Pink Sheet is part of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC’s registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

This copy is for your personal, non-commercial use. For high-quality copies or electronic reprints for distribution to colleagues or customers, please call +44 (0) 20 3377 3183

Printed By

UsernamePublicRestriction
UsernamePublicRestriction

PRODUCT LIABILITY BILL SHOULD PROHIBIT INSURABILITY OF PUNITIVE DAMAGES, SEN. PRESSLER MAINTAINS; SENS. GORE AND GORTON TO OFFER SUBSTITUTE ON SENATE FLOOR

Executive Summary

Federal product liability reform legislation should prohibit insurance policies that protect manufacturers against punitive damages, Sen. Pressler (R-S.D.) argued in an "additional views" section of the Senate Commerce Committee's report on S 2760, a bill sponsored by Chairman Danforth (R-Mo.). Pressler, who voted for committee passage of the measure, said he would offer an amendment on the Senate floor to preclude such insurance policies. The insurability of punitive damages is an issue that "received only brief attention during committee deliberations," he noted. The report on S 2760 was released Aug. 21 by the Commerce Committee, which passed the package of committee-drafted provisions on June 26 ("The Pink Sheet" June 30, p. 15). A clean bill was introduced Aug. 14. Pointing out that "many states now prohibit" insurance policies against punitive damage awards, Pressler contended "the rule against the insurability of punitive damages should be universal in its application." The purpose of such damages "is to punish wrongdoers acting in 'conscious, flagrant indifference' to the safety of others. However, those covered by this bill in many cases are able to insure against punitive damages," Pressler explained. "This ability allows truly 'culpable' actors to escape the intended purpose of punitive damages," he said. "The 'punishment' is diluted if wrongdoers are able to insure against it, and unsuspecting policyholders are forced to share in the burden." Pressler Seeking Greater Limits On Joint Liability; Gore Wants Current Doctrine Retained The South Dakota Republican said he also plans to offer an amendment to strengthen the joint and several liability provision in the committee bill. "It is my intention to offer a stronger joint and several liability amendment when this legislation is debated by the full Senate," he said. Pressler commented that the bill's provision does not sufficiently minimize injustice and return "equity and predictability to the legal system." Early in the committee's deliberations, Pressler proposed an amendment to completely abrogate the doctrine of joint and several liability, except in cases involving concerted action. The committee-passed provision would limit joint liability to net economic loss. That is, a defendant whose product or action is determined to be only partially accountable for an injury can be held fully liable only for loss of income and medical expenses not already covered by insurance or workers compensation; such a defendant would be only partially liable for noneconomic loss (pain and suffering) or punitive damages. Although the committee provision "goes a long way toward resolving the problems surrounding this confused area of the law, it falls short of the mark," Pressler contended. "Substantially innocent third parties will still be required to shoulder the responsibility for the acts of the true wrongdoer," he said. "There will still be uncertainty in assessing liability, making it difficult to predict individual exposure or set insurance rates." Sen. Gore (D-Tenn.) argued in his minority opinion that the bill's current provision regarding joint and several liability "will discourage settlements" and complicate and increase the cost of litigation. Two stated goals of the legislation are to encourage settlement and to simplify tort law. "Joint and several liability, with its threat of full liability, induces settlement," Gore said. "Parties responsible for harm are encouraged to settle cases in order to eliminate the risk of being held fully liable for an injury to which others have contributed; insurers seek to avoid bad faith liability for failing to settle such cases." However, he contended, "the committee bill would turn these inducements upside down. Defendants and their insurers will be encouraged to resist settlement until the precise parameters of liability become clear, since a defendant could never be liable for more than the amount of damage that the injured person can prove the defendant responsible for." Furthermore, Gore maintained, the committee provision would encourage injured parties "to identify and sue each and every party that might be remotely responsible for the injury." Therefore, he said, the bill "will increase the number of parties before the court, the number of issues and motions to be resolved, the cost of litigation, and, in many instances, the complexity of a given case." The Tennessee Democrat countered arguments that joint and several liability is unfair by making fully liable defendants found to be only partially at fault. "The doctrine of joint and several liability does not apply to situations where responsibility can be apportioned," Gore said. Rather, it "applies only when there is an indivisible harm resulting from the conduct of more than one party. A victim suffers indivisible harm in any situation where multiple parties engage in injurious conduct, yet the conduct of any one of the parties in itself could cause the entire injury, or the conduct of each of the parties is an essential factor in the injury." Sens. Gore and Gorton (R-Wash.) drafted a substitute bill, which they are expected to introduce on the Senate floor. The substitute differs from the committee bill in several ways, including its handling of joint and several liability and its removal of caps on noneconomic (pain and suffering) damages. The proposed substitute provides that a defendant ordered to pay "more than his share of damages" will have the "additional amount" reduced by "collateral benefits," according to a summary of the proposal. "Thus, the sum the defendant pays is lower, but . . . the plaintiff's recovery is the same." In addition, the substitute allows the court to hold a defendant severally liable (i.e; liable only for the portion of damages equivalent to the defendant's portion of responsibility for the injury) if, the summary states, "the court determines that the responsibility of the defendant was not significant in light of the harm suffered." However, the document continues, the court may choose not to hold the defendant in such cases severally liable if "to do so would work a substantial injustice on the plaintiff." Several Commerce Committee members attached comments on the provisions in S 2760 that limit damages for pain and suffering. Gore maintained that such caps will "do little or nothing to promote settlement in the vast majority of product liability cases." Noting that 91% of cases settled with payment to the claimant involve no permanent disability, Gore said: "Those cases involving the most severe injuries and largest price tags represent only a tiny percentage of product liability claims." The committee provision would place an effective cap of $100,000 on pain and suffering damages, Gore contended. The bill "would in reality impose a $100,000 cap on the noneconomic loss recoveries of injured victims," he said. As a settlement incentive, S 2760 limits to $250,000 awards for noneconomic loss against a defendant that offers a plaintiff out-of-pocket expenses plus $100,000 for pain and suffering -- even if the plaintiff rejects the offer and ultimately wins the case. "This limit would apply no matter how devastating the injury and no matter how convincingly the victim demonstrated that the manufacturer was guilty of wrongdoing," Gore said. "Knowing that the long and grueling process of litigation would bring no more than $150,000 more than the initial settlement offer, even the most severely injured victims would feel compelled to accept the initial offer despite its inadequacy." Gorton argued in a dissenting statement that the caps "would promote settlements in the wrong cases for the wrong amounts." Only plaintiffs "with weak cases" or those who believe their non-economic loss is less than $100,000 will be willing to settle for the $100,000 offered, Gorton said. Only defendants for whom a $100,000 payment "would constitute a bargain" would offer such a settlement. Sen. Stevens (R-Alaska) commented that when the full Senate considers the legislation, he "will work with" Sen. Inouye (D-Hawaii) "to attempt to formulate an amendment" either to raise the cap or create "a new category of injury which would not be subject to a cap for those cases of extreme or ongoing noncompensatory damage." Inouye commented that arbitrary limits on pain and suffering awards are "unjust to the point of absurdity" and that he "cannot support any legislation which contains such caps." Inouye is said to have had a strong effect on the Senate's view toward S 2760. The bill passed the committee by a relatively narrow 10-7 vote but could have passed by at least a 13-4 margin had the caps provision been deleted. During committee debate on the provision, Inouye, who lost an arm during World War II, declared that it was unfair to limit any assessment of the pain and suffering from loss of life, limb, or child-bearing potential. Even Chairman Danforth, who authored the provision and insisted on its retention in the committee bill, called Inouye's speech the most moving and persuasive he heard during his 10 years in the Senate. Committee Ranking Minority Member Hollings (D-S.C.) argued that "any tort reform should occur at the state level." In his dissent, Hollings wrote: "In an era when our federal government is working to restore power to state and local jurisdictions, the mad rush to impose the federal will on state courts in the area of product liability law is indeed ironic." The product liability crisis is really an insurance industry crisis', Hollings maintained. "There is little disagreement that the practice of cash flow underwriting and the management practices of the insurance companies have contributed to the cyclical nature of the insurance marketplace, with the high and low ends of the cycles occurring like clockwork, every few years. The most recent crisis occurred when interest rates dropped, thereby slowing the rise in investment income."

