A trend is emerging in courtrooms nationwide in which juries are using multimillion-dollar judgments against corporate defendants to send them a strong message about what they see as inappropriate corporate behavior.
For example, juries in Portland, Ore., Jacksonville, Fla., and San Francisco have recently ordered cigarette companies to pay hefty sums to smokers or their families in an effort to punish the industry for irresponsibly manipulating nicotine levels in cigarettes and hiding the health risks associated with smoking. And now the trend to hold corporate America accountable through huge judgments is expanding to include the automotive industry.
Companies can avoid costly litigation and needless public-safety threats by addressing known problems before they cause harm.
This lesson came home last summer, when a Los Angeles jury awarded $4.8 billion in punitive damages to the victims of a horrific crash. The trial judge later cut the award to $1.09 billion.
The accident involved a 1979 Chevrolet Malibu whose fuel tank ruptured and burst into flames with helpless passengers trapped inside after being rear-ended by another vehicle. In its original award, the jury sought to send a strong message to corporate America. What apparently incensed the jury was that GM not only knew that the close proximity of the gas tank to the bumper presented an increased fire hazard, but that it did little to solve the problem.
Since the initial verdict, terms such as "lottery" and "litigation lotto" have been used to characterize what some see as fortune hunting by victims and their lawyers. But it may be that some corporations need this type of strong feedback to find the right path - both for their customers and their shareholders.
One key piece of trial evidence was a value-analysis memo written by a GM engineer on GM's potential liability due to fuel-fed fires. It was calculated that settling accident claims by an estimated 500 burn victims would cost only $2.40 per vehicle in the then-current GM fleet. Another memo stated that placing the fuel tank over the axle would meet newly proposed federal safety standards to improve fuel tank safety, but said making such a change could cost the company $8.59 per vehicle.
Ultimately, the Malibu's tank was placed in the rear and not over the axle.
This type of analysis is not uncommon. Government regulators, corporations, and other groups routinely use this approach when trying to select a course of action based on a thorough consideration of all the costs and benefits.
GM's analysis, however, needed to assign far greater value to customers safety and well-being. This is not only the responsible thing to do, but it would help prevent loss of reputation and goodwill, as well as large punitive damages by a jury - important factors to any company.
Automakers face these questions constantly, and every decision has a lasting impact on us all.
In late 1997, for example, Mercedes-Benz began marketing its highly touted A-class sedan in Europe, after much fanfare and a hugely expensive development program. Mercedes could not ship new models fast enough.
Early on, a Swedish journalist reported that the vehicle tipped over while driving through an avoidance-maneuver test, implying that the vehicle could be hazardous in certain predictable, real-world situations.
Mercedes conducted tests of its own and then took decisive action. It recalled the 2,600 cars already sold and offered to retrofit them with a new stabilizing system. It stopped shipping new models so that the chassis could be redesigned. Total costs were well over $200 million.
Instead of choosing the "tough-out-the-litigation-and-call-for-tort-reform" strategy, Mercedes actively promoted and provided a higher level of safety for its customers - which undoubtedly will enhance its reputation as a customer-oriented company. In short, it was good for business and good for consumers.
GM likewise had an opportunity to protect future customers from the dangers that poorly placed gas tanks would pose. The solution to this problem was technically feasible. The only question was whether it was economically feasible.
The jury in this case thought it was. But GM's design choice was seen by the jury as a callous decision that put increased corporate profits ahead of consumer safety.
Manufacturers would do well to pay close attention to the jury's reaction.
In the end, consumers want the safer cars that manufacturers promise in their ads. While buyers can choose whether or not their car has antilock brakes or an elaborate stereo system, they cannot choose where the gas tank is placed. For those matters, consumers have little choice but to trust the manufacturer to make safe design decisions.
When that trust is broken, large jury awards should not surprise us. Unfortunately, it may be the only language some companies understand.
*R. David Pittle is technical director of Consumers Union, the publisher of Consumer Reports. He served as a commissioner of the United States Consumer Product Safety Commission, 1973-82.
(c) Copyright 1999. The Christian Science Publishing Society