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Senator HEFLIN. I do not know whether there is. Maybe there is But I am not sure that it is a problem now whether the trial lawyers' insurance people and everyone else are guilty of a lot of things. But the product is going to come out of Congress and it de serves to have a reasonable content-something that a judge and a court can follow, something that is not going to have 150 different interpretations of the same language, something which is not going to eliminate all uniformity whatsoever.

Mr. HABUSH. Senator, there are some of crazy lawyers around and some crazy lawsuits around, but this bill just trashes the products liability system and will reduce any incentive for manufacturers of defective products from even being concerned about it, be cause you are talking about absolute chickenfeed for them, and when you compare it to the kind of disaster that it can befall people who are burned or injured by defective products.

As I said in my testimony, the examples I gave in my opinion and in the opinion of others would never have occurred, those products never would have been withdrawn from the market if this kind of legislation had been in effect 10 years ago.

Senator HEFLIN. Let me give you one more example: We have a section here on drunk driving, saying that it will be a defense if he is 50 percent liable, yet the bill allows for contributory negligence, which says you cannot recover if you are 1 percent liable.

So you have a person driving down the highway drunk, he is 45 percent at fault so he is allowed to recover. A man who was sitting next to him perfectly sober, who may be 1 or 2 percent at fault be cause he did not give a warning fast enough in regard to running into a Pinto or some other automobile that exploded; yet the drunk, he can recover even if he is 45 or 48 or 49 percent, and under this law you have a person that is 1 percent at fault and he cannot recover.

This thing to me, as I look at it, is just-I think somebody had better go back to the beginning on rewriting the language and trying to figure out what to do on it. That is all I have. Senator McCONNELL. Thank you. Senator Simon.

Senator Simon. First, I think we all pretty much recognize that we are going through a lot of speeches, you are taking a lot of time to testify, we are not going to pass any bill. This bill as it is now constituted should not pass, but we are not going to pass anything. and I find that frustrating. As I've said before, substantive changes must be made in this area. The executive council of the AFL-CIO has said we should have a bill, but that this one does not make much sense.

In the State of Illinois, in drafting legislation for unemployment compensation and workmen's compensation, we have what we call an agreed bill process, where labor and management get together and they recommend some changes, usually not sweeping changes, but pretty solid changes.

Mr. Habush, you have been good enough to meet with me one evening with Senator McConnell and some others to talk about possible compromises in this area. Does it make sense for the trial lawyers and the insurance industry and business to get together and say, "Let's face it, we do need some changes, we are just spin

ning our wheels. Let's see if we can't get some small, solid incremental changes that are desirable." That would follow the pattern of the process in Illinois, which has worked for us. I would like to ask that three of you if that makes sense to you.

Mr. HABUSH. Senator Simon, as you say, the three of us were together for dinner and that was the gist of your discussion, and I think that historically the American Trial Lawyers and the Association of Trial Lawyers of America have opposed any Federal legislation on this subject.

We have refused to participate in any drafting or solution to this because we felt so strongly that the common law was the best vehicle for the product liability and because we refused to believe that the premise for the need of change was correct, and we still feel that way, that the premises for this legislation just does not exist. It is just a myth, other than the fact that manufacturers and sellers understandably would like to minimize their exposure and insurance companies would like to cap their payments so they can make more money. I understand that. I would feel the same way about it if I were them.

We in the trial bar and in my administration are evaluating and reevaluating our position on all these questions. I for one do not believe that just because we have taken that position in the past, that that is the position we should be wedded to in the future, and there is a lot of political reality involved in that, in terms of if you do not get involved in the process you may have the process handed to you on a plate, and that is very unpalatable.

At the same time, it is difficult for the trial lawyers as an association or otherwise to get involved in negotiating away the rights of victims. We have no such right to do so. I mean, where do we have the right to enter into negotiations for present and future victims and to do things or make agreements with anybody that affects these people?

