fourth congress
first session
LARRY PRESSLER, South Dakota,
Chairman
BOB PACKWOOD, Oregon
TED STEVENS, Alaska
JOHN McCAIN, Arizona
CONRAD BURNS, Montana
SLADE GORTON, Washington
TRENT LOTT, Mississippi
KAY BAILEY HUTCHINSON, Texas
OLYMPIA SNOWE, Maine
ERNEST F. HOLLINGS, South Carolina JOHN ASHCROFT, Missouri
DANIEL K. INOUYE, Hawaii
WENDELL H. FORD, Kentucky
J. JAMES EXON, Nebraska
JOHN D. ROCKEFELLER IV, West Virginia
JOHN F. KERRY, Massachusetts
JOHN B. BREAUX, Louisiana
RICHARD H. BRYAN, Nevada
BYRON L. DORGAN, North Dakota
Patric G. Link, Chief of Staff
Kevin G. Curtin, Democratic Chief
Counsel and Staff Director
Calendar No. 91
104th Congress Report
SENATE
1st Session 104-69
_______________________________________________________________________
PRODUCT LIABILITY FAIRNESS ACT
_______
April 18, 1995.--Ordered to be printed
Filed under authority of the order of the Senate of April 6
(legislative day, April 5), 1995
_______________________________________________________________________
Mr. Pressler, from the Committee on Commerce, Science, and
Transportation, submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany S. 565]
The Committee on Commerce, Science, and Transportation, to
which was referred the bill (S. 565) ``A bill to regulate
interstate commerce by providing for a uniform product
liability law, and for other purposes'', having considered the
same, reports favorably thereon with an amendment in the nature
of a substitute and recommends that the bill (as amended) do
pass.
Purpose of Bill
The bill, S. 565, as reported, creates certain standards of
product liability law that are to be applied uniformly
throughout the United States.
The present system in the United States for resolving
product liability disputes and compensating those injured by
defective products is costly, slow, inequitable, and
unpredictable. Such a system does not benefit manufacturers,
product sellers, or injured persons. The system's high
transaction costs exceed compensation paid to victims. Those
transaction costs are passed on to consumers through higher
product prices. The system's unpredictability and inefficiency
have stifled innovation, kept beneficial products off the
market, and have handicapped American firms as they compete in
the global economy.
S. 565, as reported, addresses these problems through
several changes to existing product liability law. This new law
would apply to all product liability actions in state and
federal courts. These changes are balanced and limited and are
intended to reduce transaction costs, provide greater certainty
as to the rights and responsibilities of all parties involved
in product liability disputes, encourage innovation, and
increase the competitiveness of U.S. firms.
The bill as reported also addresses specifically an
emerging crisis concerning the supply of medical devices and
thereby seeks to avoid a public health emergency. The supply of
raw materials used in medical devices--commonly referred to as
biomaterials--is jeopardized because raw material suppliers are
thrust into product liability suits targeted primarily at the
medical devices manufacturers. The costs of defending these
suits are greater than the profits from supplying the raw
materials for medical devices. To address this problem, S. 565
as reported, would allow the suppliers of biomaterials for
medical implants to obtain dismissal from certain tort actions
without extensive discovery or other legal costs.
Background and Need
introduction
Although product liability is a matter traditionally left
to state law, the current morass of product liability laws is a
problem of national concern that requires Congressional action.
The current system of compensating people injured by defective
products is costly, slow, inequitable, and unpredictable.
Many consumers who are injured by defective products and
deserving of compensation are unable to recover damages or must
wait years for recovery. They, like manufacturers and product
sellers, are thrust into a product liability litigation system
in which identical cases can produce startlingly different
results. Moreover, severely injured victims tend to receive far
less than their actual economic losses, while those with minor
injuries often are overcompensated.
Inefficiency and unpredictability have many negative
effects. Manufacturers of some products, such as machine tools,
medical devices, and vaccines, find it difficult to buy
adequate insurance coverage. The unpredictable patchwork of
state laws has had a chilling effect on the introduction of new
products to market. The current U.S. product liability system
also damages our competitive position in world markets because
the excessive costs of the system result in higher prices for
American products.
The present system adversely affects manufacturers, product
sellers, consumers, and individuals injured by products. Reform
by the states cannot fully address the problems with the
current product liability system. Reform at the federal level
is urgently needed.
I. Problems with the present product liability system
The existing system does not provide an efficient and
equitable means of resolving claims involving defective
products.
A. Costs are high and continue to escalate
The costs of the product liability system have increased
substantially in recent years. The editors of ``The Liability
Maze,'' a book published by the Brookings Institution in 1991,
note that ``[r]egardless of the trends in tort verdicts, most
studies in this area have concluded that, after adjusting for
inflation and population, liability costs have risen
dramatically in the last thirty years, and most especially in
the last decade.'' \1\ Increases in awards in such cases have
been much higher than corresponding increases in wages and
inflation.\2\ Increased product liability costs are reflected
in dramatic increases in liability insurance costs. Over the
last forty years, general liability insurance costs have
increased at over four times the rate of growth of the national
economy.\3\
\1\ P.W. Huber and R.E. Litan, eds., The Brookings Institution,
``The Liability Maze'' 3 (1991). [Hereinafter ``The Liability Maze''].
\2\ P. Weiler, K. Abraham, R. Rabin, D. Rosenberg, A. Schwartz,
W.K. Viscusi, Enterprise Responsibility for Personal Injury, American
Law Institute, Reporters' Study, Vol. I, at 270-71 [hereinafter ALI
Reporters' Study].
\3\ Id. at 60.
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The transaction costs associated with the present product
liability system--the costs of litigation, court proceedings,
and attorneys' fees--are enormous. Today, plaintiff and defense
lawyers collect as much from the system as injured persons do
and most of the money paid out by manufacturers never reaches
the injured persons.\4\ A study by the insurance Services
Office (ISO) of closed claims in 1992 indicated that for every
$10 paid to claimants by insurance companies in product
liability cases, another $7 is paid for lawyers and other
defense costs.\5\ If the contingent fee of plaintiffs'
attorneys are factored in, lawyers' fees account for 61 percent
of the funds expended on product liability claims.
\4\ Testimony of the Honorable Robert A. Mosbacher, Secretary, U.S.
Department of Commerce, Before the Consumer Subcommittee of the Senate
Committee on Commerce, Science, and Transportation, S. Hrg. 101-743 at
258, April 5, 1990 (hereinafter April 5, 1990 hearing).
\5\ Insurance Services Office Product Liability Closed Claim
Survey, A Technical Analysis of Survey Results (1992).
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A 1986 Rand Institute for Civil Justice study showed the
annual overall transaction costs of the U.S. tort system exceed
compensation to plaintiffs. The Rand study found that in 1985,
net compensation totaled $13 billion to $15 billion, but the
transaction costs--including plaintiffs' attorneys' fees,
defense legal fees, public expenditures, and the time of the
litigants--were between $15 billion and $19 billion.\6\ A study
conducted by the insurance industry in 1989--the Tillinghast
study--estimated the current overall cost of the U.S. tort
system at a staggering $117 billion.\7\
\6\ Testimony of James S. Kakalik, Ph.D., The Institute for Civil
Justice of the Rand Corporation, before the Subcommittee on Trade,
Productivity, and Economic Growth of the Joint Economic Committee, July
29, 1986, S. Hrg. 99-1090. The same conclusion was reached in a study
done by an actuarial consulting firm for members of the insurance
industry. The study found that in 1984, 63 percent of the gross insured
costs of the United States tort system consisted of payments to
claimants. Robert W. Sturgis, ``The Cost of the U.S. Tort System,''
Tillinghast, Nelson, and Warren, Inc. 16 (November 1985). If this is
reduced by one-third to account for plaintiffs' attorneys' fees, only
42 percent of the costs remain to compensate the injured. Dr. Kakalik,
author of the Rand study, explained in his testimony that Sturgis'
estimate of transaction costs ``is higher than ours because it includes
the cost of insurance premiums that cover claims, lawsuits, and the
operation of the insurance system. We only report on compensation and
costs directly associated with tort lawsuits.''
\7\ Tillinghast, Perrins-Tower Group. Tort Cost Trends: An
International Perspective 16 (December 1989).
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The U.S. tort system is the world's most costly tort
system.\8\ Liability insurance costs reflect these transaction
costs and insurance rates rise with them. Consumers pay higher
prices as a result. Neither plaintiffs nor defendants benefit
from the rapidly increasing and excessive costs of the present
system for resolving product liability disputes.
\8\ Id.
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B. Delay
Product liability suits take a very long time to process.
This delay places at a disadvantage those injured by faulty
products and adds to the expense of the system.
One survey, done by the insurance industry in 1977, found
36 percent of bodily injury losses in product liability cases
are not paid until at least 4 years after the first report, and
it takes 5 years to pay the claim with the average dollar
amount of loss. Not surprisingly, this study also found
``larger claims tend to take much longer to close than smaller
ones.'' \9\
\9\ Insurance Services Office Product Liability Closed Claim
Survey, A Technical Analysis of Survey Results 79 (1977).
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Another insurance industry study also found those with the
most severe injuries are forced to wait the longest for
compensation. This study found that, in cases where payment
exceeded $100,000, 21.6 percent of claimants waited more than
five years for payment. Only 2.1 percent were paid within a
year of reporting their injury, and 62.6 percent took more than
three years to be paid.\10\
\10\ Alliance of American Insurers Survey of Large-Loss Product
Liability Claims 4 (1980).
A GAO report found that in the five states studied, on
average product liability cases took two and one-half years to
move from filing to trial court verdict.\11\ One case studied
by GAO took about nine and one-half years to move through the
court system.\12\
\11\ U.S. General Accounting Office, Report to the chairman,
Subcommittee on Commerce, House Committee on Energy and Commerce,
``Product Liability: Verdicts and Case Resolution in Five States'' 49
(September 1989) [hereinafter GAO Report].
\12\ Id.
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Most product liability cases are settled before trial, but
even these cases suffer from delay. One plaintiff's attorney
explained that ``most settlement negotiations get serious only
a week or so before trial is scheduled to begin.'' This timing
has become so ingrained in the system that ``each week the
[lawyer's] firm projects cash flow by estimating the settlement
value of the cases set for trial the following week.''\13\
\13\ Wayne E. Green, ``A Lawyer Faces Risks in Deciding to Take On
Costly Damage Suits,'' Wall St. J., May 23, 1986 at 12.
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Delay can result in undercompensation of victims. Many
injury victims are forced to settle their claims for less than
their full losses so they can obtain compensation more quickly.
These individuals are often forced into this decision because
they have inadequate resources to pay for their medical and
rehabilitation expenses. This dynamic is most evident where
severe injuries are involved.\14\
\14\ See O'Connell, ``A `Neo No-Fault' Contract in Lieu of Tort:
Preaccident Guarantees of Postaccident Settlement Offers,'' 73 Calif.
L. Rev. 898, 901-902 (1985), citing Corstevet, ``The Uncompensated
Accident and Its Consequences,'' 3 Law & Contemp. Probs. 466, 468
(1936).
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C. Inequitable compensation
The present product liability system also is unfair because
it fails to compensate those injured in proportion to their
losses. Numerous studies have found the tort system grossly
overpays people with small losses, while underpaying people
with the most serious losses.
An early ISO product liability study found injured
plaintiffs with losses between $1 and $1,000 receive, on the
average, 859 percent of their losses, while those with losses
of over $1 million receive, on the average, 15 percent of their
losses (before paying their attorneys' fees).\15\ In general,
the study found compensation exceeded economic loss when losses
were below $100,000, but compensation dropped dramatically
below actual economic loss when the claimant's loss exceeded
$100,000.\16\
\15\ 1977 ISO study at 49.
\16\ Id. at 383.
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D. Unpredictability
Consumers, manufacturers, and product sellers are trapped
in a product liability litigation system that is a lottery.
Identical cases can produce startlingly different results.
In his testimony before the Committee in 1986, Professor
Jeffrey O'Connell, of the University of Virginia School of Law,
explained:
[i]f you are badly injured in our society by a product
and you go to the highly skilled lawyer * * * in all
honesty [the lawyer] cannot tell you what you will be
paid, when you will be paid, or indeed if you will be
paid.\17\
\17\ Testimony of Professor Jeffrey O'Connell, hearing of the
Consumer Subcommittee, Senate Committee on Commerce, Science, and
Transportation, February 27, 1986.
A principle cause of excessive uncertainty is the diversity
in legal standards applied in different jurisdictions.\18\
Professor M. Stuart Madden, of Pace University School of Law,
in his testimony before the Subcommittee on April 4, 1995 also
identified the ``cacophony of conflicting state liability and
damage rules'' as the primary cause of this confounding
unpredictability.\19\ Professor Madden explained:
\18\ See, e.g., S. Rept. 98-476, pp. 3-4; Calabresi and Klevorick,
``Four Tests for Liability in Torts,'' 14 J. Leg. Stud. 585, 585-6
(1985).
\19\ Testimony of Professor M. Stuart Madden, hearing of the
Subcommittee on Consumer Affairs, Foreign Commerce and Tourism, Senate
Committee on Commerce, Science, and Transportation, April 4, 1995, at 2
[hereinafter April 4, 1995 hearing].
[w]hile the array of diverse state laws is festive for
academics, it is costly to businesses and to the
public. Studies show that insurance costs in the United
States are twenty times greater than they are in
Europe, and fifteen times greater than in Japan.\20\
\20\ Id. at 3.
Art Kroetch, Chairman of Scotchman Industries, a small
business that manufactures machine tools in South Dakota,
indicated in his testimony before the Subcommittee on April 4,
1995 that the uncertainty concerning both the applicable
product liability rules and the resultant exposure business
faces is reflected in erratic product liability insurance
rates. Mr. Kroetch explained that insurers ``are unable to
accurately predict potential liability due to the disparity in
state laws, unpredictability of where the product will be
located initially, and later where it is sold and resold as
used equipment.'' Mr. Kroetch indicated that when insurance
companies set their rates, they must account for the worst case
scenario and, as a result, insurance rates are sometimes so
high that affordable coverage cannot be obtained.\21\
\21\ Testimony of Art Kroetch, April 4, 1995 hearing, at 3.
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The system's unpredictability particularly affects
settlements as negotiations are ``sabotaged'' by the lack of
clear standards.\22\ For example, uncertainty over the
liability standards for punitive damages makes it difficult to
negotiate sensibly where punitive damages are alleged.\23\
\22\ Twerski, ``A Moderate and Restrained Product Liability Bill:
Targeting the Crisis Areas for Resolution,'' 18 U. Mich. J. of L. Ref.
575, 612 (1985).
\23\ Testimony of Professor Aaron Twerski, Hearing of the Consumer
Subcommittee of the Senate Committee on Commerce, Science, and
Transportation, September 19, 1991 (hereafter September 19, 1991
hearing), S. Hrg. 102-727 at 104 (1991). See Twerski, ``A Moderate and
Restrained Federal Product Liability Bill: Targeting the Crisis Areas
for Resolution,'' supra, at 612.
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Greater predictability and uniformity will benefit all
parties in product liability disputes. Warren W. Eginton, a
federal judge and a product liability expert, testified at the
Subcommittee's hearing on February 22, 1990 that:
the more uniformity can be accomplished * * * the more
quickly the litigation will flow and the lighter the
economic burden on all parties involved. Certainly the
task of the judge and juries in understanding the
problems and the rules of law to be applied to those
problems will be greatly simplified by uniformity.\24\
\24\ Testimony of the Honorable Warren W. Eginton, U.S. District
Judge, District of Connecticut, S. Hrg. 101-743 at 180 (1990).
The uncertainty in the present system is a serious problem
for both plaintiffs and defendants. Plaintiffs need faster,
more certain recovery that fully compensates them for their
real losses. Defendants need greater certainty as to the scope
of their liability.
II. Burdens from a product liability system that has failed.
An inefficient and inequitable product liability system
burdens consumers with higher prices and deprives them of
needed products. It ladens businesses with unnecessary costs
that injure their international competitiveness and sacrifices
quality American jobs. An inefficient and inequitable product
liability system does not foster safety.
A. Consumers pay higher prices and are confused about their
rights
William Fry, Executive Director of HALT, indicated in his
testimony before the Subcommittee on April 3, 1995 that average
consumers would benefit from product liability reform. HALT is
a ``nonprofit organization of 70,000 individuals devoted to
reforming the legal system so that it works better for the
average citizen.'' \25\
\25\ Testimony of William Fry, hearing of the Subcommittee on
Consumer Affairs, Foreign Commerce and Tourism, Senate Committee on
Commerce, Science and Transportation, April 3, 1995, at 1 [hereinafter
April 3, 1995 hearing].
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Fry indicated the diversity of product liability laws
applied by different states frustrates consumers because ``they
cannot know their basic rights and options, and * * * they must
consult a lawyer to find them out.'' \26\ HALT supports a
uniform, federal product liability law to give consumers
consistency and predictability, and to enable them to learn and
understand their rights wherever they live.
\26\ Id. at 3.
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Consumers must ultimately bear through higher prices the
excessive costs of our product liability system. Mr. Fry
testified, for example, that excessive punitive damages
``penalties are harmful to business and to consumers of
products when price reflects the risk of such penalties.'' \27\
\27\ Id. at 6. Fry also noted that ``our members are sensitive to
the pass-through impact of punitive damages, or the fear of them, to
consumers in the form of higher prices or products not getting to
market.'' Id. at 7.
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B. Women's health research and products: A case study of a
broken system
In its many hearings over the years, the Committee has
often received testimony about how the existing product
liability system stifles innovation and keeps beneficial
products off the market. None of this testimony, however, is
more direct or compelling than that received by the
Subcommittee on April 4, 1995 from Ms. Phyllis Greenberger, the
Executive Director of the Society for the Advancement of
Women's Health Research. The Society is a ``non-profit, non-
partisan organization committed to improving the health of
women through research.'' \28\
\28\ Testimony of Phyllis Greenberger, April 4, 1995 hearing, at 1.
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Ms. Greenberger testified that the Society believes ``the
current liability climate is preventing women from receiving
the full benefits that science and medicine can provide.'' She
noted ``there is evidence that maintaining the current
liability system harms the advancement of women's health
research.'' This harm occurs because ``[l]iability concerns are
stifling research and development of products for women.''
Ms. Greenberger stated ``[c]ontraceptive development in the
U.S. provides an excellent example of how the threat of
litigation can devastate an entire industry.'' She noted it is
litigation concerns, not a lack of demand, that has reduced the
number of companies doing contraceptive research from 13 to 2.
Ms. Greenberger stated a ``recent report of the Institute of
Medicine attributed this decline to the unpredictable nature of
litigation combined with the enormous cost and limited
availability of liability insurance.''
It is not just research that is affected. ``Liability
concerns are keeping products, which have already been
developed, off the market despite a known therapeutic need.''
Ms. Greenberger gave several examples of beneficial products
which are not being marketed, including Bendectin, the only
anti-nausea medication ever approved for use in pregnancy.
To understand these unfortunate developments, Ms.
Greenberger advised that if one ``[v]iews the legal landscape
from the eyes of a manufacturer, one sees a foreboding
terrain.'' She notes that ``[i]t is important to remember that
the very nature of drugs and medical devices means that they
are not risk free.'' Consequently, ``[a]ny drug taken over long
periods of time by large populations will undoubtedly result in
problems for a certain number of people.'' Ms. Greenberger
stressed that ``unintended adverse reactions in a few should
not create a threat of liability so great as to disadvantage
the many who benefit.''
Ms. Greenberger identified the true risk to such beneficial
products when she noted they ``present an enticing arena for
lawyers who have created an industry out of cultivating
massive, sensationalized lawsuits often based on the experience
of the few who experienced legitimate problems.''
In addition, Ms. Greenberger commented that her
organization ``is concerned that opponents to reform are using
women as their strategy to block change'' in product
liability.\29\ Ms. Greenberger indicated the Society does not
take a position on any bill but she called for an ``FDA
defense'' to punitive damages and supported a special
biomaterials access provision in the current bill.\30\
\29\ All quotations in the preceding paragraphs are from
Greenberger's testimony, April 4, 1995 hearing, at 2-3.
\30\ Id. at 4.
C. Innovation is stifled and beneficial products are kept
off the market
The negative effect of our current product liability system
on the economy was clearly demonstrated in a survey of over
2,000 CEOs conducted by the Conference Board in 1988.
Participating businesses indicated their actions were affected
in the following ways by our current product liability system.
Adverse impacts cited based on actual liability experience \31\
Percent of firms
reporting action
Type of Impact:
Closed Production Plants......................... 8
\31\ McQuire, The Conference Board, Research Report
No. 908, ``19 The Impact of Product Liability Table
28'' (1988) [hereinafter Conference Board Report].
Laid Off Workers................................. 15
Discontinued Product Lines....................... 36
Decided Against Introducing New Products......... 30
Decided Against Acquiring/Merging................ 17
Discontinued Product Research.................... 21
Moved Production Offshore........................ 4
Lost Market Share................................ 22
Adverse impacts cited based on anticipated liability problems \32\
Percent of firms reporting
action
Type of Impact:
Closed Production Plants........... 1
\32\ Conference Board Report, Table 29,
at 19.
Laid Off Workers................... 1
Discontinued Product Lines......... 11
Decided Against Introducing New
Products.......................... 9
Decided Against Acquiring/Merging.. 5
Discontinued Product Research...... 4
Moved Production Offshore.......... 1
Lost Market Share.................. ...............................
In his testimony before the Subcommittee in 1990, Secretary
of Commerce Robert Mosbacher testified that the Conference
Board results show the extent of the indirect costs of the
current product liability system. These indirect costs include
``useful products * * * being discontinued, decisions not to
develop new product lines or not to continue product research,
and a fear to innovate.'' \33\ Many U.S. companies devote far
more to product liability costs than to research and
development efforts. For example, The National Machine Tool
Builders Association stated its members spend seven times more
on product liability costs than on research and
development.\34\
\33\ Testimony of the Honorable Robert A. Mosbacher, April 5, 1990
hearing, S. Hrg. 101-743 at 247 (1990).
\34\ Testimony of Howard H. Fark, February 22, 1990 hearing, S.
Hrg. 101-743 at 225-26.
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Product development is hindered in many ways by our
existing product liability system. Sometimes, due to fears
about joint liability, raw material suppliers refuse to sell
necessary materials to manufacturers for new product concepts.
For example, Ms. Julie Nimmons, Chief Executive Officer of
Schutt Sports Groups testified in 1993 that material suppliers
are reluctant to sell to her company, a manufacturer of
football helmets, for fear of liability. This reluctance
sometimes kills new product development. For example, Ms.
Nimmons' company designed a new baseball product that
functioned well in prototype testing, but the company was
unable to produce the product because it could not obtain
needed materials.\35\
\35\ Testimony of Ms. Julie Nimmons, hearing of the Consumer
Subcommittee, Senate Committee on Commerce, Science and Transportation,
September 23, 1993, S. Hrg. 103-490 at 20.
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In his testimony before the Subcommittee in 1990, Secretary
Mosbacher referenced reports that:
Universities are shying away from licensing patents
to small manufacturers because of their fear that, as
the originators of the idea upon which a product was
manufactured, they will become the ``deep pocket'' if
there is litigation involving the product.\36\
\36\ Testimony of the Honorable Robert A. Mosbacher, April 5, 1990
hearing, S. Hrg. 101-743 at 249 (1990).
This development is distressing because the crucial role of
small companies in innovation is widely accepted.
A report by the American Medical Association indicates the
current product liability system also is having a ``profoundly
negative impact on the development of new medical
technologies.'' \37\ The report concluded:
\37\ Testimony of Richard Kingham, April 5, 1990 hearing, citing,
AMA Board of Trustees, ``Impact of Product Liability on the Development
of New Medical Technologies,'' at 12 (June 1988) in ``Brief of Amici
Curiae'' Pharmaceutical Manufacturer Association and American Medical
Association in Browning Ferris Industries of Vermont, Inc. v. Kelco
Disposal, Inc., 109 S. Ct. 2909 (1989).
Innovative new products are not being developed or
are being withheld from the market because of liability
concerns or inability to obtain adequate insurance.
Certain older technologies have been removed from the
market, not because of sound scientific evidence
indicating lack of safety or efficacy, but because
product liability suits have exposed manufacturers to
unacceptable financial risks.\38\
\38\ Id. at 1.
Not only is actual product development suppressed, even
basic scientific research is squelched by our product liability
system. Dr. Malcolm Skolnick testified before the Subcommittee
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during the 101st Congress that:
Scientific inquiry is stifled. Ideas in areas where
litigation has occurred will not receive support for
exploration and development. Producers fearful of
possible suit will discourage additional investigation
which can be used against them in future claims.\39\
\39\ Testimony of Dr. Malcolm Skolnick, April 5, 1990 hearing, S.
Hrg. 101-743 at 300 (1990).
Even established, beneficial products sometimes fall prey
to our broken product liability system. For example, in 1984
two of the three companies manufacturing the diphtheria-
tetanus-pertussis (DTP) vaccine decided to stop producing it
due to product liability costs. Later that year, the Centers
for Disease Control recommended doctors stop vaccinating
children over age one in order to conserve limited supplies of
the DTP vaccine for the most vulnerable infants.\40\
\40\ ``The Liability Maze'' at 343.
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D. U.S. competitiveness is hampered
American business faces a competitive disadvantage in both
international and domestic markets due to our flawed product
liability system. American manufacturers and product sellers
generally pay product liability insurance rates that are 20 to
50 times higher than those of foreign competitors.\41\ This
disparity is attributable, in large part, to the uncertainties
and costs of the American tort litigation system.\42\ Insurers
generally do not discount premiums when a manufacturer exports
its goods, because there is a possibility that a product-
related suit will be brought in the United States.
Consequently, each U.S. product shipped abroad contains an
insurance cost element greater than that of a foreign
competitor.\43\ In the ever more competitive international
markets, the resultant price differences hamper American
business.
\41\ The Conference Board Report at 4 (citing a 1984 study
commissioned by the U.S. Department of Commerce).
\42\ Id.
\43\ See Orban, ``Product Liability and International Trade and
Policies,'' Product Liability and Tort Law Reform, National Legal
Center for the Public Interest, 144 (April 21, 1982).
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American business is similarly disadvantaged in our
domestic market when foreign companies enjoy a lower cost base
due to their less expensive and more certain product liability
systems. Often, the over-all cost base of foreign manufacturers
is lower because they also benefit from a statue of repose in
their home market. The Association of Manufacturing Technology
has noted, for example, that the price of imported products can
be lower due to the difference in liability insurance rates, if
the importer does not sell all of its products in the United
States.\44\
\44\ Letter from James A. Gray, President, National Machine Tool
Builders Association, to Jim J. Tozzi, Deputy Director of Information
and Regulatory Affairs, Office of Management and Budget (June 14,
1982). The letter also points out the effect of the lack of a statute
of repose on this industry. AMT indicates there are cases in which 50-
year old products have been the subject of product liability lawsuits.
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Changes in conflict of law theory also have added to the
competitive disadvantage faced by American firms. An
individual, injured in a foreign country by a U.S. product, now
may be able to sue the manufacturer in the United States and
have U.S. law applied in the case. In the past, the rule of lex
loci would have required the application the foreign country's
law.\45\ The diminished importance of lex loci means U.S.
manufacturers may be held to higher and more costly product
liability standards in both U.S. and foreign markets while
foreign competitors only confront U.S. law in the United
States.
\45\ Testimony of Professor Aaron Twerski, September 19, 1991
hearing, S. Hrg. 102-727 at 101-102 (1991); See Pray v. Lockheed
Aircraft Corp. 644 F. Supp. 1289 (D.D.C. 1986) (Washington, D.C. law
applied in lawsuit against U.S. manufacturer for damages arising
outside Saigon, Vietnam).
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Professor Aaron Twerski testified in 1991 that
``uncontrolled damages have serious international
implication(s)'' because the United States has been unable to
get foreign countries to enter into treaties to enforce
American judgments abroad due to ``unregulated judgments.''
\46\ American businesses suffer as a result when they are
unable to enforce overseas simple money judgments.\47\
\46\ Testimony of Professor Aaron Twerski, September 19, 1991
hearing, S. Hrg. 102-727 at 105.
\47\ Id.
E. Product liability and product safety
Those who oppose product liability reform believe the
product liability system, as presently constructed, promotes
safety. They argue alterations to the system will enable unsafe
products to enter the market. Most often, those opposing reform
argue that unbounded punitive damages are the threat that makes
products safer.\48\
\48\ See e.g., Testimony of Larry Stewart, President of the
Association of Trial Lawyers of America, April 3, 1995 hearing, at p.
8.
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There is a notable lack of evidence for these assertions.
