the Senate that if S. 2760 was law, Dalkon Shields would still be on the market, asbestos would still be in your schools, Pinto-type gas tanks would still be in cars, and little children would still be wearing cotton flannelettes. I thank you. [The prepared statement of Mr. Habush follows:] BEFORE THE JUDICIARY COMMITTEE OF THE UNITED STATES SENATE Statement of the Association of Trial Lawyers September 10, 1986 Mr. Chairman and Members of the Committee, my name is Robert L. Habush. I am President of the Association of Trial Lawyers of America. We are pleased to appear today to present our views on S. 2760, the Product Liability Reform Act. The Association of Trial Lawyers of America strongly opposes S. 2760. We do so for two reasons. First, the legislation would not solve the insurance problems that have plagued this nation for the past year. Second, the legislation would unfairly penalize individuals harmed by defective products. S. 2760 would not solve the insurance crisis because the tort system has not caused the recent increase in insurance costs and decrease in insurance availability. To the contrary, the evidence indicates that the insurance industry itself caused the crisis. S. 2760 is unfair because it would allow manufacturers of unsafe products to impose unilaterally a cap of $250,000 on damages for pain and suffering regardless of either how severe the injury or how strong the claimant's case might be. S. 2760 would also deny injured individuals adequate compensation by eliminating joint and several liability for non-economic damages, thereby reversing a long-standing common law rule. The irony of the debate over product liability legislation is that, at the same time that the insurance industry calls for product liability legislation, it continues to resist federal oversight of insurance. The industry urges that individuals who suffer injuries caused by others should not receive adequate and equitable compensation, but it refuses to state that it will lower prices and increase coverage or even accept greater accountability to federal and state regulatory bodies. Congress should not allow this shell game to continue. The true causes of the insurance crisis must be addressed. Improvements in the regulation of domestic insurers and initiation of regulation of foreign reinsurance companies are essential first steps. I. THE INSURANCE INDUSTRY'S CLAIMS OF UNPROFITABILITY The insurance industry persistently has argued that increases in the number of claims and the amount of claims paid has forced it to increase prices and to remove coverage from manufacturers and sellers of products. With at least equal vehemence, the industry has refused to provide data on premiums paid, investment income, and actual claims paid by class of coverage. Purchasers of insurance, as well as governmental bodies, have no recourse against the industry's refusal to provide data, at least at the federal level. Nonetheless, the data that has become publicly-available belies the claims of the insurance industry. For example, earlier this year, the industry stated losses of over $5 billion in 1985. When challenged by the National Insurance Consumer Organization, the industry acknowledged a profit of at least $1.7 billion, even though the data gathered by NICO show a profit level even higher. The General Accounting Office found in an April 1986 study that the property/casualty industry has made between $50 and $75 billion in net gains over the period 19761985.2/ For every year from 1967 through 1984, the difference between industry assets and liabilities also has grown. The largest growth took place during the large price increases of the period 1975 through 1980, when premium income was augmented by extraordinary investment income. Surpluses have continued to grow steadily, though less dramatically, from 1980 through 1984, the most recent year for which aggregates are available.3/ In addition, property/casualty insurer's profit rose from 2% of net worth in 1984 to an estimated 7% in 1985.4/ If the effects of dividends paid to stockholders and unusually high hurricane losses in 1985 were removed, the industry's return on net worth in 1985 would have been about 13%, about the average for all American industries.5/ Best's Property/Casualty Stock Index indicates that insurance stocks have continuously outperformed the Dow Jones Index over the last five years. Last year, "the most spectacular performance" by a component of Best's Insurance Industry Stock Index was that of property/casualty stocks, which advanced 50%. Sparking the 1985 market return, according to Best's Insurance Management Reports, was the recording in the second quarter of 1985 of the first increase in property/casualty operating earnings in two years.6/ In fact, the General Accounting Office has found that "estimated data for 1985 indicates that the underwriting cycle has turned and is now moving in a positive direction. Indeed, the industry itself is projecting substantial net gains over the next five years."7/ The GAO calculates that the property/casualty industry will enjoy net gains in excess of $90 billion over the next five years. According to the National Insurance Consumer Organization, the industry profits increased 405% in the first half of 1986 over the same period last year. Return on net worth was up more than 300% in the first quarter of 1986.8/ In short, the insurance cycle has turned again. Recent press reports relate the easing of the crisis. Yet the call for restrictions on the rights of injured product users continues unabated. II. THE STATE PRODUCT LIABILITY SYSTEM HAS NOT Proponents of product liability legislation claim that curtailing the rights of those who suffer personal injuries will ease the current "crisis" in availability and affordability of insurance. The same outcry for product liability reform was heard in the late 1970's when the insurance industry was experiencing another "crisis." During the mid-1970's, product liability insurance rates increased significantly. the insurance industry was that there had been a staggering rise in the number and size of product liability lawsuits. Some insurers claimed that there were one million claims annually. The Interagency Task Force on Product Liability formed in 1976, as well as other studies, discovered that the allegations were unfounded. For example, the Interagency Task Force concluded that the "best estimate" of claims filed in 1976 is between 60,000 and 70,000.2/ By 1983, insurance industry and manufacturing industry representatives were acknowledging that product liability insurance costs had decreased, and deemphasizing insurance costs as a reason for passage of product liability legislation. Last year, insurance costs again increased substantially. Once again, proponents of product liability legislation claim it is a solution to the problem. The product liability system that is blamed for the current "crisis" and was blamed for the "crisis" in the mid-1970s also existed during the years between 1975 and 1980 when the insurance industry prospered. As Professor Joseph Page of Georgetown School of Law stated in March, 1985: There is no reason to believe that the tort premiums. The same may be said with respect, The evidence simply does not support the repeated claims that an explosion in lawsuits and jury awards have caused the current insurance problems. Study after study has reached this conclusion. In its investigation of the insurance crisis, the Monopolies and Commercial Law Subcommittee of the House Judiciary |