The Case for Products Liability Reform

By Fay, William | Risk Management, July 1992 | Go to article overview

The Case for Products Liability Reform


Fay, William, Risk Management


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. …

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