William Fry, the Executive Director of HALT, testified at the
April 3, 1995 hearing that some states and foreign countries
such as Canada do not have punitive damages yet ``there is no
evidence that product liability suits there do not achieve
changes in conduct.'' \49\ Fry noted that ``[f]or most
defendants the stigma of punitive damages motivates reform''
because excessive punitive damages are usually overturned on
appeal.\50\
\49\ Testimony of William Fry, April 3, 1995 hearing, at 6.
\50\ Id.
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In his testimony on April 4, 1995, Professor M. Stewart
Madden indicated that, in a punitive damage award, ``the public
finding of rogue conduct can be as great a punishment, and as
much a deterrent to the defendant and to other marketplace
participants, as the punitive monetary award.'' \51\ Professor
Madden explained ``[t]here is overwhelming evidence * * * that
manufacturers are alert to public opinion as to their
behavior.'' \52\ He also noted a punitive damage award will
ensure that state and federal regulators descend on a defendant
and thus assure they modify their conduct.\53\
\51\ Testimony of M. Stuart Madden, April 4, 1995 hearing, at 4.
\52\ Id.
\53\ Id.
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The editors of ``The Liability Maze'' also concluded that
factors other than the product liability system--such as safety
regulations--are responsible for the promotion of safety.\54\
For example, Professor John Graham of the Harvard University
School of Public Health, conducted five case studies on whether
there was a relationship between motor vehicle safety and
product liability law. He concluded ``[t]he case studies
provide little evidence that expanded product liability risk
was necessary to achieve the safety improvements that have been
made.'' \55\ Instead, Graham concludes vehicle safety
regulation can provide a predictable and technically sound
forum in which to resolve safety issues.\56\
\54\ See ``The Liability Maze'' at 12-13.
\55\ ``Product Liability and Motor Vehicle Safety'' in ``The
Liability Maze'' at 183-184.
\56\ Id. at 184.
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One author contributing to ``The Liability Maze''
concluded, however, that in the chemical industry the liability
system promotes safety.\57\ The editors of the overall study
note Professor Ashford's findings are contrary to those of all
the other authors contributing to the study.\58\ Moreover, the
study's editors questioned the methodology on which Professor
Ashford's conclusions are based.\59\
\57\ Testimony of Professor Nicholas Ashford, September 12, 1991
hearing, S. Hrg. 102-727 at 71 (1991).
\58\ Id. at 165 (testimony of Peter Huber).
\59\ Id.
F. Biomaterials
There is an emerging crisis in the supply of biomaterials
used in the production of implantable medical devices.
Suppliers of raw materials and component parts are reluctant to
sell to medical device manufacturers because, under current
litigation practice, those suppliers are routinely sued with
device manufacturers in actions alleging inadequate design and
testing of the medical device and inadequate warnings related
to the use of the medical device. Biomaterials suppliers,
however, do not design, produce or test medical devices.
Consequently, it is rare that biomaterials suppliers ultimately
are held liable in these actions.
Nonetheless, suppliers of biomaterials are reluctant to
sell to medical device manufacturers because the costs of
successfully defending themselves exceed the expected return
from supplying the biomaterials. The biomaterials suppliers
provide raw materials and component parts that are not designed
or manufactured specifically for use in medical devices: these
materials also are used in a variety of nonmedical products. As
a result, supplying materials for medical devices is a very
small portion of their business and is easily foregone to avoid
the cost of (successfully) defending liability suits.
Ms. Peggy Phillips, an attorney with a life-sustaining
medical device, testified before the Subcommittee on April 4,
1995, that in the current climate it did not make sense for
biomaterials suppliers to continue providing those materials
for device manufacturers. Ms. Phillips related that one
supplier spent $8 million annually defending itself in cases
involving temporomandibular joint (TMJ) implants even though
that supplier had no role in the design, manufacture or sale of
the device. Ms. Phillips noted sales by all suppliers to all
TMJ implant manufacturers ``totaled $418,000 while sales of
this same raw material to all other markets totalled $282
million.'' \60\ In essence, biomaterials suppliers will not
provide their product to medical device manufacturers because
such transactions involve low returns and a high risk of
substantial losses.
\60\ Testimony of Peggy Phillips, April 4, 1995 hearing, at 5.
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Millions of Americans, who rely on life-saving or life-
enhancing medical devices, face a potentially devastating
health crisis if reforms are not instituted.
III. Federal reform is required as state reform is inherently limited
Those opposing product liability reform argue, that if
reform is desirable, it is the domain of the states.\61\ Reform
is desirable, it is urgently needed, and given the nature and
scope of the problem, only federal reform can be effective.
\61\ See e.g. Testimony of Jeffrey Teitz, representing The National
Conference of State Legislatures, April 3, 1995 hearing; Testimony of
Larry Stewart, President of The Association of Trial Lawyers of
America, April 3, 1995 hearing, at 12.
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Reform by the states can do little to resolve the tort
litigation problems facing those who deal in an interstate
market. Products are manufactured, sold, used, and insured in a
nationwide market. Data show the vast majority of products
manufactured in a given state are consumed or used outside that
state.\62\ As a result, manufacturers and product sellers may
be involved in product liability actions governed by the law of
any state in which they do business. Thus, an attempt by any
one state to reform the system cannot relieve the overall
burden imposed on interstate commerce.\63\
\62\ Testimony of the Honorable Wendell L. Wilkie II, General
Counsel, U.S. Department of Commerce, April 5, 1990 hearing, S. Hrg.
101-743 at 48 (1990). It has been estimated 30.5 percent of
manufactured goods are consumed in the manufacturing state. See, 1977
Census of Transportation, Commodity Transportation Survey, Summary,
U.S. Dept. of Commerce, Bureau of the Census, 1-77 (1981); American Bar
Assoc. Section of Corporation, Banking and Business Law, Report to the
House of Delegates, Attachment B. (1982). See generally Testimony of
Randolph J. Stayin on behalf of the American Textile Machinery
Association, Product Liability Act: Hearing before the Subcommittee on
Consumer of the Senate Committee on Commerce, Science, and
Transportation, 99th Cong., 1st Sess., Rept. No. 99-84, 170 (1985).
\63\ Several state governors have recognized this in vetoing
proposed product liability legislation. See, e.g., Schwartz and Bares,
``Federal Reform of Product Liability Law: A Solution That Will Work,''
13 Cap. U. L. Rev. 351, 355 (1984).
The National Governor's Association (NGA) has long
recognized both the need for product liability reform and the
necessity of federal action to effectuate that reform. NGA's
Director of State-Federal Relations, James Martin, testified
before the Subcommittee on April 3, 1995 concerning the NGA's
advocacy for federal product liability reform. Mr. Martin
indicated that in 1982, the NGA opposed preemption of state
law, but by 1986 this position was unanimously reversed to
support uniform federal product liability laws. During the
NGA's meeting on January 31, 1995 the NGA once again voted to
support a uniform federal product liability law.\64\ The
resolution adopted, by the NGA provides an excellent summary of
the need for reform executed on the federal level. That
resolution reads, in part, as follows:
\64\ Testimony of James Martin, April 3, 1995 hearing, at 1.
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The National Governors' Association recognizes that
the current patchwork of U.S. product liability laws is
too costly, time-consuming, unpredictable, and counter
productive, resulting in severely adverse effects on
American consumers, workers, competitiveness,
innovation and commerce.
The issue of product liability reform has
increasingly pointed to federal action as a way to
alleviate the problems faced by small and large
businesses with regard to inconsistent state product
liability laws. This lack of uniformity and
predictability makes it impossible for product
manufacturers to accurately assess their own risks,
leading to the discontinuation of necessary product
lines, reluctance to introduce product improvements,
and a dampening of product research and development.
American small businesses are particularly vulnerable
to disparate product liability laws. For them,
liability insurance coverage has become increasingly
expensive, difficult to obtain, or simply unavailable.
Further, the system causes inflated prices for consumer
goods and adversely affects the international
competitiveness of the United States.
Clearly, a national product liability code would
greatly enhance the effectiveness of interstate
commerce. The Governors urge Congress to adopt a
federal uniform product liability code.\65\
\65\ NGA policy EDC-22 (1995).
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Mr. Martin testified the NGA ``traditionally has opposed
federal preemption unless there are highly compelling reasons
to justify federal actions that require changes in policies
adopted by state officials.'' \66\ The Governors believe those
conditions exist in the area of product liability.
\66\ Testimony of James Martin, April 3, 1995 hearing, at 3.
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Kirk Dillard, a State Senator from Illinois, testified that
the American Legislative Exchange Council (ALEC) strongly
advocates states' rights but nevertheless supports enactment of
federal product liability legislation.\67\ ALEC is a bipartisan
organization of approximately 2,400 state legislators from all
50 states. Mr. Dillard indicated federal action is needed
because ``virtually all business transactions have an
interstate commerce component, subjecting companies to suits in
numerous different states.'' \68\
\67\ Testimony of Kirk W. Dillard, April 3, 1995 hearing.
\68\ Id. at 4.
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Professor Madden testified ``products liability law cries
out for uniformity.'' \69\ Only federal legislation can create
the uniformity necessary to relieve the enormous burdens
imposed by the existing product liability system. Congress
clearly has the power, under the interstate commerce clause of
the United States Constitution, to enact reform.\70\ In the
past, Congress has preempted state tort law when diverse state
laws burdened interstate commerce.\71\
\69\ Testimony of M. Stuart Madden, April 4, 1995 hearing, at 14.
\70\ U.S. Const., Art. I, Sec. 8, cl. 3.
\71\ Congress preempted state tort reform to promote the nuclear
power industry. See Duke Power Co. v. Carolina Environmental Study
Group, 439 U.S. 59 (1978). See also Public Utility Holding Company Act
of 1935, 15 U.S.C. sec. 79 et seq. (activities involved ``not
susceptible of effective control by any State''); United States Cotton
Standards Act, 7 U.S.C. sec. 51 et seq. (uniform national
classifications necessary to protect and promote commerce); Cigarette
Labeling and Advertising Act, 15 U.S.C. sec. 1331 et seq. (national
standards essential in order that ``commerce and the national economy *
* * not (be) impeded by diverse, nonuniform regulations''); Federal
Employers' Liability Act, 45 U.S.C. 51 et seq.
Legislative History
On March 15, 1995, Senators Jay Rockefeller and Slade
Gorton introduced S. 565, the Product Liability Fairness Act.
On April 3 and 4, 1995, the Senate Committee on Commerce,
Science, and Transportation's Subcommittee on Consumer Affairs,
Foreign, Commerce and Tourism held hearings on the bill. At the
Committee executive session on April 6, 1995, the Chairman of
the Commerce Committee, Senator Larry Pressler, offered an
amendment in the nature of a substitute that maintained the
original content of S. 565 but, among other things,
incorporated as Title II, S. 303, The Biomaterials Access
Assurance Act. S. 303 was introduced by Senators Lieberman and
McCain on January 31, 1995, was referred to the Commerce
Committee. On April 6, 1995, the Senate Committee on Commerce,
Science, and Transportation favorably reported S. 565 as
amended by the Chairman's mark by a rollcall vote of 13 to 6.
The Committee has a long history of involvement with
product liability reform. In the Committee's early treatment of
the subject, it reported three bills, each of which was
introduced by Senator Kasten. S. 2631 was reported by the
Committee in the 97th Congress (S. Rep. 97-670), and S. 44 was
reported by the Committee in the 98th Congress (S. Rep. 98-
476). Congress adjourned without Senate action on either of
these measures.
At the beginning of the 99th Congress, on January 3, 1985,
Senator Kasten introduced S. 100, the Product Liability Act.
This bill preempted state law to impose uniform federal rules
and standards of liability governing the recovery of damages
for injuries caused by defective products. The legislation was
substantially the same as S. 44, which had been reported by the
Committee during the 98th Congress.
A Consumer Subcommittee hearing on S. 100 was held on March
21, 1985 (Serial No. 99-84) and the bill was reviewed by the
Committee at an executive session on May 16, 1985. At that
session, the motion to report the bill was defeated by an 8-8
vote.
Prior to the May 16, 1985, executive session, two
amendments in the nature of a substitute to S. 100 had been
introduced. One of these amendments (S. Amdt. No. 16) was
introduced by Senator Christopher Dodd on March 19, 1985, and
the other (S. Amdt. No. 100) was introduced by Senator Slade
Gorton on May 14, 1985. These amendments were complete
substitutes for S. 100 that preempted certain aspects of state
law and also established alternative expedited claim systems
for limited recovery of damages in product liability cases.
Hearings on the Dodd and Gorton amendments were held by the
Consumer Subcommittee on June 18 and June 25, 1985 (Serial No.
99-177).
After these hearings, the Committee staff was instructed by
the Chairman of the Commerce Committee, Senator John C.
Danforth, to draft a proposal that combined elements of all
these measures. After review of extensive comments received
from the public in connection with the Committee's first draft,
a second draft was released on November 20, 1985. This draft
was formally introduced by Senator Danforth on December 20,
1985, as S. 1999. This bill was the subject of two days of
hearings before the Consumer Subcommittee on February 27 and
March 11, 1986.
On April 30, 1986, Senator Kasten introduced an amendment
in the nature of a substitute for S. 100 (S. Amdt. No.
1814).\72\ This amendment embodied recommendations for product
liability reform that had been made by the administration's
Tort Policy Working Group.\73\
\72\ 132 Cong. Rec. S5106.
\73\ Report of the Tort Policy Working Group on the Causes Extent
and Policy Implications of the Current Crisis in Insurance Availability
and Affordability (February 1986).
On May 12, 1986, Senator Danforth introduced an amendment
in the nature of a substitute for S. 1999 (S. Amdt. No.
1951).\74\ This amendment replaced the expedited claim system
of S. 1999 with an expedited settlement system and made a
number of other changes in S. 1999. On May 20, 1986, Senator
Gorton introduced an amendment in the nature of a substitute to
the Danforth amendment (S. Amdt. No. 1968).\75\ On May 19 and
20, 1986, the Consumer Subcommittee held hearings on the Kasten
amendment, the Danforth amendment, and the other product
liability measures before the Committee.
\74\ 132 Cong. Rec. S5874.
\75\ 132 Cong. Rec. S6232.
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On June 3, 1986, the Committee began its markup of product
liability legislation. The markup draft bill was an original
bill that embodied the provisions of the Danforth amendment to
S. 1999. On June 12th, the Committee adopted an amendment in
the nature of a substitute for the original markup draft bill.
On June 12, 19, 24, 25 and 26, 1986, the Committee continued
its consideration of the amendment and added a number of other
amendments before reporting S. 2760 as an original bill. S.
2760 came before the full Senate on September 17, 1986. On
September 25th, the Senate agreed to the motion to proceed to
S. 2760 by a vote of 84 to 13. The bill was returned to the
Senate Calendar, and no further action was taken.
The primary activity on federal product liability
legislation in the 100th Congress occurred in the House of
Representatives. On February 18, 1987, Congressman Bill
Richardson and Thomas A. Luken introduced H.R. 1115, which was
referral to the House Energy and Commerce Committee. The
Subcommittee on Commerce, Consumer Protection and
Competitiveness held extensive hearings on the need for federal
product liability reform and on specific issues in the bill on
May 5, May 20, June 18, July 21, August 6, October 7, and
December 17, 1987. The Subcommittee met to mark up the bill on
November 18, 19, and 20, and December 3 and 8, 1987. H.R. 1115
was reported by the Subcommittee, as amended, on December 8,
1987, by a vote of 11-3. On May 10, 12, 18, 19, and 24, June 1,
2, 8, 9, and 14, 1988, the Energy and Commerce Committee met to
mark up H.R. 1115, voting on June 14 to report H.R. 1115, as
amended, favorably by a recorded vote of 30-12. H.R. 1115 then
received a sequential referral to the House Committees on the
Judiciary and on Education and Labor. The Education and Labor
Committee held a hearing on September 27, 1988, on provisions
in H.R. 1115 that affected workplace safety. The House
Judiciary Committee took no action on the bill in the 100th
Congress. The sequential referral ran through the end of the
session, so the 100th Congress adjourned without considering
H.R. 1115 on the floor of the House.
During the 101st Congress, the Committee held three
hearings on S. 1400, the Product Liability Reform Act,
introduced by Senator Kasten (S. Hrg. 101-243). On May 22,
1990, the Commerce Committee reported an amendment in the
nature of a substitute to S. 1400 by a roll call vote of 13 to
7 (S. Rep. 101-356). The full Senate took no action before the
adjournment of the 101st Congress.
In the 102nd Congress, Senator Kasten introduced S. 640 on
March 13, 1991. There were 36 cosponsors of the bill, including
seven members of the Committee. On September 12, 1991, the
Consumer Subcommittee held a hearing on S. 640 and the full
Commerce Committee held a second day of hearings on S. 640 and
S. 645. The General Aviation Accident Standards Act of 1991, on
September 19, 1991. On October 3rd, the Committee favorably
reported S. 640 by a roll call vote of 13 to 7.
On May 7, 1992, the provisions of S. 640 were incorporated
into an amendment offered by Senator Kasten to S. 250, the
National Voter Registration Act. On May 14th, the amendment was
tabled by a vote of 53 to 45. On June 26th, the bill was
sequentially referred to the Committee on the Judiciary until
August 12th. The Judiciary Committee held a hearing on August
5th but took no further action. Under the terms of a unanimous
consent agreement, on September 8th, the Senate began
consideration of a motion to proceed to consider S. 640. On
September 10th, the Senate failed to invoke cloture on the
motion to proceed by a vote of 57 to 39. A motion to reconsider
that vote was agreed to by a vote of 57 to 39, and a subsequent
cloture vote failed 58 to 38. No further action was taken.
In the 103rd Congress, Senators Jay Rockefeller and Slade
Gorton introduced S. 687, The Product Liability Fairness Act,
on March 31, 1993. The Consumer Subcommittee held a hearing on
S. 687 on September 23, 1993 (Serial No. 103-490). On November
9, 1993 the Committee ordered S. 687 favorably reported by a
roll call vote of 16 to 4. The bill was taken to the floor and
on June 28, 1994 a motion to invoke cloture failed 54-44. On
June 29, 1994 a second motion to invoke cloture failed 57-41.
Summary of Major Provisions
A. Applicability and preemption
The Act applies to any product liability action filed on or
after the Act's date of enactment. The Act preempts State law
only to the extent that State law applies to an issue covered
in the Act. If an issue is not covered in the Act, state law is
not preempted on that point.
B. Alternative dispute resolution
Either party may offer to participate in a voluntary, non-
binding state-approved alternative dispute resolution (ADR)
procedure. If a defendant unreasonably refuses to participate
and a judgement is entered for the claimant, the defendant must
pay the claimant's reasonable legal fees and costs. No penalty
may be assessed against a defendant unless judgement is entered
for the claimant and the defendant is found to have acted
unreasonably or not in good faith in refusing to participate in
ADR.
There is no penalty for claimants who refuse to participate
in an ADR procedure. Consequently, claimants are in control of
whether they choose to use ADR procedures as a quicker and
cheaper mechanism of handling their claim. This provision
particularly aids claimants with relatively minor injuries
(under $100,000) as those individuals often have difficulty
finding a lawyer to take their case on a contingency basis due
to the expense of preparing for trial. This provision should
help such individuals receive compensation for their claims
more quickly and bypass the need to retain costly legal
representation.
C. Product sellers
Product sellers are held liable only for their own
negligence or failure to comply with an express warranty. The
product seller, however, remains liable as if it were the
manufacturer if the manufacturer cannot be brought into court
or is unable to pay a judgement. This provision assures injured
persons will always have available an avenue for recovery.
D. Alcohol and drugs
The defendant has an absolute defense if the plaintiff was
under the influence of intoxicating alcohol or illegal drugs
and as a result of this influence was more than 50 percent
responsible for his or her own injuries.
E. Misuse and alteration
A defendant's liability is reduced to the extent a
claimant's harm is due to the misuse or alteration of a
product.
F. Punitive damages
Punitive damages may be awarded if a plaintiff proves, by
``clear and convincing evidence,'' that his or her harm was
caused by the defendant's ``conscious, flagrant indifference to
the safety of others.''
Punitive damages may be awarded up to the greater of
$250,000 or three times economic damages. There is no
limitation on compensatory damages (economic damages plus
``non-economic damages'' such as pain and suffering).
Either party can request the trial be conducted in two
phases, one dealing with compensatory damages and the other
dealing with punitive damages. The same jury is used in both
phases. In the phase on punitive damages, evidence on the
defendant's profits from the alleged wrongdoing is admissible,
but evidence about the defendant's overall assets is not
admissible.
G. Statute of limitations
The statute of limitations is established as two years from
when the claimant discovered or should reasonably have
discovered both the harm and its cause. A plaintiff may not
file suit after this time.
H. Statute of repose
A statute of repose of 20 years is established for durable
goods used in the workplace. After such goods have been in the
workplace 20 years or longer, no suit may be filed for injuries
related to their use unless the defendant made an express
warranty in writing as to the safety of the specified product
involved, and the warranty was longer than the period of repose
(20 years). Then, the statute of repose does not apply until
that warranty period is complete.
I. Joint and several liability
Joint liability is abolished for non-economic damages, such
as pain and suffering. As to these damages, defendants are
liable only in direct proportion to their responsibility for
the claimant's harm.
J. Workers' compensation subrogation standards: Section 110
This provision preserves an employer's right to recover
workers' compensation benefits from a manufacturer whose
product harmed a worker unless the manufacturer can prove, by
clear and convincing evidence, that the employer caused the
injury.
K. Biomaterials access assurance
The Biomaterials Access Assurance Act would allow suppliers
of the raw materials (biomaterials) used to make medical
implants, to obtain dismissal, without extensive discovery or
other legal costs, in certain tort suits in which plaintiffs
allege harm from a finished medical implant.
The Act would not affect the ability of plaintiffs to sue
manufacturers or sellers of medical implants. It would,
however, allow raw materials suppliers to be dismissed from
lawsuits if the generic raw material used in the medical device
met contract specifications, and if the biomaterials supplier
cannot be classified as either a manufacturer or seller of the
medical implant.
estimated costs
In accordance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate and section 403 of the
Congressional Budget Act of 1974, the Committee provides the
following cost estimate, prepared by the Congressional Budget
Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, April 14, 1995.
Hon. Larry Pressler,
Chairman, Committee on Commerce, Science, and Transportation, U.S.
Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
reviewed S. 565, the Product Liability Fairness Act of 1995, as
ordered reported by the Senate Committee on Commerce, Science,
and Transportation on April 6, 1995. CBO estimates that
enacting S. 565 would not result in any significant cost to the
federal government. Because enactment of S. 565 would not
affect direct spending or receipts, pay-as-you-go procedures
would not apply to the bill.
Bill Purpose. This bill would set new standards for state
product liability cases and would limit the amount of punitive
damages that may be awarded to a plaintiff to three times the
plaintiff's economic award or $250,000, whichever would be
larger. The new standards included in S. 565 would establish
when a product seller or biomaterials supplier is liable for
damages, when a defense based on a claimant's use of drugs or
alcohol could be used, and how several liability for non-
economic loss would be determined. S. 565 also would enable
private parties to use alternative dispute resolution
procedures to settle product liability cases. In addition, the
bill would prohibit the filing of law suits unless the
complaint is filed within two years from when the injured party
discovered, or should reasonably have discovered, the alleged
harm and its cause. The bill also would preserve the right of
employers to recover workers' compensation benefits in cases of
work injury unless the manufacturer could prove that the
employer or another employee was at fault.
Budgetary Impact. While some state product liability cases
may be conducted in federal court, the majority of product
liability cases are handled in state courts. Thus, CBO
estimates that enacting this bill would have no significant
budgetary impact on federal courts. State courts could
initially incur additional costs if potential plaintiffs
attempted to file their cases before the existing state laws
are superseded. In the longer run, increased savings to the
state court system could be realized to the extent that more
uniformity in state product liability law results in fewer
appeals and more efficient litigation. Based on information
from the National Center for State Courts, CBO estimates that
the amount of such costs or savings would be insignificant.
Previous CBO Estimate. On February 23, 1995, CBO prepared a
cost estimate for H.R. 956, the Common Sense Product Liability
Act of 1995, as ordered reported by the House Committee on the
Judiciary on February 22, 1995. On March 1, 1995, CBO prepared
a cost estimate for H.R. 917, the Common Sense Product
Liability Reform Act of 1995, as ordered reported by the House
Committee on Commerce on February 23, 1995. Both H.R. 956 and
H.R. 917 are similar in substance and cost to S. 565.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susanne S.
Mehlman.
Sincerely,
James L. Blum
(For June E. O'Neill, Director).
Regulatory Impact Statement
In accordance with paragraph 11(b) of the rule XXVI of the
Standing Rules of the Senate, the Committee provides the
following evaluation of the regulatory impact of this
legislation.
number of persons affected
The purpose of this product liability reform legislation,
as reported, is to provide greater certainty as to the rights
and responsibilities of all those involved in product liability
disputes, to reduce transaction costs, to relieve the burden
imposed on interstate commerce by the present product liability
litigation system, and to ensure the continued availability of
biomaterials for implantable medical devices. It is anticipated
that it will affect the conduct of those involved in product
liability disputes by making a number of significant changes in
the laws that are applicable to all product liability actions.
This legislation does not change the jurisdiction of state or
federal courts. Thus, the number of persons affected should be
consistent with current levels.
economic impact
It is anticipated this legislation will result in
substantial cost and paperwork savings to all parties affected
by product liability lawsuits. First, the legislation will
bring greater predictability to this area of the law, and,
thus, save time and money for manufacturers, product sellers
and consumers alike, each of whom will be able to determine
their rights more readily than under current law. The
legislation should also foster product innovation and enhance
the competitive position of U.S. product manufacturers in world
markets.
privacy
S. 565 will have no adverse impact on the personal privacy
of the individuals or businesses affected.
paperwork
S. 565 creates no new regulations and imposes no additional
regulatory requirements at either state or the federal level.
The legislation will not change the jurisdiction of state or
federal courts.
Section-by-Section Analysis of S. 565
Section 1--Short title
As reported
Section 1 states the short title of the legislation,
providing that the legislation may be cited as the ``Product
Liability Fairness Act of 1995.''
Title I--Product Liability
section 101--definitions
In general
Section 101 defines terms or phrases used in the bill.
Whenever a defined term or phrase is used, reference should be
made to the definition in this section.
As reported
Section 101 defines the following terms:
(1) Claimant.\76\--As used in the Act, a ``claimant'' is
any person who brings a product liability action and any person
on whose behalf such as action is brought. If a product
liability action is brought through or on behalf of an estate,
the term includes the claimant's decedent. If a product
liability action is brought through or on behalf of a minor,
the term includes the minor's legal guardian.
\76\ The bill does not alter, modify, change, or preempt State law
governing who may be a ``claimant.'' For example, state statutes
stating who may bring a wrongful death or survival action are not
affected by the bill. Such persons, if authorized by State law to bring
the action, are ``claimants'' under the bill.
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(2) Claimant's Benefits.--This term includes all benefits
paid to an employee as workers' compensation and the present
value of all workers' compensation benefits to which the
employee is or would be entitled at the time of the
determination of the claimant's benefits, as determined by the
appropriate workers' compensation authority for harm caused to
an employee by a product.
(3) Clear And Convincing Evidence.--The Act adopts the
generally accepted definition of ``clear and convincing
evidence.'' \77\ This phrase means the degree of proof that
will produce in the mind of the trier of fact a firm belief or
conviction as to the truth the allegations sought to be
established. The ``clear and convincing evidence'' standard
reflects the quasi-criminal nature of punitive damages; it
requires proof greater than the ``preponderance of the
evidence'' standard ordinarily used in civil cases, but less
proof than the ``beyond a reasonable doubt'' standard found in
the criminal law.
\77\ See Hobson v. Eaton, 399 F.2d 781 (6th Cir. 1968), cert.
denied, 394 U.S. 928 (1969). See also 30 Am.Jur.2d Evidence Sec. 1167
(1967).
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(4) Commercial Loss.--This term applies to any loss or
damage to a product itself, loss relating to a dispute over its
value, or consequential pecuniary loss the recovery of which is
governed by the Uniform Commercial Code or analogous state law,
not including ``harm'' as defined in the Act.
(5) Durable Good.--This term means any product, or any
component of a product, which has a normal life expectancy of
three or more years or is of a character subject to allowance
for depreciation under the Internal Revenue Code of 1986, and
which is used in a trade or business, held for the production
of income, or sold or donated to a governmental or private
entity for the production of goods, training, demonstration, or
any other similar purpose.
