We propose a federal cause of action for victims of toxic exposure that would address four legal obstacles in current law: statute of limitations; evidentiary burdens; judicial reluctance to certify class actions; and proof of causation.

A. Statute of limitations

Under the statute of limitations established in both titles of the Danforth substitute (sections 203(e) and 308(a)), the two year time period for submitting a claim or a civil complaint does not begin to run until the claimant "discovered or, in the exercise of reasonable care, should have discovered the harm and its cause." (emphasis added.) These provisions would allow many victims of toxic exposure who reside in jurisdictions with very restrictive statutory time limits to obtain compensation.

However, the substitute would reduce plaintiffs' rights in the thirteen jurisdictions that have the most protective statutes of limitation. Those jurisdictions begin the running of their statutes when the plaintiff knew, or should have known, of the harm, its cause and that a cause of action existed.

Since the victims of toxic exposure often do not become aware of their illnesses for many years, it may take them considerable additional time to connect their illnesses to exposure to a particular product. The Danforth substitute should adopt a statute of limitations that does not begin to run until the claimant discovers, or should have discovered, the illness, its cause, and the existence of a cause of action against an individual or entity that may be responsible. This would ensure that toxics victims who suffer from long latency diseases are given a fair opportunity to seek recovery.

B. Relevant evidence

Another major obstacle to compensation that toxics victims must overcome is proving that exposure to a product caused their injuries. Since the types of illnesses caused by exposure to hazardous substances-such as cancer, nervous system and organ damage, and genetic disorders—also occur among people who have not been exposed to toxics, plaintiffs, must often rely upon scientific studies to link their diseases to a product.

Some states have made it virtually impossible for toxics victims to prove causation by excluding from evidence all scientific studies that did not result from studying the parties before the court. This excludes from consideration by the court epidemiological studies, animal studies, toxicological studies, tissue cultures and immunological studies which relate to the cause of the injury but which were not derived from studying the plaintiffs themselves.

To provide injured parties a fair opportunity for recovery in each state, the Danforth substitute should establish a uniform evidentiary rule that would specify that courts should admit all evidence relevant to the issue of causation. Such a rule would be consistent with the definition of "relevant evidence" and the exceptions to the hearsay rule in Rules 401 and 803 of the Federal Rules of Evidence.

C. Class action certification

The special characteristics of injuries from toxic substances combined with the fact that many toxics suits are brought under new and untested theories of liability make toxic tort lawsuits extremely costly. To reduce transaction costs, the Danforth substitute should facilitate the consolidation of such lawsuits into class action proceedings. The bill should endorse granting class action certification in toxic tort cases where there are numerous plaintiffs with substantial similarities in their factual circumstances or liability theories, and where use of a class action would tend to reduce total litigation costs or expedite a decision.

D. Proof of causation

Victims of toxic exposure have great difficulty proving the cause of their injuries because of deficiencies in medical and scientific knowledge and because their illnesses also afflict people who have not been exposed to the same substances. One method of facilitating the proof of causation is to prevent premature dismissal of such lawsuits so that courts may hear all evidence pertinent to the issue of causation.

In many states, even after scientific studies are admitted into evidence, courts will dismiss a case for failure to state a claim because the plaintiff's experts have not proven conclusively the causal link between exposure and illness. A legal principle requiring certainty in establishing causation would preclude most toxics victims from recovery, since the best that can usually be shown in such cases is a strong probability that the product caused the illness.

The Danforth substitute should ensure that toxic tort actions are not dismissed prematurely because conclusive evidence as to causation is not available. Without

such a provision, defendants in many toxics cases will not offer settlements since they can be confident of prevailing in a civil action through a motion to dismiss. This would effectively preclude toxics victims from participating in the expedited claim-settling system.

To prevent exclusion of most toxic torts, the Danforth substitute should state that plaintiffs in a toxic tort federal civil action will be regarded as having made the showing needed to survive a motion to dismiss or a directed verdict on the issue of causation if they can show that: (i) the plaintiffs were exposed to hazardous substances in some manner; and (ii) the plaintiffs suffered death or the kind of injury, illness or disability which can be caused or contributed to by an exposure to such hazardous substances.

IX. INSURANCE REFORM

The Danforth substitute would provide many needed improvements to the tort system. The bill would not, however, solve the current and recurring problem of escalating costs and unavailability of insurance coverage. To solve the recurring "insurance carisis" would require a broad package of reforms of federal and state insurance laws. We endorse increased federal regulation of the insurance industry, as proposed to this Committee by the National Insurance Consumer Organization.

