Injury Lawsuits Said to Cause Financial Crisis for Many US Companies `Tort Tax' Burdens Small-Plane Builders, but Litigation Advocates Claim Safety Gains Series: BUSINESS GOES TO COURT. Part One of a _ Part Series. First of 5 Articles Appearing Today

By James H. Andrews, writer of The Christian Science Monitor | The Christian Science Monitor, January 25, 1994 | Go to article overview

Injury Lawsuits Said to Cause Financial Crisis for Many US Companies `Tort Tax' Burdens Small-Plane Builders, but Litigation Advocates Claim Safety Gains Series: BUSINESS GOES TO COURT. Part One of a _ Part Series. First of 5 Articles Appearing Today


James H. Andrews, writer of The Christian Science Monitor, The Christian Science Monitor


AS he lifts a document from his desk, T. W. Wakefield's voice has a "here we go again" tone.

"This case just came in," says the vice president and general counsel of Cessna Aircraft Company, an airplane builder in Wichita, Kan. "Farley v. Cessna, in Pennsylvania. The pilot and a passenger were killed last April when one of our single-engine Model 140s crashed. The plane was built in 1946 - 47 years old. Forty-seven years, and the next-of-kin say Cessna is still liable."

"In other words," Mr. Wakefield says, "Cessna has the deep pockets."

It needs those deep pockets. Since 1986, the company "has spent $20 million to $25 million each year to defend hundreds of product-liability cases," Russell Meyer Jr., Cessna chairman and chief executive officer, told a United States Senate subcommittee last fall.

"Crash cases are very expensive to defend," says Peter Puciloski, an aviation lawyer in Boston. "There are no fender-benders in this field.... A manufacturer can spend $1 million to defend a case, even if it wins. That's why the companies often settle, even when their liability is slim."

The general aviation industry (builders of all planes except commercial airliners and military aircraft) has a unique liability profile, since the longevity of airplanes gives the industry an unusually long "liability tail."

Still, executives and lawyers for companies all over America - manufacturers of everything from cars, heavy machinery, and power tools to ladders, sports equipment, and prescription drugs, as well as their suppliers and distributers - sympathize with Wakefield's frustration over a legal system that he contends is "unfair."

For many business-people, actual or potential exposure to personal-injury lawsuits imposes a heavy cost. Some companies have been driven out of business or into bankruptcy by litigation costs.

Piper Aircraft Corporation, a Cessna competitor, has been in Chapter 11 since 1991, owing to liability suits, it says. Last month, Keene Corporation became the 18th company to file for bankruptcy as a result of asbestos claims: Keene has paid out $450 million in litigation and settlement costs for an insulation subsidiary it purchased for $8 million in 1968 - more than 20 years after most of the plaintiffs were exposed to asbestos in US shipyards during World War II.

Moreover, some executives and economists contend, the "tort tax" - the amount added to a product's price to cover liability costs and insurance - inhibits the competitiveness of American products in international markets. And critics of the legal system argue that fear of lawsuits causes companies to discontinue products or deters product innovation.

The Product Liability Coordinating Committee, an industry group, cites recent effects of "the litigation climate existing in the United States":

* Monsanto Company abandoned development of a safe substitute for asbestos.

* Of the 20 makers of football helmets in 1975, only two companies still manufacture the product; one of them, Riddell Inc., says 50 percent of the price of a helmet is attributable to liability-related costs.

* "Liability concerns have had negative effects" on research for an AIDS vaccine, Science magazine reported in 1992.

From such reports and the writings of researchers like Peter Huber and Walter Olson of the Manhattan Institute (a conservative think tank in New York), who popularized the notion of a "litigation explosion," one could infer that personal-injury lawsuits and other litigation have reached crisis proportions.

The issue is slippery, however. While tort-reform literature is rife with horror stories about "bet your company" lawsuits and entire industries awash in "frivolous" claims, hard numbers on the economic effects of litigation are elusive.

In a 1991 speech to the American Bar Association advocating tort reform, then-Vice President Dan Quayle - drawing on the research of Mr. …

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