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Product Liability Reform: Boondoggle or Boon?

Backers of reform say lawsuits are harming businesses and consumers; opponents say they are the only way to hold manufacturers accountable

By Paul R. Huard. Paul R. Huard is senior vice president for policy and communications at the National Association of Manufacturers in Washington. / May 4, 1995



SEVERAL years ago, someone voluntarily helping to lower the American flag was injured when a gust of wind caught the flag and threw him into the air. He sued a manufacturer of large flags.

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The manufacturer settled out of court for $6,000 -- even though he hadn't made the flag. It was cheaper and less time consuming to settle than to get the case thrown out of court.

One of our members, Federal Signal Corporation in Oak Brook, Ill., a manufacturer of fire engine sirens, is giving new meaning to the phrase ''damned if I do, damned if I don't.'' The company recently was sued for more than $50 million because its sirens are too loud. Meanwhile, it is fending off another lawsuit claiming its sirens are not loud enough.

Or consider: The University of Idaho spent thousands of dollars fending off a lawsuit from a student who fell out of a window while ''mooning'' students below. The threat of ruinous lawsuits, even from pranks like this, boosts by 20 percent the cost of a standard 8-foot aluminum ladder and by 50 percent the cost of a football helmet.

Our out-of-control legal system is a tragedy. Political contributions from trial lawyers and a slick public relations campaign that distorted the truth under the guise of maintaining the rights of citizens to sue ''greedy'' corporations have maintained the status quo. The reality is that the current system only benefits greedy trial lawyers -- who typically scoop up 50 percent or more of the final award. Everyone else pays the costs, in the form of higher prices, less innovative products, and fewer jobs.

Although often shrouded in out-of-court settlements, the overall costs of product liability for firms range up to $130 billion annually. A recent study in Texas said that lawsuit abuse costs each household in the state $2,700 per year. Similar studies nationwide put the cost at $1,200 for every consumer in America.

But the biggest cost to consumers is largely hidden. In a 1993 survey of members of the National Association of Manufacturers, respondents identified more than 100 products that were withheld or delayed because of liability concerns. Products ranged from aircraft engines and automobile airbags to wheelchairs, medical instruments, and rehabilitative exercise equipment. Even current national priorities like fighting AIDS are affected. Increasingly, manufacturers are tempted to forgo product safety improvements for fear that existing designs will be seen as unsafe and lead to lawsuits.

For conscientious manufacturers who play by the rules, becoming litigation proof has become a top priority.

Part of the problem, however, is figuring out exactly what the rules are. The 50 states can and often do have widely differing approaches, which frequently cannot be known until after a jury trial. It is not unusual for a manufacturer to make a product in one state, sell it in another, and be sued in a third -- each with a different standard of liability.

Nothing in the legal reforms being debated in the Senate this week would reduce by so much as a penny the amount of compensatory damages -- including noneconomic damages such as ''pain and suffering'' and ''emotional distress'' -- that a jury could award to a blameless victim.

What this legislation would do is impose common sense rules, like denying recovery to ''victims'' whose intoxication or drug abuse is primarily responsible for their injuries; reducing awards by the proportional amount that can be attributed to alteration or misuse of a product by the injured party; or providing that a defendant that is only 10 percent responsible for an injury is only assessed for 10 percent of the noneconomic damages.

While the legislation does not limit the actual compensation a jury can award an injured plaintiff, it does limit so-called ''punitive'' damages, whose purpose is to punish, not to compensate. Because such awards are often totally out of proportion to the underlying injuries and are routinely requested in order to force excessive settlements, the pending Senate legislation would limit such damages to the greater of $250,000 or three times the actual economic damages.

Today, many suits are filed simply to elicit a settlement proposal since -- as the unfortunate flag manufacturer demonstrates -- defending against even a totally frivolous suit often costs more than paying what amounts to a bribe. This serves the interests of no one. Most manufacturers believe in taking responsibility for their misdeeds. If something they make causes harm, they should pay.

Consumers need the protection that only legal action can afford. But they also need to do away with the current jumbled patchwork of 51 different legal systems that waste money and stifle product innovation.

With legal reform, consumers can get something rare in life and nearly unheard of when it comes to legislation: They can have their cake and eat it too.