CONCLUSION

We urge the Committee to build upon Senator Danforth's expedited settlement proposal, to develop an efficient, equitable product liability package. Consumers injured by all types of unreasonably dangerous, defective products-ranging from toxics to old machinery-must have an opportunity to settle their claims expeditiously, without giving up the opportunity for full compensation through litigation or the ability to discipline manufacturers and product sellers guilty of egregious behavior. In addition, we urge the Committee to consider federal regulation of insurance practices, to help stabilize insurance premiums.

Senator KASTEN. Pam, thank you very much.

I had a question, and I think maybe many of you have heard either yesterday or today Senator Pressler talk about punitive damages and whether in fact they should be insured or insurable and whether in fact punitive damages should be covered in the way that they are.

Do any of you have comments on what for lack of a better word I would call for right now the Pressler theory, that insurance should not cover punitive damages? Why do we not start with Mr. Goffman-because of the nature of punitives they should not be covered by insurance. If you are not familiar with the argument, then just simply say so, but I think that if you were here yesterday or today you will understand the basic thrust of my comments.

Mr. GOFFMAN. Well, I will answer only to the extent that I am familiar with the argument. I think that there is a lot to be said for that kind of restriction on the insurability of those damages. I understand that almost half of the jurisdictions currently ban insurance against the award of punitive damages. We have a lot of sympathy with that position, because it would be a way of passing the incentives and the sanctions directly to the wrongdoer.

Senator KASTEN. Mr. Joseph.

Mr. JOSEPH. The chamber does not have an official position, but I would just comment that the perception that Assistant Attorney General Willard made about a lawyer, a plaintiff's lawyer today who did not pursue punitive damages would almost be in pursuit of malpractice. A call I got yesterday from a chamber member indicated how they could be blackmailed.

A lawyer of an apartment building owner called up and wanted to know if they had liability insurance. If they had a lot of it, they

will sue them for a lot because the insurance company would handle it. And if they do not have the insurance, let them know and they will not sue them for too much because someone fell down in a building.

And it is human nature, I think, for some of these people, if they know that the deep pocket is even potentially deeper, they will pursue it.

Senator KASTEN. Mr. Connor.

Mr. CONNOR. If I understand the question, dealing narrowly with the issue of whether punitive damages should be insurable, it is a question which NAM has never addressed. It is my understanding today that punitive damages are not insurable in the majority of the States. We have certainly over the years made other proposals with respect to punitive damages and have supported the various measures which you, Mr. Chairman, have advanced. But we have never examined, to my knowledge, the question of insurability. Senator KASTEN. Mr. Kimmelman.

Mr. KIMMELMAN. I just agree with Mr. Goffman. Our position is basically that we do not see why they should be insurable. Senator KASTEN. Mr. Hitchcock.

Mr. HITCHCOCK. Senator, I think small companies and big companies are already paying those punitive damages even if they are an innocent company. Our insurance has gone up 1,500 percent and we have not had a claim against that excess insurance, so I think we are already seeing those costs being passed on to everybody in general, whether they are insured or not.

Senator KASTEN. Ms. Lipsen.

Ms. LIPSEN. Punitive damages are only awarded in the most egregious cases and, because of that, although we do not have an official position on whether punitive damages should be insured, I would also associate myself with Mr. Goffman's remarks. I do not believe that they should be subject to insurance.

Senator KASTEN. Ms. Gilbert.

Ms. GILBERT. We have the same problem. We do not have an official position on it, but as a personal matter I do not believe that they should be insurable.

Senator KASTEN. I was not meaning to put words in anyone's mouth. No one has an official position on this. It was just a theory that we started talking about yesterday, but I just thought that this would be an opportunity to have you reply to this.

Let me say thank you to each of the members of this panel. I apologize for the time constraints that we are all operating under, but I appreciate your testimony here today.

The next panel will include Mr. Schwartz and Mr. Owen. Our first witness on this panel is Mr. Victor Schwartz, counsel to the Product Liability Alliance.

Mr. Schwartz.

STATEMENTS OF VICTOR E. SCHWARTZ, COUNSEL, ON BEHALF OF THE PRODUCT LIABILITY ALLIANCE; AND DAVID OWEN, SCHOOL OF LAW, UNIVERSITY OF SOUTH CAROLINA

Mr. SCHWARTZ. If we hear some requests from some of the Senators to further delay this, you might show a TV tape of both of us

over the past 5 years and the age factor with both of us. In fact, earlier I felt some objection where someone from one of the groups asked if I would sit on the table with "products near extinction." The Product Liability Alliance's purpose in part is to try to assemble a very wide variety of points of view in the business community, and I will mention some of those today, some areas where there is consensus. It is very important at this time, when we had two proposals on the deck, and now three, that the business groups which have different opinions about proposals try to work together, and that is a principal function of our organization.

