ent with the principles of federalism, is a question which I have not yet answered, but clearly because of its impact on interstate commerce, there is an overwhelming consensus for Federal reform of our product liability system, and I applaud the efforts that Senator McConnell has been making.

Today's system, the current system, is a national disgrace. It is the No. 1 problem for consumers in America. The costs of this system, the exorbitant costs of this system, where more money goes to attorneys than to injured victims, as the Senator from Missouri, Senator Danforth, pointed out, are passed along-those costs are passed along to the consumer in the form of higher prices for American goods.

We have reached the point where well over a third of the cost of an ordinary stepladder, for example, goes solely for liability insurance. The American people are fed up with this hidden attorney's fee tax on every product that they buy.

Most of S. 2760 is the product of an overwhelming bipartisan consensus on the product liability issue. The core proposal, the basic proposal passed on a 16-to-1 vote in our committee, and I think that is very important when we talk about the chances for passage, when we talk about where this legislation is going; 16-to-1 was the vote in the committee on the basic core proposal of S. 2760. Only one member of the committee still believes that a Federal solution to the product liability explosion is inappropriate.

We achieved this consensus and that consensus included a number of complicated difficult issues. The statute of repose was part of the consensus. The statute of limitations, the uniform fault standard, subrogation lien elimination, penalties for attorneys who bring frivolous suits and cause undue delays, punitive damage clarification, and provisions relating to admissible evidence and to proper situs for claims arising in foreign countries-all of this was part of our overall 16-to-1 consensus.

I believe that our legislation is a good sound bill which would go a long way toward alleviating the liability crisis. However, I believe that a return to the concept of fault in our tort law is essential. I think it is absolutely essential to restore fairness and also to restore predictability. We need that fault-based standard.

Recent cases have held manufacturers liable when they were totally innocent. Several courts have held manufacturers liable for failing to warn about dangers which basically were unknowable at the time. One court held a manufacturer liable where there were no injury to the plaintiff, only a fear of future injury. Other courts have held manufacturers liable for injuries to the plaintiff where the plaintiff has unreasonably altered or-and we are finding this in our testimony and I am sure you are going to see this in yourswhere they have either altered or they have misused the manufac turer's products. Such decisions punish the innocent indiscriminately with the guilty and thus make the system useless for discouraging manufacturers from making defective products.

Senator Lugar and I will offer a short and simple amendment to provide two fault-based defenses to protect those who are truly innocent. Our amendment simply provides that a manufacturer should not be liable for harm caused by defects which the manufac

turer could not have known about due to scientific, technical, and medical knowledge available at the time.

Further, this amendment provides that a manufacturer should not be liable for harm resulting from the unreasonable alteration or the misuse of the manufacturer's product.

Mr. Chairman, I strongly urge the passage of S. 2760, along with the fault-defense amendment, as well as Senator Pressler's amendment to eliminate joint and several liability. Narrow special interests have delayed a solution to this crisis for too long. Congress should act and I believe we should act this session on this urgent priority of the product liability crisis.

Mr. Chairman, I thank you for the opportunity to appear before you today.

Senator BROYHILL. I thank you and I want to commend you and the members of the Commerce Committee for your hard work in formulating this legislation.

At this time, I recognize the Senator from Kentucky, Mr. McConnell.

Senator MCCONNELL. Thank you, Mr. Chairman.

Senator Kasten, I, too, want to commend you for your leadership in this field over the years. I listened with great interest to your testimony and, as you know, most of the liability crises that you cited at the beginning of your testimony would not be affected in any way by the passage of S. 2760. They would only be affected by the passage of a broader, more comprehensive tort reform bill at the Federal level, which you did make reference to.

I am wondering, even though some have suggested some constitutional problems with it, I wonder if you have any constitutional problems with it, and second, if you could support an amendment in the nature of a substitute offered on the floor to S. 2760 which would broaden tort reform at the Federal level.

Senator KASTEN. I could and I will. I believe that the work that you are doing is important. I recognize the fact that the product liability reform legislation that we are working on is somewhat limited. It would affect some of the groups that I referred to in different kinds of ways, but it is not as broad as the legislation that you are talking about.

Our legislation is geared toward the Commerce Committee jurisdiction and our legislation is geared toward the most direct difficult problem areas. But I commend you for the work that you are doing. We both have worked closely with the administration. Some of their legislation is of a broader nature than S. 2760. I support that legislation. I introduced the bill.

So I think that we need to work together and I look forward to working with you on a broader piece of legislation as well as concentrating on trying to pass something very close to S. 2760.