(6) Economic Loss.--This term means any pecuniary loss
resulting from harm, including any medical expense loss, work
loss, replacement services loss, loss due to death, burial
costs, and loss of business or employment opportunities, to the
extent allowed under applicable state law. The essential
distinction between economic and noneconomic loss is that
economic loss is subject to empirical measurement and
confirmation. In contrast, noneconomic loss, such as ``pain and
suffering,'' is not capable of measurement according to an
objective standard.\78\
\78\ See McCormick, ``Handbook on the Law of Damages'' 318 (1935).
(7) Harm.--The Act defines this term to include any
physical injury, illness, disease, or death, or damage to
property caused by a product. For example, damage to a building
caused by a boiler explosion would be a compensable loss under
the Act. Whether the harm is suffered by an individual or a
business is of no consequence; it is the nature of the loss
that triggers application of the Act.
The definition of ``harm'' does not include loss or damage
caused to a product itself, loss relating to a dispute over the
value of a product, or consequential economic loss (i.e., loss
of profits due to an inability to use the damaged product). The
Act leaves recovery for such losses to commercial law in accord
with the traditional rule followed in the overwhelming majority
of states.\79\
\79\ In cases in which a court determines that a commercial loss
resulting from damage caused by a product is recoverable in tort, in
contravention of the traditional rule, those losses would be included
in the definition of ``harm'' and the provisions of this Act would
apply.
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(8) Insurer. This term means the employer of a claimant, if
the employer is self-insured, or the workers' compensation
insurer of the employer.
(9) Manufacturer.--The Act defines this term as any person
\80\ engaged in a business to produce, create, make, or
construct any product \81\ (or component part of a product),
and who designs or formulates the product (or component part of
the product), or has engaged another person to design or
formulate the product (or component part of the product). The
term does not include a person who only designs or formulates a
product--such as an architect or engineer. These persons,
although not liable under the bill, may be liable under
traditional tort law for failure to exercise reasonable skill
and care in rendering their design services.\82\
\80\ ``Person'' is defined in section 101(11).
\81\ ``Product'' is defined in section 101(12).
\82\ See, e.g., Mechanical Rubber & Supply Co. v. Caterpillar
Tractor Co., 399 N.E. 2d 722 (Ill. App. 1980). See also State ex rel.
Risk Management Div. of Finance & Admin. v. Gatham-Matotan Architects
and Planners, Inc., 653 P.2d 166 (N.M. 1982).
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A product seller \83\ may be a ``manufacturer'' of the
product (or component part of a product) if the product seller
sells or otherwise places a product or component into the
stream of commerce in two situations. First, the product seller
is a ``manufacturer'' of a product with respect to the those
aspects of a product (or component part of a product) which are
created or affected when, before placing in the stream of
commerce, the product seller produces, creates, makes,
constructs, designs, or formulates, or has engaged another
person to design or formulate, an aspect of a product (or
component part of a product) made by another person. Where a
product seller engaged in such conduct before placing the
product in the stream of commerce, the product seller is
responsible for the consequences of that conduct as if it were
the manufacturer.
\83\ ``Product seller'' is defined in section 101(14).
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For example, a company may manufacture a truck and deliver
it to a product seller. Prior to selling that vehicle, the
product seller may design and create what becomes a new aspect
of the truck by, for example, adding a larger engine or a cabin
unit. The product seller is, then, the manufacturer of the end
product with respect to all aspects of the product that are
affected or created by the addition. Thus, the product seller
is the manufacturer with respect to defects in the cabin unit
itself and with respect to defects created by adding the unit
to the original truck, such as lack of a warning back-up
buzzer.\84\ This rule fairly holds the product seller
responsible for the consequences of the product seller's own
actions in designing and creating a new product from the
original product; it is not intended to impose the
manufacturer's liability on a product seller who merely cleans,
paints, or reconditions the truck with parts that are designed
or manufactured by someone else.
\84\ See e.g., Green v. City of Los Angeles, 115 Cal. Rptr. 685
(174) (seller of crane liable for harm caused by deficits in the crane
created by the seller's modifications; given the modifications made by
the seller, it was ``tantamount to a manufacturer'').
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Second, a product seller is deemed to be the
``manufacturer'' of a product where the product seller holds
itself out as the manufacturer to the user of the product.
Where a product seller attaches the product seller's own
private label to a product made by another, the product
seller's name and reputation become a representation of the
product's quality in design and manufacture. The rule holding a
product seller responsible for harms caused by products that
the product seller ``endorses'' with the product seller's
private label is uniformly by the states.\85\
\85\ See Restatement (Second) of Torts Sec. 400 (1965). See also
Smith v. Regina Mfg. Corp., 396 F.2d 826 (4th Cir. 1968); Carter v.
Joseph Bancroft & Sons Co., 360 F. Supp. 1103 (E.D. Pa. 1973); Moody v.
Sears, Roebuck & Co., 324 F. Supp., 844., (S.D. Ga. 1971).
(10) Noneconomic Loss.--Noneconomic loss means subjective,
nonmonetary loss resulting from harm, including pain,
suffering, inconvenience, mental suffering, emotional distress,
loss of society and companionship, loss of consortium, injury
to reputation and humiliation. The term does not include
economic loss.
(11) Person.--The Act uses a broad definition of the term
``person.'' The term is defined to include an individual,
corporation, company, association, firm, partnership, society,
joint stock company and any other entity (including
governmental entities).
(12) Product.--The term is defined as any object,
substance, mixture, or raw material in a gaseous, liquid, or
solid state that, (i) is capable of delivery itself or as an
assembled whole, in a mixed or combined state or as a component
part or ingredient; (ii) is produced for introduction into
trade or commerce; (iii) has intrinsic economic value; and (iv)
is intended for sale or lease to persons for commercial or
personal use. The term does not include tissue, organs, blood,
and blood products used for therapeutic or medical purposes,
except to the extent that such tissue, organs, blood and blood
products (or the provision thereof) are subject, under
applicable State law, to a standard of liability other than
negligence.\86\ The term also does not include electricity,
water delivered by a utility, natural gas, or steam.
\86\ Claims for harm caused by tissue, organs, blood and blood
products used for therapeutic or medical purposes are, in the view of
most courts, claims for negligently performed services and are not
subject to strict product liability. The Act thus respects state law by
providing that, in those states, the law with respect to harms caused
by these substances will not be changed. In the past, however, a few
states have held that claims for these substances are subject to a
standard of liability other than negligence, and this Act does not
prevent them from doing so. See, e.g., Cunningham v. MacNeal Memorial
Hosp., 266 N.E.2d 897 (Ill. 1970) (overturned by Ill. Ann. Stat. Ch.
111\1/2\, sections 2 and 3). Such actions would be governed by the Act.
Actions involving claims for harm caused by electricity, water
delivered by a utility, natural gas, or steam are treated in the same
manner.
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(13) Product Liability Action.--This term means a civil
action brought on any theory for harm caused by a product.
(14) Product Seller.--A product seller is any person who,
in the course of a business conducted for that purpose, sells,
distributes, rents, leases, prepares, blends, packages, labels,
or otherwise is involved in placing a product in the stream of
commerce, or who installs, repairs, refurbishes, reconditions,
or maintains the harm-causing aspect of the product. The
definition includes anyone in the chain of distribution, such
as a wholesaler, distributor, or retailer.
The term specifically excludes sellers or lessors of real
property. Actions against such sellers or lessors will continue
to be governed by state tort or real estate law.\87\
\87\ See, e.g. Restatement (Second) of Torts Sec. Sec. 353, 385
(1965) (providing standards of care for builders, contractors, and
sellers of real estate).
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The term also excludes providers of professional services
in any case in which the sale or use of a product is incidental
to the transaction and the essence of the transaction is the
furnishing of judgment, skill, or services.\88\ Where, for
example, an engineer, pharmacist, optician, or physician
provides or uses a product in connection with that person's
professional services, the person is not a product seller under
the Act.\89\ The majority rule is that a professional is
required to exercise reasonable care, prudence, and skill in
rendering services. Where failure to do so results in harm,
injured persons have remedies under traditional state tort law
theories and do not have a claim under this bill.
\88\ The approach taken by the Act is consistent with the law of
the majority of states. See W. Prosser and W. Keeton, Torts 719-20 (5th
ed. 1984).
\89\ See, e.g., Carmichael v. Reitz, 95 Cal. Rptr. 381 (1971);
Bichler v. Willing, 397 N.Y.S.2d 57 (N.Y. 1977); Barbee v. Rogers, 425
S.W.2d 342 (Tex. 1968) Migrine v. Krasnica, 227 A.2d 539 (N.J. Super.
1967), aff'd, 250 A.2d 129 (N.J. 1969), aff'd, 250 A.2d 129 (N.J.
1969).
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If, however, a professional engages in a commercial
transaction where the essence of the transaction is not the
furnishing of professional skill and judgment, the professional
may be a product seller. For example, a pharmacist who sells
perfume or photographic film may be a product seller within the
scope of the Act. In such a case, the sale rather than the
exercise of professional skill is the essence of the
transaction; the action would therefore be governed by the Act.
The term ``product seller'' also excludes persons who act
in only a financial capacity with respect to the sale of a
product or lease a product under a lease arrangement in which
the lessor does not initially select the leased product and
does not during the lease term ordinarily control the daily
operation and maintenance of the product. Such persons, called
``finance lessors,'' generally have no contact with the product
and do not provide advice about the product or its selection.
These persons merely provide the money to transfer the product
to the lessee. Courts that have considered the issue uniformly
hold that finance lessors are not product sellers.
(15) State.--This definition is broad and is intended to
include the District of Columbia, all the States, territories,
and possessions of the united States, and any political
subdivision thereof.
(16) Time of Delivery.--This term means the time when a
product is delivered to the first purchaser or lessee of the
product that was not involved in manufacturing or selling the
product, or using the product as a component part of another
product to be sold.
section 102--applicability; preemption
In general
This section provides that the Act governs any product
liability action commenced on or after the date of its
enactment, without regard to whether the harm that is the
subject of the action or the conduct that caused the harm
occurred before the date of enactment. The Act specifically
excludes civil actions brought for loss or damage to a product
itself or for commercial loss, leaving them subject to any
applicable commercial or contract law. It also excludes civil
actions for negligent entrustment or negligence in selling,
leasing or renting to an inappropriate party, leaving these
actions subject to applicable state law.\90\
\90\ For example, the provisions of the Act would not cover a
seller of liquor in a bar who sold to a person who was intoxicated or a
car rental agency that rents a car to a person who is obviously unfit
to drive or a gun dealer that sells a firearm to a ``straw man''
fronting for children or felons. These actions would not be covered by
the Act, because they involved a claim that the product seller was
negligent with respect to the purchaser and not the product. Such
actions would continue to be governed by state law.
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The Act follows the traditional rule applied in the
overwhelming majority of states by leaving claims for loss or
damage caused to a product itself, loss relating to a dispute
over the value of a product, or consequential pecuniary loss
(i.e., loss of profits due to an inability to use the damaged
product) to state commercial or contract law.\91\ The leading
case is Seeley v. White Motor Co., 403 P.2d 145 (Cal. 1965),
decided three decades ago, which takes the position that damage
to the product itself and commercial losses are remedies that
should be decided under the Uniform Commercial Code.\92\ The
United States Supreme Court strongly endorsed this principle in
an admiralty case, East River Steamship Co. v. Transamerica
Delaval, Inc., 476 U.S. 858 (1986). The American Law
Institute's Restatement of Torts (Third) project Draft No. 2
(May 19, 1994) also takes the position that ``[w]hen a product
defect results in harm from the product itself or an economic
loss to a plaintiff * * * the law governing commercial
transactions is the more appropriate source to resolve disputes
between the parties,'' because such losses are, in essence,
contract damages, not tort damages.\93\
\91\ See Baltimore Football Club, Inc. v. Lockheed Corp., 525 F.
Supp. 1206 (N.D. Ga. 1981); Industrial Uniform Rental Co. v.
International Harvester Co., 463 A.2d 1085 (Pa. Super 1983); Moorman
Mfg. Co. v. National Tank Co., 435 N.E.2d 443 (Ill. 1982); Superwood
Corp. v. Siempelkamp Corp., 311 N.W.2d 159 (Minn. 1981).
\92\ The Committee strongly endorses the principle established in
Seeley, that damages for commercial losses resulting from a defective
product should be governed by the Uniform Commercial Code. In such
cases, however, where a court determines that such losses are
recoverable under a tort theory, the Committee intends that such losses
be included within the definition of ``harm'' and this Act would apply.
\93\ See also Note, ``Economic Loss in Product Liability
Jurisprudence,'' 66 Colum. L. Rev. 927 (1966). It is the Committee's
intent that where recovery is not allowed because of a state statute of
limitations defense or other defenses to contract liability, the Act
will not create an independent cause of action. For example, a claim
could not be brought under the Act if recovery under state contract or
commercial law is barred because of the statute of limitations,
contractual disclaimers or limitations of remedies.
The Act supersedes State law only to the extent that State
law applies to an issue covered under the Act. Any issue that
is not covered under the Act, including any standard of
liability applicable to a manufacturer, is not subject to the
Act, but is subject to applicable Federal or State law.
Present law
On average, over seventy percent of the products that are
manufactured in a particular state are shipped out of the state
and sold.\94\ The current patchwork of over 51 state and
District of Columbia and territorial product liability laws
sends confusing and often conflicting signals to those who
make, sell, or use products in the United States. Uncertainties
in our Nation's product liability system create unnecessary
legal costs, impede interstate commerce and stifle innovation,
among other problems. Scholars have recognized that the current
product liability system does not distinguish well between good
and bad products. The Act seeks to simplify the law and reduce
the costs and unpredictability of the current system.
\94\ See Commodity Transportation Survey, U.S. Dept. of Commerce,
Bureau of the Census, Table 1, pp. 1-7 (1977).
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Congress has the power under the Commerce Clause of the
United States Constitution \95\ to enact a federal product
liability statute that preempts state law.\96\ ``Any such
legislation would offend neither the Tenth Amendment's
recognition of state sovereignty * * * nor the Fifth
Amendment's traditional notions of due process and equal
protection.'' \97\ The Supremacy Clause of the United States
Constitution also gives Congress the power to enact a federal
law that replaces state law in the area of product
liability.\98\ The fact that tort law is traditionally a matter
of state law does not alter this rule, and it is expected that
state and federal courts with jurisdiction over product
liability actions will interpret the Act in a manner consistent
with the intent of Congress. Congress has long exercised its
authority in matters of interstate commerce by enacting federal
solutions to problems,\99\ including the enactment of statutes
that preempt state tort law.\100\
\95\ See U.S. Const., art. I, Sec. 8, cl. 3.
\96\ The Commerce Clause power extends to interstate and intrastate
activities which affect interstate commerce. See e.g., Federal Energy
Regulatory Comm'n v. Mississippi, 456 U.S. 742 (1982) (discussion of
scope of Commerce Clause); Fry v. United States, 421 U.S. 542 (1976);
Katzenbach v. McClung, 379 U.S. 294 (1964); Wickard v. Filburn, 317
U.S. 111 (1942).
\97\ See Schmidt & Derman, ``The Constitutionality of Federal
Products Liability/Toxic Tort Legislation,'' 6 J. Prod. Liab. 171, 184
(1983). See also Duke Power Co. v. Carolina Environmental Study Group,
438 U.S. 59, 93 (1978), where the Court held that preemption of state
tort law in order to promote the nuclear power industry is permissible
under the Commerce Clause and does not violate the Fifth Amendment. In
reaching this decision, the Court also rejected a challenge under the
Equal Protection Clause.
\98\ See U.S. Const., art. VI, cl. 2. Under the Supremacy Clause,
state courts are bound to apply federal law. See Dice v. Akron, Canton
& Youngstown R.R. Co., 342 U.S. 359 (1952) (Federal Employers'
Liability Act). In addition, when there is a variance between State and
Federal law, ``incompatible doctrines of local law must give ways to
principles of federal * * * law.'' Local 174, Teamsters, Chauffeurs,
Warehousemen and Helpers of Am. v. Lucas Flour Co., 369 U.S. 95, 102
(1962) (National Labor Relations Act).
\99\ For example, Congress enacted the United States Grain
Standards Act in 1916, 7 U.S.C. Sec. Sec. 71-87, 111, 113, 241-73, 2209
and 16 U.S.C. Sec. Sec. 490, 683 (establishing uniform national
standards for grain); the United States Cotton Standards Act in 1923, 7
U.S.C. Sec. Sec. 51-65 (requiring uniform classifications for judging
quality or value of cotton); the Tobacco Inspection Act in 1935, 7
U.S.C. Sec. Sec. 511-511q (requiring compliance with uniform national
classifications); the Food, Drug and Cosmetic Act in 1938, 21 U.S.C.
Sec. Sec. 21 U.S.C. Sec. Sec. 30192 (safety and labeling of drugs); the
Consumer Product Safety Act in 1972, 15 U.S.C. Sec. Sec. 2051-2083 and
5 U.S.C. Sec. Sec. 5314, 5315 (uniform safety standards for consumer
products).
\100\ See, e.g., Longshoremen's and Harbor Worker's Compensation
Act, 33 U.S.C. Sec. Sec. 901 et seq. (imposing liability without regard
to fault); Price-Anderson Act, 42 U.S.C. Sec. 2210 (limiting liability
for nuclear power plant accidents); Federal Employers' Liability Act,
45 U.S.C. Sec. Sec. 51 et seq. (governing the liability of interstate
railway carriers to their employees and altering State tort law on
available defenses). Most recently, in August 1994, President Clinton
signed the General Aircraft Revitalization Act of 1994, establishing a
uniform, national 18-year statute of repose for general aviation
aircraft.
As reported
Section 102(a)(1) states that the Act governs any product
liability action, as defined by section 101(13), commenced on
or after the date of its enactment, without regard to whether
the harm that is the subject of the action or the conduct that
caused the harm occurred before the date of enactment. Commence
means to initiate by performing the first act or step.
Therefore, the Act does not apply to actions filed before the
date of enactment but litigated after enactment. As the Act
does not apply to such actions, the Act also does not apply to
actions remanded or appealed after the date of enactment but
commenced before that date. Applying the statute to all claims
filed after the effective date, regardless of when the harm
occurred, allows all parties and courts to know precisely what
law applies in a product liability action. The rule furthers
the goal of providing uniformity and predictability for all who
make, sell, or use products in the United States.
Consistent with the definition of ``harm'' set forth in
section 101(7), section 102(a)(2)(A) states that a civil action
for loss or damage to the product itself or for commercial loss
(i.e., loss relating to a dispute over the value of a product
or consequential pecuniary loss) is not governed by the Act,
but is governed by applicable commercial or contract law.
Section 102(a)(2)(B) provides that a civil action for
negligent entrustment (i.e., negligence in selling, leasing or
renting to an inappropriate party) is not governed by the Act,
but is governed by applicable state law.
Section 102(b) provides that the Act supersedes state law
regarding recovery for harm caused by a product only to the
extent that the Act establishes a rule of law applicable to an
action for such recovery. Any issue arising in an action
governed by this Act that is not governed by a rule of law
established by the Act shall be governed by otherwise
applicable state common and statutory law.
Recently, a number of state legislatures have considered
the question of tort liability, including product liability,
and some have adopted measures dealing with this matter. It is
not the Committee's intention that this Act preempt such state
legislation, or any other rule of state law, that provides for
defenses, places limitations on the amount of damages that may
be recovered, or covers other topics that are not addressed by
a rule in this Act.
Section 102(c) lists a number of laws that are not
superseded or affected by the Act. The Act does not waive or
affect the defense of sovereign immunity of any State or of the
United States; supersede any Federal law,\101\ affect the
applicability of any provision of chapter 97 of title 28 of the
United States Code; preempt state choice-of-law rules with
respect to claims brought by a foreign nation or foreign
citizen; or affect the right of any court to transfer venue or
to apply the law of a foreign nation or to dismiss a claim of a
foreign nation or of a citizen of a foreign nation on the
ground of inconvenient forum. The Act also does not supersede
or modify any statutory or common law, including an action to
abate a nuisance, that authorizes a person to institute an
action for civil damages or civil penalties, cleanup costs,
injunctions, restitution, cost recovery, punitive damages, or
any other form of relief for remediation of the environment (as
defined in section 101(8) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, 42 U.S.C.
9601(8)) \102\ or the threat of such remediation. Such actions,
which are brought against owners or operators of facilities as
opposed to product manufacturers, involve separate policy
considerations and relate to acts that are different from the
acts for which this legislation provides rules of law. The
exception for environmental cases in this section makes clear
that this Act does not apply to actions for damage to the
environment. The Act does apply to all product liability
actions for harm, as defined in this Act.
\101\ For example, the provisions of the Federal Tort Claims Act,
28 U.S.C. Sec. Sec. 1346(b), 2671 et seq., the General Aviation
Revitalization Act of 1994, the Oil Pollution Act of 1990 (P.L. 101-
380), and the Trans Alaska Pipeline Authorization Act (P.L. 93-153),
are not affected by the Act.
\102\ This Act provides: `` `[E]nvironment' means (A) the navigable
waters, the waters of the contiguous zone, and the ocean waters of
which the natural resources are under the exclusive management
authority of the United States under the Fishery Conservation and
Management Act of 1976, and (B) any other surface water, ground water,
drinking water supply, land surface or subsurface strata, or ambient
air within the United States or under the jurisdiction of the United
States.''
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Section 102(d) requires that this bill be construed and
applied after consideration of its legislative history to
promote uniformity of law in the various jurisdictions.
Section 102(e) provides that the decision of a U.S. Court
of Appeals interpreting the provisions of this Act shall be
controlling precedent to be followed by each and every federal
and state court within that circuit unless overruled or
modified by the Supreme Court of the United States.
SECTION 103--ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
In general
Because of its complexity and expense, the legal system is
inaccessible to many product liability claimants. Section 103
establishes a scheme for expedited settlement of product
liability claims in the initial stages of litigation. The
alternative dispute resolution (ADR) procedures provision is
based on incentives for settlement that will reduce the delays,
excessive transaction costs, and uncertainties associated with
such claims.
Specifically, section 103 allows either party to initiate
settlement of a dispute pursuant to any voluntary and
nonbinding ADR procedures established in the law of the state
where the action is brought or under the rules of the court in
which the action is maintained. If a defendant unreasonably
refuses to participate in ADR procedures, and judgment is
entered against that defendant, the court must assess
reasonable attorney's fees against the defendant. Plaintiffs,
on the other hand, are free to refuse to participate in ADR
procedures without penalty. This ``one-way'' ADR is more
favorable to plaintiffs than the law in any state.
Section 103 will increase access to the legal system,
reduce the costs of litigation, and expedite resolution of
legal disputes to the benefit of all plaintiffs. The provision
is especially beneficial for plaintiffs with smaller claims.
Plaintiffs with smaller claims are frequently unable to afford
or obtain lawyers to represent them in expensive courtroom
litigation. Such plaintiffs, however, can secure lawyers to
represent them in ADR proceedings, which are free of cumbersome
rules of procedure and evidence and do not require the use of
expensive expert witnesses. Moreover, many plaintiffs desire to
and are capable of representing themselves in ADR proceedings.
These individuals need not pay expensive attorney costs.
William Fry, Executive Director of HALT, a nonprofit legal
reform organization supported by 70,000 individual members
nationwide, testified at an April 3, 1995 hearing on S. 565
before the Consumer Affairs, Foreign Commerce and Tourism
Subcommittee of the Senate Committee on Commerce, Science, and
Transportation that ADR mechanisms are ``a way to lower costs,
simplify procedures and achieve fairness through avoidance of
technical rules of law.'' HALT supports the use of alternative
dispute resolution mechanisms to permit consumers to handle
their own legal affairs.
Section 103 does not violate an individual's right to a
jury trial under the Seventh Amendment, because the decision in
the ADR procedure is nonbinding \103\ and the penalty for
unreasonable refusal to utilize ADR applies only against the
defendant. Notwithstanding the fact that the bill imposes no
penalties on claimants who refuse to use ADR, such incentives
have proven to speed the resolution of disputes. At least
twenty-four states have mandatory arbitration or mediation
laws.\104\ Under these programs, litigants are required to
enter into arbitration or mediation and the decision reached in
this procedure is subject to a trial de novo at the request of
either party.\105\ The proposal in this section refers only to
voluntary and nonbinding ADR programs.
\103\ The Federal District Court for the Eastern District of
Pennsylvania has held that ADR procedures that are not binding on the
parties do not violate the Seventh Amendment. See Kimbrough v. Holiday
Inn, 478 F. Supp. 566 (E.D. Pa. 1979). Compare United Farm Workers
Nat'l Union v. Babbitt, 449 F. Supp. 449 (E.D. Ariz. 1978) (holding
that a mandatory arbitration program that is binding violates the
Seventh Amendment).
\104\ See McIver and Kerlitz, ``Court-Annexed Arbitration,'' The
Justice System Journal, Volume 14, Number 2 at 123 (1991).
\105\ See id.
Eighteen states with mandatory arbitration or mediation
laws have financial incentives to resolve cases before trial in
order to conclude the litigation.\106\ There is a similar
incentive to settle cases before trial in the federal court
system.\107\ The use of reasonable attorneys fees as an
incentive for parties to accept an arbitrator's decision in the
Washington State ADR system has been upheld as consistent with
the State's constitutional provision on jury trials, which is
similar to the Seventh Amendment.\108\
\106\ See McIver and Karlitz, supra, at 127, 130.
\107\ See F.R.C.P. 68.
\108\ See Colarusso v. Peterson, 812 P.2d 862 (Wash. App. 1991);
Christie-Lambert Van and Storage Co. v. McLeod, 693 P.2d 161 (Wash.
App. 1984). Article 1, section 21 of the Washington Constitution
provides: ``The right of a retrial by jury shall remain inviolate, but
the legislature may provide for a jury of any number less than twelve
in courts of record, and for a verdict by nine or more jurors in civil
cases in any court of record, and for waiving of the jury in civil
cases where the consent of the parties interested is given thereto.''
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As reported
Section 103(a) provides that either a claimant or a
defendant may offer to proceed pursuant to a voluntary and
nonbinding ADR procedure established in the law of the state
where the action is brought or under the rules of the court in
which the action is maintained. The offer to proceed to ADR
must be made within 60 days after service of the initial
complaint or the applicable deadline for a responsive pleading,
whichever is later.
Section 103(b) provides that if the defendant refuses to
proceed to ADR final judgement is entered against the defendant
for harm caused by the product that is the subject of the
action, and the court determines that such refusal was
unreasonable or not in good faith, the court must assess
reasonable attorney's fees and costs against the defendant. No
sanctions would apply in the event of a settlement. There is no
penalty for a claimant that refuses an offer to utilize ADR.
Section 103(c) provides that, in determining whether a
refusal by a defendant to enter into ADR is unreasonable, the
court shall consider (1) whether the case involves potentially
complicated issues of fact; (2) whether the case involves
potentially dispositive issues of law; (3) the potential
expense faced by the offeree in retaining counsel for both the
alternative dispute resolution procedure and to litigate the
matter for trial; (4) the professional capacity of available
mediators within the applicable geographic area; and (5) such
other factors as the court considers appropriate.
SECTION 104--LIABILITY RULES APPLICABLE TO PRODUCT SELLERS
In general
Section 104 is intended to bring legal fairness to product
sellers and reduce costs to consumers. Currently, under the law
in about thirty-one states, product sellers who do absolutely
nothing but wholesale, sell, rent or lease a product are
potentially liable for defects that they know nothing about and
can know nothing about.\109\ They are drawn into the
overwhelming majority of product liability cases. The product
seller, however, rarely pays the judgment, because it is able
to show in over ninety-five percent of the cases where any
liability is present that the manufacturer is responsible for
the harm. Based on this showing, the seller gets contribution
or indemnity from the manufacturer, and the manufacturer
ultimately pays the damages.\110\
\109\ See W. Prosser and W. Keeton, Torts 705 (5th ed. 1984).
\110\ See, e.g., Kelly v. Hanscom Bros., Inc., 331 A.2d 737, 740
(Pa. Super. 1974). (``It is not unusual for liability to move
transactionally up the chain of distribution until the manufacturer
ultimately pays * * *'').
---------------------------------------------------------------------------
This approach generates substantial, unnecessary legal
costs, as well as unjustified loss of good will and reputation.
The net result is wasted time and expense for business that is
passed on to the consumer in the form of higher prices. It
would be much more efficient for the claimant to sue the
manufacturer directly and to sue the product seller only if it
has done something wrong. Furthermore, consumers would benefit
from a reduction in the hidden ``tort tax'' now placed on
products.
