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The company has settled dozens of lawsuits reportedly amounting to millions of dollars filed by victims of the families, all victims of failed valves.

What would a dead victim's family have to prove in order to collect punitive damages under this bill?

Mr. WILLARD. Senator, first, the provision you are referring to was not proposed by the administration but was added in the Commerce Committee. We did not propose it.

Senator METZENBAUM. Do you support it, or you oppose it?

Mr. WILLARD. We think it would be better to consider relief in this area on a general basis rather than limiting it to particular industries as this amendment does.

Senator METZENBAUM. So you would broaden it, is that what you are saying?

Mr. WILLARD. Well, we think that reform in the area of punitive damages is warranted, as a general matter. Our working group did not recommend this device. It is not the way we would have chosen to go about doing it.

How this would apply to the particular case you have mentioned, I do not know.

Senator METZENBAUM. Mr. Chairman, I see many of my colleagues have arrived. I do not want to impose upon the committee's time. I do have additional questions which I will submit in writing. Thank you, Mr. Chairman.

Senator HATCH. Thank you, Senator Metzenbaum. We will turn to Senator McConnell.

OPENING STATEMENT OF SENATOR MITCH MCCONNELL Senator McCONNELL. Thank you, Mr. Chairman.

As you know, I, for one, have long concluded that our tort liability system has broken down, and that it is the responsibility of the Congress to make suitable repairs.

I am certainly not alone in that judgment. Indeed, the American people, as a whole, have reached the very same conclusion.

According to a recent Lou Harris survey, and I quote: “The American people favor radical changes in the laws governing liability suits." Two-thirds of those surveyed believe that it is too easy to sue for damages. Two-thirds believe that the size of cash settlements is too excessive, and that maximum awards, other than medical benefits, ought to be capped at $150,000. Now that is the American people talking there in that survey.

In addition, that survey found that Americans are most decisive in attributing the blame for these systematic problems, and again I quote, to the lawyers, “lawyers looking for big contingency fees.” An astounding 80 percent of those surveyed concluded that that was a big part of the problem.

Personally, I would not place the entire onus of the liability crisis upon what 80 percent of our citizens seem to regard as greedy lawyers, but it is certainly eye-opening to see just how far the public's esteem for the legal profession seems to have fallen.

No. I would be among the first to point out the dismal record of the insurance industry in recent years. Careless management, unsound underwriting practices, and cut-throat, carefree competition within the industry, has certainly exacerbated the current liability crisis.

Perhaps this needs to be studied further. But it is misleading, distorted and arrogant to assert that we are merely contending with an insurance crisis. The American people have not been fooled, and neither will the Congress of the United States. The evidence is abundant and incontrovertible. We have been witnessing a liability system run amuck. I know that some of the facts and statistics, and horror stories that have emerged recently have produced skepticism and controversy. Many of these will be reviewed during this particular hearing.

But allow me to offer a few statistics, totally neutral in themselves, that are quite revealing. According to information published by the Administrative Office of the U.S. Courts, it is quite apparent that we are witnessing dramatic trends in the litigiousness of our society.

In 1961, 21,205 tort suits commenced in the Federal courts. By 1985, that figure had almost doubled to 41,593. Those figures represent all tort and personal injury suits filed.

If we delete-I repeat-delete those suits involving motor vehicles and property suits, the figures are more pertinent. In 1961, there were 10,577 such actions, while in 1985, there were 30,784, almost a threefold increase.

One extraordinary statistic is that while motor vehicle suits actually decreased substantially over that period of time, from 9,083 to 6,776—that is, by about a third-medical malpractice suits commencing in Federal court went from 385 in 1978 to 1,779 in 1985, an incredible percentage increase of 462 percent.

Similarly, between 1974 and 1984, product liability suits in Federal courts increased 580 percent. Trends such as these in such areas as medical malpractice, product liability, municipal liability, have also been established by such reputable organizations as the Rand Corp. Institute for Civil Justice.