Senator MCCONNELL. If predictability is the biggest problemand that is what Senator Danforth made reference to, and yourself as well-what I fear is that if we leave this outside of the product area, if we leave this largely to the discretion of the States, we are going to end up with such a crazy quilt of different actions that, when you look out at the American tort system, particularly if you are in the insurance business on a national basis, you are going to see not much predictability after all is concluded. Some States will

act, some States will not act, and those that act will each do something quite different, and it seems to me if ever there was an area that cried out for some kind of national standard, this is it.

It does, as Senator Heflin pointed out yesterday, certainly represented a break with the past in terms of how tort law has been considered in the history of the country, but it seems to me that we need a break with the past in this area and I think we can do it without violating the Constitution.

Senator KASTEN. We have had hours upon hours of testimony in the Commerce Committee, and one of the points on which there is wide agreement is that one of the reasons for the high transaction costs-which is what we are trying to reduce-one of the reasons for the high transaction costs is the fact that you have got this patchwork of, in effect, 50 different laws in each different State. Not all of the products that are made in Wisconsin are used in Wisconsin.

So if we could solve this problem in my home State of Wisconsin, we really do not solve the problem even for Wisconsin manufacturers because most of the products that Wisconsin manufacturers manufacture are manufactured outside of the State of Wisconsin. We get ourselves into a crazy kind of a situation where in Wisconsin we do manufacture cranes and other kinds of earth-moving and huge heavy construction equipment. We have got four or five manufacturers of that.

If a crane is backed up into a power line while it is up in Illinois, the crane manufacturer right now is held liable. If the exact same accident happens in another neighboring State of Wisconsin, Minnesota, the operator of the crane or the person who employed and/ or trained the crane operator is liable. And New Mexico does it the same way that Minnesota does. I am not going to argue that Minnesota is right and Illinois is wrong, but the point is now you go back and your responsibility is risk management, your job at Harnesvegen or Allis-Chalmers or Caring or whatever crane manufacturer you are in Wisconsin, your job is to try to determine how to cover, how to insure against accidents. You cannot decide whether the accident is going to happen in Minnesota or in Illinois or in New Mexico or in other areas. You do not know which way they are going to go.

So you have got this uncertainty, this lack of predictability and that is one of the major reasons that we have these tremendously high costs of insurance, and these huge costs related to the transaction of product liability litigation. What we have got to do is to have a standard, a broad based standard that will cover the 50 States. It does not mean we are going to get rid of all our product liability problems, but at least we have got a base, a common base of understanding.

I believe that is why the White House Conference on Small Business listed this as the number one problem facing small business. Most small businesses, even though they are small, do not manufacture products for only their State. We are all in interstate com

merce.

Senator MCCONNELL. You know, analogous to the situation you just described and one of my concerns about dealing with product liability only is the case in which you have multiple defendants,

some of the defendants being sued for alleged defective products and others being sued in the very same case for negligence; and so the jury is confronted with a situation in which there is a limit on the recovery that the plaintiff is entitled to against those defendants who made the defective product, no limit on those defendants in the same case who are alleged to be somewhat negligent, and that was somewhat a part of the action, so you end up with disparate results in the very same case.

I say that not in any way to disparage the efforts of yourself and others who work in the products field, but once again to make the argument that uniform standards across the board that bring some predictability to tort law across America-whether in products or in malpractice or in negligence-it seems to me would get the kind of desired predictability that the business of insurance cries out for. And when I say "the business of insurance," I do not mean the insurance industry.

As you pointed out, whether you retain the risk or whether you go to an insurance company to retain the risk, you still have got a problem. The problem is the spreading of the risk, as you accurately pointed out. It is an enormous problem and I hope we can get some kind of comprehensive solution to it at the Federal level. Senator KASTEN. I look forward to working with you. [The prepared statement of Senator Kasten follows:]

PREPARED STATEMENT OF SENATOR ROBERT W. KASTEN, JR.

Mr. Chairman, members of the committee, I greatly appreciate the opportunity to testify today in support of S. 2760, "The Product Liability Reform Act." I am in complete agreement with President Reagan, Majority Leader Dole, and colleagues on both sides of the aisle who believe that action on product liability legislation is absolutely essential in this Congress.

Since our Consumer Subcommittee began hearings on this issue five and half years ago, the product liability crisis has intensified, and the consensus for Federal action on this issue is now overwhelming.

Just three weeks ago, the delegates to the White House Conference on Small Business ranked the liability crisis as the number one problem for small business today. The delegates, in an unprecedented action, passed a resolution calling on Congress to pass the specific legislation under consideration here today.

Only two weeks ago, the National Governors' Association overturned a long-standing policy against Federal preemption of product liability laws and voted to support a Federal resolution to the product liability crisis.

