The Product Liability Trap

Injured workers are turning more and more to the manufacturer in damage suits. And even when the worker doesn't sue, the employer may.

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An 18-year-old worker in a New Jersey plastics plant caught his fingers in the rollers of a pelletizing machine from which a protective guard had been removed. The New Jersey Supreme Court ruled that the manufacturer of the machine, Cumberland Engineering Co. Inc., could be held liable for the worker's injuries if, at the time the machine was made, it could have been reasonable foreseen that someone would remove the guard.

If you manufacture a machine or product used in a workplace, you can lose a workplace injury lawsuit even though you are not primarily at fault. Since injured workers are generally prohibited by workers' compensation laws from suing their employers, they are turning more and more frequently to the "third party" in the workplace, the manufacturer, for relief (see "The Private War of James Sullivan," page 41).

A survey by the Insurance Services Office, a nonprofit agency serving the casualty-insurance industry, reports that 56% of workplace product liability dollars were paid to the plaintiff in cases in which the employer arguably was negligent. The National Machine Tool Builders' Association found an even higher proportion of employer fault in a survey of its members conducted in the late 1970s. In 63% of accidents reported, the employer failed to guard the machine; in 13% the employee failed to use the required safety device; and 65% of injured employees had been on the job less than six months (which suggests they were probably not fully trained).

Yet even the negligent employer does not have to pay his share of the dangers. A federal district court in Wisconsin upheld the award of more than $300,000 to an injured punchpress operator who had "accidentally stepped on the pedal of the machine" while removing a die. Service Machine Co. Inc., the manufacturer, bore 95% of the award even though the jury had specifically found that it was only 25% at fault, while the employer was 70% at fault. The remaining 5% was attributed to the worker.

The issue is closely intertwined with workers' compensation -- the legal compromise between workers and employers for dealing with work-related injury: Employers accept "liability without fault," paying all injured workers for medical expenses and lost wages up to limits set by law. In return, workers give up their right to sue. Courts almost universally hold that the intent of the legislature in passing a workers' compensation law is to free employers of any liability beyond their contributions to the workers' compensation system. In just a few states, employees can sue their employers in limited circumstances, as when the employer commits a "willful and wanton act."

Originally, most attorneys say, workers' compensation was intended to give legal protection to the manufacturer of machinery as well as to the employer, but now that part of the comprise is breaking down. Through the 1970s, inflation far outstripped statutory awards under workers' compensation, and seriously injured workers began to look elsewhere for relief. Courts were sympathetic and saw manufacturers as best able to absorb the cost and distribute it through increased prices.

In recent decisions, some courts have greatly broadened the basis for liability. For example, manufacturers have been held liable for defects in 50-year-old machines, or because a warning was not duplicated in Spanish. One manufacturer was found liable when an adhesive exploded in a poorly ventilated, windowless room. Instructions on the container warned that the product was flammable, and that windows should be open when it was used. The court found against the manufacturer because the instructions didn't advise what to do in a room with no windows.

If the worker doesn't sue the manufacturer, the employer might. In many cases the employer (actually, the insurer) who has paid a workers' compensation award will sue the third-party manufacturer to recover the award. Such a suit is "subrogated," meaning that the employer sues in the name of the employee. Since he will be called to testify anyway, the employee often joins in the suit, seeking an additional award for "pain and suffering." The jury may perceive the suit as being brought by the employee and be more sympathetic than they might be to the employer.

According to Robert Taft, Jr., general counsel for a Washington, D.C., nonprofit organization called the Special Committee for Workplace Product Liability Reform, only one-half of one percent of workplace liability suits that go to court judgment ever bring the worker a recovery substantially greater than workers' compensation. "The product liability system is really a lottery," he says. "It is not taking care of those who are injured."

But the awards in the few successful cases can be very high, and the costs of litigation in any case are substantial. Since insurance companies must be ready to pay the highest possible awards allowed, over the past few years there has been a rapid escalation of product liability insurance rates that some have called an "insurance crisis." In 1970, for instance, the average liability insurance premium in the metal-cutting machinery industry was $1,900. In 1978 it was $139,000, an increase of over 7,000%. A survey taken by the American Textile Machinery Association showed that member companies that responded paid an average of $6,800 in 1972 and $191,000 in 1977. A National Machine Tool Builders' Association survey in the late 1970s found about one-fifth of its members, 70% of whom employ fewer than 250 people, either could not afford insurance or could not obtain it at any price.

The buyer who cannot obtain insurance may not even be able to "bail out" by selling his company or its assets. A 1977 Michigan Case, Trimper v. Bruno-Sherman Corp. et al, established that product liability can attach to certain assets in a company, and be passed on to a new owner, even though there had been two intervening sales of the firm. According to Taft, buyers are scared off by "fear of being 'infected' with potential future claims."

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