The member

The American Insurance Association (AIA) is a trade association which is comprised of over 170 property/casualty insurance companies. companies of AIA provide the majority of the product liability coverage written throughout the United States.

Our association has long been committed to product liability reform and has in the past been supportive of a federal solution to the product liability problem. We have also been actively working on the state level to achieve the type of substantive reform that is necessary to restore predictability to the civil justice system.

As the Committee is aware, product liability rates have increased sharply during the last two years. They reflect the risks associated with the production and distribution of products. The number of federal product liability suits has increased by 750% since 1974. During the same period of time, the average jury verdict has increased from under $400,000 to over $1.8 million in product liability cases.

While there is a general trend towards increased product liability costs, it is important to note that there are over 400 distinct product liability lines and not all of them have been adversely affected by changes in our civil justice system. Some lines of business have remained stable while others, most notably those involving chemical, pharmaceutical, general aviation, and automobile manufacturers, have been disproportionately impacted and accordingly would benefit the most by substantive product liability reform. Indeed, the increased exposure of these kinds of business to liability at every turn has resulted in higher liability insurance rates and has significantly reduced their ability to meet the challenges from international competitors who are not so burdened by court decisions in their countries. In

some jurisdictions exposure remains high even though product manufacturers and sellers have done everything possible to avoid injury and have met or exceeded all legal and regulatory requirements.

While S.2760 seeks to redress the problems besetting product manufacturers and sellers, it falls woefully short of that goal. It also is flawed in that it contains a provision which would require insurers to report detailed information to the federal government. This information is already on file with state regulators and the effective result is that purchasers of product liability insurance will be asked to subsidize this information gathering activity. The insurance industry therefore cannot support this measure unless Title IV of the legislation is deleted.

AIA Comments on S.2760

AIA believes that the legislation positively addresses some of the problems which relate to the offset of workers' compensation benefits as well as standards of liability governing product sellers. With respect to the former we believe that the provision adopted in S. 2760 would leave claimants whole while significantly reducing transaction costs. We applaud, in particular, subsection (c) which prohibits third party suits by an employer or its insurer against the manufacturer or product seller defendant for workers' compensation payments that arise from a product liability claim.

We also believe that S.2760 would bring about substantial benefits for product sellers who in most circumstances would only be held liable for their own negligent actions. It would rectify an imbalance which exists in several jurisdictions whereby a claimant is successful in bringsing a suit against an innocent product seller despite the fact that it exercised every possible precaution that a reasonable person would have taken in the sale or

distribution of the merchandise which gave rise to the claim.

Joint and Several Liability

Our next comment is addressed to the issue of joint and several liability.

AIA believes that recent trends relating to the expansion of joint

and several liability must be curtailed if stability is to be brought back to

the insurance marketplace. In several court decisions applying this doctrine,
defendants who are only partially responsible for an injury are nonetheless

required to pay for all of the costs of compensation.

This has made it

extremely difficult for an insurer to assess the risk of the insured.
Insurers providing coverage for a manufacturer might be underwriting not only
the activities of their own insured but also others over whom they have no
control and from whom no premium has been received.

Each

Under an amendment which was introduced by Senator Pressler and adopted by
the Senate Commerce Committee, the imposition of joint and several liability
would be prohibited for pain and suffering awards and punitive damages.
defendant would still remain jointly and severally liable for all forms of
economic loss. While the Pressler amendment constituted an important
improvement over the bill as originally drafted, it clearly does not go far
enough as innocent parties could be required to shoulder responsibility for
the acts of the true wrongdoer.

There would exist be substantial uncertainty

in assessing liability thereby making it difficult for insurers to assess
their exposure on an individual contract.

Accordingly, we strongly recommend

that the legislation be strengthened by limiting the imposition of joint and
several liability to only those instances where parties are acting in concert.