Section 104 follows the lead of approximately nineteen
states that have changed their law and now hold product
sellers, such as wholesalers and retailers, liable only if they
have done something wrong with a product (e.g, misassembled it
or failed to convey appropriate warnings to customers).\111\
Section 104 holds product sellers liable only for their own
fault, unless the manufacturer of the product is out of
business or otherwise not available to respond in a lawsuit.
The Act assures product sellers are not needlessly brought into
product liability lawsuits. It also promotes sound public
policy by encouraging product sellers to select the safest
products for sale and to deal with responsible manufacturers
who will be available and have assets in the United States in
case a lawsuit arises because a product is defective. It will
encourage product sellers to buy products ``Made in the
U.S.A.'' Finally, the Act assures an injured consumer will
always have available an avenue to recover full compensation
for product-related harms.\112\
\111\ Approximately nineteen states have enacted reforms to limit
product seller liability for harm caused by a manufacturer's defective
product. See, e.g., Colo. Rev. Stat. Sec. 13-21-402 (1991); Del. Code
Ann. tit. 18 Sec. 7001 (1989); Ga. Code Ann. Sec. 51-1-11.1 (Michie
1990); Idaho Code Sec. 6-1407 (1989); 735 ILCS 5/2-621 (1992) (formerly
Ill. Rev. Stat. ch. 110, para.2-621 (1989)); Iowa Code Sec. 613.18
(1993); Kan. Stat. Ann. Sec. 60-3306 (1983, Supp. 1993); Ky. Rev. Stat.
Ann. Sec. 411.340 (Michie 1992); La. Rev. Stat. Ann. Sec. 2800.53 (West
1992); Md. Cts. & Jud. Pro. Code Ann. Sec. 5-311 (1982); Minn. Stat.
Sec. 544.41 (West 1988); Mo. Rev. Stat. Sec. 537.762 (1988); Neb. Rev.
Stat. Sec. 25-21,181 (1989); N.C. Gen. Stat. Sec. 99B-2 (1989); Ohio
Rev. Code Ann. Sec. 2307.78 (Anderson 1991); Tenn. Code Ann. Sec. 29-
28-106 (Supp. 1992); Wash. Rev. Code. Sec. 7.72.040 (West 1992).
\112\ Two reasons have been advanced for holding product sellers
liable as if they were manufacturers. First, it has been argued that
the rule promotes safety and reduces the risk of harm, because product
sellers will seek to avoid liability by pressuring manufacturers to
make safe products. See, e.g., Vandermark v. Ford Motor Co., 391 P.2d
168 (1964). This rationale, however, fails to recognize that
manufacturers will feel the same, if not greater, pressure to make safe
products if they are sued directly for harms caused by their own
product defects. Second, it has been argued that the rule is fair
because a product seller who is held liable for harm caused by a
manufacturer's defect can seek indemnity, see, e.g., Ark. Stat. Ann.
Sec. 16-116-107, and thereby shift the cost of liability to the
manufacturer who actually caused the harm. See, e.g., Hales v. Monroe,
544 F.2d 331 (8th Cir. 1976); Litton Systems Inc. v. Shaw's Sales &
Serv., Ltd., 579 P.2d 48 (Ariz. App. 1978). Data show that, in fact,
product sellers account for less than five percent of product liability
payments, because generally they are either dismissed or indemnified.
---------------------------------------------------------------------------
As reported
Section 104 specifies when a product seller \113\ other
than a manufacturer is responsible for harm caused by a
product. Section 104(a)(1) provides that a product seller is
only liable for harm proximately caused (1) by its own failure
to exercise reasonable care with respect to the product, (2) by
a product that fails to conform to an express warranty made by
the product seller or (3) by its intentional wrongdoing. All
three situations follow the rule that a product seller is
responsible for the consequences of its own conduct. This
concept of individual responsibility, of placing responsibility
on the party that actually caused and could have prevented the
harm, encourages product safety.
\113\ ``Product seller'' is defined in section 102(14).
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Section 104(a)(2) provides that, except for breach of
express warranty, a product seller will not be liable if there
was not reasonable opportunity to inspect the product in a
manner that would have, or in the exercise of reasonable care
should have, revealed the product's danger. For example, a
seller may not have had a reasonable opportunity to discover a
product defect if the product was prepackaged \114\ or if the
product never passed through the seller's hands (e.g., a person
may have held title to the product but may never have had
possession of it).\115\
\114\ See Ky. Rev. Stat. Sec. 411.340 (Supp. 1984); Tenn. Code
Sec. 29-28-106 (Supp. 1985). See also Brady v. Steyr-Daimler-Puch,
A.G., 429 So. 2d 1348 (Fla. App. 1983) (summary judgement for
distributor who shipped product in sealed container to dealer).
\115\ See, e.g., Kirby v. Rouselle Corp., 437 N.Y.S. 2d 512 (1981);
Canifax v. Hercules Powder Co., 46 Cal. Rptr. 552 (Cal. App. 1965).
Section 104(b) provides that a product seller shall be
treated as the product manufacturer and shall be liable for the
claimant's harm as if the product seller were the manufacturer
if (1) the manufacturer is not subject to service of process
under the laws of any state in which the action might have been
brought by the claimant, or (2) the court determines that the
claimant would be unable to enforce a judgment against the
manufacturer. For example, a judgment would be unenforceable if
the court finds that the manufacturer is bankrupt, insolvent,
or otherwise unable to pay. A claimant may recover from the
product seller for harms that were caused by the manufacturer
if one of the two provisions applies, and if the claimant
proves that the manufacturer would have been liable under state
law. Although section 104(b) departs from the notion of
individual responsibility for harms, it ensures that a claimant
can recover from the product seller if he or she is unable to
recover from the manufacturer responsible for the harm.
Section 104(c) provides that parties engaged in the
business of renting or leasing products shall be subject to
liability in a product liability action in a manner similar to
product sellers under section 104(a). 116 This subsection
also preempts state vicarious liability laws, which hold the
owner of a product, such as a motor vehicle, liable for the
negligence of a user of the product, regardless of whether the
owner of the product was negligent in any way. The Committee
finds that such unlimited vicarious liability laws impose an
undue burden on interstate commerce.
\116\ Companies that rent or lease products, such as car and truck
rental firms, are subject in eleven states and the District of Columbia
to liability for the tortious acts of their renters and lessees, even
if the rental company is not negligent and there is no defect in the
product. In these select states, a rental company will be held
vicariously liable for the negligence of its customers simply because
the company owns the product and has given permission for its use.
Vicarious liability--liability without regard to fault--increases costs
for all rental customers nationwide.
---------------------------------------------------------------------------
The Committee does not intend that section 104(c) preempt
state minimum financial responsibility laws for motor vehicles.
This subsection does not relieve the owner of any motor vehicle
of responsibility to insure the vehicle to the amounts required
under appropriate state law. The Committee also does not intend
to apply this section to parties who are excluded from the
definition of product seller under section 101(14) of the Act.
Financial lessors that are excluded from the definition of
product seller under section 101(14) are not subject to the
provisions of section 104(c).
SECTION 105--DEFENSES INVOLVING INTOXICATING ALCOHOL OR DRUGS
In general
In about eleven states, people can recover in product
liability actions even though a substantial cause of an
accident was the fact that the plaintiff was inebriated or
under the influence of illegal drugs. 117 The Act will put
an end to that situation: if the principal cause of an accident
is the claimant's abuse of alcohol or illicit drugs, he or she
will no longer be able to recover. The provision is based on a
statute in the State of Washington. 118
\117\ The majority of states have laws which would not permit
recovery in this situation. One state, Washington, has enacted a
defense similar to the S. 565 approach. Six states continue to
recognize contributory negligence as an absolute defense: Alabama,
Maryland, North Carolina, South Carolina, Virginia and Washington, D.C.
Thirty-two states have adopted some form of modified comparative fault
standard: Arkansas, Colorado, Connecticut, Delaware, Georgia, Hawaii,
Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts,
Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Jersey, North
Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota, Texas,
Tennessee, Utah, Vermont, West Virginia, Wisconsin and Wyoming.
\118\ See Wash. S.B. No. 4630, Sec. 902 (enacted March 10, 1986).
The Washington statute specifies that ``If the amount of alcohol in a
person's blood is shown by chemical analysis of his or her blood,
breath, or other bodily substance to have been 0.10% or more by weight
of alcohol in the blood, it is conclusive proof that person was under
the influence of intoxicating liquor.''
The alcohol/drug defense implements sound public policy. It
tells persons that if they are drunk or on drugs and that is
the principal cause of an accident, they will not be rewarded
through the product liability system. The use of intoxicating
alcohol and drugs for non-medicinal purposes by a person
creates serious risks to the safety of that person and to the
safety of others. For example, drunk driving is a major cause
of death on our highways.
The provision assures that an individual who impairs his or
her ability to act safely should not be able to shift the cost
of this risk to a product liability defendant, and ultimately
on to society itself. This rule will encourage persons to take
responsibility for their own safety and the safety of others.
As reported
Section 105(a) establishes a complete defense for any
defendant in a product liability action if the defendant can
prove that the claimant was under the influence of intoxicating
alcohol or any drug that may not lawfully be sold over-the-
counter without a prescription, and was not prescribed by a
physician for use by the claimant, and the claimant, as a
result of such condition, was more than 50 percent responsible
for the accident or event that resulted in the claimant's harm.
119
\119\ If a state has pure comparative fault as its general rule of
tort law, this provision will prevail if the claimant was under the
influence of alcohol or any drug and such condition was more than 50
percent responsible for the harm. On the other hand, if a state retains
the contributory negligence defense and believes that a person's claim
should be barred if the person's fault in any way contributed to his or
her harm, the Act is not preemptive. The Act only addresses situations
in which, currently, a person could bring a successful claim when such
person was more than 50 percent responsible due to drugs or alcohol.
---------------------------------------------------------------------------
Section 105(b) provides that the determination of whether a
person is under the influence of intoxicating alcohol shall be
made pursuant to applicable state law. For example, if
applicable state law provides that a particular amount of
alcohol in a person's blood is evidence that the person was
under the influence of intoxicating alcohol, that standard
shall apply.
SECTION 106--REDUCTION FOR MISUSE OR ALTERATION OF PRODUCT
In general
The current product liability system in many states
requires defendants to pay for harms caused by no fault of
their own. It allows claimants in some instances to grossly
misuse products, injure themselves, and then turn to the ``deep
pocket'' for compensation. This result is unjust to
manufacturers and responsible consumers, reflects bad policy,
and is a clear deviation from traditional notions of fairness
and individual responsibility.
The Act offers a solution to this arbitrary situation.
Following the law in the majority of states, the Act would
allow for reduction of damages based on the misuse or
alteration of a product. The provision just reduces damages, it
would not cut-off a plaintiff's recovery even where the misuse
or alteration substantially caused the injury.
The reduction for misuse or alteration is a good common
sense provision, supported by two strong rationales: (1)
liability law should be based on individual responsibility and
should encourage safe use of products, and (2) consumers should
not be forced to pay more for products due to the irresponsible
misuse or alteration of products by others. Furthermore, the
provision establishes an incentive to product manufacturers to
provide express warnings or instructions which state law
determines to be adequate.
As reported
Section 106(a)(1) provides that, in a product liability
action that is subject to the Act, the damages for which a
defendant is otherwise liable under applicable State law shall
be reduced by the percentage of responsibility for the harm to
the claimant attributable to misuse or alteration of a product
by any person if the defendant establishes that such percentage
of the harm was proximately caused by a use or alteration of a
product either (A) in violation of, or contrary to, the express
warnings or instructions of the defendant, if the warnings or
instructions are determined to be adequate pursuant to
applicable State law; or (B) involving a risk of harm which was
known or should have been known by the ordinary person who uses
or consumes the product with the knowledge common to the class
of persons who used or would be reasonably anticipated to use
the product.
Section 106(a)(2) makes clear that a use of a product that
is intended by the manufacturer of the product does not
constitute a misuse or alteration of the product.
Section 106(b) provides that the Act supersedes State law
concerning misuse or alteration of a product only to the extent
that State law is inconsistent with the Act.
Section 106(c) concerns workplace injury. It provides that,
notwithstanding subsection (a), the amount of damages for which
a defendant is otherwise liable under State law shall not be
reduced by the application of section 106 with respect to the
conduct of any employer or coemployee of the plaintiff who is,
under applicable State law concerning workplace injuries,
immune from being subject to an action by the claimant.
SECTION 107--UNIFORM STANDARDS FOR AWARD OF PUNITIVE DAMAGES
In general
The United States Supreme Court has said that punitive
damages have ``run wild'' in the United States. Pacific Mutual
Life Insurance Co. v. Haslip, 499 U.S. 1, 18 (1991). The Court
has repeatedly recognized that the Due Process Clause of the
United States Constitution places broad parameters on the size
of punitive damages awards, 120 and has ``invited'' the
legislative branch to enact punitive damages reforms along the
lines of the provisions in this section. 121
\120\ The Supreme Court has said in recent opinions that
substantive and procedural due process protections apply to punitive
damages. For example, in Browning-Ferris Industries of Vermont, Inc. v.
Kelco Disposal, Inc., 492 U.S. 257, 276 (1989), a case involving
predatory pricing and unfair compensation, the Court wrote: ``[D]ue
process imposes some limits on jury awards of punitive damages, and it
is not disputed that a jury award may not be upheld if it was the
product of bias or passion, or if it was reached in proceedings lacking
the basic elements of fundamental fairness.'' In that case, the Court
did not squarely address the issue whether the Due Process Clause
places outer limits on the size of punitive damages, because the issue
had not been preserved for appeal. See id. at 277. In Haslip, the Court
did address the issue and held that due process places substantive
limits on the size of punitive damages awards. The Court nevertheless
declined to ``draw a mathematical bright line between the
Constitutionally acceptable and the Constitutionally unacceptable.''
499 U.S. at 15. Most recently, in Honda Motor Corp., Ltd. v. Oberg, 114
S. Ct. 2331, 2340 (1994), a case involving an all terrain vehicle that
flipped over when an inebriated plaintiff tried to drive it up a hill,
the Court stated that punitive damages ``pose an acute danger of
arbitrary deprivation of property,'' raising serious due process
questions.
\121\ See generally TXO Prod. Corp. v. Alliance Resources Corp.,
113 S. Ct. 2711, 2727 (1993) (Scalia and Thomas, J.J., concurring in
the judgment).
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Punitive damages are quasi-criminal in nature; they are
awarded to punish.\122\ Nevertheless, unlike the criminal law
system, there are virtually no standards for when punitive
damages may be awarded and no clear guidelines as to their
amount--good behavior is swept in with the bad. The result is
uncertainty and instability and a chilling effect on
innovation.\123\
\122\ Punitive damages have nothing to do with providing
compensation to a person who has been harmed and are not in any way
intended to ``make the plaintiff whole.'' That purpose is served by
compensatory damages, which provide compensation for both economic
losses e.g., lost wages, medical expenses, substitute domestic
services) and noneconomic losses e.g., ``pain and suffering'').
\123\ For example, a 1992 Science magazine article reported that at
least two companies have delayed AIDS vaccine research and another
company abandoned one promising approach as a result of liability
concerns. See Jon Cohen, ``Is Liability Slowing AIDS Vaccines?'',
Science, Apr. 10, 1992, at 168-69.
Consider the situation of the drug Bendectin, an anti-
nausea morning sickness drug once marketed by Merrell Dow
Pharmaceuticals, Inc. Although the drug had been approved by
the Food and Drug Administration and widely acclaimed by health
care professionals, Merrell Dow withdrew Bendectin from the
market in 1983 because of unwarranted product liability
litigation. Merrell Dow has never lost a final judgment in any
Bendectin case in the 18-year history of the litigation; trial
courts often dismiss these cases prior to trial. 124 The
lack of any meaningful standards, however, has resulted in some
substantial punitive damages verdicts, which have been
overturned by trial courts or on appeal. 125 The Committee
heard compelling testimony from Congressman James H. Bilbray of
California on April 4, 1995 of a personal family tragedy that
possibly could have been avoided if Bendectin had not been
improperly forced off the market.
\124\ See, e.g., Daubert v. Merrell Dow Pharmaceuticals, Inc., 43
F.3d 1311 (9th Cir. 1995) (on remand from U.S. Supreme Court); Turpin
v. Merrell Dow Pharmaceuticals, Inc., 736 F. Supp. 737 (E.D. Ky. 1990),
aff'd, 959 F.2d 1349 (6th Cir.), cert. denied, 113 S. Ct. 84 (1992).
\125\ See, e.g., Ealy v. Richardson-Merrell, Inc., 897 F.2d 1159
(D.C. Cir.) (overturning $75 million punitive damages award), cert.
denied, 498 U.S. 950 (1990).
---------------------------------------------------------------------------
Consider also the case where a Kansas jury imposed
punishment against the manufacturer of the Sabin oral polio
vaccine, because the company had not used a version of polio
vaccine that had been abandoned for general use in the United
States for over two decades. 126 There, the Kansas Supreme
Court, by a slim, one vote margin, reversed an $8 million
punitive damages verdict. One vote the other way and American
children could have lost access to the Sabin polio vaccine
because of the threat posed to its manufacturer by runaway
punitive damages awards.
\126\ See Johnson v. American Cyanamid Co., 718 P.2d 1318 (Kan.
1986).
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The sheer unpredictability of the current system has
resulted in overdeterrence and has had a chilling effect on
product innovation. A Conference Board Study of corporate
executives found that fear of liability suits had prompted 36
percent of the firms to discontinue a product and 30 percent to
decide against introducing a new product.
The problems are not merely anecdotal. A recent study by
the Texas Public Policy Foundation found explosive increases in
both the frequency of punitive damages awards and their size.
From the early 1980s to the early 1990s, the total number of
punitive damages awards in Dallas County was 14 times greater
and the average award, adjusted for inflation, was 19 times
higher. In Harris County (Houston), total awards were up 26
fold and the average award was up eightfold. 127
\127\ Opponents of punitive damages reform frequently cite a 1992
study by Professor Michael Rustad of Suffolk University Law School in
Boston, financed by the Roscoe Pound Foundation, to argue that punitive
damages awards are rare. The Rustad Study found 355 punitive damages
awards in product liability cases between 1965 and 1990. Opponents,
however, generally fail to acknowledge what Professor Rustad said on
page 2 of his report:
The actual number of punitive damages awards in product liability
litigation is unknown and possibly unknowable because no comprehensive
recording system exists. (Emphasis added).
---------------------------------------------------------------------------
Similarly, a 1987 study by the Institute for Civil Justice
found that average punitive award in Cook County (Chicago),
Illinois, between 1965 and 1969, was $43,000. Between 1980 and
1984, it was $729,000--an increase of about 1,500 percent or 17
times over 20 years. 128
\128\ Another argument frequently heard from opponents of punitive
damages reform is that the handful of headline-grabbing damage awards
are often reduced on appeal. True, but only after huge legal costs,
lost production time, and a business's basic credit or solvency and
reputation are threatened. This argument also ignores the fact that 95
percent of product liability cases are settled out of court and not
subject to appeal. In many of these cases, the threat of punitive
damages is abused as a ``wild card'' to force extortionate settlements.
In approximately 18 states, punitive damages are not insurable. Thus a
business is subject to unwarranted pressure to settle a case for
compensatory damages, which are insurable; a punitive damages award
could end the business.
Clear, rational rules are needed to promote innovation and
responsible manufacturing practices, while at the same time
providing assurances that wrongdoers will be justly punished
and deterred from future misconduct.
The Act understands and accepts the basic premise that
punitive damages are punishment. Section 107 provides the
fundamentals that are part of any criminal punishment: a
definition of the ``crime,'' establishing a level of proof
necessary for punishment, and making the sentence fit the
crime.
Defining the crime
Section 107(a) defines the crime as ``conduct that was
carried out by the defendant with a conscious, flagrant
indifference to the safety of others.'' This standard is fair
and is similar to the standards of many states.129 It
conveys that punitive damages are to be awarded only in the
most serious cases of outrageous conduct.
\129\ See, e.g., Ky. Rev. Stat. Ann. Sec. 411.184(2) (Baldwin 1991)
(``flagrant indifference to the rights of plaintiff and with a
subjective awareness * * *''); N.J. Rev. Stat. Ann. Sec. 2A:58C-5a
(West 1987) (``reckless indifference'' to consequences); Ohio Rev. Code
Ann. Sec. 2307.80(A) (Page 1991) (``flagrant disregard''). See also
Owens-Illinois v. Zenobia, 601 A.2d 633 (Md. 1992) (requiring proof
that defendant acted with ``actual malice'' as a predicate to an award
of punitive damages in a product liability action).
---------------------------------------------------------------------------
Level of proof
Section 107(a) also explains how a claimant must prove the
crime and requires that the proof be ``clear and convincing.''
This standard reflects the quasi-criminal nature of punitive
damages and takes a middle ground between the burden of proof
standard ordinarily used in civil cases (i.e., proof by a
``preponderance of the evidence'') and the criminal law
standard (i.e., proof ``beyond a reasonable doubt'').130
The Supreme Court has specifically endorsed the ``clear and
convincing evidence'' burden of proof standard in punitive
damages cases.131
\130\ See Malcolm Wheeler, ``The Constitutional Case for Reforming
Punitive Damage Procedures,'' 69 Va. L. Rev. 269, 298 (1983).
\131\ See Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1, 23
n.11 (1991) (stating that ``there is much to be said in favor of a
state's requiring, as many do, * * * a standard of `clear and
convincing evidence' or, even `beyond a reasonable doubt,' * * * as in
the criminal context'').
---------------------------------------------------------------------------
This ``clear and convincing evidence'' standard is the
accepted trend in the law of punitive damages. Each of the
principal groups to analyze the law of punitive damages since
1979 has recommended this standard, including the American Bar
Association and the American College of Trial Lawyers.132
More recently, the standard was endorsed in a report prepared
by tort scholars of the prestigious American Law
Institute.133 ``Clear and convincing evidence'' is now law
in 25 states.
\132\ See American Bar Association, Special Committee on Punitive
Damages of the American Bar Association, Section on Litigation,
``Punitive Damages: A Constructive Examination'' 19 (1986) [hereinafter
ABA Report]; American College of Trial Lawyers, ``Report on Punitive
Damages of the Committee on Special Problems in the Administration of
Justice'' 15-16 (1989) [hereinafter ACTL Report].
\133\ See American Law Institute, 2 ``Enterprise Responsibility For
Personal Injury--Reporters' Study'' 248-49 (1991) [hereinafter ALI
Reporters' Study].
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Making the sentence fit the crime
Most importantly, this section puts reasonable parameters
on sentencing to make it fit the crime. Even very serious
crimes such as larceny, robbery, and arson have sentences
defined with a maximum set in a statute.134
\134\ Some examples of federal criminal fines, even for
particularly egregious crimes, do not exceed $250,000 and include:
tampering with consumer products ($100,000, if death results);
retaliation against a witness ($250,000); assault on the President
($10,000); bank robbery ($10,000, with the use of a deadly weapon);
sexual exploitation of children ($100,000 for an individual, $200,000
for an organization); and treason ($10,000).
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Section 107 sets forth the maximum ``sentence'' as three
times a claimant's economic losses, or $250,000, whichever is
greater. As in the criminal law, the provision will help assure
that the punishment is proportional to the harm.135
\135\ Proportionality has been an important part of the Supreme
Court consideration of the validity of criminal punishment. See, e.g.,
Harmelin v. Michigan, 501 U.S. 957 (1991); Solem v. Helm, 463 U.S. 277
(1983); Hutto v. Davis, 454 U.S. 370 (1982); Rummel v. Estelle, 445
U.S. 263 (1980).
The approach taken in the Act is based on a recommendation
by the American College of Trial Lawyers, a group of
experienced plaintiff and defense trial attorneys.136
Other ``mainstream'' academic groups have likewise recommended
that punitive damages be awarded in some ratio to
damages.137 A number of states have set forth
guidelines.138
\136\ See ACTL Report at 15 (proposal that punitive damages be
awarded up to twice compensatory damages or $250,000, whichever is
greater).
\137\ See ABA Report at 64-66 (recommending that punitive damages
awards in excess of three-to-one ratio to compensatory damages be
considered presumptively ``excessive''); ALI Reporters' Study at 258-59
(endorsing concept of ratio coupled with alternative monetary ceiling).
\138\ See Nev. Rev. Stat. Sec. 42.005 (1991) (punitive damages
awards permitted up to $300,000 in cases where compensatory damages are
less than $100,000 and to 3 times the amount of compensatory damages in
cases of $100,000 or more); Tex. Civ. Prac. & Rem. Code Ann.
Sec. 41.007 (West Supp. 1992) (punitive damages permitted up to 4 times
actual damages, or $200,000, whichever is greater); N.D. Cent. Code
Sec. 32.03.2-11(4) (signed by governor Mar. 31, 1993) (permitting
punitive damages up to twice compensatory damages, or $250,000,
whichever is greater); Conn. Gen. Stat. Sec. 52-204a (West Supp. 1992)
(punitive award permitted up to twice the compensatory damages); Fla.
Stat. Ann. Sec. 768.73(1)(b) (West Supp. 1992) (punitive damages may be
awarded up to 3 times compensatory damages unless ``clear and
convincing evidence'' is presented by the plaintiff to show that a
higher award is not excessive); Colo. Rev. Stat. Sec. 13-21-
102(1)(a)(1987) (punitive award may not exceed compensatory damages);
Okla. Stat. tit. 23, Sec. 9 (1987) (punitive damages generally
permitted up to amount of compensatory damages awarded); Va. Code. Ann.
Sec. 8.01-38.1 (1994) (punitive damages permitted up to maximum of
$350,000). Illinois adopted a limit of three times a claimant's
economic damages in March 1995.
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Permitting the award of punitive damages up to a certain
multiple of a plaintiff's damages, coupled with an alternative
monetary ceiling, is the fairest and most flexible of the
various attempts to place parameters on the size of punitive
damages awards. This flexible approach accomplishes punishment
and deterrence in the unusual situation where there is serious
misconduct and relatively minor economic damages--a fine as
great as one-quarter of a million dollars may be imposed.
Federal antitrust laws have worked well for decades with
punitive damages set at three times economic losses. They are a
solid model for appropriate punishment.
It has been argued that proportionality may result in
inadequate deterrence. However, as Thomas Jefferson noted over
two hundred years ago, ``if the punishment were only
proportional to the injury, men would feel that their
inclination as well as their duty to see the laws observed.''
139 Furthermore, it should be remembered there is no limit
on the number of times a party can be punished and that when a
person engages in wrongful conduct, he or she does not know how
many people will be hurt and how much actual damages might
occur. There is simply no way to predetermine the actual
damages of all persons who might be injured by a defective
product.
\139\ Thomas Jefferson, ``A Bill for Proportioning Crimes and
Punishment in Cases Heretofore Capital,'' 1779, in ``Papers of Thomas
Jefferson,'' 2:492, 493 (Julian P. Boyd ed. 1950).
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It has also been argued that unlimited punitive damages are
necessary to police corporate wrongdoing. This assertion is not
supported by facts. There is no credible evidence that products
or intrastate services are any less safe in either those states
that have set reasonable limits on punitive damages or in the
six states (Louisiana, Nebraska, Washington, New Hampshire,
Massachusetts, and Michigan) 140 that do not permit
punitive damages at all. Furthermore, plaintiffs in these
states have no more difficulty obtaining legal representation
than in those states where the ``sky is the limit.''
\140\ Michigan permits ``exemplary'' damages as compensation for
pain and suffering, but does not permit punitive damages for purposes
of punishment.
Finally, it has been argued that the proportionality
requirement in section 107(b) is unfair to women and other
groups, who allegedly ``rely more heavily on noneconomic
damages to receive compensation for injuries.'' Opponents use
Bureau of Labor Statistics data to support their view. First,
this argument misapprehends the basic premise that punitive
damages have absolutely nothing to do with compensating an
individual for a loss--punitive damages are purely a
``windfall'' to the claimant. Second, women plaintiffs,
children and the elderly have ``economic losses'' that do not
show up in Bureau of Labor Statistics data.141 This
argument also ignores women in business, particularly small
businesses, whose entire enterprise is threatened by out of
control punitive damages.142
\141\ In the case of children, economists are frequently used at
trial to provide testimony based on income and work-life expectancy
data generated by the federal government as to economic loss. The same
is true of women and the elderly, where the focus is on the economic
value of services these persons provide and the cost to employ
substitute domestic services (which can be quite high).
\142\ A U.S. Small Business Administration study has predicted that
women will own 40% of all small businesses by the year 2000. In
addition, Paul Huard, Senior Vice President of the National Association
of Manufacturers (NAM), in testimony before the House Commerce
Committee in February 1995, testified that smaller firms will benefit
most from product liability reform, because they are least able to
absorb the outrageous costs of the current product liability system.
