Court suits fought over faulty products: a costly legal maze
Last week Patrick A. Butcher, of Edgewater, Md., reached an out-of-court agreement with Robertshaw Controls Company. Mr. Butcher was burned when a Robertshaw device controlling the flow of liquid petroleum to his home water heater caused a fire. The settlement was $25 million.
In the last eight years, product liability cases filed in state and federal courts have tripled. At the moment, there are no clear-cut standards for liability law, and this - coupled with the increase in cases - is causing heavier financial burdens for the companies being sued. While increased liability standards have resulted in safer products for the consumer, the costs of meeting diverse standards and laws are eventually reflected in higher product prices.
From every angle, product liability cases are expensive. More costly for companies than the awards themselves, though, is the process of litigating the suits. As more suits are filed, Congress is taking a closer look at product liability law, and will consider a uniform product liability bill later this month.
Right now, no federal standard governs product liability. Rulings in various states often conflict. Only 30 states have product liability statutes, or guidelines, for deciding a case. In the 20 other states, the law is written by the judges.
So a company must prepare a different defense for each state in which it is sued. For instance, people in 48 states have cases pending against the Johns-Manville Corporation, claiming they have been injured by its asbestos products. The company is protected from these suits at the moment because it is in bankruptcy proceedings under Chapter 11. But if this status changes, the company will have to prepare 48 separate defenses.
For Manville, just the legal fees for the 16,500 cases pending would be around $125 million; over the next 20 years, legal costs for the company could spiral to $38 billion, a J-M spokesman says.
Companies also have to figure on court costs and expert-witness fees. There are fees from each local law firm a company must hire. Most expensive is the cost of creating a new defense strategy to answer to the rules in each state.
''We're not looking to limit the rights of consumers to sue,'' remarks Patrick Roland, a spokesman at the Borg-Warner Corporation, which is facing 175 product liability cases. ''We just want to know the rules.''
Uncertainty keeps corporations on their toes, supporters of the current system say. Manufacturers can't afford to be liable for their goods - so the consumer gets safer products. ''We have finally gotten away from the caveat emptor (let the buyer beware) days, and reached an age where consumers as well as manufacturers are protected,'' says Howard Specter, president of the Association of Trial Lawyers of America. Trial lawyers represent victims, and receive between 25 and 60 percent of the award if they win, nothing if they lose. In Mr. Butcher's case against Robertshaw Controls, the attorney will receive about 33 percent of the award.
There are also drawbacks for the consumer in the confusion over various product safety laws and court rulings. For example, shoppers will see fewer choices on the shelf, as companies move away from new, riskier goods, notes Philip J. Harter, a Washington, D.C., lawyer.
And a company's expense of figuring out the differing laws is reflected in higher prices for products. Patrick Roland at Borg-Warner says much of the cost of lawyers and insurance is passed on to the consumer. About 25 percent of the cost of an airplane mainframe, for example, is represented by insurance costs of all types.
Consumers pay for legal fees, too. According to figures presented to the Senate Committee on Commerce, Science, and Transportation by the Insurance Services Office, which gathers data on insurance companies, for every 66 cents awarded to a claimant, the defendant company spends 77 cents on legal fees - 54 percent of the total cost of the trial.
(The Association of Trial Lawyers of America disagrees with these estimates. ''Those figures are not just false,'' says Mr. Specter, the association president, ''but everyone who cites them knows they're false.'' The association claims, rather, that lawyers receive only 40 percent of the total, not 54 percent.)
Whatever,''if uncertainty is eliminated from current law,'' says Salem Katsh, a partner at Weil, Gotshal & Manges, a New York-based law firm, ''the cost of insurance premiums and cost of litigation would drop. This would have positive effects on corporate costs, and, ultimately, on consumer prices.''
Sen. Robert H. Kasten (R) of Wisconsin will reintroduce a bill for a uniform product liability law tomorrow (Jan. 25). The bill divides liability into two categories: a strict liability standard and a negligence standard. In the first, which applies to manufacturing defects, the plaintiff has only to prove the product was not made to specification. (A mouse in a soup can, for example.)
The negligence standard applies to design and warning defects. Suits concerning asbestos and the drug DES (both of which have been associated with presumed cancer risks) would fall into this category. Here, a person must prove not only that the manufacturer knew, or should have known, that its product was dangerous, but also that it knew, or should have known, of a feasible, safer alternative.
That is a heavy burden of proof, says David Greenberg, legislative director of the Consumer Federation of America, which opposes the Kasten bill. ''It shouldn't fall on the plaintiff (the injured person) to prove there was a viable alternative. Most of the information (needed to come up with an alternative) is held by industry,'' which doesn't have an interest in publicizing it, Mr. Greenberg adds.
Congress has a thorny problem ahead of it, says Robert Evans, director of the governmental affairs group of the American Bankers Association. ''There are public policy issues on both sides, and corporate and lawyer self-interest issues on both sides.'' Weeding out the self-interest part, he says, will take shrewd judgment.