Nation's Business: Liability roulette

Liability Roulette

In less than three years, my product-liability insurance has risen from $6,000 to $40,000 a year. And that $40,000 buys only 10 percent of my 1984 coverage.

Over the past 19 years, I have built my security-gate manufacturing and installation business to the point where it now employs 45 people. Everything I have worked for--and the jobs of my employees--could be lost in one single judgment in what I believe is a "lawsuit lottery' for money-grabbing plaintiffs and attorneys.

It is a form of Russian roulette. Every security gate I install raises the odds against my company. And the most frustrating part of this gamble is that a judgment against me may have little or nothing to do with the quality or performance of my product.

When this problem first developed, I felt a lot of resentment toward the insurance industry. I believed it had created the liability crisis for the purpose of raising my premium rates while reducing my coverage. As time went on, and my understanding of the problem grew, I realized that, for the most part, insurance companies were reflecting their current costs of doing business. I found that most insurance companies were not willing to quote any figure on product liability for me and that many of them were getting out of the product-liability field. This is not the kind of response you get if there is money to be made.

I also remembered the amounts of money that had been paid out to settle claims against my company. I recalled the tremendous amounts the insurance companies had paid to attorneys who represented me--the attorneys' fees were often much larger than the settlements.

I thought about all the ridiculous nuisance suits that had come across my desk. The only purpose of these suits, I believe, was to persuade my insurance carrier to settle out of court (for $3,000 to $5,000) rather than spend a great deal more money defending the case.

We have all heard of the exorbitant awards by juries in negligence cases. I read recently where a competitor of mine in the East had settled a suit for $5 million. It is that and similar cases that make me think there is a "lawsuit lottery' going on--with the winners crying all the way to the bank and the losers, like me, paying high insurance premiums and possibly losing everything that they have worked for all their lives.

Consider my state alone. California insurance companies paid $1.5 billion on behalf of their clients in 1984. More than $1 billion did not go to pay hospital bills, repair property or make up for lost wages but for noneconomic damages, mostly pain and suffering.

Between 1980 and 1984, lawsuits in Los Angeles County were filed at a rate that was four times faster than the population growth. In 1985, the increase in lawsuits was 13 times the growth rate of the population.

The bottom line is this: Unless liability-damage payments are reduced, there will be little or no reduction in our insurance premiums and no assurance of keeping the assets we've spent a lifetime accumulating.

To reduce that cost, we need liability reforms by states and the federal government. These reforms should include:

Exempting a manufacturer from liability when the dangerous aspect of a product is inherent and recognized by the ordinary user or when the product provides an important benefit and the known risk is unavoidable.

Applying a decreasing scale on contingency payments to attorneys-- e.g., one third of the first $100,000, one fourth of the next $100,000 and 10 percent on the balance.

Eliminating the collateral-source rule, under which juries cannot be told that a plaintiff suing one party has already received payment from another party for the same injury.

Abolition of the joint-and-several doctrine, which applies when more than one defendant is sued. Under that doctrine, the defendant with the lowest degree of fault but the most money can be required to pay all or most of the damages.

And reforms do work. The California medical profession won passage in 1975 of the Medical Injury Compensation Reform Act, which contains the type of reforms I am recommending. The cost of malpractice insurance for physicians in this state has dropped substantially. We need similar action on business liability throughout the country. Until we get it, those of us who are trying to keep our businesses alive must continually ask ourselves: "Could we become the next jackpot in this lawsuit lottery? The answer for all of us is "Yes.''

Our liability-insurance system is out of control. We must bring a sense of fairness and justice back to this legal system. Stop complaining to your insurance agents. They hear the same thing every day. Write to your representatives in Congress and in your state legislature. Tell them that you want reforms in our liability system. Tell them you want to know what they're going to do about it.

If your state has an initiative or referendum on liability reform, get out and vote. You might even want to do what I did when my state had an initiative on this issue--let your employees out of work early to go vote.

But please don't just agree with me and do nothing. Write to your legislators. Vote if you have the opportunity. Your business could be at stake.