The Product Liability Trap

Tweet

Rates have eased slightly since these surveys were taken because of improved product safety and because high interest rates have allowed insurers a better return on invested premiums. Today, the number of companies with no insurance has decreased to around 10%; but for those who do have insurance, 45% have deductibles averaging about $80,000. Most observers predict that premiums will rise again when interest rates fall.

It's also possible that fear of product liability suits is stifling technological progress. Richard Harris, then president of Curtis & Marble Corp., a small instrument manufacturer, reported one instance in testimony before a Senate committee considering reform of workers' compensation laws. His firm, he said, had made a small black box to be attached to construction cranes to warn the operator when his boom approached an unsafe angle.

"If a crane were to malfunction and cause injury," Harris said, "our instrument, almost surely, would be included in any suit regardless of the circumstances. So what did we do? Of course, we made the only sensible decision: took the product off the market." He added that other manufacturers had done the same with such products as improved braking systems for house trailers and better gauges for medical and diving equipment.

In some cases third-party liability can make an employer-manufacturer doubly liable for the same injury. Employees of the E. & J. Gallo Winery in Modesto, Calif., were injured when a scaffold on which they were working collapsed. The scaffold was manufactured by Gallo both for in-house use and for sale to the public. The court held that Gallo acted in "dual capacity," as both employer and manufacturer, and that its obligations as a manufacturer were the same whether or not the injured party was an employee.

Similarly, Leslie's Pool Mart in Los Angeles was sued by a stock clerk who inhaled toxic fumes from swimmingpool maintenance chemicals. The court found for the stock clerk, even though the employer claimed the clerk was not using but "merely moving" the product, which was part of his normal duties as an employee.

Courts in several states have ruled the opposite in related cases, holding that the immunity conferred by workers' compensation takes precedence over product liability. A Massachusetts court said that in furnishing an employee with a machine for use in his work the employer was performing its common-law function as employer, regardless of the fact that it was also the manufacturer of the machine.

Since state laws and court interpretations vary widely, any business that retails its own manufactured products or manufactures its own tools and machinery would be well advised to consult counsel to determine its liability in such "dual capacity" situations.

Manufacturers are hoping for legislative relief from product liability inequities. Some help came with the passage of the Product Liability Risk Retention Act of 1981, which allows manufacturers to form group self-insurance organizations.

Several states have passed "statutes of repose," which limit a manufacturer's liability to periods of 6 to 12 years after a product is sold, but some of these laws have been successfully challenged on constitutional grounds. A North Carolina appellate court recently ruled that a product liability statute of repose violated the state constitution's guarantee of access to the courts for redress of wrongs. At this writing the case is pending before the state supreme court.

Current attention focuses on reform of product liability law. A draft of proposed legislation is currently being considered in the Senate Commerce Committee's consumer subcommittee; it would allow a manufacturer to use an employer's negligence, modification, or misuse of a machine as a defense, and would divide payment of the awards between the employer and the third party in proportion to fault.

Not everyone is happy with this approach. Jeffrey O'Connell, professor of law at the University of Virginia in Charlottesville, believes that a total nofault system will eliminate the staggering costs of litigation in product liability cases, which he says leave only 37 1/2 cents of each dollar for the injured employee. The money saved on the manufacturer's side, he says, can be passed on to all workers in fairer workers' compensation payments.

Until some reform is enacted, manufacturers must rely on making products that are as safe as possible, so that anyone trying to operate unsafely would fail. Retrofitting of machines already in the marketplace is also advised, which means manufacturers should keep track of every product they sell.

Disclaimers are "worth a try," some attorneys say, but you cannot make a contract to absolve yourself of negligence, nor can anyone sign away a right to sue in tort. One disclaimer has been upheld by courts in one state and thrown out in another.

Mark J. Nuzzaco, staff counsel for the National Machine Tool Builders' Association, who gives seminars for members on developments in product liability law, suggests that product designers should be made fully aware of liability problems. Warning signs, he says, should be used "liberally," and all warning signs and instruction material should be reviewed by legal counsel.

Above all, he says, be sure that your company's lawyer is fully familiar with product liability law, or seek outside specialists. "Torts are the first thing attorneys study in law school," he says, "so they may think they know how to handle such a case, but product liability law has become so sophisticated and fluid that you need specialized knowledge."

 PREV  1 | 2