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Manufacturer's Liability

Copyright 1992 By Jalexson

originally published on Mediard

     The procedure for compensating those who have been injured using manufactured goods needs to change from a judicial procedure to an administrative one. The current system forces manufacturers to pay excessive costs and can delay compensation payments for years. Manufacturers have to pass their costs along to customers with the resultant increase in prices discouraging sales. Manufacturers have no incentive to improve the safety of products under the current system because the system provides no guarantee that product improvements will reduce legal costs.

     Manufacturers should have to provide some form of compensation to those suffering a loss from use of imperfect products. Failure to require compensation can encourage the unscrupulous to sell products they know are defective and force some unlucky customers to in effect pay much more for some items in the form of medical or other costs. However, forcing manufacturers to pay excessive costs can increase the price of some items to the point they cannot be manufactured at a profit. Increasing the cost of new products too much can force consumers to have to continue using older products that may be less safe because parts have worn out. An effective compensation system would help manufacturers balance the cost of a given product safety improvement with the cost of compensating those who suffer injury because the improvement is not available.

     Only the legal profession really benefits from the current system. The U.S. legal system's overreliance on judicial opinions rather than statute law further complicates the situation. What the law means can vary according to the whims of individual judges and to temporary majorities on the U.S. Supreme Court. The resulting uncertainty about what the law is encourages a manufacturer's attorneys to argue that the client is not legally responsible for losses suffered by a customer. This uncertainty encourages attorneys suing manufacturers to claim manufacturers should have to pay for damages even under conditions when products have been altered or users are intoxicated.

     Customers do not benefit from the current system because they often must sue to receive compensation from manufacturers. Successful lawsuits may take many years because of court schedules and appeals of court decisions. The resultant decision may depend more on the relative persuasive abilities of the competing attorneys and expert witnesses than on the relative merits of the evidence itself.

     Liability for damages should shift from a judicial approach to an administrative approach based on an insurance or warranty program. For products sold after start of the program, the purchase price would include purchase of insurance to cover any damages the purchaser might suffer during normal use of the product. For previously sold products, an insurance premium might be collected at the time of resale, the manufacturer might purchase coverage on behalf of such customers, or customers might purchase individual coverage. Product owners suffering damage from use of the product would file an insurance claim for compensation rather than dealing directly with the manufacturer or hiring an attorney and waiting many years for a trial.

     If product owners have other health insurance, the health insurance company would file against the product insurance fund for reimbursement for medical costs paid by the health insurance policy as well as for compensation for the policy holder for medical or other costs not covered by the health insurance policy. The current system irrationally allows an individual to seek compensation for medical bills actually paid by a health insurance company. This practice has helped increase the nation's health care costs.

     Requiring the customer to purchase insurance with a new product might increase the cost of some items. Frequently sued manufacturers, such as aircraft makers, might find they could offer lower prices because of the reduced cost of handling claims and elimination of large law suits. Purchasers of some products might face a higher initial purchase price, but avoid insurance or other costs later on.

     Extensiveness of the coverage would vary according to the type of product and the conditions under which damages normally occur. If damages normally occur in accidents involving only the user/owner or those with the user, the insurance program might provide complete coverage. For motor vehicles and other products that normally produce damages in accidents involving more than one user, complete coverage might require purchase of supplemental insurance. Alternatively, manufacturers of such products might pay into a fund that would compensate auto, health, and other insurance companies to compensate for products related losses.

       Initial cost of insurance would reflect estimated damages suffered from using the product. The past damage history of the type of product and engineering data about specific new models would be used to produce these estimates. A manufacturer could be assessed additional charges if subsequent problems with the product indicated the manufacturer underestimated potential damages or failed to recognize and correct product defects. This provision would encourage manufacturers to identify potential problems in advance and correct subsequent problems before damages occur.

     Manufacturers failing to provide accurate data to the insurance agency might be subject to financial penalties. Additional penalties might be imposed for failing to provide customers with adequate information about potential hazards.

     Full coverage for products requiring regular maintenance might depend on performance of such maintenance. Companies performing this maintenance might collect a small amount to retain full coverage for aging products and avoid liability for damages involving maintenance.

     This approach would provide a greater incentive for manufacturers to improve the quality of their products because safety improvements would reduce accident insurance costs. Engineering data and compiled data from accident reports would provide an objective method of evaluating the effectiveness of safety improvements. The wide variation in standards among different states and among courts within the same state provides no guidance to manufacturers about which improvements, if any, would actually reduce accident related legal costs, particularly considering the ability of the courts to arbitrarily assign a level of punitive damages after the fact.

     The Constitution prohibits ex post facto criminal laws that allow government to set a punishment for an action after the action occurs. A similar provision is needed to prohibit assignment of punitive damages in civil cases unless the legislative branch of government has previously established the potential degree of punishment. Manufacturers, or others being sued, cannot act to avoid punitive damages under the current system because they have no way of knowing what the punishment will be or what actions to take to avoid punishment.

     Under the current system someone can sue an aircraft manufacturer for damages from a crash involving a drunken pilot, but cannot sue the manufacturer of the alcohol that made the pilot drunk. An aircraft manufacturer can be sued for a crash in which the plane was flown contrary to that recommended by the manufacturer. However, someone who uses tobacco products in the manner recommended by the manufacturer may be prohibited by federal law from seeking compensation for tobacco related diseases.

     The new system could require that alcohol manufacturers provide compensation for those suffering injury as a result of the action of individuals under the influence of alcohol and require that tobacco manufacturers compensate customers(or their health insurance companies) who contract tobacco related disorders. Shifting health care costs to the products causing health care problems could thus help reduce overall health care costs.



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