Products Liability

Products Liability

Description

Products liability is a field of tort law governing liability for injuries caused by defective products that were commercially sold or transferred. Under the rule of strict products liability, a product seller is strictly liable for the physical harms caused by a defect in its product. The US rule of strict products liability closely corresponds to the EC Directive 85/374, which establishes a strict liability regime for defective products in all member countries of the European Union. As compared to the US, the liability rule has had much less of an impact in Europe. The US rule and EC directive, in turn, have influenced products liability rules in other countries, including Japan. The problem of product-caused injury is one of the most important issues addressed by tort law. Based on government data and 17 other large data sets, nonfatal consumer product injuries in the US had an estimated total social cost of approximately $500 billion in 1996. This cost would be considerably increased by the inclusion of fatalities, such as the annual deaths caused by automobiles, chemicals, drugs, and firearms. The vast majority of these accident costs are not covered by tort liability payments (compare Hensler et al., 1991, finding that tort liability payments constituted less than 10 percent of compensatory payments for accidental injuries). For those product accidents resulting in tort litigation, one government estimate found that plaintiffs won 37.1 percent of all products liability cases, excluding asbestos, that went to trial in state courts in 1996, receiving a median award of$177,000. For such cases tried in federal courts, plaintiffs won 26.6 percent of the cases and received a median award of $368,500. Most product-caused injuries do not result in tort litigation because only a fraction are caused by product defects. Products liability first emerged as a significant form of liability in the 1960s. Legal scholars who analyzed the emerging field rarely addressed efficiency concerns. Similarly, court opinions typically gave little or no explicit attention to efficiency. But as the economic analysis of products liability has developed over the past few decades and the economic consequences of liability have become more apparent, legal decisionmakers have paid increased attention to the economics of products liability. Today efficiency considerations often strongly influence the formulation of products liability laws. References to efficiency and cost-benefit analysis recur throughout the Restatement (Third) of Torts: Products Liability, the successor to the highly influential section 402A of the Restatement (Second) of Torts, which first promulgated the rule of strict products liability. The economic orientation of products liability, however, is not ordinarily apparent. Courts regularly emphasize that the primary purpose of products liability is to fairly protect consumer interests. Based on these cases, the Restatement (Third) concludes that ‘it is not a factor . . . that the imposition of liability would have a negative effect on corporate earnings or would reduce employment in a given industry'. Similarly, EC consumer law emphasizes consumer interests. The objective of products liability is one of fairness, not efficiency. Upon inspection, the fair protection of consumer interests justifies efficient liability rules. Cost-benefit analysis depends on prices, which in turn depend on the initial allocation of property rights. The specification of these legal entitlements, and thus the substantive content of any liability rule, necessarily requires noneconomic justification of some sort, presumably normative. These initial entitlements define the appropriate baseline for evaluating the distributive impact of tort liability. At the normatively justified baseline, the equilibrium product price must cover all of the seller's costs, including liability costs. At this baseline, the consumer pays for the full cost of tort liability, explaining why the liability rules exclusively focus on consumer interests. An exclusive focus on consumer interests, in turn, justifies efficient liability rules. Consumers both pay for and receive the benefits of tort liability, and so their preference for efficient liability rules—those that maximize the net benefit of tort liability—should govern. As a matter of efficiency, products liability does not have to be a form of tort liability, except for cases involving bystander injuries (to be discussed separately). If unregulated market transactions were efficient, courts would only have to enforce contractual allocations of product risk in order to maximize consumer welfare. Courts, though, do not ordinarily enforce contractual disclaimers of seller liability, making it necessary to identify the market failures that may justify tort regulation. Sections 11.2 through 11.10 accordingly develop the economic framework for evaluating different liability rules. Sections 11.11 through 11.13 describe the impact that the products liability system has had on product safety, innovation, and the market for liability insurance. The remaining sections discuss the efficiency properties of the main doctrines in products liability.

Source Publication

Tort Law and Economics.

Source Editors/Authors

Michael Faure

Publication Date

2009

Edition

2

Products Liability

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