These studies point not only to an increase in the numbers of such actions but also to the relatively higher damage awards and incidences of punitive damages in these types of suits.

One illustration, as revealed by the institute, is that between 1960 and 1979, in Cook County, IL—that is Chicago--a plaintiff who was injured due to medical malpractice was awarded an amount that was three and a half times the amount awarded to a plaintiff for a similar injury due to an accident on property, such as a slip and fall case, obviously a bias in favor of suits against physicians.

It is not my intent to continue to rattle off such statistics at this time. What these numbers demonstrate, however, is most disturbing.

They evidence the mounting randomness and inequity of justice in tort actions. Other evidence points to the disintegration of our tort system from one based upon fault and one's own culpability for wrongful actions, to one based upon sympathy and the search for the deep pocket.

Having said all this, I must now confess, as you know Mr. Willard, that I do not necessarily endorse S. 2760, either in concept, or in the manner in which specific provisions are currently drafted. I would submit that the bill is far too narrow in scope. It covers but a limited and inadequate range of tort actions. It fails to encompass either professional or municipal liability, or even general commercial liability.

To that extent this proposal is flawed. To ignore the plight of doctors, architects, engineers, our cities and towns, and even boy scouts, and others, is simply unacceptable.

I have introduced legislation that proceeds along a broader path, that would endeavor to redress our decaying tort system in a uniform, comprehensive, and systematic manner.

It is my intent, as you know, to offer this in the form of a substitute at the appropriate time on the floor of the Senate.

With those brief opening remarks, I would like to ask you this, Mr. Willard. A number of news accounts have suggested that the liability insurance availability, or affordability crisis is ending, and I wonder if you agree with that? If the liability insurance crisis is abating, what impact would this have upon the underlying causes of the liability crisis as identified by your own tort policy working group?

Mr. WILLARD. Senator, as our working group report indicates, we view the availability crisis part of this problem as one that may very well abate as the economic health of the insurance industry returns. The industry seems to be recovering, so that insurance will be more widely available than it has been. Insurance affordability is another problem though because insurance is basically a pass-through mechanism. It takes the liability costs imposed by the civil justice system and passes them through to people who pay the premiums.

Although the cyclical problem may be easing, the ultimate cost is still there, both in terms of premium levels as well as in the impact on the availability of goods and services.

In particular, I would note that one reason the crisis has abated is that insurance companies have been engaging in more careful underwriting practices. That is to say, they have been limiting their coverage. They have been not undertaking to underwrite what they view as more risky kinds of coverage.

This has been a particular problem for manufacturers in such areas as general aviation, pharmaceuticals, and chemicals.

Similarly, with regard to medical malpractice, as you point out, the impact is there and is continuing. Many specialists are stopping their practice and leaving their fields altogether. This is especially true in obstetrics. The high costs of premiums continues, even though availability as such may be not as much of a problem.

So, in conclusion, I would say that the problem is still there, even though it may not be quite as acute as it was a few months ago.

Senator McCONNELL. The Department commented, briefly, on the insurance data collecting requirement of S. 2760. What benefits, if any, would this produce in your view?

Mr. WILLARD. I do not see many benefits at all, Senator. I think information is always desirable, but as I indicated, this information is being collected by State insurance regulatory authorities, and to the extent there is a need for cooperation, there are existing mechanisms that can do that.

Senator McCONNELL. I have felt, along with a lot of others, a good deal of frustration by the insurance industry's role in the crisis and, exactly what that is, and I think it can be persuasively argued that there is an absence of data, or information, to substantiate what the industry's role is in the development of the advent of the crisis.

I am wondering what your view would be on a study by GAO to determine the role of the insurance industry in the liability crisis, obviously, with some kind of specific time limit though, so that we do not have an unending study here.

How would you feel about that, Mr. Willard?