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Bifurcation
The Act also allows a trial to be divided into segments,
the first addressing compensatory damages, the second dealing
with punitive damages. Judicial economy is achieved by having
the same jury determine liability and amounts of both
compensatory damages and punitive damages. This remedy has been
given the shorthand name ``bifurcation.''
Bifurcated trials are equitable, because they prevent
evidence that is highly prejudicial and relevant only to the
issue of punitive damages (e.g., the wealth of the defendant)
from being heard by jurors and improperly considered when they
are determining basic liability. Bifurcation also help jurors
``compartmentalize'' a trial, allowing them to easily separate
the burden of proof that is required for compensatory damages
awards (i.e., proof by a preponderance of the evidence) from a
higher burden of proof (i.e., proof by clear and convincing
evidence) for punitive damages.
Recognizing these benefits, some courts recently have
required bifurcation as a matter of common law reform.143
Other states have made similar changes through court rules or
legislation.144 This reform also meets the spirit of the
Haslip case and is supported by the American Law Institute's
Reporters' Study, the American Bar Association, and the
American College of Trial Lawyers.145
\143\ See Transportation Insurance Co. v. Moriel, 879 S.W.2d 10
(Tex. 1994); Hodges v. S.C. Toof & Co., 833 S.W.2d 896 (Tenn. 1992).
\144\ See Cal. Civ. Code Sec. 3295(d) (West Supp. 1993); Miss. H.B.
1270 Sec. 2(1)(b) (signed by governor Feb. 18, 1993); Minn. Stat. Ann.
Sec. 549.20 (West Supp. 1993); Mont. Code Ann. Sec. 27-1-221(7) (1991);
Nev. Rev. Stat. Sec. 42.005(3) (1991); N.J. Stat. Ann. Sec. 2A:58C-5(b)
(West 1987); N.D. Cent. Code Sec. 32-03.2-11(2)-(3) (signed by governor
Mar. 31, 1993); Utah Code Ann. Sec. 78-18-1(2) (1992).
\145\ See ABA Report at 19; ACTL Report at 18-19; ALI Reporters'
Study at 255 n.41.
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The Act also provides that, in a bifurcated proceeding to
determine punitive damages, evidence of defendant's profit from
the alleged wrongdoing may be admissible, but evidence of the
defendant's overall assets shall not be admissible. In Pacific
Mutual Life Insurance Co. v. Haslip, supra, the Supreme Court,
as a basis for sustaining Alabama's approach for awarding
punitive damages, specifically noted Alabama law prohibits the
jury from considering any evidence about the defendant's
wealth.146
\146\ 499 U.S. at 19-20. More recently, in TXO Production Corp.,
supra, the Court highlighted its concern about consideration of a
defendant's wealth as a factor in determining a punitive damage award,
but the defendant's counsel failed to preserve the issue for appeal.
113 S. Ct. at 2723-24.
In general, many believe that a jury's consideration of the
defendant's wealth distracts it from focusing on what is the
essence of the punitive damage claim--the defendant's
wrongdoing. Clearly, in the criminal context, most criminal
laws base sentencing on a defendant's wrongdoing, not his or
her wealth. Currently, the wealth of the defendant is allowed
to be considered as a factor in the overwhelming majority of
states that allow punitive damages. Recently, however, there
has been increasing support among industry groups and some
academics for excluding evidence of generic company revenue
information, while permitting a plaintiff to introduce evidence
of profits earned by the defendant from sales of the product or
commodity specifically in question in the litigation.147
The Act is consistent with this growing support.
\147\ See ALI Reporters' Study at 254-55.
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As reported
Section 107(a) establishes a uniform standard of liability
for punitive damages. It provides that punitive damages may be
awarded, to the extent permitted by applicable state law, only
if the claimant establishes by clear and convincing evidence
``conduct that was carried out by the defendant with a
conscious, flagrant indifference to the safety of others.''
148
\148\ To be ``conscious'' of its flagrant misconduct, a defendant
must be aware that its product is legally defective and that its
conduct in selling it in such a condition is therefore improper. Mere
consciousness that its product is dangerous, that it can or indeed
probably will cause substantial harm or even death, is insufficient by
itself, since manufacturers, sellers, renters and lessors of many
dangerous products--such as cars, power saws, and chemicals--surely are
fully conscious of the inherent dangers in their products. It is only
when a defendant consciously leaves in its product a danger that is
unreasonable and known to be defective, that its conduct can be said to
manifest a ``conscious, flagrant indifference'' to the safety of
others.
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Section 107(b) requires that the punitive damage award be
proportional to the harm caused. The amount of punitive damages
that may be awarded for a claim in any product liability action
that is subject to the Act shall not exceed three times the
amount awarded to the claimant for the economic injury on which
the claim is based, or $250,000, whichever is greater. This
subsection shall be applied by the court. Application of the
subsection shall not be disclosed to the jury.
Section 107(c)(1) permits either party to request that the
trier of fact conduct a separate proceeding to determine
whether punitive damages are to be awarded for the harm that is
the subject of the action and the amount of the award. Section
107(c)(2)(A) provides that, in such a proceeding, evidence
relevant only to the claim of punitive damages, as determined
by state law, shall be inadmissible in any proceeding to
determine whether compensatory (i.e., economic and noneconomic)
damages are to awarded. Section 107(c)(2)(B) provides that
admissible evidence in the proceeding on punitive damages may
include evidence of the profits of the defendant, if any, from
the alleged wrongdoing and shall not include evidence of the
overall assets of the defendant.
SECTION 108--UNIFORM TIME LIMITATIONS ON LIABILITY
In general
Statutes of limitations and repose set forth outer
limitations on liability, after which a claim cannot be
brought. Section 108 establishes uniform standards of
limitation and repose. All civil actions governed by the Act
are subject to a uniform, pro-plaintiff ``discovery rule''
statute of limitations that runs for two years from the time
the claimant discovers, or in the exercise of reasonable care
should have discovered, both the harm that is the subject of
the action and the cause of the harm. The Act also contains a
20-year statute of repose, which establishes the time period
during which a manufacturer or product seller may be held
responsible for harm allegedly caused by a durable good used in
the workplace. The statute of repose does not apply to limit
liability in cases involving toxic harm.
Statute of Limitations
In General
All states have statutes of limitations that apply to
product liability actions.\149\ A statute of limitations
specifies that time within which the claimant must file his or
her action. Failure to file within the specified time bars the
claim.
\149\ Under present law, different statutes of limitations apply in
product liability actions depending upon the particular theory of the
case. For example, a statute of limitations applicable in tort may be
the rule in an action based on negligence, while a statute of
limitations applicable in contract may be the rule in an action based
on breach of warranty. The Act will establish one statute of
limitations for all product liability actions. Moreover, the Act will
provide a uniform rule, vastly improving the current patchwork state
system to the benefit of all who make, sell and use products in the
United States.
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In some states, such as Virginia, the starting point for a
person to bring a claim begins to run at the ``time of
injury.'' 150 When an injury caused by a product is
immediate and traumatic, this date is easy to determine. The
claimant generally knows of his or her harm and the cause of
the harm at the time of the injury. However, where the harm has
a latency period or becomes manifest only after repeated
exposure to the product, the claimant may not know immediately
that he or she has been harmed or the cause of that harm. In
these situations, a ``time of injury'' statute of limitations
may expire and bar a claim before the claimant is even aware of
the injury and a potential claim.
\150\ See, e.g., Hawhs v. DeHart, 146 S.E. 2d 187 (Va. 1966); Lange
v. Bucyrus-Erie Co., 707 F.2d 94 (4th Cir. 1983) (applying Virginia
law); See also Wojcik v. Almase, 451 N.E.2d 336 (Ind. App. 1983); New
Mexico Elec. Serv. Co. v. Montanez, 551 P.2d 634 (N.M. 1976).
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In response to this problem, some courts and state
legislatures have adopted a rule under which the limitations
period begins to run when the claimant discovers the harm.\151\
Even this rule may be unfair, however, because the claimant may
not discover the actual cause of his or her harm until some
time after he or she discovers the harm itself. The statute of
limitations may expire before the claimant can reasonably
discover both his or her harm and its cause.\152\
\151\ See, e.g., Conn. Gen. Stat. 52-577(a) (1983); Witherall v.
Weimer, 421 N.E.2d 869 (Ill. 1981); Hansen v. A.H. Robins, Inc., 335
N.W.2d 578 (Wis. 1983); Hines v. Tenneco Chemicals, Inc., 546 F. Supp.
1229 (S.D. Tex. 1982 aff'd, 728 F.2d 729 (5th Cir. 1984).
\152\ See Koepnick v. Aequitron Medical, Inc., No. 921-1975 (6th
Cir. Aug. 3, 1993). As one judge said, this follows the logic of
``topsy-turvy land'' where one can ``be divorced before [he] ever * * *
marr[ies], or harvest a crop never planted, or burn down a house never
built, or miss a train running on a non-existent railroad.'' Dincher v.
Marlin Firearms Co., 198 F.2d 821, 823 (2d Cir. 1952) (Frank J.,
dissenting).
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In contrast, the Act provides that the two-year period
within which a plaintiff may bring a claim starts on the date
that the claimant, or if the claimant has died the person
entitled to bring the claim, knows, or in the exercise of
reasonable diligence should know, both that a harm has occurred
and the cause of that harm.\153\ Thus, the Act will reduce the
number of plaintiffs who, having otherwise meritorious claims,
would be denied justice solely on the basis of their choice of
the state in which they choose to file a claim. The Committee
believes that this rule is the better reasoned approach and
that it strikes a fair balance between the interests of all
parties.
\153\ See, e.g., Williams v. Borden, Inc., 637 F.2d 731, 734 (10th
Cir. 1980); Nelson v. A.H. Robins, Co., 515 F. Supp. 623 (N.D. Cal.
1981); Lundy v. Union Carbide Corp., 695 F.2d 394 (9th Cir. 1982);
Fidler v. Eastman Kodak Co., 555 F. Supp. 87 (D. Mass. 1982), aff'd 714
F.2d 192 (1st Cir. 1983); Mack v. A.H. Robins Co., 573 F. Supp. 149 (D.
Ariz. 1983), aff'd, 759 F.2d 1482 (9th Cir. 1985); Olsen v. Bell
Telephone Laboratories, Inc., 445 N.E.2d 609 (Mass. 1983); Elmore v.
Owens-Illinois, Inc., 673 S.W.2d 434 (Mo. 1983); Sahlie v. Johns-
Manville Sales Corp., 663 P.2d 473 (Wash. 1983).
The Act will also alleviate the hardship caused by the
statutes of limitations periods contained in state wrongful
death statutes. Unlike the prevailing rule in most state
wrongful death statutes, which bar claims a certain number of
years following the date of the family member's death, the Act
would preserve these claims for the ``discovery'' period, i.e.,
until two years after a surviving relative discovered or in the
exercise of reasonable diligence should have discovered the
cause of his or her loved one's death.
As reported
Section 108(a)(1) provides that in any civil action brought
under the Act, the complaint must be filed within two years of
the date the claimant discovers or, in the exercise of
reasonable care, should have discovered, the harm and the cause
of the harm. Actions filed more than two years after the harm
that is the subject of the action and its cause were or should
have been discovered are barred.
Section 108(a)(2)(A) provides that if a person with a
product liability claim has a legal disability (e.g., the
person is a minor or is insane) the person may file his or her
complaint any time until two years after the legal disability
ceases. Section 108(a)(2)(B) provides that if the filing of a
product liability complaint is stayed or enjoined by court
order, the running of the two-year period of limitations is
suspended until the stay or injunction is lifted or ceases.
This is a liberal provision which will benefit injured persons
who file a lawsuit in a jurisdiction that does not have such a
provision.
Statute of Repose
In general
Some of the oldest and most reliable companies in the
United States are, by no fault of their own, falling behind
competitively because they are disadvantaged by United States
liability rules that create an artificial preference for newer,
mostly foreign, industries. Many states have provided statutes
of repose, but they vary in length and in their applicability
to various products. A federal statute of repose is needed to
level the playing field and allow these loyal corporate
citizens to continue to compete in the global marketplace well
into the next century.
The need for a federal statute of repose was very recently
described by Art Kroetch, Chairman of Scotchman Industries,
Inc., a small manufacturer of machine tools located in South
Dakota, in April 4, 1995 testimony before the Consumer Affairs,
Foreign Commerce and Tourism Subcommittee of the Senate
Committee on Commerce, Science, and Transportation. Mr.
Kroetch, representing the Association For Manufacturing
Technology, emphasized that product liability reform is needed
to allow United States manufacturers to compete effectively in
the marketplace. He also illustrated to the Subcommittee the
unnecessarily high transaction costs that are associated with
the current product liability system, citing a 1992 Insurance
Services Office (ISO) study that showed that ``for every $10
paid out to claimants by insurance companies for product
liability, another $7 is paid for lawyers and other defense
costs.'' Mr. Kroetch concluded his testimony by noting that the
Association For Manufacturing Technology recently conducted a
product liability survey of its members which produced data
consistent with the ISO study.
Similar testimony was received in February 1995 before the
House Judiciary Committee. Charles E. Gilbert, Jr., President
of Cincinnati Gilbert Machine Tool Company, testified that his
company is subject to liability for machine tools manufactured
over 100 years ago. He noted these older products usually pass
through several owners, each making adjustments and changes to
suit their own needs, until eventually the product causes harm,
through no fault of Cincinnati Gilbert, and a lawsuit ensues.
Cincinnati Gilbert, like most manufacturers of older products,
almost always wins these lawsuits, yet it must invest time and
resources into legal and transaction costs that could better be
applied to create new jobs and to compete globally. Foreign
competitors rarely have machines in this country that are 40 or
more years old, so they pay less liability insurance than their
American competitors and can offer their products at lower
prices.
The Act provides a balanced solution to the problem of
``long tail'' liability, while protecting a claimant's right to
bring suit for injuries incurred during the repose period. The
Act would place a reasonable outer time limit on litigation
involving older products used in the workplace. It would bar a
claim twenty years after the time of delivery of the product.
The provision would assist American manufacturers by reducing
the high cost of defending stale claims. To be fair to
plaintiffs, the provision does not apply to claims involving a
toxic harm.
Support exists for this reform, particularly as a result of
the enactment of the General Aircraft Revitalization Act of
1994, which created a federal eighteen year statute of repose
for general aviation aircraft. Support also is found in the
European Community Product Liability Directive, and in Japan's
1994 product liability law (which goes into effect this
Summer), both of which contain a narrower ten year repose
period. Several states have enacted legislation in this area as
well.\154\ The Act is substantially more liberal than every
state statute of repose which currently exists.
\154\ Statutes of repose for products currently exist in some form
in at least 16 states. In all but one state, these statutes of repose
apply to all products, and are not limited to capital goods: Arkansas
(``anticipated life'' of product); Colorado (10 years); Connecticut (10
years); Georgia (10 years); Idaho (``useful safe life'' of product);
Illinois (12 years from date of first sale, or 10 years from date of
sale to first user, whichever is shorter); Indiana (10 years); Kansas
(``useful safe life'' of product); Kentucky (presumption that product
is not defective if harm occurred 5 years after sale to first consumer
or 8 years after manufacture); Michigan (if product in use for 10
years, plaintiff must prove prima facie case without benefit of any
presumption); Minnesota (``useful life'' of product); Nebraska (10
years); New Jersey (10 years); Oregon (8 years); Tennessee (10 years);
Texas (15 years); and Washington (``useful safe life'' of product).
---------------------------------------------------------------------------
As reported
Section 108(b)(1) provides that any product liability
action alleging harm, which is not toxic harm, caused by a
durable good 155 is barred unless the complaint is served
and filed within 20 years of the date of delivery of the
product to its first purchaser or lessee who has not engaged in
a business of selling or leasing the product or using the
product as a component part.
\155\ Durable good'' is defined in section 101(5).
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Section 108(b)(2) provides that if a state has a shorter
statute of repose, that state law is specifically preserved, in
lieu of application of the Act.
Section 108(b)(3)(A) excludes motor vehicles, vessels,
aircraft, or trains used primarily to transport passengers for
hire from the statute of repose provision.
Section 108(b)(3)(B) extends the repose period in
situations where a defendant has made an express warranty in
writing as to the safety of the specific product involved which
was longer than 20 years. The repose limitation goes into
effect at the expiration of that warranty.
Transitional provision
Section 108(c) provides that if any provision of sections
108(a) or 108(b) of the Act would shorten the period during
which a product liability action could otherwise be brought
pursuant to another provision of law, the claimant may,
notwithstanding sections 108(a) or 108(b), bring an action
within one year after the effective date of the Act. This
exception is intended to prevent unfair situations from arising
as a result of the application of the time limitations set
forth in the Act.
section 109--several liability for noneconomic loss
In general
Section 109 introduces fairness and uniformity to the law
concerning joint and several liability in product liability
actions by adopting the ``California rule,'' which holds that
defendants are responsible only for their ``fair share'' of a
claimant's subjective, non-monetary losses, including pain and
suffering awards.
The concept of ``fair share,'' or several, liability sounds
self-evident to most people. Most states, however, give
expression in their law to the principle of joint liability
which, in its unrestrained form, means that a defendant who is
found only one percent at fault can be burdened with an entire
damages award.\156\ This system is unfair and blunts incentives
for safety, because it allows negligent actors to under-insure
and puts full responsibility on those who may have been only
marginally at fault. Thus a jury's finding that a defendant is
minimally at fault gets magically overridden and the minor
player in the lawsuit pays a large price.
\156\ For example, in Walt Disney World Co. v. Wood, 515 So. 2d 198
(Fla. 1987), Disney was required to pay 86 percent of a $75,000 jury
award, even though it was only one percent at fault for the claimant's
harm.
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The rule of joint liability originally developed in the
common law to deal with cases in which it was impossible to
apportion responsibility for a plaintiff's harm among two
tortfeasors.\157\ The typical case was one in which several
defendants had acted together, or ``in concert,'' to cause harm
to a plaintiff. The courts held that in these circumstances,
each defendant would be held responsible for the total amount
of damages resulting from the harm.\158\
\157\ See, Summers v. Tice, 199 P. 2d 1 (Cal. 1948).
\158\ See Bierczynski v. Rogers, 239 A.2d 218 (Del. 1968). The
classic discussion is Prosser, Joint Torts and Several Liability, 25
Cal. L. Rev. 413 (1937). See also Jackson, Joint Torts and Several
Liability, 17 Tex. L. Rev. 399 (1939).
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Over time, the rule of joint liability became the norm in
most states, applicable in all cases in which there were two or
more defendants. Each defendant was to be severally liable for
its share of the plaintiff's damages and jointly liable, as was
each other defendant, for the full amount.\159\ The rationale
for making a defendant who is only one percent at fault pay 100
percent of damages is due to something called, ``risk
distribution.'' The theory is that a wealthy defendant is
better able to distribute the cost of a risk of injury than an
injured plaintiff is able to absorb it.\160\
\159\ See Coney v. J.L.G. Indus., Inc., 454 N.E.2d 197 (Ill. 1983).
But see Bartlett v. New Mexico Welding Supply, Inc., 646 P.2d 579,
cert. denied, 648 P.2d 794 (N.M. 1982) (rejecting doctrine of joint
liability as ``obsolete'').
\160\ The ``risk distribution'' rationale supports the idea of
allowing joint liability for economic losses, loss of wages, medical
costs, or many other economic costs that an injured person may sustain.
It does not, directly or indirectly, support a law that would require
someone who is only one percent at fault to pay 100 percent damages for
pain and suffering or other such non-economic compensatory losses. The
law of workers' compensation is an excellent example. That is a ``risk
distribution'' mechanism. The losses that are paid under that
mechanism, however, are economic losses, not damages for pain and
suffering.
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Joint liability has produced extreme and unwanted
consequences. It has caused suppliers of raw materials, often
``deep pockets,'' to refuse to supply critical raw materials to
manufacturers of medical devices and other manufacturers of
needed products, such as protective sporting goods equipment.
For example, in May 1994, Mark Reilly, the father of a
young boy from Houston, Texas, testified before the Senate
Subcommittee on Regulation and Government Information that his
nine year old son, Thomas, who is alive because of a brain
shunt (a small plastic tube), may not be able to have this
medical device renewed because companies that supplied basic
ingredients for the medical device would no longer do so. The
single reason for this unfortunate and life-threatening
development is our Nation's over-reaching laws on joint
liability. No doubt, if there were a lawsuit, people who
supplied basic materials would be dragged into the suit. Even
if they were found only one or two percent at fault, they would
have to bear the entire risk.
Julie Nimmons, President and Chief Executive Officer of
Schutt Sports Group, one of two remaining U.S. manufacturers of
football helmets,\161\ testified in September 1994 before the
Senate Committee on Commerce, Science, and Transportation about
a baseball safety product her company did not make because no
raw material supplier would accept the potential liability of
supplying components of the new product. This Committee and
others in both the Senate and the House of Representatives have
received numerous testimonies about similar experiences by
other individuals during the decade and a half Congress has
considered the issue of product liability legislation.\162\
\161\ In 1988, Rawlings Sporting Goods decided to stop
manufacturing or selling football helmets. Rawlings was the 18th
manufacturer to discontinue the manufacture of this product, joining
Hutch, Spaulding, Wilson and MacGregor. According to Riddell, Inc., one
of two remaining U.S. helmet manufacturers, half of the cost of a
football helmet goes to liability-related expenses.
\162\ For example, Mary Kaynor, counsel for the Risk Management
Foundation at Harvard Medical Institutions, testified before the Senate
Small Business Committee in November 1991 that her foundation, which
sponsors medical research products, is discouraged from dealing with
small businesses because they fear that the foundation will become the
``deep pocket'' in the event of a lawsuit.
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Recognizing the urgent need for reform of this unfair
doctrine, thirty-three states have abolished or modified the
principle of joint liability.\163\ They have done so, however,
in a great variety of ways and, thereby, have contributed to
the already serious problem of inconsistency among our Nation's
tort laws.
\163\ The ALI Reporters' study also recommends reforming the
doctrine of joint and several liability. See ALI Reporters' Study at
147. The ALI Study proposes an ``allocation'' theory. This would
require multiple defendants to pay damages in proportion to their
fault. The portion of damages attributable to an insolvent defendant
would be allocated to the plaintiff and all solvents defendants in
proportion to their fault.
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The Act takes a fair and balanced approach. It follows
joint liability reform enacted in California through a ballot
initiative (``Proposition 51'') approved by an overwhelming
majority of voters in 1986. The Act permits the States to apply
the rule of joint liability for economic damages (e.g., medical
expenses and lost wages and the cost of substitute domestic
services in the case of injury to a homemaker), so that
claimants can recover full compensation for these
losses.164 On the other hand, it eliminates joint
liability for ``noneconomic damages'' (e.g., damages for pain
and suffering or emotional distress). This means that each
defendant will be liable for damages for pain and suffering in
an amount proportional to its share of fault. The provision
does not set any ``caps'' or ``limits'' on noneconomic losses.
Furthermore, in the overwhelming majority of cases (i.e., those
cases involving solvent defendants) the provision will have
absolutely no adverse effect on claimants. The Nebraska
legislature adopted this approach as the law of that State in
1991 after carefully studying the issue.
\164\ Section 109 limits the doctrine of joint liability as applied
to noneconomic damages in product liability actions. This section,
however, does not preempt other limitations on joint liability with
respect to economic damages, which have been imposed by individual
jurisdictions. Indeed, a number of jurisdictions have enacted more
sweeping reform with respect to joint liability. These reforms are not
affected by the Act.
---------------------------------------------------------------------------
The Act makes the ``California rule'' the uniform law in
all product liability actions. In a civil action brought on any
theory for harm caused by a product, the liability of each
defendant for a claimant's noneconomic damages is several only,
and not joint.
In applying this section, the trier of fact apportions
responsibility for a claimant's harm in reference to all
persons responsible for the plaintiff's injury, whether or not
such person is a party to the product liability action.\165\
This position is sound public policy and reflects the trend in
the tort law of the states.\166\ In 1992, the California
Supreme Court, in a unanimous decision, held the California law
on which section 109 is based could not achieve its purpose
unless read this way. See DaFonte v. Up-Right, Inc., 2 Cal. 4th
593, 602, 828 P.2d 140, 145 (1992).
\165\ Thus, the trier of fact will measure a defendant's share of
fault or responsibility for the claimant's loss by references to all
responsible for the claimant's loss, including defendants, third-party
defendants, settled parties, non-parties, and persons or entities that
cannot be tried (e.g., bankrupt persons, employers and other immune
entities).
\166\ Of the thirty-three states which have eliminated or limited
joint liability, seventeen calculate the damages for which a defendant
is severally liable by apportioning responsibility among all
wrongdoers, not just the parties to the lawsuit. (The issue has not
been addressed in all of the other sixteen states). The two states,
California and Florida, which took the lead in abolishing joint
liability for noneconomic damages have taken this position by judicial
decision.
---------------------------------------------------------------------------
Most recently, the Supreme Court of Florida, in Fabre v.
Marin, 623 So. 2d 1182, 1185 (Fla. 1993), interpreting a
similar statute, held: ``The only means of determining a
party's percentage of fault is to compare that party's
percentage to all of the other entities who contributed to the
accident, regardless of whether they have been or could have
been joined as defendants.'' In reaching its holding, the court
approvingly cited a lower court opinion which stated: ``The
obvious purpose of the statute was to partially abrogate the
doctrine of joint and several liability by barring its
application to noneconomic damage. To exclude from the
computation the fault of an entity that happens not to be a
party to the proceeding would thwart this intent.'' Id. at
1184. The Act is consistent with the laws in these states.
It has been argued by the Association of Trial Lawyers of
America (ATLA) and other plaintiff advocacy groups that the
California approach discriminates, because women or other
groups may have less economic losses than others. The
California approach does not discriminate. There has been no
constitutional challenge to the California law in its nine year
history. To the contrary, the California approach helps assure
that risk distribution works where it was intended to be
placed--for economic harms.
Suzelle Smith, a highly respected attorney from California
who practices both for plaintiffs and defendants, testified
before the Consumer Subcommittee of the Senate Committee on
Commerce, Science, and Transportation in September 1993 and
before the Senate Judiciary Committee in March 1994 that the
California approach works and is fair to all groups. She
testified that the California approach is pro-consumer. She
testified that prior to the California initiative, her
experience was that juries often rendered defense verdicts in
cases in which a finding to the contrary could mean that a
minimally at-fault defendant would be saddled with the entire
damage award.
The Act, like the California initiative, ends the overreach
and overkill of joint liability in the area that it never
should have ventured into--noneconomic damages.167 The
distinction the Act draws between economic and noneconomic loss
is consistent with the underlying policy of joint liability to
make the injured party whole. It does not preclude the claimant
from being made whole for actual losses, while limiting a
defendant's liability for noneconomic losses to that portion
for which the defendant is responsible.
\167\ Again, there is no accident insurance system in the world
that provides damages for pain and suffering.
---------------------------------------------------------------------------
As reported
Section 109(a) limits each defendant's liability for
noneconomic damages to that defendant's percentage of
responsibility as determined by the trier of fact. In most
cases the percentage determination required by this section
will not be subject to an exact mathematical computation.
Rather, it will be based on the common sense approximation
assigned to it by the jury or by the court. In determining the
percentage of each defendant's liability, the trier of fact
should take into consideration the proportionate share of each
party's responsibility for the total harm caused, including
that portion attributable to the claimant. The focus of the
inquiry should be on the defendant's ``responsibility.'' For
example, if a defendant's share of responsibility for the harm
is found to be 25 percent, that defendant is liable for 25
percent of the noneconomic damages.
Section 109(b) provides that, for purposes of determining
the amount of noneconomic loss allocated to a defendant under
section 109(a), the trier of fact shall apportion
responsibility for a claimant's harm in reference to all
persons responsible for the plaintiff's injury, whether or not
such person is a party to the product liability action.
SECTION 110--WORKERS' COMPENSATION SUBROGATION STANDARDS
In general
According to noted law Professor Aaron Twerski, a reporter
for the American Law Institute's Restatement (Third) of Torts
project on product liability, a federal product liability law
must address the unjust results that arise from the conflict
between tort and workers' compensation systems. The solution
proposed in the Act addresses this problem in a rational
way.168
\168\ See statement of Professor Aaron Twerski, September 12, 1991
hearing, S. Hrg. 102-727 at 105.
