Proposed curb on punitive damage suits — economic development tool or bad for consumers?
Published: April 23, 2012 at 9:49 am
The legislation would shield manufacturers from punitive damage claims — the most aggressive legal recourse allowed against manufacturers — unless very specific negligence can be demonstrated.
The changes are so dramatic that a former Phoenix police officer who was nearly killed when his patrol car exploded in 2001 after it was rear-ended says the proposed law would have made it impossible to sue Ford for punitive damages — even though the car manufacturer ignored information that the fuel tanks in its police cars were prone to exploding.
The bill’s supporters say the threat of punitive damages keeps businesses from developing innovative new products because they fear that unforeseen risks could lead to the suits, which can sometimes result in monetary awards so large that they put companies out of business.
If the bill is passed and signed into law, a manufacturer would be immune from punitive damage lawsuits as long as the manufacturer doesn’t intentionally lie to government regulators, doesn’t bribe government regulators and doesn’t continue to sell the product if a government regulator raises objections.
As of now, punitive damage lawsuits apply when a claimant can show that a manufacturer intentionally ignored a risk, even if government regulators were satisfied with the product.
Rep. Kimberly Yee, the sponsor of HB2503, said limiting punitive damages lawsuits will create an inviting environment for innovators.
“The bill is about economic development and economic vitality,” Yee said. “This is something that will be important for small, medium and large employers who want to focus on hiring employees, not attorneys.”
And the bill’s supporters also point out that punitive damage lawsuits can be used as a bargaining chip by claimants, who might not feel they could actually win a punitive damage suit, but who threaten it in order to increase the value of a settlement.
The bill is backed by corporate goliaths like Pfizer, GlaxoSmithKline and Intel. It’s also supported by a variety of insurance and technology associations. The Arizona Chamber of Commerce and Industry also worked with Yee to craft the bill. The tenets of Yee’s bill are part of the chamber’s 2012 legislative agenda.
The language in the bill is very similar to a 2007 resolution advanced by the American Legislative Exchange Council. The Arizona Chamber is a member of ALEC, a conservative public policy group that is made up of corporations and legislators from across the country.
But the bill’s detractors say it is nothing more than a way to insulate businesses that want to find ways to skirt their responsibility to produce safe products, in favor of more profitable, but riskier activity.
Jason Schechterle, the police officer who successfully sued Ford for punitive damages after his Crown Victoria exploded, recently made an appeal to the members of the House of Representatives, pleading with them not to pass the bill. Schechterle is joined in opposition to the bill by the Arizona Trial Lawyers Association.
In an open letter to members of the House, Schechterle said he and the families of those who were blown up by Ford’s faulty gas tanks would not have been able to seek the justice they ultimately got, if HB2503 had been enacted prior to his accident.
While those on each side of the argument express starkly different perspectives about what the bill will do, Gary Marchant, a law professor at Arizona State University who specializes in risk assessment and administrative law, said there’s some truth to both sides.
First, he said, it’s true that businesses make decisions based on fear of litigation. Emerging industries are one place to find examples, Marchant said.
“Look at autonomous vehicles,” he said of self-driving vehicles.
“There’s some really interesting research and development being done, but you have these looming punitive damage suits, which are a deterrent to really putting those projects into action.”
Marchant also pointed to the special legal niches that have already been carved out for industries particularly prone to unforeseen risks.
Congress created a shield against punitive damage suits for vaccines, since they have the potential to save millions of lives, even though there are risks for some people.
But Marchant said some of the language in the bill also looks like it could tip the scales of justice in favor of businesses, leaving injured consumers with little recourse.
The bill specifies that the punitive damages shield goes away if a manufacturer fails to disclose risks to government regulators. Both Yee and Arizona Chamber of Commerce and Industry spokesman Garrick Taylor said that should quell any fear that her bill will allow companies to put consumers at risk.
But Marchant said the bill’s wording on the topic is so specific and narrow that it could safeguard bad actors.
For instance, regulators don’t always demand a manufacturer to do health risk assessments on their products, particularly if the manufacturer’s products don’t fall into a category that normally requires such assessments. But if it turns out that the product carries a health risk, and the company knew about it but didn’t report it because the regulators weren’t asking, an attorney could argue that they are still shielded from punitive damages, Marchant said.
And Marchant said the logic behind the safeguard belies the way the legal system deals with such issues.
“Agencies don’t really have a mechanism for discovery,” he said. “For an agency to try to show that you didn’t disclose all your information, sure, they could initiate some sort of action, but it could take years.
“So, you could have a clear demonstration of a cover-up, but because the regulators had technically been satisfied and don’t have a mechanism to look into information being withheld that they didn’t ask for, the companies could still get away with it.”
The bill still needs approval by the full House. Yee said she’s not sure when it might be voted on.