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Product Liability Reform: New Strategies Needed.

Despite the failures of past reform efforts, significant product liability reform is still possible. Future reform efforts, however, have to be industry-specific and state-oriented.

Despite the strength of the U.S. economy, on the horizon looms a threat to the economic stability of many manufacturers. Product liability expenses continue to grow, and this drain on manufacturers' funds adversely affects our economy and places many industries at a competitive disadvantage. In the United States, liability costs are 15 times greater than those in Japan and 20 times more than those in Europe.

Until limited reform legislation was passed, rampant product liability suits forced the manufacturers of medical implant devices and small aircraft to limit the production of their goods. This resulted in product shortages. The settlement costs of frivolous product liability suits have also resulted in an increase in the price of step ladders by 20 percent and football helmets by 50 percent.

The increase in frivolous product liability suits has also stunted the growth of new industries. In the 1990s, so high was the risk of future product liability suits that Union Carbide withdrew its efforts to manufacture a suitcase-size kidney dialysis machine.

This litigation crisis will only grow more severe as workers' comp carriers begin to use defective product claims against workplace equipment manufacturers to recoup funds they paid out in workers' compensation suits. The incidence of product failures will also increase as more American manufacturers outsource their manufacturing tasks since outsourcing increases the number of people and companies involved in the production process.

But despite the growth of this litigation crisis, no broad-scope product liability reform legislation has been enacted into law. For more than 15 years, the various insurance lobbyists have fought in vain for product liability reform. These reform efforts have failed not as a result of any lack of effort but as a result of strategies used by these lobbyists. These strategies, if corrected, could tip the balance in favor of the passage of reform legislation.

Federal Reform Attempts

The closest the U.S. Congress has ever come to enacting broad-scope product liability reform was in 1998. In that year, Congress passed the Federal Product Liability Fairness Act. This bill, which was strongly supported by Connecticut Senator Joseph Lieberman, would have greatly reduced the incidence of frivolous product liability suits by limiting punitive damage awards to the greater of $250,000 or twice compensatory damages.

It would have also:

* Required plaintiffs to present a stronger case by raising the standard of evidence to "clear and convincing" from the current "preponderance of the evidence."

* Required plaintiffs to show that a manufacturer acted with a "conscious and flagrant indifference to the safety of others" in order to prevail.

* Abolished the application of "joint and severable liability," thus ending the practice of suing "deep pocket" defendants with little or no liability.

The bill was vetoed by President Bill Clinton, who deemed it anti-family and unfair to consumers. In vetoing the bill, however, Clinton acknowledged that he had supported very similar product liability reform as the governor of Arkansas. In reality, Clinton vetoed this reform legislation in an effort to placate his campaign supporters, the trial attorneys' lobbyists. Given its current composition, it is unlikely that Congress will again in the near future be as supportive of products liability reform as it was in 1998.

What can be learned by these past failed attempts at product liability reform? Clearly, it must be understood that broad scope product liability reform efforts act as lightening rods for anti-reform lobbyists. Since anti-reform lobbyists out-power the current disorganized fragmented forces in support of reform, broad-scope reform will always be defeated.

Broad-scope reform is also doomed since it does not activate the strongest supporters of reform, the effected industries. Only when reform is industry-specific do these industries become truly involved enough to create an effective reform cause.

Furthermore, even if reform legislation was enacted on the federal level, such reform would most likely only affect a small percentage of product liability cases. Finally, as a result of the specific nature of most product liability suits, no single decision by any federal court will act to significantly change the course of product liability. Clearly a new strategy needs to be developed.

Focus On States, Industry

To increase the chances of product liability reform, the target of lobbying efforts must be shifted from Congress to state legislatures. Despite the failure of federal reform efforts, many states have begun in small ways to change their product liability laws.

The Connecticut State Legislature successfully passed product liability legislation limiting the time frame in which a claim may be brought against a manufacturer to "10 years from the date that the party last parted with possession or control of the product." In Louisiana, the state legislature passed similar legislation limiting the right to punitive damages.

