I. Introduction

"Sorry, your policy is canceled," proclaimed Time Magazine in a 1986 cover story. [1]

From 1984 through the summer of 1986, the news was saturated with stories of cities, non-profit groups, and businesses being left without liability insurance as a result of skyrocketing premiums and, in some cases, an unwillingness of insurers to underwrite liability coverage at any price.

As a result, cities and school districts have limited the use of parks and playgrounds, and products as diverse as vaccines, IUDS, American Motors "CJ" Jeeps, advanced aircraft ignition systems, and safer substitutes for asbestos have been withdrawn or withheld from the market. [2] In one recent survey of corporate chief executives, approximately one-third admitted they had not introduced new products due to concerns over liability and/or a lack of available or affordable insurance coverage. [3]

Various tort and insurance reforms enacted in over 40 states have alleviated the crisis somewhat, but few would maintain the problem is solved and concern over the issue remains high. [4] The problem has been greatest in the fields of medical malpractice and products liability insurance, reaching into such diverse areas of product liability as vaccines, general aircraft, sports equipment, ski lifts, and intrauterine devices. [5]

This study’s underlying hypothesis is that insurance markets reflect the world they insure. Thus, if products liability insurance is in crisis, one should look to the law governing products liability for the origins of that crisis. A review of recent products liability jurisprudence yields the most convincing explanation for the current crisis – specifically, that a judicial mindset focusing on compensation rather than individual rights and causation has destabilized insurance markets. Since these markets rely on predictability, loss of stability has forced insurers to guess at future risk exposure. As protection from this lack of predictability, insurers have imposed what has been dubbed an "uncertainty tax" on insurance buyers. [6] In more extreme cases, the destabilization of the market has been so severe that insurance is simply no longer available.

This study begins with a critique of several common explanations for the crisis. Part III reviews certain factors vital to the proper functioning of insurance markets. Part IV then surveys current products liability law in Michigan and discusses its effects on these insurance markets. The study concludes by suggesting a few basic reforms aimed at addressing the problem, and offers a brief sketch of a properly functioning liability system which, the author believes, would both assure the availability of products liability insurance and create a more just, stable system for business and consumers.