Something is clearly wrong when the number of product liability cases filed in federal court increases 758% in a ten year period, as it did between 1974 and 1984. I do not believe that this remarkable development is the result of a sudden drop in the quality of products manufactured and sold in America today. And I doubt that it is the result of a sudden change in the adequacy of warning labels placed by manufacturers.

Similarly, something is clearly wrong when the number of malpractice cases per 100 physicians doubles in the same time span. Reacting to facts like these, no less a jurist than Chief Justice Warren Burger has commented that "there has been a litigation explosion during this generation", with "remedies for personal wrongs that once were considered the responsibility of institutions other than the courts... now boldly asserted as legal entitlements.'

Some, including the National Center for State Courts, have suggested recently that there has been no real increase in litigation. But while there may be some question about the number of cases filed in state courts, no one can seriously dispute that the number of serious cases is dramatically higher than ten years ago. Without a doubt, our present civil justice system promotes litigation, almost for litigation's sake. What is most disturbing about this state of affairs is that so little good comes from so much litigation. Indeed, this crisis will most likely reserve its harshest consequences for American consumers.

Mr. Chairman, trends like those we have seen in the field of tort law simply cannot be permitted to go unattended, and I cite all this to make the point that the tort law, a good bit of which is simply product liability law, has gone unchecked and uncontrolled for too long. If you are in the risk-spreading business, and the insurance companies are in just that, and you look at what is happening in America today, it is hard to know how to spread your risks. With the court system today, and the tort law doctrines that it applies, insurance companies simply cannot know how to spread the risks they set out to insure.

Consequently, I think the only thing that will really bring some order back to the liability insurance system is order in the tort system. As you know, I have repeatedly brought this crisis to the attention of the Senate, and have chaired two hearings for the Judiciary Committee this session on just this issue.

In addition, I have introduced three bills in this session that will, in my judgment, take us a long way back to order in the tort system, and with it, to reasonableness in the liability insurance market. On February 5, I introduced the Litigation Abuse Reform Act, S. 2046. I believe it helps chart a course back to a sensible balance between free and unfettered resort to the courts and recognition of the need for a more pragmatic, responsible approach for dealing with civil disputes.

S. 2046 seeks to impose rational restrictions on the award of damages in Federal courts, and to impart a significant degree of predictability to the liability a defendant faces. It does this by putting a cap of $100,000 on the award of noneconomic damages, or "pain and suffering" awards. These are awards that are inherently unpredictable, and limited only by the whim of the jury. Importantly, this limitation will not-I repeat, will not-deprive any injured party of the first nickel in actual, economic damages, such as past or future medical expenses, or loss of earnings.

In addition, S. 2046 would require periodic payments of awards of damages greater than $100,000, on a schedule approved by the court. It would eliminate the collateral source rule, requiring that damage awards be reduced by the amount of any other payment, such as insurance or worker's compensation, that a plaintiff has received as a result of his or her injury. These benefits, on top of the award to actual damages, are a windfall to the plaintiff. Though it may once have been important to exclude such benefits from the computation, in order to deter negligent conduct, that time has long since passed.

The bill would also clarify the standard to be used for the award of punitive damages, and provide that such awards are to be paid to the court. Punitive damages were never intended to compensate the plaintiff, and their punitive effect will be just as great if paid to the court or some other appropriate body, while removing the incentive for lawyers to pursue large punitive awards.

There are two other major provisions of the bill. One will limit the amount of contingency fees that an attorney may obtain in a case, based upon the amount of the recovery. There is no point in watching an ever growing portion of the awards in tort cases go to lawyers, many of whom have become fabulously wealthy, part of what the ABA trumpeted recently on the cover of its Journal as part of the new elite plaintiffs' bar. The other provision would clarify the standards for holding lawyers who file pleadings without a good faith belief in the substance of them liable for costs, including attorney fees. It would also create a new sanction against lawyers who initiate any civil action without a reasonable belief that there is good

ground for recovery of the relief requested, or merely to force a monetary settlement. The bill would hold such attorneys responsible for treble costs, including the attorney fees necessary to resist the action.

I note that your latest draft product liability recognizes that there is a serious need to introduce disincentives to the filing of litigation. In addition to specific penalties based on the length of the delay in the ultimate resolution, your draft bill incorporates a provision for holding attorneys liable for excessive costs that is similar to my own proposal. Again, I am pleased that we finally have the basis for a common approach to the problem before us.

On Tuesday of this week I introduced S. 2440, the Federal Tort Claims Reform Act, and S. 2441, the Government Contractors Liability Reform Act. These bills, which are very similar to my earlier legislation, were drafted by the Reagan Administration following the recommendations of the Administration's Tort Policy Working Group. In addition to many of the provisions found in S. 2046, both of these bills propose a return to a fault-based standard of imposing liability, as well as a general elimination of the doctrine of joint and several liability. I believe each of these provisions is an important reform that goes to the heart of the issues before this Subcommittee today.