---------------------------------------------------------------------------
Section 110 clarifies the relationship between the workers'
compensation system and the product liability system with rules
that keep these systems separate to reduce unfair cost-shifting
between the workers' compensation system and the product
liability system, minimize legal costs, and promote workplace
safety--without reducing the amount an employee can recover in
a product liability action. Reforms similar to those in this
section of the Act have been supported for many years by
leading experts on workers' compensation law.169
\169\ For example, Arthur Larson, a leading expert on workers'
compensation law, has advocated the reforms contained in this section
for many years. See testimony of Professor Arthur Larson, Hearings on
S. 44 before the Subcommittee on Consumer of the Senate Committee on
Commerce, Science, and Transportation, 98th Cong., 1st Sess., pp. 269-
270 (1983) (Serial No. 98-302). See also ALI Reporters' Study at 191
(supporting reforms similar to those contained in section 110).
---------------------------------------------------------------------------
Workers' compensation statutes are designed to ensure that
an employee injured in the course of his or her employment has
a fast and inexpensive way to recover for his or her injury,
while maximizing the incentive for employers to maintain a safe
workplace.170 In most states, however, the incentive for
employers to ensure worker safety has been substantially
undermined. In these states, if an employee has a successful
product liability claim against a manufacturer or product
seller, his or her employer can recover the full amount of
workers' compensation benefits paid to the employee from the
product liability damage award, even if the employer is
responsible for the injury.171
\170\ Under workers' compensation law, the employer automatically
pays workers' compensation benefits to an employee injured in the
course of employment, without regard to fault. As originally conceived,
workers' compensation is a tradeoff: While the employer is liable
regardless of fault, the employer is immune from tort liability for the
injury. Workers' compensation was, thus, intended to be the employee's
exclusive remedy against the employer for work-related injuries. See
Kofron v. Amoco Chem. Corp., 441 A.2d 226 (Del. 1982).
\171\ The employer does this by assuming the employee's rights
against the manufacturer (i.e., is ``subrogated'' to the employee's
rights against the manufacturer).
---------------------------------------------------------------------------
Allowing employers to recover workers' compensation
benefits paid out of a product liability damage award,
irrespective of fault, has been highly criticized by workers'
compensation experts, because it places no incentive on
employers to keep their workplaces safe and to train their
employees in safe workplace practices.172 Section 110
would reverse this effect by placing an incentive on employers
to keep their workplaces safe. In sum, if an employer was at
fault in causing a workplace injury, it will have to bear the
costs of workers' compensation.
\172\ See A. Larson, Workers' Compensation for Occupational
Injuries and Death, 76 (desk ed. 1991).
---------------------------------------------------------------------------
As reported
Section 110(a)(1)(A) preserves the right of an employer or
the employer's workers' compensation insurer to recover amounts
paid to an employee as workers' compensation through
subrogation. Section 110(a)(1)(B) provides that an employer or
the employer's workers' compensation insurer must provide the
court with written notice that is its asserting a right of
subrogation. Section 110(a)(1)(C) states that the employer or
the employer's workers' compensation insurer need not be a
necessary party to the underlying product liability lawsuit.
Thus, an employee can pursue a product liability action against
a manufacturer without regard to his or her employer's
participation in the action.
Section 110(a)(2)(A) preserves the right of an employer or
an employer's workers' compensation insurer to assert a right
of subrogation against payment made by a product liability
defendant as a settlement, to satisfy a judgment of for any
other reason. To prevent collusion between the employee and the
product liability defendant, section 110(a)(2)(B) provides that
an employee may not accept a payment from the product liability
defendant in settlement or in satisfaction of a judgment or for
any other reason without the employer's written consent.
Section 110(a)(2)(C) states the rule that no such release to or
agreement with a product liability defendant shall be valid or
enforceable unless the employer or the worker's compensation
insurer of the employer is made whole for workers' compensation
benefits paid.
Section 110(a)(3) provides the mechanism for increased
workplace safety. Under section 110(a)(3)(A), a product
liability defendant may attempt to prove to the trier of fact
that the claimant's injuries were caused by the fault of the
employer or the claimant's coemployees. The product liability
defendant is required to provide written notice to the employer
that it will raise employer fault as a defense at trial. To
allow the employer or its insurer to attempt to preserve its
lien, section 110(a)(3)(B) permits the employer to appear at
trial, be represented by counsel, introduce evidence, cross-
examine adverse witnesses, and make arguments to the trier of
fact as if it were a party to the proceedings. If the trier of
fact finds by clear and convincing evidence that the claimant's
injury was caused by the fault of the claimant's employer or
coemployees, section 110(a)(3)(C) reduces the damages award
against the product liability defendant and, correspondingly,
the employer's subrogation lien, by the percentage of
responsibility for the harm attributed to the employer. Thus,
the amount the injured employee would recover remains totally
unaffected. The Act merely provides that the employer will not
be able to fully recover workers' compensation benefits it paid
to the employee if it is responsible in full or in part for the
harm.173
\173\ An example is instructive. Consider the case where an
employee is injured due to an allegedly defective machine tool. Assume
that the employee receives $30,000 in workers' compensation benefits
from his or her employer. To obtain additional compensation (e.g.,
``pain and suffering,'' which is not compensated at all under workers'
compensation law), the employee brings a product liability action
against the machine tool builder. At trial, the machine tool builder
presents evidence that the employer had removed a safety guard from the
machine. The jury finds that the employer's action was fifty percent
responsible for the employee's injury and awards $100,000 in damages.
Under current law, the employer, through subrogation, would recover all
$30,000 that it paid in workers' compensation benefits. The employee
would receive what is left, or $70,000. Under section 110, the employee
still recovers $70,000, but the employer is not rewarded for its
negligence. The employer's lien would be reduced by its percentage of
fault (e.g., fifty percent) for the harm. The employer thus would
recover only fifty percent of the amount it paid in workers'
compensation ($30,000), or $15,000. A ``fair share'' allocation is the
result.
---------------------------------------------------------------------------
Section 110(a)(3)(D) preserves the right of an employer to
obtain subrogation in two situations where employee harm may
occur beyond its control: (1) where the claimant is harmed by a
coemployee's intentional tort, and (2) where the claimant is
harmed by the act of a coemployee that is outside the scope of
the offending employee's normal work practices.
Section 110(b) provides a mechanism to discourage product
liability defendants from raising employer fault as a defense
where such a defense is not merited. The subsection states that
if, in a product liability action, the court finds that harm to
a claimant was not caused by the fault of the employer or a
coemployee, the product liability defendant shall reimburse the
employer (or its workers' compensation insurer) for reasonable
attorney's fees and court costs incurred by the insurer in the
action, as determined by the court.
SECTION 111--FEDERAL CAUSE OF ACTION PRECLUDED
Section 111 provides that the bill does not provide any new
basis for federal court jurisdiction. The resolution of product
liability claims is left to state courts or to federal courts
that currently have jurisdiction over those claims.
Specifically, section 111 states: ``The district courts of
the United States shall not have jurisdiction under section
1331 or 1337 of title 28, United States Code, over any product
liability action covered under this title.'' These sections of
the United States Code establish district court jurisdiction
with respect to federal questions and Acts of Congress
regulating commerce. It is the intent of the Committee that
these sections shall not be a basis for bringing a product
liability action governed by this bill in federal court.
Civil actions governed by this bill will continue to be
handled by state courts currently open to litigants and only by
federal district courts where there is currently a basis for
federal jurisdiction. The bill does not affect these bases for
jurisdiction and, therefore, does not expand the caseload of
the federal courts.
Title II--Biomaterials Access Assurance
In general
Each year millions of citizens depend on the availability
of implantable medical devices, such as pacemakers, heart
valves, artificial blood vessels, angioplasty catheters, left
ventricular assist devices, and hip and knee joints. The
availability of these devices is critically threatened because
suppliers have ceased supplying raw materials and component
parts to medical implant manufacturers. A 1994 study by Aranoff
and Associates concluded that there are significant numbers of
raw materials that are ``at risk'' of shortages in the next 12-
18 months. Suppliers have found that the risks and costs of
responding to litigation related to medical implants far
exceeds potential sales revenues, even though courts are not
finding suppliers liable.
Three major suppliers of raw materials used in the
manufacture of implantable medical devices recently announced
they will limit, or cease altogether, their shipments of these
crucial raw materials to device manufacturers. All three
companies have indicated these were rational and necessary
business decisions.
Consumers suffer the most from the biomaterials
availability crisis. This Committee learned firsthand the
problems facing consumers through testimony by Peggy Phillips,
Esq., on April 4, 1995. Ms. Phillips is a Virginia resident who
has survived two episodes of Sudden Cardiac Death Syndrome and
is the recipient of an Automatic Implantable Cardioverter
Defibrillator device. She told the Subcommittee on Consumer
Affairs, Foreign Commerce and Tourism that, as a patient with a
lifesaving medical implant, her worry is that such devices
``may not be available to those who need them,'' because the
``threat of liability suits'' is causing suppliers of raw
materials to pull out of the medical device market.
Ms. Phillips shared with the Subcommittee her experience on
a recent panel discussion sponsored by the American Institute
for Medical and Biological Engineering in which representatives
of medical science and the device industry put ``tort law on
trial.'' A woman in the audience wanted to know if the
threatened shortage of biomaterials was serious. ``A chill ran
up my spine,'' Ms. Phillips testified, ``when the panelists
could not guarantee that the battery used to power my Automatic
Implantable Cardioverter Defibrillator device would be
available in the United States because of the threatening
shortage of raw materials used in the devices resulting from
product liability concerns.'' Ms. Phillips specifically
endorsed this title of the Act.
Phyllis Greenberger, Executive Director for the Society for
the Advancement of Women's Health Research, testified at the
same hearing that ensuring the availability of implantable
medical devices is especially important to women. ``Women,''
she testified, are disproportionately impacted by a shortage of
biomaterials ``because they live longer than men, and as a
result, suffer more from chronic disease, increasing their
chances of needing a medical device, such as hip or joint
replacements.''
Title II of the Act will safeguard the availability of a
wide variety of lifesaving and life-enhancing medical devices.
The title addresses the liability of biomaterials suppliers to
persons who claim to have been injured as a result of an
implant that incorporates raw materials sold by those
suppliers. It is not intended to restrict any rights other
persons may have to sue biomaterials suppliers under a variety
of state law theories. The title also would not affect the
scope of a biomaterials supplier's liability to such persons
under existing state common law doctrines. As a result, an
implant manufacturer may sue a supplier for breach of warranty
or contract violations, if such claims exist under state law,
without regard to the provisions of this title.
Title II of the Act is identical to S. 303, the
``Biomaterials Access Assurance Act of 1995,'' introduced by
Senators Lieberman and McCain. The title was added to S. 565 as
part of an amendment offered by Chairman Pressler during
executive session held for S. 565. The issue has been the
subject of hearings and Title II of the Act will help prevent a
public health crisis by fairly limiting the liability of
biomaterials suppliers to instances of genuine fault and
establishing a procedure to ensure suppliers can avoid
litigation without incurring heavy legal costs. Title II of the
Act would not diminish in any way the existing liability of
medical device manufacturers.
As reported
SECTION 201--SHORT TITLE
Section 201 states this title may be cited as the
``Biomaterials Access Assurance Act of 1995.''
SECTION 202--FINDINGS
Section 202 contains the findings upon which this title is
based.
SECTION 203--DEFINITIONS
Section 203 defines terms or phrases used in this title.
Whenever a defined term or phrase is used, reference should be
made to the definitions in this section.
SECTION 204--GENERAL REQUIREMENTS; APPLICABILITY; PREEMPTION
Section 204(a) specifies that, in any civil action covered
by the bill, a biomaterials supplier may raise any defense set
forth in section 205, and the court must use the procedures set
forth in section 206 in connection with that defense.
Section 204(b) states that the bill applies to any civil
action brought by a claimant in Federal or State court against
a manufacturer, seller, or biomaterials supplier, on the basis
of any legal theory, for harm allegedly caused by an implant.
Section 204(c) states that the bill preempts State law to
the extent the bill establishes a rule of law.
Section 204(d) also states that the bill may not be
construed to affect any defense available under other
provisions of law to a defendant in an action alleging harm
caused by an implant, or to create any new Federal cause of
action.
SECTION 205--LIABILITY OF BIOMATERIALS SUPPLIERS
Section 205 restricts the possible liability of
biomaterials suppliers in lawsuits covered by the bill to three
situations, where the supplier: (i) was itself the manufacturer
of the implant; (ii) was itself the seller of the implant; or
(iii) furnished raw materials that failed to meet applicable
contractual requirements or specifications.
A supplier may be deemed to be a manufacturer only if the
supplier registered as such with the FDA pursuant to medical
device requirements or if the Secretary of HHS issues a
declaration that the supplier should have registered as a
manufacturer. Section 205 also establishes a procedure for the
Secretary to issue such a declaration.
A supplier may be deemed to be a seller and thus liable in
situations in which the supplier itself resold the implant
after it had been manufactured and had entered the stream of
commerce.
With respect to contractual requirements, a supplier may be
liable for harm only if the claimant shows that the
biomaterials were not the actual product for which the parties
contracted or the biomaterials failed to meet certain
specifications and that failure was the cause of the injury.
The relevant specifications are those: (i) provided to the
supplier by the manufacturer; (ii) provided by the manufacturer
(either published, given to the manufacturer, or included in an
FDA master file); or (iii) included in manufacturer submissions
that had received clearance from the FDA.
SECTION 206--PROCEDURES FOR DISMISSAL OF CIVIL ACTIONS AGAINST
BIOMATERIALS SUPPLIERS
Section 206(a) establishes a new procedure for dismissal of
lawsuits against suppliers. A supplier named as a defendant or
joined as a co-defendant may file a motion for dismissal based
on the defenses set forth in Section 205.
Section 206(b) specifies additional procedural requirements
for the lawsuits against suppliers. A plaintiff must sue a
manufacturer directly whenever jurisdiction over the
manufacturer is available. A plaintiff must submit an expert's
affidavit certifying that the biomaterials were actually used
and were the cause of the alleged harm and that the case has
merit.
Section 206(c) establishes procedural requirements for the
proceeding on a motion to dismiss. Pretrial discovery is
limited to certain issues and to the scope permitted against
third parties. A motion on the ground that the supplier is not
a manufacturer would be automatically granted if the supplier
had not filed with the FDA as a manufacturer of the implant
unless the plaintiff obtained a ruling from the FDA that the
supplier should have registered as a manufacturer. A ruling on
the supplier's pretrial motion for dismissal is based solely on
the pleadings and any affidavits.
Under section 206(d) the court may treat the motion for
dismissal as a motion for summary judgment if the pleadings and
affidavits raise genuine issues of material facts with respect
to a motion concerning compliance with contractual requirements
and specifications. Discovery is limited to establishing
whether an issue of material fact exists. The court would grant
the summary judgment motion unless the plaintiff has submitted
evidence sufficient to allow a jury to reach a verdict for the
plaintiff.
Section 206 (f) and (g) change other procedural aspects to
reduce litigation burdens. The manufacturer, not the supplier,
may conduct the proceeding on the motion if an appropriate
contractual indemnification agreement exists. The possibility
of frivolous claims against a supplier is reduced by permitting
the court to require the plaintiff to pay attorney fees if the
plaintiff succeeds in making the supplier a defendant, but
ultimately is found to have a meritless claim.
SECTION 207--APPLICABILITY
Section 207 indicates this title will apply to civil
actions commenced on or after the date of enactment.
Rollcall Vote in Committee
In accordance with paragraph 7(c) of rule XXVI of the
Standing Rules of the Senate, the Committee provides the
following description of the record votes during its
consideration of S. 565:
At the close of debate on S. 565, the Chairman announced a
rollcall vote on the bill. On a rollcall vote of 13 yeas and 6
nays as follows, the bill was ordered reported:
YEAS NAYS
Mr. Pressler Mr. Hollings
Mr. Burns Mr. Inouye\1\
Mr. Gorton Mr. Ford
Mr. Lott Mr. Kerry\1\
Mrs. Hutchison Mr. Breaux
Ms. Snowe Mr. Bryan
Mr. Exon
Mr. Rockefeller
Mr. McCain\1\
Mr. Stevens\1\
Mr. Packwood \1\
Mr. Dorgan
Mr. Ashcroft
\1\ By proxy
Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, the Committee states that the
bill as reported would make no change to existing law.
MINORITY VIEWS OF MR. HOLLINGS
introduction
Once again, this Committee has reported legislation to
federalize our nation's product liability system. However, this
year's version of the legislation is unwise, unnecessary, and
without any factual basis.
This measure would federalize an area of law that for over
200 years has been the province of the states. Such action
should not be undertaken lightly or carelessly. Those who
propose such dramatic change should, at a minimum, bear the
burden of proving that such change is both warranted and likely
to be effective. Unfortunately, however, the Committee has,
once again, ordered this bill to be reported without requiring
anything close to a demonstration that either factor is
present. The factual record clearly shows that each stated
basis for this legislation cannot withstand even minimal
scrutiny.
Over the years the bill's supporters have asserted that the
legislation is needed to curb the litigation explosion, improve
the efficiency of the American jury system, remedy the
liability insurance crisis, and to bolster American businesses'
competitiveness. However, the Committee's work on this issue
has clearly demonstrated that (1) there is no litigation
explosion; (2) the current system generally works properly to
fairly compensate injured victims; (3) the insurance crisis
(which has now ended) was not due to product liability, but the
underwriting practices of insurance companies; (4) the product
liability system is not stifling American businesses'
competitiveness; and (5) products kept off the market because
of product liability concerns are not necessarily safe or
innovative, but rather are examples of the system working
properly to deter potentially dangerous products.
Thus, despite the supporters' claims, this bill will not
make American business more competitive, will not create
uniformity in the law, will not reduce insurance rates, and
will not ensure more compensation for plaintiffs. Quite to the
contrary, the bill will create considerable confusion within
the courts, will precipitate more litigation, will have no
effect on insurance rates, and will reduce the ability of
injured victims to be compensated for their injuries.
The proponents claim that they want an efficient, fair, and
predictable judicial system. However, they obviously are not
aware that the American civil justice system, one of the most
cherished institutions in the world, is rooted in a democratic
jury system, where cases are decided on the facts and
circumstances, not on profit motives.
If fairness and consistency are truly the proponents' goal,
it is certainly not evident in the legislation. For example,
one of the purported purposes of the legislation is uniformity,
yet, the bill, for the most part, preempts state law only to
the extent that the law favors consumers. Of course, state laws
that are pro-defendant are left intact. Where is the uniformity
in that?
The bill raises the standard of proof for punitive damages
to clear and convincing evidence of conscious, flagrant
misconduct, but also protects companies that engage in such
conduct through arbitrary damage caps. Not only are the damage
caps arbitrary, they are applied in a manner that discriminates
against non-wealthy citizens. The bill provides that punitive
damages are limited to three times economic damages, or
$250,000, whichever is greater. So, the greater a plaintiff's
wealth, the more a company will be punished. Or to put it
simply, injuries to wealthy citizens are more punishable than
injuries to working-class citizens. This is completely contrary
to the purpose behind punitive damages--namely, to punish
outrageous conduct.
I am concerned about the supporters' representations that
this bill is not as severe as the legislation (S. 687)
considered in the last Congress. The truth of the matter is
that the current bill has re-incorporated many of the onerous
provisions that were contained in the earlier product liability
bills.
Proponents claim that the legislation is a pro-consumer
bill, that it will benefit women, the elderly, and children,
and that it will make more medicines and medical devices
available. However, the bill is opposed by every major consumer
organization throughout the nation. Over 100 women's,
children's, health, and public interest organizations, as well
as the American Association of Retired Persons, oppose this
bill. Additionally, the proponents contend that the bill will
make the state tort system more predictable and productive; yet
the bill is opposed by the Conference of State Chief Justices,
the National Conference of State Legislatures, and over 100 law
professors nationwide. These are the experts in consumer
protection, administration of law, and legal jurisprudence.
They are concerned not with fees, but with justice, and the
proper functioning of our legal system. Does the Congress know
more about health and safety and what's good for our nation's
legal system than these groups?
As I have stated in the past, we should not misunderstand
the purpose of this bill. This bill is written clearly for the
benefit of the business community, not for consumers or to make
the system more uniform. Indeed, if there are issues that need
to be examined in the tort system, they already are being
addressed by the states, where this issue belongs. Since 1983,
46 States have enacted measures involving tort reform. The
states--through their work with members of the bar, the chamber
of commerce, the insurance industry, and consumer groups--have
addressed concerns about the tort system, and have crafted
legislation they believe is in the best interest of their
citizens. The proponents of this bill, however, would override
the enormous and commendable efforts and time the states have
devoted to this issue, and force their own brand of reform on
the states.
Once again the Congress is being asked to enact legislation
when there has been no credible demonstration that there is a
problem, or an issue that necessitates any involvement by the
Congress. Enactment of such a law would alter, in one stroke,
the fundamental federalism inherent in this country's tort law,
and would add to the difficulties already faced by the victims
of defective products. It is ironic that, at the very moment so
many of our colleagues are insisting that control over major
issues be surrendered by the Federal Government and returned to
the states, these same members would usurp this area of state
responsibility.
I yield to no one in my desire to assist American business
in every way, and to insure its viability in ever-changing
world markets. However, I urge my colleagues to insist, at a
minimum, on some objective demonstration that federal product
liability law is a reasonable means to address the problems of
the business community. I have not yet seen such a
demonstration, and in my view the legislative process is ill-
served by taking such action in these circumstances.
In the discussion below, I have set out in more detail the
facts that have been developed on this issue, and why I believe
we should not move forward on this bill.
THERE IS NO FACTUAL BASIS FOR THIS LEGISLATION
I. The current system achieves fair results, and there is no
``explosion'' of litigation
Before we make dramatic changes in product liability law,
we should, at the least, have information to demonstrate that
the current system needs fixing--that it is not achieving its
purpose of fairly and properly compensating victims of
defective products, and of deterring the marketing of unsafe
products. As each additional piece of objective data becomes
available, it becomes more clear that the system is working.
The number of non-asbestos product liability cases is actually
declining, punitive damages are a rare occurrence, and
compensatory awards are reasonably related to the cost of the
injuries involved.
In 1991, the Rand Corporation released a report on civil
claims and compensation, which found that only 10% of persons
that are injured by defective products seek some form of
compensation through the tort system, and a mere 2% actually
goes forward with filing a lawsuit.\1\ The report further found
that only 7 percent of all compensation for accident victims is
paid through the tort system.\2\ This low level of compensation
is obviously due to the reluctance of injured persons to file
claims or lawsuits. The report concluded that ``most Americans
who are injured in accidents do not turn to the liability
system for compensation. * * * In this respect, Americans'
behavior does not accord with the more extreme
characterizations of litigiousness that have been put forward
by some.'' \3\
\1\ Hensler, et al., ``Compensation for Accidental Injuries in the
United States,'' Rand Corporation, Institute for Civil Justice (1991),
Executive Summary at 18. See also testimony of Dr. Deborah Hensler,
Consumer Subcommittee Hearing on S. 640, September 12, 1991, statement
at 6.
\2\ Id.
\3\ Id., Executive Summary at 18, 20.
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The most recent statistics from the National Center for
State Courts on state civil filings show that product liability
cases constitute only 4% of all state tort filings, and a mere
36 hundredths of one percent (.0036) of all civil cases.\4\
\4\ National Center for State Courts, ``State Court Caseload
Statistics: Annual Report 1992,'' (February 1994) at 16.
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Jury Verdicts, Inc., reported last year that juries
nationwide have become much tougher on plaintiffs.\5\ The
report revealed that a plaintiff's chances of winning in tort
cases decreased from 65% to 42% between 1987 and 1992, and
among product liability cases specifically, the percentage of
favorable verdicts for plaintiffs fell from 59% to 41% between
1989 and 1993.\6\ The report also indicated that there have
been major declines in the size of awards.\7\
\5\ New York Times, Friday, June 17, 1994.
\6\ Id.
\7\ Id.
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In 1992, Professors James Henderson--a supporter of tort
reform--and Theodore Eisenberg of Cornell University released a
study, ``Inside The Quiet Revolution In Products Liability,''
which found notable declines in the number of product liability
cases filed, as well as significant decreases in the size of
awards.\8\ The study confirmed Professors Henderson's and
Eisenberg's findings in an earlier study, which found a ``quiet
revolution * * * away from extending the boundaries of products
liability and toward placing significant limitations on
plaintiffs' rights to recover in tort for product-related
injuries.'' \9\ Specifically, they found that in 1976 and
continuing to 1983, defendants benefitted in roughly 51 percent
of product liability cases. By 1988, defendants prevailed in
63.4 percent of product liability cases. The study concluded
that, even if product liability cases could be characterized as
unfairly favoring plaintiffs in the past, the current trend is
clearly favoring defendants.
\8\ Henderson and Eisenberg, ``Inside the Quiet Revolution In
Products Liability,'' 39 U.C.L.A. Law Review 731, 743 (1992).
\9\ Henderson and Eisenberg, ``The Quiet Revolution in Products
Liability: An Empirical Study of Legal Change,'' 37 U.C.L.A. Law Review
479, 480 (1990).
The General Accounting Office (GAO) in 1989 completed one
of the first extensive reviews of data related to state court
product liability cases.\10\ Since most product liability cases
are litigated in the state court, and most of the past data has
been only from the federal courts, this report is very
significant. GAO found that the size of compensatory awards
varied by type and severity of injury in a manner consistent
with underlying economic loss, so that compensatory awards were
neither erratic nor excessive.\11\ It further found that
plaintiffs won fewer than 50 percent of the cases litigated,
that awards were based on negligence in almost three-quarters
of the cases (even in the states that permit recovery based on
strict liability without a demonstration of negligence), and
that the amount of punitive damages awarded was highly
correlated with the size of compensatory damages.\12\
\10\ U.S. General Accounting Office, ``Product Liability: Verdicts
and Case Resolution in Five States,'' GAO/HRD-89-99 (September 1989).
Hereafter referred to as ``1989 GAO Report.''
\11\ Id. at 27.
\12\ Id. at 29-31.
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Additionally, in testimony submitted to the Committee in
September of 1991, Professor Marc Galanter of the University of
Wisconsin Law School stated that, if asbestos cases are
excluded, the number of product liability cases in the federal
courts has declined in the last 5 years--from 8,268 cases in
1985 to 4,992 in 1991, a 40 percent decrease.\13\ He indicated
that asbestos filings accounted for all the increases in
product liability filings in the 1980s, and that asbestos cases
are quite distinct in that they involve a product of
``unparalleled deadliness to which there was massive exposure
that continued long after the dangers of its use were suspected
and suppressed.'' \14\
\13\ Testimony of Professor Marc Galanter, Director, Institute of
Legal Studies, University of Wisconsin Law School, before the Consumer
Subcommittee September 19, 1991, transcript at 86-87. See also Galanter
and Rogers, ``A Transformation of American Business Disputing? Some
Preliminary Observations,'' working paper #DPRP 10-3, Institute for
Legal Studies, University of Wisconsin (April 1991).
\14\ Galanter testimony, supra, transcript at 88.
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Professor Galanter's findings are similar to reports of
federal civil filings by the GAO\15\ and the Rand
Corporation,\16\ which have shown that one product, asbestos,
accounted for approximately 60 percent of the growth in filings
between 1976 and 1986.\17\ GAO further found that, since 1981,
product liability cases have grown at about the same rate as
other civil filings and at the same rate as personal
expenditures on goods, with growth of product liability cases
at 4 percent, personal expenditures on goods at 4 percent, and
civil filings at 6 percent.\18\ The author of the Rand study
has stated that ``[m]y feeling is that the available evidence
doesn't support the notion that products liability is crippling
American business.''\19\
\15\ U.S. General Accounting Office, ``Product Liability: Extent of
`Litigation Explosion' in Federal Courts Questioned,'' GAO/HRD-88-36BR
(January 1988).
\16\ Dugworth, ``Product Liability and the Business Sector:
Litigation Trends in Federal Courts,'' Rand Corporation, The Institute
for Civil Justice, R-3668-ICJ (1988).
\17\ GAO Report, supra, note 12, at 32, 43.
\18\ Id. at 32, 43.
\19\ Wall Street Journal, ``Survey Questions Liability Crisis at
U.S. Companies,'' January 18, 1989.
---------------------------------------------------------------------------
Professor Lawrence Mann from Wayne State University Law
School performed a similar study for the Governor of Michigan
in 1988-89. He began by noting that ``* * * much of the debate
surrounding products liability litigation has been based upon
anecdote and intuition. Hard data describing the products
liability litigation landscape are scarce.'' He conducted his
research by surveying over 2,000 businesses as well as
attorneys of record in closed cases for the year 1987. His
general conclusion was that ``[v]erdicts and settlements in
products liability cases are not erratic and appear reasonably
related to economic losses sustained and injury severity.''
\20\
\20\ Testimony of Professor Lawrence C. Mann, Wayne State
University School of Law, Consumer Subcommittee Hearing on S. 1400,
February 22, 1990, statement at 1-2.