If the rhetoric would get lower, if people would stop this bashing of each other, the lawyer bashing and the manufacturer bashing which goes on, and start talking, perhaps there are mechanisms, such as Mr. Scott talked about, which could improve the tort system. I do not know that the Federal solution is the best solution as opposed to a Michigan solution or a Wisconsin solution. But certainly alternate dispute resolution mediation, or even voluntary arbitration, which may keep cases away from lawyers, so what, or maybe cause less legal fees, may be studied.

Maybe there are ways to do that and maybe there are steps that can occur. All I can say to you in response to that is that I have an open mind; my association and my administration is reexamining at the present time our positions. But I can tell you that there are certain sacred cows beyond which there is no negotiation and that is dealing away or negotiating away the rights of injured people without justification. I trust that answers your question.

Mr. Scott. If I might add, Senator Simon, I have been involved in tort reform activities in Michigan and we have put together or attempted to put together the kind of committees that you are talking about and unfortunately we have not been able to get any meaningful legislation out because we cannot agree on one basic fundamental and that is that there is a need for the change on it. Once you get over that hurdle, then you might be able to do something.

But I think what you suggested though is important, and that is that this committee and the draftsmen of any bill ought to get the input of a variety of people. The words “trial lawyer" have been bandied around here this morning as if the only trial lawyers in the world are those that represent the plaintiffs. Well, there are many, many trial lawyers in this country that represent the manufacturers, and I think that they have a lot of very good ideas that would be helpful to this committee.

Senator SIMON. My observation is that sooner or later we are going to get some legislation in this area. My fear is that if the legislation is too sweeping, we may not be able to responsibly forecast the results. I think the trial lawyers and the insurance industry and everyone else would be better off sitting down and trying to find a sensible, balanced middle road, rather than spinning our wheels and getting nowhere as we are now.

One of the next witnesses, Mr. Cheek, represents Crum and Forster Insurance Cos., the second-ranked writers of general liability insurance. One of the things that Mr. Cheek strongly objects to is gathering information at the Federal level. He says our industry is awash in product liability information. It is very interesting. It may be awash in information, but, as a member of the U.S. Senate, I have an awfully difficult time getting solid data on where we were, where we are, and where we are going.

Incidentally, we are the only Western industrialized nation that does not have central government control of insurance. I am not advocating that, but I am suggesting that the central government has the responsibility to see that we have adequate information.

Mr. Cheek says that the insurance business is a State-régulated industry, and thus far has been able to fend off both well-intentioned and maliciously motivated efforts to sweep it into the stifling embrace of Uncle Sam.

My observation is the insurance industry is happy to have Uncle Sam come in to protect it, or to overrule a local ordinance they do not like. But if the Federal Government wants to collect data, that is a horrible thing. Any comments, the three of you?

Senator McCONNELL. Before the comments, I must join Senator Heflin at the impeachment meeting, which is extremely important; the 2 of us are 2 of the 12 members of that. We are going to continue either with Senator Simon or with Senator Broyhill or with staff, and I apologize for having to depart.

I am sorry, go ahead.

Mr. HABUSH. Senator, I believe that there has been no industry in the history of this country that deserves regulation more than the insurance industry. I just came back from a panel at the National Association of Insurance Commissioners' meeting, in which a full half a day was spent on do we get enough data, and the consensus of people other than the ISO, the Insurance Service Organization for the insurance company, was that when it comes to specific information about specific lines of insurance and with specific information for what amount of dollars change hands and how much is paid for pain and suffering versus economic loss, we do not have that data, and the only way to get that is from closed claimfile examinations.

Congressman LaFalce, back in 1977 and 1978, discovered that during the last products liability crisis, and he discovered some interesting facts, that instead of 1 million products liability claims filed a year, there were 60,000 to 70,000. And instead of half a million average in products liability awards, it was something less than $20,000. So you are not getting enough data and they have the capacity, these insurance companies, to get you the claims data, and it seems to me that if they want to change the civil justice system they have the burden of proof, they should come forth with proof, and you do not get it from the reports that show how much they paid out in claims or how much they reserve. You can only get it from the closed claim files, and it is only going to take a congressional act to get it and congressional overview to replace the inadequate State regulation that is going on.