The substantive reforms proposed in each of these bills are similar in most respect to those found in Senator Kasten's amendment. Indeed, the amendment he has put before you was drafted by the Administration, along with S. 2440 and S. 2441. Consequently, they are nearly identical. All three are very similar to S. 2046, which I introduced in February.

I believe these bills provide fruitful avenues. While I have not come to any final judgment with respect to the new draft substitute to S. 1999, that appears to be another possible course to pursue. Because of the natural tendency of the legal profession to complicate matters, however, I must say that I would prefer that the Senate adopt as simple a legislative solution as possible.

At the same time, I recognize that the insurance industry is not blameless in connection with the liability crisis. Indeed, a number of suggestions have been made that the industry is in fact chiefly responsible for the crisis. Some have suggested that the trends in jury verdicts, and in the amount of litigation is not out of line with expected increases due to inflation and population gains-in short, that there is no crisis. I agree that the insurance industry itself should be studied, and I have been insisting that representatives of the industry provide me and the Judiciary Committee with concrete documentation for the problems they suggest are making insurance unaffordable or unavailable.

But the fact is that the number of civil cases filed in federal court has increased over 100% in just 10 years, far more than the population. In testimony on S. 2046 before the Judiciary Committee, the Rand Corporation's Institute for Civil Justice reported that in the medical malpractice field, over the past ten years "claim severity increased at almost twice the rate of increase in the Consumer Price Index." These increases are far greater than the general level of price increases. Something is responsible for this pattern, and we need to get to the bottom of it.

I firmly believe that S. 2046, like Senator Kasten's amendment to S. 100 and the bills I introduced on behalf of the Administration, represent important steps toward this goal. Testimony by the Institute for Civil Justice confirms that tort reforms of the kind I have proposed "had important downward effects on settlements, verdicts, and the number of cases pressed to judgment, while tending to increase the number of claims that were dropped without payment."

Those of us who are interested in effecting some real reform need to coalesce around one particular approach to the insurance and liability crisis. In the past, the forces for change have been divided, which only benefits those who oppose change. With the Administration now involved, and with the recent introduction in the Commerce Committee of legislation similar to my own, we may finally be able to overcome the inertia that has been holding us back.

Mr. Chairman, perhaps as well as anyone, you know full well the nature of the problem. I commend your effort to bring about a long term solution to the crisis we have in product liability, liability insurance and tort law in general. I appreciate the opportunity to appear before you today, and look forward to working with you and the other members of the Committee in solving this problem.

Thank you, Mr. Chairman.

Senator KASTEN. Mr. Willard, I have one question and then we will go through in terms of questions to you from the members of the committee.

34

Several witnesses here today will tell us that the crisis, only an insurance shortage caused intentiona say, by the insurance industry. Yesterday Secretary 1 fied that this was ridiculous.

I know that the Antitrust Division of the Justice De recently looked into the insurance industry. What did about the state of competition in the insurance indus do you deal with this question when it comes up, that an insurance industry problem and has no relation to increasing settlements?

Mr. WILLARD. Senator, there are problems in the i dustry and I do not want to pretend that there are not well be a need for some changes in the regulatory app by the States to particular issues in the insurance indu requirements, ratemaking, and so forth.

But I think that it is not plausible to claim that this ity crisis is a hoax manufactured by the insurance ind in the administration who have looked at this proble found evidence to support that kind of implausible char

And I might indicate that an advisory commission a New York Gov. Mario Cuomo reported in April tha found no evidence to support that charge. The Antitru found the liability insurance industry was basically ve tive, very competitively structured; that there are th firms in the business, that none of these firms had a c share of the market; and that it is unlikely that the pre increases we've seen are a result of some kind of conspi lusion in the insurance industry.

Rather, they are a product of economic trends in the industry and the underlying and fundamental explosion ability in our civil justice system.

Senator KASTEN. Senator Danforth, would you like t questions of Mr. Willard?

The CHAIRMAN. Not at this moment.

Senator KASTEN. Senator Hollings?

Senator HOLLINGS. Mr. Willard, I am just catching up pacity has been as the Assistant Attorney General in cha study, is that it?

Mr. WILLARD. Yes, Senator.

Senator HOLLINGS. And the study is premised on what findings or correlation of statistical information relative called crisis? Where is that? What group is it?

They had some charts up here. Jury Research Group, i The Jury Verdict Research, is that it?

Mr. WILLARD. Our study, which is printed and I believe made available to your committee, has dozens of footnotes to a variety of sources. One of those sources it does cite a tics from Jury Verdict Research, Inc.

We also cite statistics from the Rand Corp. and from other studies which are reflected in the report itself.

Senator HOLLINGS. Well, let us take first Jury Verdict R You have looked very thoroughly into that, I take it? You up this particular study?

Mr. WILLARD. Yes, Senator, I did.

KAR

Senator HOLLINGS. And how long did you engage in it?

Mr. WILLARD. The working group was formed in October and our report was issued in February.

