Product Liability Law

“The U.S. tort system creates an enclave of idiotic whimsy in the heart of the most open society in the world”.

The above statement by Sebastian Mallaby, taken from a recent article in the San Jose Mercury News, shows one side of the tort reform argument. As today’s economy becomes more global, and technology and scientific advancement create intensified competition in the marketplace, the issues of product liability and tort reform become more important.

This paper is intended to outline some of the major product liability issues affecting the marketplace today. To achieve that goal, we will first outline a definition of product liability, and then briefly outline two landmark product liability cases, Borel v. Fibreboard and Hymowitz v. Eli Lilly. After the case summaries, we will touch on the debate over tort reform measures to limit the liability manufacturers face when bringing products to the marketplace. We will conclude by outlining our recommendations for managers of manufacturing companies to help them avoid suits brought on regarding product liability.

Defining Product Liability

Product Liability refers to the liability incurred by manufacturers, distributors and sellers of products when product defects cause injury or property damage to consumers, users, or bystanders whether through negligence (breach of the duty of care) or strict liability (no fault), and breach of warranty (promise that something sold is as factually stated or legally implied by the seller). Negligence and strict liability types of product liability authorize actions under tort law while breach of warranty relief is pursued under contract law.

:ad200 Product liability exists by reason of the buyer-seller relationship and asserts that manufacturers and sellers of products have a higher responsibility by operation of law to ensure their products will not harm others, if used as intended. Through statutory and common law, the courts protect society's interest in the personal physical safety of the people, authorizing product liability suits against manufacturers and sellers.

While most tort actions involving product liability assert both negligence and strict liability, it is important to recognize the difference between the two. Negligence occurs when a manufacturer fails to exercise due care through all stages of manufacturing a product, resulting in a defect. It is often difficult for plaintiffs to prove a violation of due care because the plaintiff is in a poor position related to discovery of the manufacturer’s processes. Under the doctrine of strict liability, a manufacturer may be held liable for the results of their actions regardless of their intentions and whether or not they exercised due care.

Types of defects addressed in product liability under the tort system include design defects, manufacturing defects, and failure to warn. Design defects include any design flaw that makes a product unsafe when used by the consumer for the intended purpose, manufacturing defects occur when a product becomes unsafe due to variation from its design, and failure to warn exists when a product does not warn about non-apparent risks and foreseeable misuses.

Case Study #1: Borel v. Fibreboard – Failure to Warn

Clarence Borel worked as an insulation installer from 1936 to 1969. During Clarence’s 33 years in the industry, most major brands of insulation contained asbestos, and Clarence had worked with them all. It was a day-to-day occurrence for Clarence to come into contact with asbestos dust to such an extent that by the end of the day he was covered from head to toe by the powder.

Clarence was aware that the insulation he installed contained asbestos, but he had no real knowledge of what asbestos was. He was not told of any dangers, and he never came across any warnings from the manufacturers regarding the exposure to, or proper handling of, their product. In fact, it was the common belief between he and his coworkers that breathing the dust was not seriously harmful to one’s health.

Clarence Borel experienced pain in his lungs caused by congestion from time to time, but was otherwise a man of good health. His doctor attributed the lung congestion symptoms to pleurisy. In 1964 Borel’s lungs were x-rayed, as a part of an exam for insurance purposes. He was instructed at that time by his physician to avoid asbestos dust as much as possible.

At the beginning of 1969, Borel was hospitalized and underwent a lung biopsy. Borel was then diagnosed with pulmonary asbestosis, an irreversible condition resulting from exposure to asbestos dust. Clarence’s disease progressed to the point where half of one of his lungs had to be removed in 1970. At this point, Clarence was found to have mesothelioma, a form of cancer caused by asbestosis.

The first documented case of asbestosis occurred in 1924, in England. The first case reported in the United States was in 1927. By the time Clarence Borel began his career installing insulation in the mid 1930’s the hazard of asbestosis was widely recognized.

Borel brought suit against the manufacturers of asbestos insulation claiming they had failed to adequately warn that the products they made were detrimental to one’s health. Clarence Borel succumbed to his illness prior to the end of the lawsuit, but the United States Court of Appeals for the Fifth Circuit, found in favor of his widow, agreeing that the manufacturers of the insulation failed to provide accurate warning that the asbestos contained within their product was harmful to one’s health.

Case Study #2: Hymowitz v. Eli Lilly – Strict Liability

Mindy Homowitz’s mother took diethylstilbestrol (DES) during her pregnancy with Mindy in 1954. Mindy, a Queens resident, developed vaginal cancer in her 20’s and underwent a radical full hysterectomy in 1979. In this New York Supreme Court case, Mindy Hymowitz alleged that she developed cancer as a result of prenatal exposure to DES, taken by her mother during the pregnancy.

DES is one of five drugs specifically addressed by the revival portion of the 1986 tort legislation which allowed those injured by the specified drugs to bring actions that had previously been time-barred. Approximately two million pregnant American women took DES between 1941 and 1970 to reduce the risk of miscarriage and overcome morning sickness. (Verhovek, 1989)

In 1941, the Food and Drug Administration (FDA) approved 12 manufactures applications to market DES for treatment of a variety of conditions, not involving pregnancy. In 1947, the FDA began approving applications to market DES for the use of preventing miscarriages. By 1951, the FDA stopped requiring applications to market DES, declaring it generally safe as a pregnancy drug. Finally, in 1971 the FDA banned the use of DES as a miscarriage drug when latent affects were recognized in the children of mothers who took the drug during pregnancy.

