Products Liability in the United
States
BRUCE DOMAZLICKY
PROFESSOR OF ECONOMICS
SOUTHEAST MISSOURI STATE UNIVERSITY
Outline of Presentation
 Historical Background
 Strict Liability v. Negligence
 3 Ways that products can be defective
 Defenses in products liability cases
 Computation of damages
 The Liability “Crisis” in the United States
 Possible Reforms
Historical Background
 Privity of Contract-protected manufacturers
 Escola v. Coca-Cola Bottling Co. (1944)
(negligence standard applied, res ipsa loquitur)
 Greenman v. Yuba Power Products, Inc.
(1963) (strict liability applied by Supreme Court of
California)
Why Strict Liability?
 Manufacturer in best position to prevent defects
 Manufacturer best understands the risk of using the
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product
Manufacturer can spread risk of loss over all units
sold through increase in price
Proving negligence by manufacturer difficult for
consumer
Gives manufacturer incentive to adopt cost-justified
improvements
Deep pockets??
Three Ways a Product Is Defective
 Manufacturing Defect-usually the easiest to prove
 Design Defect
Dueling Experts
Jeopardizes manufacturer’s entire product line
 Failure to Give Adequate Warning
Warning: Cape does not allow person to fly. Cape does not give person
Superhuman powers.
Warning: Product contains eggs.
Warning: Product may cause drowsiness.
Economics of Hazard Warnings
 Provide consumer with information on risk of using
product
 Consumer then decides if the expected utility of his
use of product exceeds the expected cost of using the
product, including risk
Role of Warnings
 Influence the Decision to Purchase a Product
 Influence the level of care of consumer when using
the product
Problems with Current Warning Regime
 Information Overload-to be effective, warnings need
to be selective
 Label Clutter
 Excessive Warnings-warnings should provide new
information, no need to warn of obvious risks
Defenses in Products Liability Cases
 Unforeseeable Misuse
Daniell v. Ford Motor Co. (1984)
Cryts v. Ford Motor Co. (1978)
 Unreasonable Assumption of Risk
Product has obvious defect and consumer chooses to
use it anyway
 State of the Art Defense (Design Defect Cases)
Calculating Damages: Some Issues
 Some Damages easy to Compute: Lost Earnings,
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Medical Expenses
Other damages More difficult: Value of Life, Pain &
Suffering, Loss of Consortium
Collateral Source Rule-allows recovery even when
third party covers costs
Medical Insurance-subrogation clauses
Life Insurance
Joint and Several Liability
Punitive Damages
Liability “Crisis”
 1975-89: Products Liability Cases Increased Sixfold
 1984-1987: Liability Premiums Increased from $6.5B
to $20B
 1985: Premiums Increased 78%
 1986: Premiums Increased another 68%
Contributors to Crisis
 Mass Toxic Torts: Asbestos Cases
 Design Defect Doctrine
 Hazard Warning Cases
Manufacturers’ Concerns
 Stock Market Loss
 Retroactive Losses: Cannot go back and raise price to
spread cost of lawsuits
 Liability for not warning about hazard that was
unknowable at the time of manufacture (asbestos)
Possible Reforms
 Allow state of the art defense
(Problem: Reduces incentive to improve product)
 Shorten the statute of limitations
(Problem: Some risks take a long time to appear)
 Change collateral source rules so can only collect up
to amount of loss
(Problem: manufacturer may not get correct signals)
Possible Reforms, Continued
 Joint and Several Liability-defendants are only
responsible for their share of loss
(Problem: Plaintiffs may not get full compensation)
 Limit Pain & Suffering Awards
(Problem: Plaintiffs may not get full compensation)
 Loser Pays Court Costs, Lawyers’ Fees
(Problem: Consumers afraid to sue)