Senator HOLLINGS. And looking at the Jury Verdict Research and how they arrived at their particular statistical findings, did you look into its background? How many States did they study, how many cases, and so forth?

Mr. WILLARD. Yes, Senator. There is a footnote in the report that describes the limitations on the methodology used by Jury Verdict Research.

Senator HOLLINGS. That footnote is where, on what page?
Mr. WILLARD. I am trying to find out right now, Senator.
Senator HOLLINGS. It may be on page 39. I do not know.
Mr. WILLARD. That is one of the citations.

Senator HOLLINGS. What is happening is that I travel and I see and I listen, and I made a point to ask each one of our judges about this so-called crisis. They say, what crisis? And I ask them about product liability and the problem, and they say there is nothing unusual about it. I say, well, we are told now that the size of verdicts has risen recently.

I know we are a litigious society. There are many cases. Everybody sues everybody. But that pertains to all aspects of litigation, not just product liability-for example, the Pennzoil suit against Texaco, that is one verdict of $11 billion. So we are now trying to have a Federal solution to oil contract suits, are we? Or do you have a recommendation for the Pennzoil $11 billion verdict? Mr. WILLARD. No, Senator, I do not.

Senator HOLLINGS. And I do not, either, and I do not think we should right now. And that is a horrible thing, is it not? Right in the State courts, $11 billion.

Where do they really find this? I saw one chart up here and I wanted to look at that. I do not know whose chart it was. But describe your research into one of these study groups, the Jury Verdict Research Group. Tell us about that, Jury Verdict Research, Inc. How do they arrive at their particular conclusion that there was a crisis?

Mr. WILLARD. They did not arrive at a conclusion there is a crisis. They are a reporting service on jury verdicts that has been reporting information they gather for some years.

Senator HOLLINGS. Well, how do they gather it? That is what I am asking.

Mr. WILLARD. They gather it from lawyers who write in and report it to them, from newspaper clippings, from a variety of services.

Senator HOLLINGS. Come on now. You are an Attorney General. You are not going to come up and testify about newspaper clippings.

Mr. WILLARD. Well, Senator, we do not use the Jury Verdict Research, Inc., statistics as absolutely accurate data as to average jury verdicts in any particular year.

Senator HOLLINGS. What do you use, then, as data for absolute jury verdicts or absolute data for jury verdicts?

Mr. WILLARD. We cite to Rand Corp. studies.

Senator HOLLINGS. And you think that is absolute?

Mr. WILLARD. I do not know that any study is absolute, Senator. We cite a variety of studies, all of which corroborate the same kind of trends.

Senator HOLLINGS. No, but I mean, you are an Attorney General and a lawyer, and you and I try cases and we look at the factual background. What is the factual background to give this particular conclusion?

You tell me that they get it from newspaper clippings and people who call in. That is nothing scientific.

Mr. WILLARD. Well, Senator, it is not and we do not cite it for that purpose. We cite it to show trends, as we explain in footnote 33 on pages 35 and 36. We indicate that there are limitations on the use of that particular set of statistics.

However, Jury Verdict Research, Inc, has used the same methodology for a period of years and there is a trend, a very pronounced trend, in their statistics. The same trend is found in statistics reported by the Rand Corp.'s Institute for Civil Justice and other groups which have studied the tort system.

Senator HOLLINGS. But you and I as lawyers would know that to be a trend is hearsay. We are getting more hearsay, there is no doubt about that.

Mr. WILLARD. Well, the methodology of the Rand Corp.'s Institute for Civil Justice is based on examination of comprehensive court records.

Senator HOLLINGS. Did they go to all the court records?

Mr. WILLARD. It is my understanding they did, for the jurisdictions that they studied.

Senator HOLLINGS. How many jurisdictions did they study, and how many are statistically verifiable-I am just trying to get a conclusion on this, Mr. Chairman, because I doubt the thoroughness of both of them.

Mr. WILLARD. Well, I have never heard anyone criticize the methodology of the Rand Corp. in its studies. They obtained complete data from Cook County and San Francisco, as well as data from Los Angeles, and from a number of other jurisdictions. And from this data they plotted trends.

The CHAIRMAN. I would like to interrupt right now, please.
Senator KASTEN. Senator Pressler.

Senator PRESSLER. Thank you, Mr. Chairman. I have some questions.

Let me say that I really have nothing to add in terms of substance to what I said yesterday and at dozens of other product liability hearings. I do want to say that I understand the present plan is to mark this bill up as soon as we can after the Memorial Day recess. And assuming we will be able to address the legitimate issues raised at these hearings, and I see no reason why we cannot, I am prepared to move forward as soon as possible.

I applaud Chairman Danforth and my colleague Senator Kasten's efforts to move this bill to the floor as soon as we come back from recess. The sand is running out of our hourglass if we want to set a Senate vote on the bill in the 99th Congress.

The opponents of this legislation are all too aware of that, and delay will be part of their strategy. I make this point now because I am sure there will be those who will complain that there has not