Unfortunately, the Pennsylvania legislature failed to pass Senate Bill 5 of 1999, that would have, among other things, greatly reformed the product liability law in Pennsylvania. The Pennsylvania Supreme Court, however, has recently limited the right to pursue a strict liability claim against a drug manufacturer when the drug was properly prepared and marketed. No product liability claim can be made when there are no allegations that the drug lacked proper warnings.

These state-by-state reforms have an effect beyond the territorial boundaries of each state. In Tanges v Danbury Printing, a federal court located in New York applied Connecticut's products liability 10-year time limit since it deemed that time limit as a part of the adopted substantive Law of Connecticut.

Since products liability reform has also been most successful when it is focused on specific industries, any reform, especially when on the federal level, must be industry-specific. In 1998, Congress passed the Biomaterials Access Assurance Act. This reform legislation helps limit the number of product liability suits filed against manufacturers of medical devices. Prior to its passage, the "deep pocket" manufacturers of pacemakers, heart valves, brain shunts, and other implant-able devices were routinely sued even though no liability could be attributed to their products.

In response to the high risk and low profit of many of these devices, manufacturers began to cease production. This reduction in production resulted in severe shortages of these devices to the eight million patients who annually depend on these products to survive. So bad was this problem that Senator Lieberman called it "a public health time bomb." As a result of the Biomaterials Access Assurance Act, manufacturers of these medical devices can now only be held liable when an actual defect in the manufacture of the device causes harm to the plaintiff. This law also limits the amount that can be sought for punitive damages.

A similar success story is found in the history of the small aircraft industry. Until recently, both of the two remaining small aircraft manufacturers, Cessna and Piper, had all but ceased manufacturing operations out of a real threat of mounting product liability litigation. This increase in litigation was, however, not the result of any increase in the incidence of manufacturing defects but a result of the increase in the amount of use of these aircrafts. The manufacturers were brought into lawsuits over accidents most likely attributable to improper maintenance, pilot negligence, or acts of nature.

Only when faced with a virtual shutdown of small aircraft manufacture did Congress enacted the Small Aircraft Liability Act. With the passage of this law, manufacturers of small aircraft are no longer forced to defend against lawsuits arising from all airplane accidents.

As a result, they have now resumed small aircraft manufacture in the United States. This has in turn resulted in an increase in aircraft design innovation and a reduction of the median age of flying aircraft, two factors closely associated with the reduction of aircraft failure. Thus, the response of Congress to an industry-specific campaign brought about a revitalization of this sector of the U.S. economy.

The chances of product liability reform will only increase if all reform efforts are coordinated into a single force. Fortunately this consolidation process has already begun. In 1999, several insurance industry trade associations--the American Insurance Association, the Council of Insurance Agents and Brokers, and the Reinsurance Association of America, all in Washington--began to coordinate their lobbying efforts to allow Congress to sort through the noise and mixed signals to discern the insurance industry's true support for certain legislative proposals. This consolidation of reform efforts should now include risk managers and industry lobbyists.

Although risk managers will often have conflicting agendas with the insurance industry, coordination with the insurance industry lobbying efforts might still help avoid unnecessary conflicting messages being sent to Congress.

Finally, to be successful, reform efforts must focus on a limited number of specific obtainable goals. These goals are: the limiting of joint and severable liability, the insertion of contributory negligence calculation in the allotment of product liability damages, and the capping of punitive damages.

The limiting of joint and severable liability would remove the incentive to sue deep pocket manufacturers who have little or no liability in the matter. The capping of punitive damages would remove the incentive to file lawsuits over trivial disputes. By focusing on a limited number of reforms, there is less of a chance that anti-reform forces will be able to distort the needed debate on these issues.

Kenneth La Fiandra is an attorney with the Philadelphia law firm of Specto; Gadon and Rosen P.C. and specializes in insurance defense and insurance coverage litigation.
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Publication:Risk & Insurance
Date:Oct 15, 2000
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