You may also be interested in...



Part D Discount Liability Coming Into Focus: CMS Releases Drug Cost Data

Newly released Medicare Part D data sheds light on the sales hit that branded pharmaceutical manufacturers will face when the coverage gap discount program gets under way in 2011

FDA Skin Infections Guidance Spurs Debate On Endpoint Relevance

FDA appears headed for a showdown with clinicians and the pharmaceutical industry over the proposed new clinical trial endpoints for acute bacterial skin and skin structure infections, the guidance's approach for justifying a non-inferiority margin and proposed changes in the types of patients that should be enrolled in trials

Shire Hopes To Sow Future Deals With $50M Venture Fund

Specialty drug maker Shire has quietly begun scouting deals with a brand-new $50 million venture fund, the latest of several in-house investment arms to launch with their parent company's pipelines, not profits, as the measure of their worth

UsernamePublicRestriction

Register

LL111799

Ask The Analyst

Ask the Analyst is free for subscribers.  Submit your question and one of our analysts will be in touch.

Your question has been successfully sent to the email address below and we will get back as soon as possible. my@email.address.

All fields are required.

Please make sure all fields are completed.

Please make sure you have filled out all fields

Please make sure you have filled out all fields

Please enter a valid e-mail address

Please enter a valid Phone Number

Ask your question to our analysts

Cancel