His research found a ``phenomenal concentration of
litigation among a handful of defendants who are `repeat
players' in civil litigation.'' In 1987, four companies
accounted for 92 percent of the cases filed. In 1982, four
companies accounted for 91 percent of the cases filed, and in
1979, four companies accounted for 83 percent.\21\
\21\ Id., at Report to the Governor of Michigan 2.
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Professor Mann concluded that ``* * * fewer and fewer
litigants are accounting for an increasing share of the
litigation pie.'' He further found that ``* * * the
distribution of cases filed for the years covered in the * * *
survey yield a picture of products litigation that is
inconsistent with the conclusion that the business community in
general is the victim of a products liability explosion.'' \22\
\22\ Id. at Report to Governor 1, 2.
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II Business litigation
According to Professor Galanter, the real increase in
litigation in recent years has been in businesses suing
businesses, not consumers seeking compensation through the
product liability system.\23\ For example, contract filings in
federal courts increased by 232 percent between 1960-1988, and
by 1988 were the largest category of civil cases in the federal
courts.\24\ Statistics compiled from the National Law Journal's
annual reports on major civil verdicts show that, since 1989,
of the 83 largest damage awards nationwide, 73% have involved
business litigation.\25\ Between 1987 and 1994, just 76 of the
largest verdicts alone accounted for more than $10 billion.\26\
Statistics from the National Center for State Courts show that
at least several hundred thousand business and contract cases
were pending during this period.\27\
\23\ Supra at 13.
\24\ Id.
\25\ See National Law Journal Annual Reports on Largest Civil
Verdicts (1990-1994).
\26\ See National Law Journal Annual Reports on Largest Civil
Verdicts for years 1990-1994, and ``Inside Litigation'' published
reports on Civil verdicts for 1987-1989.
\27\ Supra at 4.
---------------------------------------------------------------------------
Last year, the Harvard Business Review featured a report on
corporate litigation and Alternative Dispute Resolutions (ADR)
which provided an insightful view on the litigious behavior of
businesses. Although ADRs are designed to avoid litigation and
save costs, such hopes have faded for businesses as a result of
legal billings, high damage awards, and the propensity of
businesses to litigate.\28\ The report indicated that ADRs have
become for businesses a disguise for litigation, sometimes
costing more than a normal court proceeding.\29\ In addition,
businesses often prefer litigation to ADR. A survey found that
fewer senior corporate managers are willing to forgo a chance
to win a courtroom triumph. A top lawyer of a major company
stated that ``CEOs want to be able to take the other guy to the
cleaners if they believe that they're in the right, and are
going to bet the ranch if they have to.'' \30\
\28\ Harvard Business Review (May-June 1994) at 120.
\29\ Id.
\30\ Id. at 123.
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III. Jury system/punitive damages
Much has been made of the unpredictability of results in
product liability trials. However, it has been recognized, as
it must be, that most of this is due to our jury system.\31\ I
cannot believe any of my colleagues want to tamper with that
system. When a product liability case goes to trial, the jury
is not impaneled for the purpose of giving away someone else's
money. Rather it is charged with the administration of justice.
These juries are composed of our friends and neighbors, who
conclude, some of the time, that the defective products
involved and the injuries sustained require compensation. And
it is our friends and neighbors--who work for a living and know
the value of a dollar--who occasionally conclude that punitive
damages are justified when the defendant has engaged in
outrageous behavior.
\31\ Testimony of Peter Huber, Consumer Subcommittee Hearing on S.
1400, April 5, 1990, transcript at 119, 141; testimony of Professor
Mark Hager, Consumer Subcommittee Hearing on S. 1400, April 5, 1990
transcript at 137-8.
If there is an issue that has been terribly exaggerated in
this debate, it is the issue of punitive damages. Much new data
is available on punitive damages, which show, among other
things, that very few punitive damage awards have been made in
all state and federal product liability cases over the last 25
years. Punitive damages simply are not a factor in any but the
rare product liability case, and have little effect on the
business community. Dr. Stephen Daniels of the American Bar
Foundation conducted a nationwide study of over 25,000 civil
jury awards between 1981 and 1985. The study found that
punitive damages were awarded in only 4.9% of the cases
reviewed.\32\ He stated that the debate over punitive damages
``changed in the 1980s as a part of an intense, well-organized,
and well-financed political campaign by interest groups seeking
fundamental reforms in the civil justice system benefiting
themselves.'' He went on to state that this ``politicization of
the punitive damages debate * * * makes the debate more
emotional and manipulative, and less reasoned. The reformers
appeal to emotions, fear, and anxiety in this political effort
while avoiding reason and rational discourse.'' \33\
\32\ Daniels and Martin, ``Myth and Reality in Punitive Damages,''
75 Minn. Law Review 1, 10-12 (Oct. 1990).
\33\ Dr. Stephen Daniels, Consumer Subcommittee Hearing on S. 640,
September 12, 1991, transcript at 122.
---------------------------------------------------------------------------
He concluded that punitive damages were not routinely
awarded, were awarded typically in modest amounts, and were
awarded more often in financial and property harm cases
[business v. business] than in product liability cases.\34\ His
research also pointed up the errors in the data from Cook
County, IL, and San Francisco, CA, which in the past have been
cited by supporters of bills like S. 565 as indicative of the
nationwide pattern on punitive damages. He found that there
were flaws in the method of data analysis used, and that it was
inappropriate in any event to generalize from data in two
counties to a nationwide trends.\35\
\34\ 74 Minn. L. Rev., supra., at 43.
\35\ Id. at 22-27.
---------------------------------------------------------------------------
On April 4, 1995, Dr. Daniels, testifying before the
Committee, submitted data on a study he conducted to review his
initial findings. Using the same database in a review of the
same sites for years 1988-1990, he found that punitive damages
were again awarded at an extremely low rate--4.8%.\36\ The
study confirmed his earlier findings that such awards are more
of an aberration than the norm.
\36\ See testimony of Dr. Stephen Daniels, Consumer Affairs,
Foreign Commerce and Tourism Subcommittee Hearing on S. 565, April 4,
1995.
---------------------------------------------------------------------------
Dr. Daniels' findings are similar to those by Professor
Michael Rustad of Suffolk University Law School and Professor
Thomas Koening of Northeastern University. The Supreme Court
recently referred to this report as ``the most exhaustive study
of punitive damages.'' Professors Rustad and Koening reviewed
all product liability awards from 1965-1990 in both state and
federal courts. During that time, punitive damages were awarded
in only 355 cases--only 355 total punitive damages in 25 years!
One quarter of all those awards involved on product--asbestos.
Another one quarter of those cases was reversed or remanded
upon appeal. They further found that the amount of punitive
damage awards was not skyrocketing, and in 35 percent of the
cases in which punitive damages were awarded they were less
than the amount of compensatory damages. They concluded that
``[t]here is a widespread misperception that punitive damage
awards are skyrocketing because of frivolous lawsuits. * * *''
\37\
\37\ Rustad and Koening, ``Demystifying the Functions of Punitive
Damages in Products Liability: An Empirical Study of a Quarter Century
of Verdicts,'' Executive Summary at 11-15, 1. See also testimony of
Professor Michael Rustad, Consumer Subcommittee Hearing on S. 640,
September 19, 1991, transcript at 74-78.
---------------------------------------------------------------------------
As witnesses testified at the Committee's September 23,
1993 hearing, if a manufacturer is not engaged in flagrant
disregard of safety, pursuant to the standard set under section
107 of the bill, then that manufacturer does not have to be
concerned about punitive damages.\38\ The possibility of
punitive damages provides an important deterrent which helps to
insure that manufacturers police themselves. We must require
continued maximum vigilance from the manufacturers themselves.
In its recent decision in TXO Production v. Alliance Resources
(June 25, 1993, No. 92-479), the Supreme Court soundly rejected
attempts to limit or abolish punitive damages.
\38\ See testimony of Lucinda Finley, Consumer Affairs, Foreign
Commerce and Tourism Subcommittee Hearing, April 4, 1995.
IV. The current system promotes product safety
One of the primary effects of the current system is to
promote product safety--to make manufacturers more careful in
the design and production of their products. I know this
because manufacturers themselves have told me. The 1987
Conference Board survey of risk managers of corporations found
that ``[w]here product liability has had a notable impact--
where it has most significantly affected management decision
making--has been in the quality of the products themselves.
Managers say products have become safer, manufacturing
procedures have been improved, and labels and use instructions
have become more explicit.'' \39\
\39\ ``Product Liability: The Corporate Response,'' The Conference
Board Report No. 893 (1987) at 2.
---------------------------------------------------------------------------
Indeed, according to the Consumer Federation of America
(CFA), only a small minority of companies had a product safety
management position in the early 1970s. By the end of the
1970s, virtually all companies had a very strong product safety
presence in their management structure. CFA further stated that
there has been a dramatic change in the rate of accidental
injuries and deaths in the United States, so that
``approximately 6,000 deaths and millions of injuries have been
prevented on an annual basis now because of product liability
and other forces towards greater safety in our society.'' \40\
\40\ Testimony of Gene Kimmelman, Legislative Director, Consumer
Federation of America, at Consumer Subcommittee Hearing on S. 1400,
April 5, 1990, transcript at 77-78.
---------------------------------------------------------------------------
Moreover, Professor Rustad in his survey of punitive damage
awards found that 190 of the 252 non-asbestos defendants who
were subject to punitive damage awards between 1969 and 1990
``have taken some safety step in the wake of punitive damages
litigation. In eighty percent of these cases, there were steps
such as fortified warnings, product withdrawals, and safety
features added to products which followed shortly after the
[litigation].'' \41\
\41\ Rustad, supra, executive summary at 28.
---------------------------------------------------------------------------
A similar finding was made by Professors Nicholas Ashford
and Robert Stone of MIT, in work done for inclusion in ``The
Liability Maze,'' a collection of articles on product
liability, innovation and safety. This book is often
mischaracterized by proponents of S. 565 as a monolithic study
reaching results supportive of their position. Rather, it is a
collection of research articles reaching various conclusions on
the issue of innovation and safety in assorted industries.
Professors Ashford and Stone researched the effect of
product liability on the chemical industry. They found that
manufacturers pay ``no more than 5 percent, and often less than
0.1 percent, of the corresponding social costs'' of the chronic
injuries caused by chemicals.\42\ They concluded that, although
the system is not stringent enough on the manufacturers to
provide appropriate deterrence to prevent all unsafe products,
it still has helped in the development of safer products. They
recommend, however, that if the liability system were more, not
less, stringent with respect to manufacturers it would be even
more effective in promoting safety and innovation.\43\
\42\ Ashford and Stone, ``Liability, Innovation, and Safety in the
Chemical Industry,'' in ``The Liability Maze'' (Brookings 1991) at 414.
\43\ Id. at 415-417.
---------------------------------------------------------------------------
The editor of ``The Liability Maze,'' Peter Huber, has
suggested that the work by Professors Ashford and Stone is
somehow unique. However, Professor Ashford has responded that
he and other authors of the book found it impossible to
separate innovation and safety, and found that ``the liability
system can both promote safety and innovation of desirable
products and discourage unsafe products though they may be
innovative.'' Professor Ashford goes on to state that ``we
believe most scholars would subscribe to our methodology * *
*''\44\
\44\ Letter from Professor Nicholas Ashford to Senator Ernest
Hollings, October 1, 1991, submitted for the record of the Consumer
Subcommittee hearing on S. 640, September 19, 1991.
The effect of product liability in promoting product safety
relates not only to consumer protection, but to
competitiveness. As Professor Mark Hager of American University
---------------------------------------------------------------------------
testified:
* * * our products, because of their superior
reputation for safety, due in part to the effects of
product liability over the last 20 years, have a
superior reputation in the international marketplace. *
* * [W]e cannot compete at this time with the low labor
costs of newly industrializing countries, but we can
compete very effectively * * * in safety, and it would
be a grave risk to our international competitiveness to
toy with the tort system that helps bring about that
competitive advantage.\45\
\45\ Testimony of Professor Mark Hager, Assistant Professor of Law,
Washington College of Law, American University, at Consumer
Subcommittee Hearing on S. 1400, April 5, 1990, transcript at 126.
---------------------------------------------------------------------------
V. The current system promotes important principles of federalism
The value of the principles of federalism embodied in our
current system of tort law should not be overlooked. As
Congressman Mike Box, of the Alabama House of Representatives,
has testified:
[t]he issues of proper compensation for injured persons
and suitable protections for businesses are matters of
social values and public policy that should be
addressed at the state level, in the absence of a
national economic crisis. * * * Arguments for uniform
laws as a means of promoting competitiveness ignore the
advantages of a decentralized and federal system of
civil justice. * * * Remember why we developed as a
federal nation. * * * Our founding fathers recognized
the importance of having governments responsive to the
electorate. Broad powers were reserved to the states so
they would serve as bulwarks of freedom, an antidote to
an overpowerful national government. * * * S. 1400 [a
similar bill introduced in the 101st Congress] is
radical because it opens the door to substantially
greater federal intrusions.\46\
\46\ Testimony of Rep. Mike Box, Alabama House of Representatives,
at Consumer Subcommittee Hearing on S. 1400, April 5, 1990, Statement
at 1-3.
These concerns were reiterated during the Subcommittee's
September 12, 1991 hearing by Delegate Bernard Cohen on behalf
of the National Conference of State Legislatures. Delegate
Cohen pointed out that federal ``preemption should not occur
unless it could be proved that the variation in State laws is
significantly impeding commerce among the States and unless the
specific legislative response is the only way to resolve the
conflict. * * * [T]his burden has not been met with respect to
product liability laws.'' Delegate Cohen went on to note that,
not only had the burden of proof not been met, but ``the basic
rationale for this bill, the underlying rationale for it, is
fallacious.''\47\
\47\ Testimony of Delegate Bernard Cohen, Virginia House of
Delegates, Consumer Subcommittee Hearing on S. 640, September 12, 1991,
transcript at 85-86; 87.
---------------------------------------------------------------------------
Professor Eisenberg from Cornell Law School also has raised
these concerns, and pointed out the practical problem with
federal tort law that I believe should provoke serious concern:
The changing nature of products liability law makes
me cautious about wishing for Congress to implement a
single rule. For the rule Congress adopts had better be
a good one, since it may preempt further
experimentation and change by the states. I see no
basis for believing that the rules embodied in S. 1400
[a similar bill introduced in the 101st Congress] are
superior to the collection of rules embodied in various
state laws and to the ability of the states to adopt
the best rules of their sister states, as those rules
evolve over time. The one thing we do know is that
state product law does change. I worry that Congress
may freeze the law with the wrong set of rules at a
time when there is no clear reason to do so.\48\
\48\ Testimony of Professor Theodore Eisenberg, Professor of Law,
Cornell University, in response to post hearing questions of Senator
Rockefeller, from Consumer Subcommittee Hearing on S. 1400, April 5,
1990, at 2.
Testifying on behalf of the National Conference of State
Legislatures at the Committee's April 4, 1995 hearing.
Representative Jeffrey Teitz of the State of Rhode Island
---------------------------------------------------------------------------
stated:
This is a unique moment in our national history. For
the first time in decades, we have begun a serious re-
examination of the relationships between Washington and
the fifty state capitals. Members of Congress on both
sides of the aisle are publicly acknowledging that the
federal government needs to return significant
governmental authority on a broad range of issues to
the states. There is a widely-shared recognition that
dictates from Washington have in many instances made
government neither more efficient nor more equitable.
Against this great historic trend comes the dubious
idea of product liability preemption. The proponents of
this legislation want Washington to dictate the legal
standards and evidentiary rules which the fifty state
court systems use to adjudicate disputes over allegedly
defective products. There is no precedent for such a
congressional imposition of federal rules by which
state courts will be forced to decide civil disputes *
* * The issues of proper compensation for injured
persons and suitable protections for businesses are
matters of social values and public policy that should
be addressed at the state level. Only with clear proof
of the need and the effectiveness of national rather
than state solutions should we consider the sweeping
preemption of state laws and constitutions contemplated
by this legislation. In our view, proof of need and
effectiveness is lacking.\49\
\49\ See testimony of Jeffrey Teitz, Consumer Affairs, Foreign
Commerce and Tourism Subcommittee Hearing on S. 565, (April 4, 1995).
Indeed, I have this same concern. I am constantly surprised
that some are willing to take their chances with Congress
setting the rules over the long haul. Such an effort would
limit flexibility, and could eventually result in rules more
oriented toward plaintiffs than those the states would craft.
In any event, we only should tinker with the fundamental
principles of federalism in the most extreme circumstances--a
record such as we have on this issue is insufficient to take
such action.
VI. The current system did not cause the Insurance ``Crisis''
In past years, the cry of product liability has been based
on a ``crisis'' in the availability and price of insurance.
However, the primary allegations concerning the existence and
magnitude of this crisis have proved vastly exaggerated. In
1976, the Federal Government created a Federal Interagency Task
Force on Product Liability (hereinafter the Task Force) to
examine the problem. The Insurance Study commissioned by the
Task Force found that, while insurance costs did increase in
the mid-1970s, insurance premiums exceeded 1 percent of the
total sales for only three industries. \50\
\50\ U.S. Department of Commerce, Interagency Task Force on Product
Liability, Final Report VI-20 (1977) [hereinafter cited as Task Force
Final Report].
---------------------------------------------------------------------------
By 1983, evidence indicated that product liability
insurance costs had stabilized or decreased, and that the
insurance crisis had disappeared. A 1983 Institute for Civil
Justice study concluded not only that reports of a product
liability crisis in the mid-1970s were greatly exaggerated, but
that even the perception of a crisis had receded because it had
become evident that product liability claims had not imposed
unreasonable costs on most manufacturers.\51\ Costs increased
and availability decreased again in the mid-1980s. In an April
25, 1980 letter to Senator Adlai Stevenson, Victor Schwartz, in
his capacity as Chairman of the Commerce Department's Task
Force on Product Liability and now one of the leading advocates
to S. 565, stated that ``no one has ever demonstrated that the
huge increases in product liability premiums in recent years
were related to the number and/or size of product liability
claims.''\52\
\51\ Rand Corporation, The Institute for Civil Justice, ``Designing
Safer Products: Corporate Responses to Product Liability Law and
Regulation 121'' (1983) [hereinafter cited as Designing Safer
Products].
\52\ Testimony of Victor Schwartz, Commerce Committee Hearing on S.
1789, 96th Congress, (April 22, 1980).
Professors Henderson and Eisenberg noted, in their 1992
study on civil filings, that their data showed little linkage
between tort reform and declining insurance rates, and that one
has to be skeptical of such linkage.\53\ According to
Professors Henderson and Eisenberg, at the advent of the so-
called tort reform movement, reformers were concerned more
about convincing the American public that there was a crisis
and linking the alleged crisis to product liability, than about
the reality of the crisis itself.\54\ The idea was to tie the
product liability system to the crisis in a way that reshaped
public opinion.\55\ Efforts were forcefully made to link the
so-called crisis to basic American activities, such as little
league baseball and the Boy Scouts.\56\ To quote Professors
Henderson and Eisenberg, ``using every technique of modern
media-shaping, tort reform groups sought to insure that the
public believed that products liability law was the cause of
this threat to their way of life.'' \57\
\53\ Supra at 8, 792.
\54\ Id. at 792-793.
\55\ Id.
\56\ Id.
\57\ Id.
---------------------------------------------------------------------------
During the mid-1980s, the Director of Government Affairs
for the Risk and Insurance Management Society--an association
of corporate risk managers which generally supports tort
reform--himself expressed concern about linking tort reform and
the insurance availability crisis.\58\
\58\ Id.
---------------------------------------------------------------------------
There is ample evidence that the increases in product
liability insurance costs were actually the result of the
cyclical nature of the insurance industry and insurance
companies' underwriting practices, not product liability. The
Congressional Research Service (CRS) has described the
repeating cycles of high and low premiums as an historical
alteration between soft and hard insurance markets, and has
discussed the management practices of the companies which
contribute to this cycle. In a soft market, rates are adequate,
and risk selection careful, and the industry generally performs
well. New capital is attracted from a number of sources and
capacity increases. Price cutting of premiums results when new
sources of capacity begin to generate increased competition for
available premium volume. Underwriting standards (the standards
for deciding whether to insure a particular manufacturer) for
risk selection diminish with increased competition, and
insurers take on riskier business endeavors. According to CRS,
this practice results in rising claims losses.
At the point that competition is severe and that losses are
too high, insurers withdraw from the market and the capacity
shrinks, resulting in hard market. Availability and
affordability problems ensue as the remaining insurers raise
prices and tighten the underwriting standards. Eventually the
market stabilizes, a soft market emerges, and the cycle begins
again.\59\
\59\ See Congressional Research Service, ``Property-Casualty
Insurance market Operation'', CRS Report No. 85-629E (March 20, 1985).
---------------------------------------------------------------------------
Interest rates, which reached historic heights in the late
1970s, aggravated the cycle, Companies engaged in price wars in
order to obtain a larger volume of premium income for
investment.\60\ Basically, companies were willing to accept
lower premiums for certain insurance lines in order to
encourage sales and obtain funds for investments.\61\
\60\ See ``A Rate War Rips Casualty Insurers,'' Business Week,
December 8, 1980.
\61\ Hearing on Product Liability before the consumer Subcommittee,
99th Cong. 2d. Sess. (1986) (hereafter cited as 1986 Product Liability
Hearing). (Statement of Johnny C. Finch, Senior Associate Director,
General Government Division General Account office) (Testimony on file
at Senate Committee on Commerce, Science, and Transportation).
---------------------------------------------------------------------------
On February 19 and March 4, 1986, the Committee held
hearings to conduct a more comprehensive examination of the
availability and cost of liability insurance. Testimony was
presented at hearings on the reasons for the insurance crisis.
Witnesses noted that the insurance crisis had arisen during a
period of falling interest rates, prior to which competing
insurance companies had been underpricing their product in
order to maximize cash flow and enhance investment income. When
interest rates began to fall, companies were forced to increase
premiums because investment income was no longer compensating
for underwriting losses. The Committee Report accompanying S.
2129, the Risk Retention Amendments of 1986, states that
``[t]his practice of cash flow underwriting was linked directly
to the current crisis.'' \62\
\62\ S. Rep. No. 294, 99th Cong., 2nd Sess. 4 (1986).
GAO testified in May 1986 before the Consumer Subcommittee
that the underwriting cycle turned again and ``is now moving in
a positive direction.'' The property/casualty industry will
enjoy ``an expected net gain before taxes of more than $90
billion over the years 1986-1990.'' \63\ According to the
Insurance Information Institute, the insurance industry has
been a very profitable industry over the past decade, even
during the 1980s' insurance crisis. A compilation of the
Institute's annual statistics shows that, between 1984-1994,
property/casualty companies had a net after-tax income of
approximately $100 billion, and an increase in surplus of $63
billion to $190 billion.\64\
\63\ 1986 Hearing on Product Liability, supra note 25 (Statement of
Johnny C. Finch, Senior Associate Director, General Government Division
General Accounting Office) (Testimony on file at Senate Committee on
Commerce, Science and Transportation). U.S. Congress, Office of
Technology Assessment, ``Making Things Better: Competing in
Manufacturing,'' OTA-ITE-443 (Washington, D.C.: U.S. Government
Printing Office, February 1990).
\64\ Insurance Information Institute Annual Statistics on Property/
Casualty Companies.
---------------------------------------------------------------------------
The irony of the continuing debate over a federal product
liability bill is that insurance costs were emphasized by the
proponents as the reason for passage of a federal product
liability bill in the 96th and 97th Congresses when premiums
were high, and were deemphasized as a reason for passage of
product liability legislation during the 98th Congress when
insurance premiums were reduced. In the 99th Congress, the
proponents again pointed to the high premiums as a
justification for a Federal bill, but these arguments
disappeared in the 101st and 102nd Congresses.
VII. Product liability is not a major factor in the competitiveness of
U.S. business
The proponents also claim that produce liability is
inhibiting the ability of U.S. business to compete in world
markets and to market innovative products. However, there is
absolutely no evidence that product liability hinders the
competitiveness of American businesses.
In its study of competitiveness, the Office of Technology
Assessment (OTA) concluded that American manufacturing clearly
is being challenged by competitors, particularly from Japan.
However, the recommended policy options for government activity
to address this challenge did not include federal product
liability law. Rather, OTA listed the four most important steps
that the United States could take to improve competitiveness:
(1) lower the cost of capital; (2) improve the quality of human
resources through education and quality of workforce; (3)
improve the diffusion of manufacturing technology to small and
medium-sized business; and (4) provide government funding of
risky but promising long-term research and development.\65\
\65\ Testimony of Dr. Julie Fox Gorte, Office of Technology
Assessment, Consumer Subcommittee Hearing on S. 1400, April 5, 1990 at
transcript pp. 61-2.
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In 1987, the Conference Board surveyed risk managers of 232
major U.S. manufacturing, trade, and service corporations about
the effect of product liability on their companies.\66\ Risk
managers are the corporate employees that have the greatest
corporate responsibility for addressing product liability
issues--40 percent, as compared to a 6 percent responsibility
by the Chief Executive Officers (CEOs).\67\ Two-thirds of the
risk managers said that product liability contributed 1 percent
or less to the final prices of their products. For another 11
percent of the companies, the liability cost was only 2-3
percent of the final price.\68\ Additionally, most of the
companies surveyed said that the area in which product
liability had most significantly altered management decision
making was in the quality of the products themselves.\69\
\66\ Weber, ``Product Liability: The Corporate Response,'' The
Conference Board, Report No. 893 (1987).
\67\ Id. at v.
\68\ Id. at 13.
\69\ Id. at 2.
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The GAO made similar findings in a 1988 report on the
issue. GAO found that insurance costs represented a relatively
small proportion of businesses' annual gross receipts--0.6
percent for large businesses, and about 1 percent for small
businesses.\70\
\70\ U.S. General Accounting Office, ``Liability Insurance: Effects
of Recent `Crisis' on Businesses and Other Organizations,'' GAO/HRD-88-
64 (July 1988).
Additionally, the Institute for Civil Justice of the Rand
Corporation concluded in 1983 that product liability costs in
---------------------------------------------------------------------------
most cases were only a minute percentage of costs to business:
It appears safe to conclude that for most large
manufacturing firms, product liability costs--including
the cost of defending litigation and certain product
liability prevention activities--probably amount to
much less than 1 percent of total sales revenue.\71\
\71\ Designing Safer Products, supra, note 31 at 121.
Also, the Rand Corporation has found that only a small
percentage of U.S. manufacturers are even involved in product
liability litigation. In 1986, only 0.9 percent of all
manufacturing concerns in the United States were defendants in
product liability litigation.\72\
\72\ Dugworth, ``Product Liability and the Business Sector:
Litigation Trends in Federal Courts,'' supra at 53-56.
---------------------------------------------------------------------------
A recent study by Robert Hunter, former Texas Insurance
Commissioner, and currently Director of the Insurance Division
of the Consumer Federation of America, found that product
liability accounts for only 26 cents of each $100 of retail
sales in the country.\73\
\73\ See testimony of Robert Hunter, Consumer Affairs, Foreign
Commerce and Tourism Subcommittee Hearing on S. 565 (April 3, 1995).
---------------------------------------------------------------------------
Claims to the contrary regarding the competitiveness of
business are based on self-serving anecdote or unsupported
claims. Such rhetoric was greatly espoused by the Council on
Competitiveness, under the auspices of former Vice President
Quayle. The Council claimed that the cost of the tort system
was crippling U.S. business, using questionable factors to
derive the total cost of the system. Upon scrutiny, these
dollar amounts were completely without factual basis.
Mr. Quayle asserted that the ``direct'' costs of the tort
system are $80 billion per year, and that indirect costs were
considerably higher. The ``Authority'' cited for that figure
was Forbes magazine, which in turn cited no authority. The
figure can be located in only one other place I have been able
to uncover--Peter Huber's book, ``Liability: The Legal
Revolution and Its Consequences.'' However, as an analysis of
this book for the Stanford Law Review points out, this number
was simply lifted from a comment made by Robert Malott,
Chairman of the Business Roundtable's product liability task
force and CEO of the FMC Corporation, in the 1986 issue of
Chief Executive magazine. Mr. Malott was quoted as saying,
``insurance liability costs industry about $80 billion per
year'' with no documentation for that remark.\74\ These
``authorities'' speak for themselves about the extent to which
we should rely on these estimates in deciding to overhaul the
civil justice system.
\74\ Hager, ``Civil Compensation and Its Discontents: A Response to
Huber,'' 42 Stanford L. Rev. 539, 547-550 (January 1990).
