Data sharing to the defense.

A 1989 actuarial study estimated the annual cost to the U.S. economy of the tort liability system at more than $117 billion. So it's no surprise that helping members protect themselves against claims for product liability and professional malpractice has become an increasing concern for associations.

Traditional means of addressing the threat of liability include regulatory and legislative programs, education, and public relations. Recently, however, associations have begun to develop a broader arsenal of protective techniques. The protection comes in the form of sharing such information as claims histories.

The work done by groups such as the Association of Trial Lawyers of America has been influential. ATLA members share an array of information about their successes and failures in bringing product liability and professional malpractice actions. This information sharing enables plaintiffs' lawyers to successfully bring subsequent actions.

The defense bar has been less well organized. Since both defense attorneys and their clients compete with one another for business, they have in the past been reluctant to share information about liability issues.

One manufacturers association--I'll call it the International Widget Manufacturers Association (IWMA)--has successfully overcome the constraints to information sharing among competitors. It has developed a series of litigation defense programs that have stemmed the tide of increasing liability claims against association members.

Identifying the problem

The products made by members of IWMA can injure both users and bystanders if they are improperly used. A few years ago, a plaintiff won a major product liability case against an IWMA member company, and since then the flood of claims has been rising.

The litigation defense programs that IWMA developed were created and managed by a committee established by the association's board of directors. Each of IWMA's seven members is entitled to a representative on the committee.

Some members were represented by their legal counsel, others by policy-level managers, and still others by technical experts. This fortuitous multi-disciplinary combination of backgrounds resulted in the expression of a wide range of views, all of which are critical to successful litigation defense.

The programs had two objectives: to reduce accidents (and thereby claims) and to enable companies to better defend themselves against claims that were filed.

Sharing information

The first hurdle to be overcome was the unwillingiess of IWMA members to share information with their competitors. This obstacle gradually disappeared as association members became convinced that lawsuits against any member company damaged the industry as a whole. This commitment to protect the industry enabled members to come to trust one another, and their trust was reinforced by the success of the litigation defense programs.

IWMA began by making an industrywide  analysis of the liability problem to identify where the most costly claims were occurring. Members submitted general claims history information to the association's outside legal counsel on a standardized form.

This information included the type of widget involved in each claim, the application in which it was being used, the number of claims for a particular type of injury, and the costs involved in settling each claim. To preserve confidentiality, outside counsel destroyed the original data after aggregating and masking it.

The results of this survey showed that most claims against the widget industry were for one particular kind of injury that resulted in modest liability. There were, however, a small number of claims that resulted in costly verdicts.

Using this data, IWMA developed recommended minimum safety guidelines for the use of widgets and a set of recommended safety warnings to be placed on product labels. The adoption of recommended nonbinding guidelines avoided the delays often associated with full-scale, consensus standard setting.

The use of safety guidelines and warning labels allowed widget manufacturers to argue that a plaintiffs injuries may have resulted from unsafe or improper use of the product. Manufacturers could also avoid claims based on a "failure to warn" argument-often one of the easiest bases on which a plaintiff can proceed. In developing its safety guidelines and warnings, IWMA bore in mind the risk of an association assuming liability for unsafe industry practices.

Recognizing other needs

While working on the liability data base and discussing their litigation experiences, IWMA members noticed that the same expert witnesses frequently would testify in plaintiffs' favor. They decided they needed to identify their own experts whose testimony would be credible to juries. The result: an expert witness data base.

Members were asked to submit information about expert witnesses with whom they were familiar. The requested information included the expert witnesses' background and training, predilection for testimony and trial behavior, weaknesses, strengths, and so forth.

A member company can consult the expert witness data base when it learns that Jane Smith will be testifying against it. It can find out how she might testify and which of its competitors she had testified against previously. More importantly, because of the trust that has now developed among association members, the company can then contact its competitors to get qualitative, subjective information about Jane Smith that would not neatly fit on a form. It can also use the data base to find its own expert witnesses.

Membership response to the expert witness data base was positive. IWMA's next step was to create data bases dealing with defense and plaintiffs counsel. Like the expert witness program, the purpose of the plaintiffs counsel data base is to enable members to learn as much about the other side as possible.

