Product Liability Reform: Better Late Than Never

Among the many "business climate" issues commanding attention in the state of Michigan and in the nation as a whole, few are more pressing than product liability reform. The mounting epidemic of product liability litigation is clogging the courts, costing the public billions of dollars each year, forcing some valuable products off the market altogether and threatening the very existence of some companies and industries.

The lion's share of the problem has come about because of changes in both law and the way the courts apply the law. These changes, especially in the past fifteen years, have greatly expanded the scope of liability. Courts, for instance, are now assigning liability for products simply because their use involves risk, even when the risk is plainly evident to reasonable people. In many cases, huge damage awards have been assessed against defendants whose degree of fault was minimal but who perceived to have "deep pockets."

The U.S. Department of Justice reported a 758 percent increase in the number of product liability lawsuits filed between 1975 and 1985. Dozens of useful products from the Cessna Corporation's piston aircraft to the Dow Chemical Company's anti-nausea drug Bendectin are no longer being produced--in large part because of the cost of insuring against frivolous lawsuits and because of the abandonment of strict, fault-based standards. Many everyday items are also much more expensive than necessary because of the liability crisis.

Ideally, the matter is best suited for attention by Congress. With more than 70 percent of U.S. manufactured products being sold interstate and each state having its own standards for deciding product-related injury lawsuits, both manufacturers and consumers have been subjected to a bewildering array of laws and legal opinions. Manufacturers have had no choice but to insure against the state regardless of where their products are made. The consequent high cost of insurance (when it is available) has ultimately been paid for by consumers in all states.

And, according to the American Legislative Exchange Council, those higher insurance costs are undermining the competitiveness of U.S. products in the world marketplace. No foreign manufacturer, says ALEC, faces the same threat of lawsuits or the same insurance costs that so hamper their American competitors.

In September 1986, the Michigan Manufacturers Association released a survey of its membership. Of the Michigan companies reporting, more than 50 percent said their product liability insurance rates had double, tripled or rose even more during the previous year. The problem has not diminished since the survey.

In spite of all this, Congress has been slow to act. Bills have been pending for some time in committee to implement needed reforms but have yet to see the light of day. If passed, the better ones would hold manufacturers, wholesalers and retailers liable only when they are at fault, modify or abolish the "deep pockets" rule, set reasonable time limits on how long a manufacturer will be responsible for its products and establish tough and precise standards for awarding punitive damages. Unfortunately because this is an election year, it appears such changes won't happen before the next Congress, if then.

It may be too late to save those products or companies already undeservedly defunct because of the liability crisis, but action now at the state level can be at least relieve the situation and limit further damage.

When the Michigan Legislature enacted a package of "tort reforms" in 1986, some thought it had adequately addressed the matter of product liability. Quite the contrary has been borne out by time and experience: the crisis clearly continues.

Since the Governor's State of the State message, little has been accomplished in this area but there are signs the wheels of government may be starting to turn in Lansing. A "fact-finder" will soon be working on the matter and leaders in both parties seem aware of the urgent need for reform. More than 100 Michigan manufacturing firms have joined together in an effort to get the state to revise its product liability laws.

The lack of federal action is regrettable, but it does give Michigan the opportunity to seize the initiative and thereby send a clear signal to the business community here and around the country. The state's high unemployment and its perception as a less-than-friendly place to do business cry out for action. Implementing sound and comprehensive product liability reform in 1988 would be one of the most positive contributions the Legislature could make to enhancing the Michigan economy


Mr. Reed is President of The Mackinac Center, a private, non-profit educational and research organization in Midland. Permission is hereby granted to print or broadcast this article, in whole or in part, with appropriate credit given to the author and to The Mackinac Center.