Fault Based Standards

AIA was very disappointed by the fact that S.2760 fails to articulate
standards governing the conduct of product manufacturers. In our view, a

return to fault-based standards is absolutely essential in order to restore
order to the civil justice sytem. In recent years judges have moved
increasingly toward a concept of absolute liability, holding defendants liable
for all injuries related to their activity regardless of the forseeability of
the injury by the defendant and regardless of whether the injury might
reasonably have been avoided by the injured plaintiff. This runs counter to
the traditional principles of tort law. It also has the unintended effect of
encouraging wrongful behavior since under absolute liability those who have
behaved properly are punished indiscriminately with those who have acted

AIA accordingly would seek changes to the legislation that would absolve a manufacturer from liability if the unsafe aspect of the product is an inherent characteristic of the product which would be recognized by an ordinary

consumer. In addition, a manufacturer would not be liable for harm allegedly caused by a defective product if the harm was caused by an unavoidably unsafe aspect of the product.

The Association also believes that the Senate should adopt amendments to the bill which are being proposed by Senators Lugar and Kasten that would establish two fault-based defenses in product liability lawsuits. The first would preclude the imposition of liability if a product had been unreasonably or unforseeably used or altered. The second would prevent liability for design defects unless the defendant can prove that, at the time the product left the control of the manufacturer, a practical and technologically feasible alternative design was available.

These two amendments are essential improvements to the bill that would rectify the unfairness associated with holding manufacturers liable for the misuse of their products or for risks that could not have been known at the time it made those products. The latter provision is absolutely essential in areas such as chemical and pharmaceutical manufacturing where scientific changes take place at a very rapid pace. Concern that courts in the future will hold

their actions in 1986 subject to the scientific standards of the year 2000 has thwarted new product development in the United States and has caused many product manufacturers to produce and market innovative products overseas rather than face the uncertainty of the U.S. civil justice system. Data Reporting Provision

Our final comments are directed toward Title IV of the bill which would require product liability insurers, self insurers and captive insurers to report to the Secretary of Commerce "all data deemed necessary by the Secretary to fully present and analyze the impact of the Act on such insurers." The Association is steadfast in its opposition to this provision. The insurance industry already compiles detailed information about product liability coverage for state regulators as well as state licensed statistical agencies. These data are broken down on the basis of product classifications and subclassifications and are made available to anyone who desires the same.

It

The information sought under Section 401 would have absolutely no effect on the availability or affordability of product liability insurance. would, however, establish an unneeded and unwarranted costly bureaucracy at the Department of Commerce which would duplicate much of the work already being performed by state regulators. This view is not shared by insurers alone. Indeed the largest consumers of product liability insurance, including those represented by the National Association of Manufacturers and the Product Liability Alliance, have spoken out in opposition to this provision. Surely they as consumers of insurance would not do so if they felt there were any benefits to be gained by its adoption. Ostensibly, Section 401 was inserted in order to provide Congress with a better understanding on how S.2760 was affecting product liability rates and coverage. While AIA does not oppose an

Instead of vesting new

evaluation of the effectiveness of the Act, we believe that the approach advocated in Section 401 is poor public policy. authority at the Department of Commerce, Congress would be much better advised to secure the information it needs directly from state regulatory authorities as well as the National Center for State Courts and the Administrative Office of the U.S. Courts. With respect to information from state regulatory agencies, it should be noted that the President of the National Association of Insurance Commissioners, Josephine Driscoll, has indicated in a letter to Senator Danforth that her association is prepared to provide Congress with "the comprehensive data specific to the product liability line of insurance." In a period of fiscal austerity, it is the height of foolishness for the federal government to incur new expenses when its objectives can be satisfied at little or no cost.

Conclusion

S.2760 is an incomplete measure which, while containing some provisions that may assist in ameliorating the liability crisis, is nonetheless inadequate in redressing the imbalances which exist in the civil justice system. The American Insurance Association cannot support the measure in its current form. Title IV must be deleted and other sections of the bill relating to fault-based standards and defenses must be strengthened if the measure is to gain our enthusiastic support.

Respectfully submitted,

Peter A. Lefkin