[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).
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
            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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
            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.
---------------------------------------------------------------------------
            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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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].
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
            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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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 
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
            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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
          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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.''
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.