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The case for products liability reform.

MANY OBSERVERS OF THE AMERIcan business scene decry the nation's decline in productivity when compared to that of its European and Asian competitors. And although American productivity may be lagging, there's still one thing the United States is better at producing than any other nation on earth: products liability litigation. Between 1974 and 1990, products liability case filings in U.S. federal courts increased by over 1,100 percent. Vice President Dan Quayle, in announcing the findings of the President's Council on Competitiveness, pointed out that U.S. businesses incur the highest liability costs in the world - 15 times higher than Japan's and 20 times greater than Europe's.

These facts, combined with the $100 billion in products liability judgments that U.S. businesses pay out each year, have inspired new, bipartisan legislation designed to change current laws. The result is The Fairness in Product Liability Act (H.R.3030) and its Senate counterpart (S.640). This legislation would create a single federal products liability law and remove abuses in the present system while preserving the injured plaintiffs right to bring suit.

Patchwork of Standards

CURRENTLY, THE United States lacks national standards for products liability. Indeed, the present system is a confusing patchwork of 51 different state requirements (50 from each of the states and one from the District of Columbia). Since 70 percent of all U.S.made products are sold across state lines, manufacturers and sellers are subject to the 51 different interpretations of what constitutes a "defective" product and the resulting legal liabilities. This morass of conflicting laws causes many American manufacturers to be gun-shy; they take fewer chances with new products, curtail research and development and sometimes simply refuse to sell products in the United States - even when they simultaneously market them abroad. Very often, these products are potentially life saving medications; recently, Immune Response, a company that had been working on an AIDS vaccine, abandoned its research efforts due to concerns about products liability.

Critics argue that American business suffers egregiously under the current system. They say the tangle of laws squelches innovation and competitiveness. Edward Goldman, vice president of Foster Miller Inc. in Waltham, Massachusetts, reports that the American machine tool industry spends six times more to defend itself against products liability suits than it does on research and development. Those advocating reform of the system argue that the United States will find itself struggling under a formidable competitive disadvantage if it continues to operate under 51 different jurisdictions. They contend that with Europe moving toward a single common liability law for 320 million people living in 12 member nations and 60 affiliate nations, the United States can ill afford to retain its existing system. Studies show that the present American liability laws prevent the development of newer and safer products, thus forcing American companies to cede valuable technology and products to foreign competitors.

Even some of America's competitors are advocating reform. In the recently released Structural Impediments Initiative, the Japanese government pointed to the United States' products liability laws as a major reason for diminished American competitiveness. The initiative stated that the United States should eliminate the system's present abuses, streamline its legal process and give its manufacturers a better shot at competing in world markets.

Those pushing for products liability reform argue that American consumers and workers are the biggest losers under the current system. The reason? Consumers pay more for products because the specter of products liability lawsuits forces companies to charge higher prices, and litigationwary companies refrain from putting new or improved products on the market. As for workers, they suffer when their companies, unable to deal with products liability issues, cease product lines, dose plants or move off-shore to countries with less disjointed and bewildering products liability rules.

However, over the past few years, voices for reform have sounded from the business community, the Bush administration, academia and some members of the legal profession. Last year, the National Governors' Association - typically champions of states rights - called on Congress to enact federal products liability legislation. The American Legislative Executive Council, which comprises 3,000 state legislators, has endorsed the need for a federal products liability law. A "Reporters' Study" for the American Law Institute called for products liability reforms almost identical to those in the proposed legislation.

For the last 12 years, the Product Liability Coordinating Committee (PLCC) has supported this reform movement. With a membership of 700,000 small and large companies and organizations, it has based its reform efforts on three basic principles shared by both its legislative co-sponsors and consumer groups: First, that Americans are entitled to safe products; second, that manufacturers are responsible for the safe design and manufacture of their products; and third, that those who suffer injuries when products fail to perform safely should be swiftly and fully compensated for the harm they suffer.

The PLCC, however, supports legislation that would initiate significant alterations in current laws. Specifically, it advocates raising the standard of evidence used for punitive damage awards to "clear and convincing"; the proposed bill will confine punitive damages to cases where the manufacturers showed "conscious, flagrant indifference" to public safety. The PLCC also recommends that each defendant in a multiple suit pay noneconomic damages (e.g., pain and suffering) only in proportion to his or her responsibility. Another recommendation is that punitive damages not be awarded if the manufacturer gained pre-marketing approval from the FDA or FAA in good faith.

The PLCC also supports legislation that would waive litigation for injuries involving capital goods more than 25 years old, reduce damage awards when product misuse or alteration causes the injury, and exempt manufacturers from paying damages for injuries resulting from a person's intoxication or use of illegal drugs.

Over the last two years, the products liability reform movement has picked up momentum. Although the final outcome is by no means certain, the various political and commercial forces behind the new initiative are aimed at convincing the American people that change is vital to the economic interests of the nation.

William Fay is the executive director of the Product Liability Coordinating Committee in Arlington, VA.
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Author:Fay, William
Publication:Risk Management
Article Type:Column
Date:Jul 1, 1992
Words:1022
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