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Will Lawyers Cut Teeth on Toys?

The discovery of potentially toxic ingredients in children's teethers could set up the toy industry as the next target for class-action lawsuits.

Trial lawyers, awash with cash from settlements in tobacco and fen-phen class actions, have set their sights on U.S. managed-care organizations. Suits have been filed against major health insurance plans, and insurance rates for health maintenance organizations are rising at double-digit rates. Where will trial lawyers strike next, and what can insurers do to get ahead of the curve?

The toy industry may be next. Diisononyl phthalate (DINP) is the primary plasticizer used in polyvinyl chloride toys. Phthalates act as softeners, causing the material to become flexible--a desirable characteristic in toys that are chewed or sucked by young children. Based on analysis of the saliva of adult testers, plastic toys containing DINP release small quantities of this softening agent. This leeching is to be expected, because it is not an integral bound part of the polymer mix. Thus, children who chew or suck on toys containing DINP have some oral exposure.

Research shows that extremely high doses of DINP may pose health problems in rodents, but there is no evidence indicating the compound poses a health problem for humans at the expected exposure levels. Despite that, the 15 countries in the European Union have banned the use of DINP in teethers and other products designed for young children. A year ago, the federal Consumer Product Safety Commission asked U.S. manufacturers to remove phthalates from toys intended for infants' mouths.

This sets the stage for the plaintiff bar.

Insurers should recognize the plaintiff bar's pattern of targeting industries or companies that may be vulnerable for the trial attorney's brand of social justice through classaction lawsuits. Securities and antitrust litigation aside, their primary targets have included any industry that is publicly vilified, as tobacco, guns and HMOs have been. They also single out companies whose products are found to be harmful to consumers; whose market conduct has been sanctioned by some governmental or regulatory body, such as the IRS or a state insurance department; whose product is deemed or perceived to be defective or harmful; or whose advertising is found to be misleading.

The other ingredients are a vast pool of "injured" plaintiffs and the ability to plead for damages into the stratosphere. The trial lawyers are principally concerned about getting the numbers high enough to strong-arm defendants into a settlement. These cases rarely get to courtrooms.

Finally, the plaintiff will select a jurisdiction like eastern Texas or rural Alabama, where juries are renowned for hostility toward corporate defendants and a propensity for huge damage awards. Class actions have become the equivalent of pointing a loaded gun at a chief executive officer's head.

Now consider a company like Mattel. Its share price has fallen more than 60% since April 1999, and the threat of a class action or a massive product recall would drive the stock into the ground. Its besieged CEO, Jane Barad, is attempting to turn the company around after the departure of five senior officers. The management distraction and the expense of a major lawsuit would clearly prolong and disrupt the turnaround. A quick, comprehensive settlement would be the only viable alternative, and it could be structured in such a way to make it all the more attractive.

Product class actions have been settled in similar scenarios, frequently with the support of the defendant. The parties agree to settle the case by offering plaintiff class members discount coupons for the purchase of replacement toys manufactured by the defendant. Of course, before agreeing to this, the lawyers will have to agree to a sizable fee to compensate them for their research, preparation of witnesses, notifying plaintiff class members, etc. Ultimately, all potential liability is wiped out; the company can go about its business undistracted by litigation and may even boost sales in the process. The big winners are the trial lawyers, who now have a war chest to fund their next case.

Last year, the House voted 222-207 to pass a bill on class actions. Similar legislation is before the Senate. But these measures do little more than make class actions involving citizens from more than one state removable from state courts to federal courts. The Senate bill also would require more rigorous notice to plaintiff class members and an explanation of how attorney's fees will be calculated and funded. Both bills fail to address the potential for collusion between plaintiff and defendant to discharge the rights of injured parties and use coupons to compensate victims. Insurers cannot expect relief to come Out of Washington soon.

For the time being, therefore, throw Out the baby's teething rings and bath toys--and stay tuned.

John R. Cashin, a Best's Review columnist, is an attorney in private practice in Saratoga Springs, N.Y.
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Comment:Will Lawyers Cut Teeth on Toys?
Author:Cashin, John R.
Publication:Best's Review
Article Type:Brief Article
Geographic Code:1USA
Date:Mar 1, 2000
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