Mr. WILLARD. Well, Senator, as I said earlier, it is hard to be opposed to collecting data or studying problems, but I do not agree that the problem here is an absence of data. Rather, the problem is a multiplicity of data. It is not that we do not have the data. We have reams of data. I have seen so many studies, so many statistics-

Senator McCONNELL. We just do not know what to do with it.

Mr. WILLARD. The problem is analyzing it and making sense of it. That is the problem our working group faced with regard to the insurance problem.

One of the problems is, the answer you get depends on the question you ask. GAO has made, I think, some questionable assumptions.

For example, they do not think that you should take into account policyholder dividends as being an expense of an insurance company when in fact policyholder dividends in effect reduce the cost of insurance to people who receive them.

When I get a dividend from my automobile insurance company, it is subtracted from the premium I have to pay. I would be very unhappy if I did not get that dividend, and yet GAO says you should ignore it.

So, I am not sure that a new study by GAO would necessarily put all the questions to rest. It might just further revive the debate.

Senator McCONNELL. Well, if you are satisfied the data is there, and you have looked at it, I gather it is your conclusion that-at the risk of repeating what you said earlier-that even if the liability insurance crisis abates, there is still a need for tort reform at least in the product area in the view of the administration?

Mr. WILLARD. That is our view.

Senator McCONNELL. Title II of S. 2760 would create a so-called expedited product liability settlement procedure, and, frankly, I find the provision to be confusing.

I wonder if you could shed some light for me on the operation of this particular section and tell me whether you think it is workable.

Mr. WILLARD. Senator, I find it to be confusing, too, and I am not sure I can help you on that. I think it is a very complex provision, and as I indicated earlier, it will be difficult to figure out in advance how it is going to work in terms of its overall impact on

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I suspect that it may serve to stimulate more claims, although it may also reduce the amount of money awarded in particular claims.

But it is very hard to predict, when you are dealing with incentives like this, what the final impact will be. For that reason, we would prefer a more straight-out approach to reforming product liability law, along the lines suggested in the administration's bill which was introduced by Senator Kasten.

Senator McCONNELL. Assuming you were going to go with some alternative dispute resolution approach, is there a better way to do it?

Mr. WILLARD. Well, we do think that it should be linked to the procedures employed by the forum where the litigation is being conducted. For that reason, our recommendation was that A.D.R. mechanisms be studied, but then implemented on a State level for cases in State court, and on a Federal level for cases in Federal court. Because the way in which alternative dispute resolution works out depends a lot on how it fits in with the rules of civil procedure that are being followed in the particular jurisdiction.

So unless you wanted to move all these cases into Federal court, which I certainly would not want to see happen, I think it would be difficult to develop a national alternative dispute resolution program, that would be the optimum here.

Senator McCONNELL. As you well know, I prefer a comprehensive approach to tort reform at the Federal level and rather than engaging in an extended debate over concepts of federalism as it may apply

to this particular issue, since I am certain that we disagree on that, lets talk about some specific problems with preemption in the area of products only.

Specifically, is it not unusual in real life, practical life out there, to have litigation limited to product liability causes of action?

Isn't it more likely, especially with multiple defendants, to have various overlapping causes of action? Is it fair to have some defendants protected by the provisions of a bill such as this one, but allow others to face the uncertainties and inequities of the current law? Illustration, an automobile collision.

The auto manufacturer being sued for product design and manufacturing defect and breach of warranty. The tire manufacturer essentially for the same thing. The municipality in the same case is sued for failure to post proper road signs or to keep the road in proper repair.

And the hospital surgeon and the ambulances being sued for malpractice. All in the same case. Do you have any observations about how that would work out in real life, and whether that is a fair and equitable approach to suing a bunch of defendants?

Mr. WILLARD. Well, we always have the problem, having a dual system of government and adjudication in this country, of the interface of the two systems. We now have the possibility, in many cases, of asserting both Federal law based claims as well as State law-based claims, arising out of the same transaction or occurrence. Obviously the problem would be increased somewhat if

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had to apply Federal product liability legislation to certain claims in a case, while other claims would be governed entirely by State law.

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