1977: How "the other side views product liability".

Much has been written lately about the seemingly uncontrollable increases in product liability premiums. Some manufacturers, especially the smaller ones, find it impossible to pass the higher costs on to their customers and remain competitive.

What are some of the reasons for the costs, which threaten the continued existence of some equipment manufacturers?

1. Juries have been granting cash judgments out of proportion to the injury sustained. Six-digit awards are common and there have been some in excess of $1 million. Rates are based on prior experience and nothing in the past prepared underwriters for these inflated values.

2. In applying the strict liability doctrine, which is the law in almost 40 states, juries tend to impose on manufacturers a cradle-to-grave responsibility for product performance, irregardless of age, wear and tear, lack of maintenance or even alteration of the equipment by subsequent owners.

3. Inflation, by its very nature and unpredictability, depresses the value of the premium dollar in relation to the judgment rendered.

Today in the wood products industry, the product liability dilemma continues unabated, especially since legislation pending in Washington died at the end of the 54th Congress.

It is fashionable to blame the insurance industry for the increasing cost of product liability insurance. But like the ancient messengers who were killed when they brought bad news to the emperor, insurance companies do little more than translate court decisions and inflation into premiums, and deliver the bad news to the manufacturer.

In spite of increased premium dollars, losses still greatly exceed premium income. For every $1 collected in premiums in 1973, insurance companies paid out $1.35 in losses and expenses directly related to handling particular claims.

Thus, manufacturers of inherently hazardous products are having an increasingly difficult time finding sources for product liability insurance. As underwriters see their surplus being depleted, they must either withdraw from the market or raise premiums to cover the risks involved.

Insurance companies cannot pay out more in losses and expenses than they take in in premiums.

2006 Editor's note: The more things change the more they stay the same. Three decades after Hiram Kennicott of Kemper Insurance Companies penned the preceding excerpted article, product liability reform remains a top priority of the Wood Machinery Manufacturers of America.