One thing I did want to mention very briefly, with the new insurance crisis, as it gets greater and greater, there has come forward something that I call the data hunt, and every week in the newspaper or elsewhere one side or another says there is a certain number of claims and then there is a rebuttal on the other side. We were here seeking this type of legislation long before the data hunt began, and I think the reason that we went into this is because regardless of what the data show we do know that the future in liability law rarely reflects the past. For example, just in the past year, in February, the Supreme Court of Louisiana held that a totally innocent manufacturer would be subject to full and complete tort liability, breaking precedent of over 200 years. They said it was irrelevant what the manufacturer knew or could have discovered at the time it made the product.

In another court not far from here a court held that a gun manufacturer could be subject to liability even though there was no defect in the gun. Now the decision was based on the fact that the court's judgment was that the utility of the gun was nil and the dangers that it created were great. But they did not show that anything was wrong with the gun, and there was no precedent in the jurisdiction or any other jurisdiction that would sponsor that holding.

Again, in 1986, there was a case that arose in the Midwest where a person asked for damages because he was exposed to a chemical, but nothing was wrong with him. He did not have any symptoms, but he thought something might happen to him someday. He had a fear of future disease and the court held that he could receive damages.

So within the compass of 8 months, you have two-excuse me, three-startling new decisions, and one court says the innocent pay, another court says you can pay even though there is no defect, and the third court says you can pay even though someone has not been harmed.

It is that atmosphere that will keep this problem going until it is corrected, until some stability is put in the system. I think that the bills have to be evaluated in light of that need for stability.

We feel in that regard that while S. 1999 contains many things that are useful, it says nothing about whether liability should be based on fault. A fundamental principle of all reform efforts has been to put some perimeters on the system and the perimeter is wrongdoing, bad behavior, behavior that deserves sanction. So any bill that comes out of the committee should have some limit, and that limit should be fault-based liability.

Both bills limit joint and several liability. They do it in different ways, but of tort doctrines that really spawn with unfairness, joint and several liability has to be at the top, because one person is asked to pay for what somebody else did. Apart from situations where there is concert of action, joint and several liability should not apply.

The Reagan-Kasten bill imposes a $100,000 cap on all noneconomic damages. The Danforth bill ties the cap into a settlementencouraging mechanism. We agree, however done, that some limit on the extent of noneconomic damages is appropriate in the law. The Reagan-Kasten bill indicates that damages should be paid periodically. Properly structured, this can help both parties. Persons who pay will be able to use assets more wisely and better, and persons who receive those assets can use them in a way that will meet their daily needs. Many people, when they suddenly get $1 million, either spend it all at once or save it to a point where they do not use it at all. Periodic payments can help both sides.

Both bills deal with the collateral-source rule. It is clear that that rule fosters waste and double payment. We think it is important that elimination of worker compensation liens be included.

We also note in the administration's bill that the product-seller clause has not been included. That has been an area where we have agreed over the years that good work can be done.

Let me say a quick word or two about settlement-forcing mechanisms. We are on record for including those in a product liability bill, but we did not think at the time they first came forward that noneconomic damages are an appropriate area to consider. If they are to be considered, the wording should be crystal clear so people on both sides know how much payment is to be made; otherwise, litigation all over the place will be introduced into a mechanism that is supposed to foster settlement.

Finally, the amount of penalty placed on a manufacturer in S. 1999 is punitive in nature, where you have 25 percent of an award plus 1 percent of the award per month, you can generate hundreds of thousands of dollars of punishment in a case that may be appropriate to litigate.

Thank you for your continued patience with us. I hope we will see a resolution of this problem soon.

[The statement follows:]

STATEMENT OF VICTOR E. SCHWARTZ ON Behalf of thE PRODUCT LIABILITY ALLIANCE

Thank you for the opportunity to testify today on behalf of The Product Liability Alliance. The principal focus of this hearing is on the new versions of S. 1999 and S. 100. What is truly very new, as those who have followed this issue during its long history know, is that for the first time we have two major pieces of legislation each of which may attract broad-based support.

Before commenting on legislation, however, I believe it is important to go back to certain fundamentals-those fundamentals help demonstrate the kind of reform that is needed in this area.

NEED FOR UNIFORM PRODUCT LIABILITY LAW

What has created the current intense product liability crisis? There is no doubt that it has been prompted by the sudden increase in insurance costs. While costs have risen, deductibles have increased also. New limits have been placed on insurance policies.