Mr. Chairman, our product liability system has been in need of reform for many, many years. No one knows this better than the newest member of your committee, Senator Broyhill. Jim Broyhill introduced the First Comprehensive Product Liability Reform Act in the House of Representatives a Full three Congresses ago, and I believe we are truly fortunate that his expertise will be available to this body as we debate this bill on the floor later this month.

When this legislation was introduced, the American people were largely unaware of how severe the product liability crisis had become. Today, however, because of the overall liability crisis, the lives of everyone in our society have been adversely affected by our tort system. All over the country, the liability crisis is changing the way we live.

Will' County, Illinois, has closed its forest preserves while it searches for a new liability insurance policy, and Blue Lake, California, has decided to shut its skating rink, parks and tennis court. Eau Claire County, Wisconsin, has canceled their memorial day parade and the annual Fourth of July fireworks display. Thousands of cities and towns are being forced to "go bare”—They cannot afford liability insurance at all.

On the Hawaiian Island of Molokai, Women can't give birth with a doctor in attendance. The five Molokai doctors who once delivered babies have stopped doing so because malpractice insurance would have cost them more than the total of any ob

stetrical fees they could hope to collect. Hundreds of communities across the United States are not without the services of a single ob-gyn.

Small businesses across the country are shutting down because they can't get liability insurance coverage. Day-care centers are facing astronomical increases in their insurance rates. And manufacturers of everything from football helmets to child-safety seats are halting production because of high liability insurance costs.

And every American pays: Doctors and their patients, ski-slope operators and their patrons, municipal governments and their taxpayers, and consumers of almost every product you can find on the shelves of any major department store today. Society pays a price as well.

A few years ago there were four U.S. companies manufacturing a measles vaccine. Today, because of the high cost of liability insurance, there is only one.

A Milwaukee company has designed a new safety braking device for lawnmowers, but they can't afford to market it. If they do, their liability insurance will go from $18,000 to $200,000.

Researchers at Stanford University have pioneered the development of a miraculous new artificial skin, which can save the lives of thousands of burn victims in our country each year. Yet they cannot get insurance for their life-saving innovation— no conventional insurance company will touch them because of the risks.

Under the current, crazy system, the liability crisis threatens to deprive us of vaccines, anesthesiology equipment, and hundreds of other products that are, on balance, very good for society as a whole.

Unless changes are made, these products will no longer be available, or they will be available only at a much higher cost, or they will be made only by foreign manufacturers and thousands of American businesses and jobs will be lost. A recent survey in my home State of Wisconsin revealed that a full 10 percent of small businesses in our State must close their doors if something isn't done about the current liability crisis.

That's why I say that the liability crisis is becoming the number one economic issues of our times.

I know that Senator McConnell of this committee has been searching for ways to address the broader liability crisis, and I applaud his leadership in this area. Whether or not a Federal solution to the broader tort crisis can be fashioned which is consistent with the principles of federalism is a question which I have not yet answered. But, clearly, because of its impact on interstate commerce, there is an overwhelming consensus for Federal reform of our product liability system.

The current system is a national disgrace. It is the number one problem for consumers in America. The exorbitant costs of this system, where more money goes to the attorneys than to injured victims, are passed along to the consumer in the form of higher prices for American goods. We have reached the point where over onethird of the cost of an ordinary stepladder goes solely for liability insurance. The American people are fed up with this hidden attorney's fee tax on every product they buy.

In addition to driving up product prices for consumers, the product liability explosion is closing businesses, destroying jobs, crippling American manufacturers' ability to compete with foreigners, discouraging product innovation and improvement, and driving a wide variety of good and beneficial products—from life saving vaccines to football helmets-off the market.

The product liability explosion threatens everyone in America who uses, sells, or manufacturers products.

Most of S. 2760 is the product of an overwhelming, bipartisan consensus on the product liability issue. A core proposal, encompassing most of the key aspects of S. 2760, passed by a 16-1 vote in the Commerce Committee. Only one member of our committee still believes that a Federal solution to the product liability explosion is inappropriate.

We achieved this consensus on such complicated issues as the statute of repose, the statute of limitations, a uniform fault standard for product sellers, subrogation lien elimination, penalties for attorneys who bring frivolous suits and cause undue delays, punitive damage clarification, and provisions relating to admissible evidence and to proper situs for claims arising in foreign countries.

All of these provisions will provide uniformity, clarity, and certainty in the law which will reduce transaction costs and provide a fairer system for product users, sellers, and manufacturers.

I believe that S. 2760 is a good, sound bill which will go a long way toward alleviating the liability crisis. However, I believe a return to the concept of fault in our tort law is absolutely essential to restore fairness and predictability in the law.