---------------------------------------------------------------------------
The only other discordant note in the general agreement
that product liability has a very small impact on business
comes from a 1988 Conference Board survey of 500 chief
executive officers of corporations, 42 percent of whom stated
that product liability had a major impact on them.\75\ Some
components of the Conference Board apparently were dissatisfied
with the results of their 1987 survey, cited above, which did
not support their theory of product liability. So they decided
to ask different people, in hopes of a different result. This
is virtually the only piece of information cited by the
supporters of this legislation for the proposition that product
liability affects competitiveness.\76\
\75\ McGuire, ``The Impact of Product Liability,'' The Conference
Board, Report No. 908 (1988).
\76\ See, e.g., Testimony of Wendell Wilkie, General Counsel,
Department of Commerce, Consumer Subcommittee Hearing on S. 1400,
February 22, 1990.
However, as Professor Theodore Eisenberg of Cornell Law
School has stated with respect to this survey, ``* * * the case
for reducing defendant liability seemed rather weak. It
depended in large part on a survey of CEOs in which they were
asked whether products liability was a problem for their
companies. The flaws in such a survey are so substantial and
obvious that no self-respecting legislature should act on the
basis of the results.'' \77\ I could not have said it better
myself. We cannot responsibly move forward on this legislation
based on a self-serving survey of corporate executives,
particularly when it is contrary to all other data. The date
demonstrate that the actual impact of product liability on
businesses' bottom line is very small.
\77\ Responses of Professor Theodore Eisenberg, Professor of Law,
Cornell University, to post-hearing questions of Senator Rockefeller,
April 10, 1990, response to question 1.
---------------------------------------------------------------------------
What is truly troubling about this debate over
competitiveness is not the effect of the tort system on
business, but the total lack of reliable information on which
this competitiveness claim is based. As Dr. Deborah Hensler of
the Rand Corporation testified, ``[p]roduct liability
litigation has been a source of controversy and public policy
debate for almost a decade in this institution. I think it is
remarkable that we still lack very basic information about the
extent and nature of that litigation and the costs of resolving
claims.'' \78\
\78\ Testimony of Dr. Deborah Hensler, Consumer Subcommittee,
September 12, 1991, hearing, transcript at 106.
---------------------------------------------------------------------------
In 1991, the GAO released a study of the effects of product
liability on competitiveness, and stated that it could find no
acceptable methodology for relating product liability to
competitiveness, and that businesses refuse to make available
the information necessary to conduct such analysis.'' \79\
\79\ GAO, ``Product Liability Rates and Claims, HRD 91-108 (1991).
---------------------------------------------------------------------------
During debate on this topic in the 101st Congress, the
supporters declared that the product liability system must be
altered because of the changes taking place in the European
Economic Community (EEC). It was argued that the EEC was moving
toward a uniform product liability system, and the United
States must do the same. It also was argued that other
countries in the world had lower product liability costs than
the United States, implying that this country should somehow
emulate those other systems. However, like so many arguments on
this issue, when the facts were examined, the argument
disappeared.
The Council of the European Communities issued a directive
in 1985 ``concerning liability for defective products.'' \80\
Despite the August 1, 1988 compliance deadline in the
directive, only five member states--the United Kingdom, Italy,
Greece, Luxembourg, and Denmark--had adopted the Directive as
of March 15, 1990.\81\ More significantly, the Directive by its
terms does not preempt existing law in the various countries,
but merely provides an additional cause of action in those
countries in which remedies for harm already exist, and
therefore is not likely to establish a more uniform system. As
Professor Lawrence Mann of Wayne State University School of Law
testified, ``[the Directive] is not in derogation of each
member state's substantive tort law. And so, side by side, they
will have a dual system operating.\82\ Additionally, while the
Directive establishes certain rules of law, it leaves many
issues optional with the member states.\83\
\80\ 28 O.J. Eur. Comm. (No. L 210) 29 (1985) (hereafter cited as
``Directive'').
\81\ Letter of Robert C. Holland, Committee for Economic
Development, to Senator Richard Bryan, Chairman, Consumer Subcommittee,
dated March 15, 1990, in response to post-hearing questions at 1.
\82\ See Directive, Article 13; Testimony of Professor Lawrence D.
Mann, Wayne State College of Law, Consumer Subcommittee Hearing on S.
1400, February 22, 1990, transcript p. 167.
\83\ See, e.g. Dielmann, ``The European Economic Community's
Council Directive on Product Liability,'' The International Lawyer,
Vol. 20, No. 4, 1391 at 1400 (1986).
Equally interesting, it is apparent that the EEC is moving
toward a system of substantive product liability that is more
consumer-oriented than that which is currently in place, and
more like that in the United States. For example, its directive
introduces the concept of strict liability for defective
products,\84\ expands the scope of potential defendants,\85\
and institutes joint and several liability.\86\ Since product
liability is being expanded, insurance premiums are likely to
go up, with an accompanying significant additional cost for
producers in the EEC.\87\
\84\ Directive, Article 1.
\85\ Directive, Article 3. See also Theiffry, Doorn, and Lowe,
``The Single European Market: A Practitioner's Guide to 1992,'' 7 B.C.
Int'l & Comp. L. Rev. 357 at 383.
\86\ Directive, Article 5. See also, Thieffry, Doorn and Low,
supra, at 383.
\87\ Dielmann, supra, at 1399.
---------------------------------------------------------------------------
Thus, the EEC Directive does not provide an incentive for
changing U.S. product liability law. Rather, it is a
recognition of the value of current U.S. law in protecting
consumers and promoting safe products. As Wendell Wilkie,
former General Counsel of the Department of Commerce, has
testified, ``* * * the protection [other countries] afford
their consumers is so radically smaller than is the case in
this country [that] the disparity in the costs associated
between our system and theirs is inordinately great. * * *''
\88\ I do not believe we should sacrifice the greater degree of
consumer protection we enjoy for some unsubstantiated hope of
greater competitiveness.
\88\ Testimony of Wendell Wilkie, General Counsel, Department of
Commerce, at Consumer Subcommittee Hearing on S. 1400, February 22,
1990, transcript p. 30.
---------------------------------------------------------------------------
It also has been argued that product liability costs are
much higher in the United States than in the countries of some
of our foreign competitors. However, a direct comparison of the
costs of the tort systems in various countries, without more,
is not valid because it ignores other types of compensation
systems available in other countries. For example, in the
Netherlands several social insurance programs are available
which may preempt the need for compensation through the
litigation process--the ZW/Sick Statute; the ZFW/Sick Fund Law;
the WAO/Workers Disability Act of 1967; the AAW/General Act on
Disability of Work; and the AWBZ/General Act on Special Medical
Costs. The ZW is funded by collecting 5 percent of employers'
gross income and 1 percent of employees' gross income. An
injured employee may receive up to 70 percent of earned wages
for 1 year. AAW and WAO continue finding if further assistance
is needed.\89\
\89\ Mann and Rodrigues, ``The European Directive on Products
Liability: The Promise of Progress?'' 18 Ga. J. Int'l & Comp. L. 391,
416.
---------------------------------------------------------------------------
Moreover, the tax burden on business in the various
countries must be included in any calculus of the relative
competitive status of business. Taxes on business are higher in
virtually every advanced country than they are in the United
States.\90\
\90\ Testimony of John G. Wilkins, Director of Tax Policy for
Economic Analysis, Coopers and Lybrand, before the House Committee on
Ways and Means, hearing on factors affecting U.S. international
competitiveness, July 18, 1991.
---------------------------------------------------------------------------
Thus, while business' costs related directly to the tort
system may be lower in other countries, the relevant comparison
is between the overall cost of compensation, which is likely to
be similar to that in the United States. The proof of the fact
that U.S. laws do not unduly burden companies doing business
here is that foreign businesses are increasingly trying to
locate here. In fact, foreign direct investment in the United
States increased from $83 billion in 1980 to $530 billion in
1990.\91\ Foreign businesses would not seek to locate here if
the tort system were the crippling burden that has been
suggested by the proponents of S. 565.
\91\ Bureau of Economic Analysis, Department of Commerce (1991).
---------------------------------------------------------------------------
It is clear that the facts do not support this contention
that the current product liability system puts American
businesses at a competitive disadvantage. Very recently, the
National Association of Manufacturers issued a report boasting
about the global competitiveness of U.S. manufacturers. The
report showed that U.S. exports increased from over $150
billion in 1986 to over $300 billion in 1991.\92\ If we are
going to legislate to assist American business, we should do it
in a way that will be effective, and S. 565 will not be.
\92\ ``The Facts about Modern Manufacturing,'' the Manufacturing
Institute, July 1992 at 3.
VIII. S. 565 will not reduce product liability costs for business
Even if we assume that product liability is a significant
barrier to the ability of U.S. firms to compete in world
markets, that barrier cannot be reduced by any legislation
unless the legislation somehow reduces businesses' costs. As J.
Robert Hunter, then President of the National Insurance
Consumer Organization, testified, ``[m]ake no mistake about it,
if insurance costs and availability are not improved,
competitiveness is not affected.'' \93\
\93\ Testimony of J. Robert Hunter, President, National Insurance
Consumer Organization, Consumer Subcommittee hearings on S. 1400, April
5, 1990, at 132.
---------------------------------------------------------------------------
The Committee, in hearings over the last several years, has
received virtually unequivocal testimony that enactment of
bills such as S. 565 will not affect costs or insurance rates.
The insurance industry testified before the Committee regarding
a bill similar to S. 565 in no uncertain terms that ``* * * the
bill is likely to have little or no beneficial impact on the
frequency and severity of product liability claims. * * * [I]t
is not likely to reduce insurance claim costs or improve the
insurance market.'' \94\
\94\ Testimony of Deborah T. Ballen, Vice President for Policy
Development and Research, American Insurance Association, at Consumer
Subcommittee Hearing on S. 1400, April 5, 1990, transcript p. 110.
---------------------------------------------------------------------------
Indeed, that the bill will not have its purported effects
becomes clear when its actual impact is reviewed. For example,
it is claimed that the bill will provide additional uniformity
in product liability law nationwide. However, the bill only
selectively preempts state law, waving much of state law in
place to be interpreted with the new federal law. Additionally,
it provides a federal rule of law to be interpreted by both the
state and the federal courts, but it is questionable whether
state courts can be bound by the decisions of federal courts
other than the Supreme Court.
As professor Eisenberg testified:
* * * for a period of time, at least, predictability
may be reduced rather than increased. Each state will
have to decide the scope of S. 1400's [a similar bill
introduced in the 101st Congress] preemption and its
relation to state tort law, The interaction between
state and federal law in tort will be made more rather
than less complex. * * * [U]niformity will not be
quickly, if ever, achieved. * * * [We] are at risk of
having not just 55 jurisdictions but an additional
dozen federal courts of appeals making products law. At
least before enactment of S. 1400 the [federal] courts
of appeals should have felt bound by state law. Until
the Supreme Court speaks, it is not clear that state
supreme courts would or should be bound by federal
interpretations of S. 1400 as it interacts with the
relevant state law.\95\
\95\ Testimony of Professor Theodore Eisenberg, Cornell Law School,
Responses to post-hearing questions of Senator Rockefeller at 3. See
also Note, ``Authority in State Court of Lower Federal Court Decisions
on National Law,'' 48 Columbia L.Rev. 943, 954 (1948); Stern and
Grossman, Supreme Court Practice (5th ed. 1978) at 280; Testa v. Katt,
330 U.S. 386 (1947).
With respect to punitive damages, S. 565 provides a
standard of proof for punitive damages that is more restrictive
than that in may states. However, punitive damages are not a
significant factor in product liability cases. As Professor
Eisenberg has stated, ``[t]here is a widespread perception that
punitive damages are awarded frequently and in great amounts.
Yet every serious study of the area finds that punitive damage
awards are relatively infrequent, that they usually are
commensurate with the defendant's wrongdoing, and that they
bear a substantial relationship to the size of the compensatory
awards. * * * [P]unitive damages are awarded in not more than
one percent of filed cases. * * *'' \96\ The 1989 GAO Report
also looked at punitive damages, and found that, on the few
occasions when they were awarded, their amount had a high
correlation with the amount of compensatory damages.\97\
\96\ Testimony of Professor Theodore Eisenberg, Responses to Post-
hearing questions of Senator Rockefeller supra, at 4-6 and authorities
cited therein.
\97\ 1989 GAO Report, supra, at 27.
In fact, regardless of the scope of the product liability
legislation enacted, the record indicates that it will be
ineffective in reducing product liability insurance costs. For
example, Florida passed very strong changes in its tort law in
1986, and also required the insurance industry to make rate
filings indicating the effect of the changes on its rates. The
Florida law eliminated joint and several liability, limited
non-economic damages to $450,000, and limited punitive damages.
Nevertheless, when Aetna's rate filing came in, it listed the
effect of each change on its rates as ``zero.'' \98\ There was
no change in insurance costs, despite the dramatic changes in
tort law, and we could expect none with enactment of S. 565.
\98\ Testimony of J. Robert Hunter, supra. transcript at 135.
---------------------------------------------------------------------------
No explanation has been offered, and none could logically
be offered, for any way in which a bill could improve
competitiveness if it does not reduce product liability claims
or costs. When this is pointed out, the supporters of the bill
often suggest that the bill may not reduce damages paid but
will reduce ``transaction costs'', or the costs of litigation
such as attorneys' fees. But it is obvious, that if transaction
costs were reduced, they should be reflected in reduced
insurance costs. However, experts have testified that insurance
costs will not be reduced by this bill. The available evidence
demonstrates that the bill will not reduce transaction costs,
either.
GAO has stated unequivocally:
[w]e believe that S. 1400 [a similar bill introduced in
the 101st Congress] is unlikely to reduce transaction
costs in product liability suits. For cases that are
litigated, the procedural features of the tort system
would not be changed by the bill. It is also not clear
that the bill provides strong incentives for
alternative dispute resolution, which could cut
litigation costs. Moreover, the alternative dispute
resolution mechanisms that may be used are left to the
discretion of the states. If these mechanisms are not
binding, then they may add to rather than substitute
for litigation. If this happened, costs could actually
increase.
GAO went on to note that transaction costs are largely a
function of the length of litigation, and that delays caused by
defendants are common. However, if a complete and accurate
record is necessary to insure a fair outcome of the case,
``lengthy litigation and its attendant costs might be
justified.'' \99\
\99\ Testimony of Joseph F. Delfico, Director, Income Security
Issues, General Accounting Office, Consumer Subcommittee Hearing on S.
1400, February 22, 1990 in response to post-hearing questions of
Senator Bryan at 2.
---------------------------------------------------------------------------
Another justification offered for federal product liability
legislation in that legal fees paid to plaintiffs' attorneys
are too high. However, this bill would not have any effect on
attorneys' fees. In any event, it is important to understand
the value of the current system of compensation for plaintiffs'
attorneys. Plaintiffs' lawyers who accept product liability
cases work on a contingency fee basis. If they win the case
they get a percentage of the case (which is usually about 30
percent); if they lose, they get nothing. This system allows
injured plaintiffs who are not wealthy to obtain a lawyer. At
the same time, the system acts as a deterrent to frivolous
cases because attorneys are spending their own time and money
in the case.
Figures from the Institute for Civil Justice state that
plaintiffs receive approximately one-half of the cost of
litigation.\100\ Any problem with the cost of the system is not
with the cost of the attorney who is ``investing'' his or her
own time and money to win a case. The problem is with the
defense attorney who has an incentive to delay the case with
dilatory motions, and thereby encourage severely injured
plaintiffs to settle for less in order to get an expedited
payment of the plaintiff's medical and other costs. Meanwhile,
the company is making interest on money that would otherwise be
in the hands of the prevailing plaintiff.
\100\ See Testimony of Robert Hunter, Consumer Affairs, Foreign
Commerce and Tourism Subcommittee Hearing on S. 565, April 3, 1995.
---------------------------------------------------------------------------
The evidence also shows that defendants' attorneys are
apparently better paid, on average, than plaintiffs' attorneys.
According to a recent report by the Consumer Federation of
America, for every $1 paid to plaintiff's attorneys, at least
$1.31 is paid to defense attorneys.\100\ Of course, defendants'
attorneys are paid regardless of the outcome of the case, while
plaintiffs' attorneys are paid only if they win their cases.
Otherwise, they suffer a loss for the time and expenses they
have incurred. Thus, existing transaction costs are not
inappropriate, and in any event would not be reduced by this
bill.
IX. The product liability system does not stifle innovation, but can
encourage innovations in safety
Another popular argument made in support of the bill is
that the current system deters innovation, and discourages new
products from being brought to market. Of course, this effect
is, by its nature, somewhat subjective and very difficult to
examine. However, witnesses at the Committee's hearings that
examined the effects of the tort system on the chemical
industry noted that desirable innovation must mean safe
innovation, and that if the tort system discourages unsafe
innovation, that is valuable. They also found that, even in the
chemical industry in which manufacturers pay a minuscule
percentage of the costs of the injuries caused by their
products, the tort system works to encourage the innovation of
safer products.\101\
\101\ Ashford and Stone, supra., at 415, 417.
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Business can, and often does, say it is discouraged from
bringing innovative products to market, but it does not say
what those products were, so the claim cannot be analyzed.
However, those actual products that have been cited by
witnesses in support of this claim subsequently had legitimate
questions raised about their safety. In such cases, until such
questions are resolved, I do not think we should presume that
the product liability system has not worked properly to keep
those products from the market.
Some examples of products cited as unfairly kept from the
market by the system are set out below, together with the facts
as they developed through the Committee's hearing process.
Monsanto Asbestos Substitute.--Calcium sodium metaphosphate
was cited by several supporters of S. 640 [a bill considered in
the 102nd Congress] as a primary example of a safe product kept
from the market by the product liability system. However, an
Environmental Protection Agency (EPA) Status Report dated
August 19, 1986, reviewed studies of this product submitted by
Monsanto, and stated that ``EPA believes that the evidence
obtained from Monsanto's * * * study in rats offers reasonable
support for the conclusion that calcium sodium metaphosphate
fibers can cause cancer.'' (Report p. 9). Dr. Philip Landrigan,
Chairman, Department of Community Medicine, Mt. Sinai Medical
Center, reviewed the EPA and Monsanto documents, and stated:
``I am extremely concerned about the potential carcinogenicity
of sodium calcium metaphosphate.'' \102\ Monsanto's CEO,
Richard Mahoney, subsequently wrote to the Committee stating
that later tests of the fiber showed no evidence of health
problems, that the first test was not done to determine the
health risk to humans, and that the product was kept off the
market solely because of concerns about ``unwarranted
litigation''.\103\ However, this letter does not explain why
the first test would have been done if not to examine risks to
human health.
\102\ Report of Dr. Phillip Landrigan.
\103\ Letter from Richard Mahoney to Senator Richard H. Bryan dated
May 17, 1990, reprinted in record of Consumer Subcommittee Hearing on
S. 1400, May 10, 1990.
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Copper 7 IUD.--Supporters of S. 687 [a bill considered in
the 103rd Congress] claimed that this product, although safe,
was taken off the market because of unwarranted product
liability suits. The Court in Kociemba v. Searle, 707 F. Supp.
1517 (D. Minn. 1989), (settled w/out appeal), a Copper 7 case,
stated that the plaintiff ``Presented evidence which would have
allowed a reasonable jury to conclude that defendant knowingly
placed millions of American women, especially [women who have
not had children], at risk of serious infection, loss of
fertility, and surgery for removal of internal organs'' and
that ``responsibility for this conduct was shared throughout
defendant's corporate hierarchy, and that the conduct continued
for over ten years.'' Michael Ciresi, the lawyer who litigated
many Copper 7 cases for plaintiffs, has written to the
Committee stating that his firm spent millions of dollars on
discovery of documents that Searle resisted through litigation
to the Supreme Court. Cases litigated before completion of that
discovery were not successful because of the lack of
documentation. According to Mr. Ciresi, the documents
ultimately obtained demonstrated that the company knew the
product was dangerous to women who have never had children, but
continued to market the product to those women. That action was
the basis for punitive damages against the company.\104\
\104\ Statement of Michael Ciresi, submitted for record of Consumer
Subcommittee hearing on S. 1400, April 5, 1990.
Sturm Ruger ``Old Model'' Single Action Revolver.--This
product was cited as one which was the victim of unreasonable
verdicts based on injuries that were really due to plaintiff
negligence. However, documents submitted at the Committee's May
10, 1990 hearing demonstrated that since 1962 Ruger has
received reports of serious injuries and deaths resulting from
accidental discharges of this gun. In 1968, the gun failed a
test for accidental discharge performed by the Bureau of
Alcohol, Tobacco and Firearms, and it subsequently failed
Ruger's own tests. Ruger did not redesign the gun to add a
transfer bar safety device until 1973, and estimated that
between 1968 and 1973 more than 150,000 ``old models'' were
sold. Bill Ruger, CEO of the company, testified during product
liability litigation that no safety device was put on the gun
because a revolver ``is supposed to be designed in the
traditional way.'' The Court in Sturm Ruger v. Day, 594 P.2d 38
(Alaska 1979) found Ruger liable for punitive damages for
failure to add a safety device. According to testimony before
the Committee, by 1989 about 230 product liability claims had
been filed against Ruger for this defect, but the gun has never
been recalled.\105\
\105\ Supplemental Statement of Linda Lipsen, submitted for record
of Consumer Subcommittee Hearing on S. 1400, May 10, 1990. Supplemental
statement of Linda Lipsen, supra, reprinted in record of Consumer
Subcommittee Hearing on S. 1400, May 10, 1990.
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Puritan-Bennett Anesthesia Gas Machines.--This was cited by
some hearing witnesses as a product unjustly removed from the
market by the product liability system. The machines were
implicated in four deaths in 1983-4. Hearings in the House
Subcommittee on Oversight and Investigations, September 24,
1984, found that the company failed to notify the Food and Drug
Administration (FDA) of deaths that were caused by an overdose
of anesthesia due to swelling of ``O'' rings and resultant
sticking of a valve. This problem was known in the 1970s, and
reflected in an appendix to the 1979 voluntary standard for
anesthesia machines. The FDA, testifying before the
subcommittee in 1984, stated that the company ``appears * * *
[to have] failed to conduct adequate design review of certain
critical components'' including use of certain rubber-like
materials in the presence of high concentrations of anesthetic
gas. The company instituted a limited recall, and the FDA
required the recall extended to all valves distributed through
July 1984.\106\
\106\ Supplemental Lipsen statement, supra, reprinted in record of
Consumer Subcommittee Hearing on S. 1400, May 10, 1990.
Ortho Contraceptives.--Witnesses at the Committee's
hearings claimed these products were unfairly subjected to
product liability actions, citing Wooderson v. Ortho, 681 P.2d
1038, cert. denied 105 S.Ct. 365 (1984). It was claimed that,
in that case, the company was held liable for failure to warn
even though the FDA had determined that the warning was not
necessary. However, an examination of the Court's decision
reveals that the Court held that there was no clear
determination by the FDA as to whether such a warning was
necessary, so that the defense was not valid. Ortho was held
liable by the Court for punitive damages because it ignored
substantial evidence that its product caused renal failure.
Taking all the evidence presented on both sides of these
issues, I am not prepared to conclude that the current product
liability system is not working properly to insure the safety
of new products.
S. 565 is substantively flawed
As I stated in previous reports, this legislation
dramatically revises our current legal system without any
serious factual predicate for such a change. The purported
intent of S. 565 is to create uniformity through federal
preemption of state law. In reality, however, the bill provides
for only selective, and in many instances, only one-way
preemption. Moreover, the bill, for the most part, only
preempts state law to the extent the law favors consumers. Laws
that are considered favorable to defendants are preserved by
the bill. The legislation also contains many inconsistencies
and substantive legal problems. A few examples are set out
below.
Section 107--Punitive damages
Section 107 of the bill is cited as ``Uniform Standards For
Award of Punitive Damages.'' By including such standards, the
bill's supporters are acknowledging that such damages are
important in deterring outrageous and unacceptable behavior by
manufacturers. However, by its terms, it applies to punitive
damages only ``if otherwise permitted by applicable law. * *
*'' Thus, in states which have, through state law, eliminated
or limited punitive damages, this bill would not restore the
availability of such damages. In some states, there would be no
right to punitive damages; in some states they would be capped
at a stated amount; and they would be available only if the
burden of proof in this legislation is met. This clearly does
not, and is not intended to, create uniformity in the law of
punitive damages. If proponents truly wanted uniformity, and
were serious about deterring egregious conduct, they, at a
minimum, would restore punitive damages in the states that have
limited them so that the law would be consistent nationwide. As
Professor Lucinda Finley of the Buffalo School of Law, stated
in testimony before the Committee on April 4, 1995, ``to
advance the goal of uniformity, punitive damages ought to be
equally available to injured people without regard to what
state they reside in.'' \107\
\107\ See testimony of Lucinda Finley, Consumer Affairs, Foreign
Commerce and Tourism Subcommittee Hearing on S. 565, April 4, 1995.
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Section 107 also caps punitive damages at three times
economic damages or $250,000, whichever is greater. This
standard will have the effect of permitting persons with higher
economic losses (e.g., wages, business opportunities), to
collect more in punitive damages than persons with lower
economic losses. The implied message, of course, is that
injuries to persons with higher incomes and salaries (i.e.,
wealthy citizens) should be punished more than harm caused to
lower-wage earners (i.e., working-class citizens or women who
are homemakers).
Section 108--Statute of repose
Section 108 purports to establish a statute of repose for
durable goods of 20 years. However, the law would only apply to
the extent a state has a more extended statute of repose. If a
state has a shorter limitations period of less than 20 years,
that state law will not be preempted by the bill. The previous
bills of the past three Congresses (S. 687, S. 640, and S.
1400) provided for a 25-year limitations period.
Additionally, the provision will have the effect of
shielding from liability a significant number of products in
use. Howard Fark, a member of the Board of Directors of the
National Machine Tool Builders Association, testified at a
hearing on S. 1400 [legislation considered in the 101st
Congress] that over 50 percent of the claims filed against
machine tool builders involve machines at least 25 years
old.\108\ It is argued that, if machines are defective, the
defects will show up before the expiration of a 20-year period,
so that manufacturers typically should not be liable for such
products after that time. I have no reason to dispute that,
but, by the same token, there has been no demonstration that
there could never be a defective 21-year-old product or 26-
year-old product for that matter. As long as that possibility
exists, it is appropriate to leave the responsibility to decide
who should be liable for harm from a product where it now
exists in most states--with the jury and the court.
\108\ Testimony of Howard Fark, Vice President, Minster Machine
Company, Response to Post-Hearing Questions of Senator Rockefeller at
question 2, Consumer Subcommittee Hearing on S. 1400, February 22,
1990.
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Section 110--Elimination of joint liability for non-economic damages
Section 110 states that ``the liability of each defendant
for non-economic damages shall be several only and shall not be
joint.'' However, it does not restore the availability of full
non-economic damages in states in which such damages have been
capped at a certain amount. It does not restore joint and
several liability for economic damages in states where such
liability has been limited by state law. So, again, we will not
have uniform nationwide law on joint and several liability. We
have some states that have no joint and several liability, some
that have joint and several liability only in certain
circumstances, and some that follow the rule of S. 565. As
Professor Finley has noted, the elimination of joint and
several liability will make it harder for injured persons to
collect their full damages, particularly women, who tend to
suffer higher pain and suffering losses than men. She also
questioned the basic theory of proportioned fault and placing
such burden on the plaintiff. As she indicated in her
testimony:
Joint liability does not mean that part of the injury
was caused by the independent actions of one defendant,
while another part of the indivisible injury was caused
by another defendant's actions. In many product cases,
the injuries are an indivisible whole, and cannot
meaningfully be parceled out in this way. * * * when a
defective IUD causes an infection that renders a woman
permanently infertile, one cannot meaningfully
ascertain that the manufacturer's failure to test the
string caused half of the infertility, while the
failure of the manufacturer of the copper string
filament to test its effects when introduced in the
uterus caused the other half of the infection.\109\
\109\ Supra at 102.
However, as a result of this legislation, there will be
endless litigation over these issues.
conclusion
I regret that the Committee has once again proceeded to
report legislation to federalize product liability tort law
without any comprehensive data to demonstrate (1) that the
legislation is necessary, and (2) that the legislation will
work. The evidence is clear that this legislation will not have
its purported effect of making the civil justice system more
efficient or enhancing the competitiveness of American
businesses. Our nation's civil justice system is one of the
most admired systems of justice in the world. It should be
cherished and preserved, not tinkered with, or modified in the
interest of singularly self-interested groups.
I believe that, before the Congress delves into this area,
it should seek the guidance of the majority of state
legislatures and judges, who have handled such matters for over
200 years, as well as legal experts. I did so, and they all
gave a resounding ``no'' to this legislation. We would do well
to listen to them.