If you had had adequate State regulation, you would not have had this insurance crisis. They would not have given away their insurance policies in the late seventies and early eighties. They would have controlled the rates. That is my view.

Senator SIMON. I would just add my own observation of State regulation, in the State of Illinois: Sometimes we have had good insurance commissioners and sometimes we have had insurance commissioners who are, frankly, completely under the thumb of the insurance industry. In those cases the regulation has been minimal at best.

Any comments from either of the others?
Mr. Scott. No.
Mr. Few. No, Senator.

Senator Simon. Then finally one last question. If two people in Washington, DC, who run shoe stores get together and set the price of shoes, we can throw them in prison for 3 years. If two insurance companies get together and set the price of insurance, that is perfectly legal.

What do you think of a modification of the McCarran-Ferguson Act which would allow insurance companies to continue to gather risk information but which would prohibit getting together and setting prices?

Mr. HABUSH. I am in favor of that. I think the recent experience of the insurance crisis of 1986 justifies it. You had an entire industry tripping over each other to give away their commercial policies in the late seventies and early eighties. When one insurance company tried to hold the fort-I think it might have been Hartfordthey lost so much business that they had to get into the race.

They have shown that they cannot govern themselves with respect to rate regulation, both up or down, and that agreements among insurance companies with respect to price I think is a dinosaur and that there has to be Federal regulation taking away their exemption from antitrust. I think that more egregious was their total withdrawal from the day-care center industry, with the complete absence of any claim experience. And studies have shown that 97 percent of the day-care centers were not even ever sued, never had a claim against them, and yet they could not get insurance anywhere. Is that not interesting, that no insurance company in America would insure day-care centers?

Now they are starting to get insurance again, they are starting to get back in the market. But they have shown a level of irresponsibility for an industry that has become a central part of American business. That is why there is such a panic in the country. They have made themselves like utilities, like the gas company and the water company and the electric company. They have made themselves essential. Now they have got to own up to that essential aspect of their business, and if they cannot govern themselves then we have to govern them for them, and I suggest that this will not occur in the States, it has to be done here in Washington.

Senator SIMON. Any comments from either of you?

Mr. Scott. Senator, I am really not qualified to comment on that aspect of your question and, with all due deference to Mr. Habush, I would suggest that you need some information and background from some people with different areas of expertise than we have to answer that very complicated question.

Mr. Few. No, Senator, I have no expertise in that area.

Senator SIMON. We thank the three of you very much for your testimony.

Our next panel is Jan Smith, the U.S. Chamber of Commerce, Mr. Leslie Cheek, Crum & Forster Insurance Cos., Mr. R.C. Riley, Independent Insurance Agents of America, and Mr. Jay Angoff, National Insurance Consumers Organization.

Again, we will put the full statements in the record, and if you can summarize that will be helpful.

Mr. Smith.



Mr. Smith. Thank you, Senator Simon. I am Jan Smith, president of Jan Smith & Co., of Bradenton, FL. I am an independent businessman and entrepreneur, if you will, with interests in real estate and business investments, equipment leasing, recreational vehicle and mobile home park, a shopping center, appliance sales and service, furniture manufacturing and an independent insurance agency.

I am appearing on behalf of the U.S. Chamber of Commerce today, as a member of the chamber's board of directors and a member of the chamber's Council of Small Business.

I am grateful for the opportunity to testify on the need for product liability reform, a matter of enormous concern to the business community and the public at large.

I feel I am particularly qualified to speak on this issue of product liability reform and the larger issue of overall tort reform, because the businesses that I am a principal in all purchase insurance, and one of them in fact sells insurance, so I am a buyer and a seller of

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