Widget manufacturers also found they needed to identify qualified outside counsel to act on their behalf. Many did not employ product liability lawyers, and even those who did found they needed competent outside attorneys who understood the widget industry and could defend widget injury cases. The defense counsel data base includes subjective information on the performance and ability of attorneys with whom members had worked on liability cases.

Finding the best defense

While liability claims against manufacturers often turn on the facts of a particular incident, the industry nevertheless found itself repeatedly defending the same legal arguments. Some defenses were more effective than others. IWMA compiled these defense arguments and asked members to comment on their relative strengths and weaknesses and on how successful they were in practice. This information went into yet another data base, which members can use to help them determine the best defense to use in a particular case.

Each IWMA member holds a paper copy of each data base--expert witnesses, plaintiffs counsel, and defense arguments. The master copy is held at association headquarters, and association staff update each data base once a year by circulating a standardized form asking members to supply any new information they have obtained. Annual updates are sufficient because the liability situation in the industry does not change rapidly.

IWMA is a very small association, so obtaining and circulating data is simple. But these programs could be used by any association, regardless of size. The fundamental requirement is a recognition by members that it is in all of their interests to protect their industry or profession against liability actions.

An ambitious effort

The widget association is currently working on a complete list of all claims, injuries, legal arguments, verdicts, settlement costs, and defense costs, organized by geographic area, type of widget, and application.

When this data base is complete, a widget manufacturer faced with a claim-- involving, say, a head injury to a person in Alabama caused by a certain kind of widget used in a particular application-- will be able to gain access to the data base to find out what the range of verdicts or settlement costs were in similar cases as well as what the defense costs might be. Armed with this information, the manufacturer is in a much better position either to negotiate a quick, reasonable settlement or to proceed to litigation knowing what type of outcome to expect.

Major problem

In working on this data base, YWMA discovered a major problem that arises when association members share information in order to reduce their liability: There is a risk the information in the data base could be used against the industry.

An industry's aggregate claims history could be valuable information to a plaintiff's attorney. As most associations have learned over the years, their records are a potential treasure trove of information to litigants suing the association or its members. Dam held by an association are vulnerable under the rules of discovery, which allow parties to litigation to obtain information from the other side, However, dam kept by a defendant's attorney are usually protected from discovery under a claim of attorney-client privilege.

IWMA members decided, therefore, to have the association's outside attorney collect the claims dam. Participating members have separately retained the association's outside counsel and, under a claim of attorney-client privilege, are submitting the relevant data. Counsel will maintain the dam base on a computer. Members wishing to get access to the data can do so by contacting counsel, who sends them the information they need within a day or two.

It is too early to tell whether this approach to maintaining the confidentiality of aggregated industry claims statistics will be successful. Any association considering setting up such a program should be aware of the potential for discoverability but should also consider how much harm release of claims data really could cause,

Several widget manufacturers have said (and I share this view) it wouldn't concern them if the data were available to plaintiffs' attorneys. Unless the claims data show a pattern of disregarding a known problem, which could give rise to a punitive damage claim, there does not seem to be much harm that could come from a plaintiff's access to it.

Cost effective protection

These programs are among the most cost-effective examples of association members working together to minimize legal exposure. Each dam base costs only a few thousand dollars a year, including start-up costs. For example, the claims dam base cost about $2,000 to set up.

The major costs were employing a computer consultant to set up the software and entering the data.

There are no legal fees, since no work by an attorney is required. The annual cost of maintaining and updating the claims history dam base is expected to be a few hundred dollars per member. These costs are currently borne equally by all association members, who also do the bulk of the work involved in mainmining and updating the data bases.

Widget manufacturers say one of the most worthwhile outcomes of the litigation programs is the opportunity they have provided for the member companies' legal counsel and product liability experts to meet and network outside of association meetings. These enhanced relationships have fostered interaction and cooperation that has further contributed to the programs' success.

Jed R. Mandel heads the association department at Neal Gerber & Eisenberg, Chicago.