Product Liability: Curse or Bulwark of Free Enterprise

Abstract

In July of 1978 the Secretary of Commerce, Juanita Kreps, speaking for the Carter Administration, proposed a "comprehensive program to attack the problem of escalating product liability premiums and costs." The administration felt compelled to become involved because: Serious product liability problems have affected thousands of small businesses that have had great difficulty in obtaining affordable product liability insurance. The problem has also affected consumers because insurance costs have been passed on to them in terms of higher prices. Consumer groups have also been concerned about restrictive new state laws that have attacked the problem by limiting the rights of persons to recover damages for injuries caused by defective products. Finally, insurers have expressed concern about court rulings imposing substantial damages in product liability cases. Despite the inconsistencies which abound in the government's statement of why it is troubled, there is no question that the administration's intervention reflected a serious concern, among many quite disparate groups, that the increase in size and frequency of product liability judgments somehow was undermining the capacity of American business to function as it should in a free enterprise system. Typically, the government's proposed approach involved tax changes as a short-range measure (a quite sensible ten year loss carry-back), and a "balanced program that will relieve the product liability problem for American businesses while fully respecting the rights and interests of consumers" as a longer run solution. The keystone of this last approach would be a uniform "balanced code that will add needed stability to product liability law" to control the "uncertainties in the tort system."