Defendants challenged the revival portion of the 1986 tort reform legislation which allowed Mindy Hymowitz to bring the action against the defendants even though it was now time-barred. The Defendants requests for dismissal, based on the 1986 tort reform legislation violating due process, were dismissed.

After reviewing all collective liability theories, New York adopted an expansive market share theory which eliminated the requirement that the defendant must have marketed the type of DES ingested by the plaintiff. “The court reasoned that in a national market, liability is apportioned based on the overall risk, and not on a finding of causation in a single case.” (Daley, 1999)

The market share theory was created by the California Supreme Court in Sindell v. Abbott Laboratories in 1980, another DES exposure case. (Hofmeister, 1999) Two other states - Wisconsin and Washington – have adopted similar market-share theories, but New York was the first to hold that a manufacturer will not be released from liability solely by proving that it did not manufacture the product that harmed the plaintiff. (Verhovek, 1989)

Should manufacturer liability be limited through tort reform?

The U.S. tort system and organizations like the Consumer Products Safety Division play a critical role in protecting the general physical welfare of the public. But for this legislation and these agencies, companies would not be held accountable for designing products that do no harm. While do no harm is a fundamental part of our social contract, we must have processes and procedures that fortify this value and create accountability for violations.

Tort reform is a divisive public issue in today’s business environment. The balance between motivating manufactures and sellers to provide safe products and the overwhelming economic burden placed on the economy by our current tort system is delicate problem with no clear-cut answer.

The revival portion of the 1986 tort legislation actually expanded the liability of the tort system for manufacturers of five specific harmful substances, expanding the economic burden of the tort system in actions claiming latent effects from the named substances and where those actions had become time barred. This was motivated by the long duration between exposure to the named substances and the first symptoms of the serious effects from exposure.

The issue driving the debate is discrepancy in various state tort law and the excessive punitive damages awarded in some states. The Council of Economic Advisors, under President George W. Bush, estimated in 2002 that the U.S. tort system’s direct costs total to approximately $180 Billion per year. (Hubbard, 2004)

Various states have capped punitive damages to mitigate the economic burden of tort actions but the range of caps and lack of caps in some states raises the question of whether a Federal act is needed to limit tort damages consistently across the states. Colorado currently limits punitive damages to twice the amount of compensatory damages in tort actions while Texas caps punitive damages at twice the economic damages plus non-economic damages up to $750,000. More than 20 states, including California, have capped non-economic damages for the health care industry at $250,000 in an effort to keep medical liability insurance at reasonable levels. (“Office of the Governor,” n.d.) President Bush has expressed support for reforming the tort system and many political analysts see it as an opportunity for the President to quiet some of his critics.

The need for reform limiting liability and damages in tort cases is further evidenced by the ongoing VIOXX® cases brought against Merck & Co. To date, Merck has been triumphant in three trials and found liable in three. The first case that went to trial involved a man with recorded cardiovascular disease (arteriosclerosis) who died of arrhythmia (irregular heartbeat). Arrhythmia is not a documented result of VIOXX®. (“Jury splits,” 2006)

The Texas jury in this case awarded $24 million in compensatory and $229 million in punitive damages after which a juror was quoted as saying, “[W]e didn't know what the heck they were talking about,” regarding Merck’s defense. The award is actually far less because Texas caps punitive damages, but the non-economic portion of compensatory damages, which are a majority of the $24 million, are not capped.

Awards like the one in Ernst v. Merck, where jurors admittedly do not understand the facts of the case but are empowered to award exorbitant non-economic compensatory and punitive damages, should be a motivating factor in re-evaluating the tort system. These awards create an economic burden that our society as whole must carry. Further concern should arise in this specific case as the existence of one of the world’s top pharmaceutical research firms is in serious jeopardy.

Managerial Recommendations

According to Jason Kennedy (personal communication, May 13th, 2006), a product liability law specialist, and Partner with the law firm Segal, McCambridge, Singer and Mahoney, “[T]he duty to warn is critical in today's day and age…get the warnings out there and make them clear and unambiguous.”

In addition, it is critical to recognize the hazards of a product, and the reality of risks faced by the end user, in order to craft and design the warnings for a product as well as for possible design modifications of the product itself. The use of a multi-faceted approach is recommended in dealing with these issues. Engineering, marketing and legal should all be involved in determining how to address product liability.

Further, the following recommendations would benefit any company in addressing and mitigating product liability risks:

• Assume nothing when it comes to what a “reasonable” person will do with your product.


• Ensure that new products not only state appropriate warnings of foreseeable misuses, but also include recommendations on alternatives regarding foreseeable misuses. (Liriano v. Hobart Corp., 1998)


• Test new products in “real-world” environments, or a simulation that mirrors emulates it, to discover unanticipated risks and misuses that might be judged as “foreseeable” by the courts.


• Petition local politicians for tort reform that caps non-economic compensatory and punitive damages in product liability.

Conclusion

The two cases presented in detail in this paper demonstrate the importance of the U.S. tort system in protecting the people against the potential serious impacts of defective products. In Borel v. Fibreboard, the defendant exercised tremendous disregard for the plaintiff in failing to warn of the imminent danger encountered while working with the product. Hymowitz v. Eli Lilly illustrates very different points of product liability, but no less important. A manufacturer must be held liable when the effects of their defective product are so severe even if the specific manufacturer of the product that harmed the plaintiff cannot be identified. The industry must bear the burden together to remedy those injured by a product in these situations as those that make up the industry are in the best position to do so.

Product manufacturers must make product safety paramount in every step of their process, from product design to shipment. However, the U.S. tort system must be re-evaluated so as not to inhibit society’s progress as a whole nor place an undue burden on the economy at large.

References

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