The fact that Product Liability Insurance is a necessity for those in business

Transcription

1 The fact that Product Liability Insurance is a necessity for those in business need not be proven, that fact has been established. Rather, the question we propose is how long will small business be able to afford the protection of such insurance? If the present rate of premium increases continues, Product Liability Insurance rates will put small business, "out of business". This is a crisis situation and if allowed to continue, every product a company sells has the potential to destroy the company itself. November, 1977, Compressed Air magazine in an article entitled "Coping With The Product Liability Crisis", reported many interesting facts: "Hardest hit are com panies with sales of less than $75 million dollars. In some instances, their premiums have jumped from less than 1% of sales to 152 or more jeopardizing their entire profit". It further stated, "These escalating product liability claims affect customers, as well as manufacturers. Whereas a few may benefit, the average consumer is encounter ing higher prices, and in some cases may find products unavailable". The Havir Manufacturing Company, a maker of industrial punch presses in Minnesota, had $3 million dollars in sales in In 1975, the company was forced to liquidate because it could no longer afford the cost of Product Liability Insurance and the legal costs of claims and suits. Court decisions have broadened the circumstances under which a consumer can collect damages from a manufacturer or seller of a product. Because of the consumer f move and public debate on the subject, the public became aware of their legal rights. However, large contingency fees are inducing the workers 1 lawyer to encourage suits and seek unreasonably high damages and with the advent of no-fault auto insurance, the trend now indicates that attorneys are turning to the potentially more profitable product liability cases. The April 24, 1978, issue of the Pittsburgh Post Gazette, ran an article entitled, "A Problem of Insurance". In that article, it stated, "Contrary to popular belief, the

2 * PRODUCT LIABILITY INSURANCE often enormous awards which manufacturers actually their insurance companies are forced to pay out to injured plaintiffs are not punishments for proven careless behavior. \ Carelessness fault need not be proved in most product liability actions. All that is required is that the defective product be 'unreasonably dangerous* and in essentially the same condition as at the time of manufacture." Quoting again from Compressed Air, it sited the case of a Pennsylvania coal miner who had been crippled on the job. He was awarded $500,000 by a jury in Pittsburgh. This award, which came on top of $75,000 in Workmen's Compensation benefits, was levied against the coal shuttle car manufacturer, even though other miners testified that the victim was operating the car improperly. It is not the intent of manufacturers to deny the public protection that Product Liability Insurance offers to them. But, our purpose and aim is to keep the public protected to a reasonable degree, thus still allowing manufacturers to continue to stay in business and carry Product Liability Insurance at premiums it can afford. For small companies the cost of Product Liability Insurance has become a critical problem. A few cases are stated below: HANKISON CORPORATION, Canonsburg, Pa., manufacturer of refrigerated air dryers for 30 years, has felt the crunch of soaring insurance premiums. From 1974 to 1978, their insurance rates have increased 670%. Hankison's record of claims, is one, in 1963 and it was settled for $3,000. f JAMES AUSTIN CO., an old firm established in 1889, manufacturer of bleach products, states that in 1975 the premium on $500,000 worth of Product Liability Insurance was in the neighborhood of $15,000. This doubled to $30,000 in 1976 and this figure again doubled in 1977 to $60,000. During» t those years, they also had a million dollar umbrella policy to support the liability coverage and this cost approximately

3 - 3 - $2,400 per year. This, effective April 1, 1977, was increased to $19,000 so that they have seen liability costs increase from $32,400 to $79,000 in the past year, and over the past two years, $94,000! The most their carrier ever paid out in total payments was less than $8,000 in any given year. CBM INDUSTRIES & LAUREL STONE, INC. in Oakmont, Pa. report their product liability premium in 1976 was $33,400 and in 1977, $79,400, an increase of -$46,000 in a twelve month period! Their maximum annual settlement over the last 20 years was $6,800. The April 14, 1978, Wall Street Journal reported that to cut high premium costs, more firms and institutions are insuring themselves. However, The Christian Science Monitor, May, 1978, states that most small business groups will still not be able to participate. One official of a national small business organization states in this paper, "This is a good approach, considering the alternatives, but the problem for many firms is cash flow. Small firms often just don't have the funds to set up a reserve". What do we suggest that government do to help business cope with the problem? Proposed solutions fall into several categories: LOWER THE STATUTE OF LIMITATIONS - Many suits involve injuries caused by equipment built many years ago, over which the original manufacturer has no control, yet remains liable. ELIMINATION OF PUNITIVE DAMAGES intended to punish a defendant for gross misconduct. ALLOW EVIDENCE OF OTHER SOURCES OF RECOVERY TO BE ADMISSABLE. A defendant cannot submit evidence showing the injured has already received benefits to cover

4 medical costs and wage continuation. Therefore, the majority of injured recover economic losses twice. Health care continues to rise, thus the cost of double payments will be come more burdensome. REGULATE ATTORNEYS* CONTINGENCY FEES. Many attorneys presently receive 30 to 50 percent of awards made. Medical malpractice reform commonly regulates contin gency fees, thus limiting abuses, and injured parties are still assured of counsel and plaintiff's attorneys would receive adequate compensation. PERMIT THE USE OF SUBSTANTIAL ALTERATION OR MODIFICATION OF THE PRODUCT AS A DEFENSE. Many third party suits are brought against equipment manufacturers because the purchaser or user of the equipment had removed safeguards or somehow altered the product. ELIMINATION OF STRICT LIABILITY. Product liability would be imposed only in cases where the manufacturer or seller is negligent or has breached a warranty. THE STATE-OF-THE ART - presently judges products made 50 years ago by current standards not in effect at time of manufacture. Any, or all of the previously recommended changes, would alleviate the present crisis to some extent. We urge immediate action on this vital issue! Legislators can no longer put off changing some of our present laws that are allowing this unfair practice to continue. The crisis hits hard at American productivity, since small business con- /v Aeijf stitutes jyp % of the gross national product. What does America do when its laws have permitted costs, directly or indirectly, to force the heart of its economy out of business? This urgent problem was summarized very well in Compressed Air's article by Richard J. Finegan of Liberty Mutual Insurance Company. He said, "Product liability is not just an insurance problem. Control will require the coordinated and combined efforts of the insurance industry, manufacturers, retailers, service industries, contractors, standards writing organizations, and our legislators, all working in concert to the

5 - 5 - ultimate benefit of the customer the person who is being injured and the person who must eventually pay the cost." Paul M. Hankison 8/23/78