Masonry Magazine October 1986 Page. 16
LIABILITY INSURANCE CRUNCH
The reinsurance market had dried up in recent years because many of the large European reinsurors—such as Lloyd's of London—simply feel that, because of our legal system, American companies are not a good risk. Lloyd's, the world's largest insurance exchange, states that American liability claims account for 12% of their business, but 90% of their losses!
To my mind, there is no question but that one of the fundamental reasons for this crisis is our own legal system itself. We live, unfortunately, in a highly litigious society, and the recent "imaginative" decisions made in both Federal and state courts with respect to tort liability is a primary and indisputable cause of this national crisis.
Problem areas identified
Among the elements of the tort system that have been identified as problem areas are: 1) the standard of joint and several liability, which potentially leaves one defendant wholly responsible for the damages in a multiple causation case; 2) the mis-application of punitive damages in some negligence suits; 3) the ever-expanding application of the doctrine of strict liability; 4) the lack of limits on attorneys contingency fees; 5) large awards for non-economic damages, such as "pain and suffering" and mental anguish; 6) the need for discovery reform; and 7) the erosion of the doctrine of sovereign immunity, and its corresponding impact on governmental budgets.
There has been a virtual explosion of tort lawsuits in the past decade. In Federal court alone, the number of product liability suits increased from 1,579 in 1974 to 13,554 in 1985—representing a 758% increase. Startlingly, this figure does not include filings in state courts where, in fact, most product liability suits are brought. The average product liability verdict reported to Jury Verdict Research, Inc. increased from $393,580 in 1975 to $1,850,452 in 1985.
While such national statistics are not available on state courts, there is no reason to believe they have not witnessed similar dramatic increases. For example, the Rand Corporation's Institute for Civil Justice recently examined court awards in San Francisco, California, and in Cook County, Illinois. They found that the average award in San Francisco has almost tripled over the past 25 years, rising from $49,000 in the early 1960s to $130,000 per award in the late 1970s. Similarly, an award in Cook County doubled during the same period studied.
The increase in large jury awards is particularly dramatic and graphic. In the early 1960s, 0.3% of all San Francisco awards (less than one in 300) was for $1 million or more. By the late 1970s, 2.3% (or about one in 43) reached that mark.
As a result, the need for comprehensive reform of our tort system is becoming quite clear. The American public has begun to realize that jury verdicts are paid by someone, and that someone is all of us. We pay for these verdicts when drug manufacturers stop producing needed medicines because they no longer can afford the liability insurance or the legal risk of such sales. We pay for these verdicts when manufacturers pass on to consumers skyrocketing insurance costs. In the environmental area, we pay for these verdicts when hazardous waste sites smoulder in or near our neighborhoods because no company is willing to assume the risk of cleaning them up.
In the eyes of insurors and American manufacturers, no area of liability is in such a disorderly state as product liability law. Earlier, I referred to "imaginative" and novel court decisions. Nowhere is this description more accurate than in the product liability area.
One recent decision provides a graphic example: An overweight man with a history of coronary heart disease suffered a heart attack while trying to start a Sears lawnmower. He sued Sears, charging that too much force was required to yank the mower's pull rope. The jury awarded $1.2 million plus additional damages of $550,000.
Currently, the laws governing litigation of injuries caused by defective products are state based, a situation which has resulted in a confusing patchwork made by judges on a case-by-case basis with wide variances from state to state. While many states have begun to enact product liability reform legislation, most are not comprehensive and, of course, are limited by state borders. This lack of national uniformity has resulted in confusion and gridlock for both manufacturers and insurors.
The Reagan Administration has now taken assertive action that should provide important additional impetus for a Federal solution. In October, 1985, the President established a "Tort Policy Working Group" to examine the rapidly expanding insurance crisis. That interagency task force consisted of representatives of ten different Federal agencies as well as the White House. The primary contributing agencies were the Department of Justice, the Department of Commerce, and the Small Business Administration.
In February of this year, the Working Group issued its report and recommendations. They recommended eight generic reforms of tort law that, in its view, would significantly alleviate the crisis in insurance availability and affordability. The recommended reforms are:
Return to a fault-based standard for liability.
Base causation findings on credible scientific and medical evidence and opinions.
Eliminate joint and several liability in cases where defendants have not acted in concert.
Limit non-economic damages (such as pain and suffering, mental anguish, or punitive damages) to a fair and reasonable maximum dollar amount.
Provide for periodic (instead of lump-sum) payments of damages for future medical care or lost income.
Reduce awards in cases where a plaintiff can be compensated by certain collateral sources to prevent a windfall double recovery.
Limit attorneys' contingency fees to reasonable amounts on a "sliding scale."
Encourage use of alternative dispute resolution mechanisms to resolve cases out of court.
Subsequently, the Reagan Administration drafted and sent to Congress three bills responding to uniquely Federal aspects of this problem. Prominent among these is the "Product Liability Reform Act of 1986." Senator Robert Kasten of Wisconsin has introduced this proposal as the new version of his original bill, S.100. Identical legislation has also been introduced in the House of Representatives as H.R. 4766.
In the Senate, the Committee on Commerce, Science and Transportation has wrestled unsuccessfully with proposed uniform Federal product liability legislation for nearly six years. Their deliberations have graphically documented the dire economic consequences of the current situation.
The huge, and sometimes irrational, product liability damage awards mean: 1) higher prices for consumers; 2) fewer jobs for American workers; 3) ever-increasing and successful foreign competition; and 4) in some instances, the outright closure of American businesses. Congress has postured and studied this situation far too long—the time to act is now.
As with previous product liability bills, the Administration has cited the Commerce Clause of the Constitution as the legal justification for Congressional (instead of state) action. That is, product liability actions arise out of commercial activities that have an obvious interstate impact.