Court limit on punitive damages clouds product liability cases

The Outlook

June 02, 1996|By Timothy J. Mullaney

IN A CASE involving a BMW damaged in shipping, then repainted and sold as new, the Supreme Court on May 20 gave the political right one of its fondest wishes -- tougher, but still unclear, limits on punitive damages in product-liability cases.

Business has complained that the prospect of punitive awards like the $4 million an Alabama court awarded in BMW of North America v. Gore stifled innovation, especially drug research.

Consumer activists say punitive awards were never a threat to any but the most flagrant lawbreakers -- notably asbestos companies -- so they insist the case will change little, especially in Maryland, whose law makes it harder to get punitive awards than almost any other state.

What difference will the BMW case make?

Michael L. Rustad

Professor of Law, Suffolk University, Boston

One of the things the decision does, which is interesting, is that it sets a hierarchy of what is considered societally harmful. It says protecting consumers from fraud is less important than preventing harms to the public safety. It would give unscrupulous businesses a competitive advantage if punitive damages are not appropriate where there has been fraud. What kind of example is that?

I see BMW's action as far more serious than portrayed by the popular press. In all the consumer laws, one of the paramount values is disclosure and that didn't occur here. Alabama had the right to set a high value on that, to set the morals of the market quite high.

Punitive damages are incredibly rare. All the studies that have been done have shown that far less than 1 percent of product liability cases involve a punitive damage award, and at least a quarter of them are asbestos cases.

In Maryland, there would be less than 10 in a 25-year period, if you exclude the asbestos cases. And Maryland is quite typical. They are generally cases in which there is a smoking-gun document where the plaintiff can show the company knew about a developing profile of danger and did not take action. There are prior similar cases, there's a cover-up. These do not come out of the blue.

The impact on innovation is unknown and unknowable. There's no empirical evidence whatsoever. U.S. firms lead the world in new drugs, in innovation. You could make the case there's a positive correlation between innovation and punitive damages, but that's like making a relation between shoe size and IQ. I think there's no relation.

Glenn Lammi

Chief Counsel, Legal Studies Division, Washington Legal Foundation

I think it will make the difference in the sense that judges are forced to take a more serious look at punitive damages themselves, regardless of what juries looked at.

I think in those situations where you have purely economic damages, and a very large disparity between economic damages and punitive damages, it will lead to a large reduction or throwing the punitives out completely. Where there is physical harm, it's hard to say how much will change.

Where economic harm is particularly serious, that may [still] outweigh the other factors [the court set up to limit punitive awards]. It's a balancing test, not a mathematical formula. Where massive fraud is going on, I would say you may see judges look at that as akin to physical harm.

The one thing a lot of people overlook is punitive damages' ability to force people into settlements. You see fewer punitive awards going out because you don't see the settlements. Under Gore, you'll be treated more fairly if you have to defend yourself.

There's a lot of things that drag on innovation. I don't know that there will be one product on the market in five years because the Supreme Court limited damages in product liability cases. But there certainly is going to be one factor that's going to be less on the mind of businesses than it is now.

Patricia J. Kasputys

Law Offices of Peter G. Angelos, Towson

What's troubling is that this decision adds another level of prohibition for a state to punish conduct that may be widespread across the country, but may occur for the first time in the state of Maryland.

Say for example that a company had sold a defective product in a neighboring state that injured 1,000 people, but none of those people ever brought that company to court. In Maryland, suppose one person is killed by the same product and that person's family brings an action in state court. This opinion could be construed to say that for a Maryland jury to consider awarding punitive damages, that jury is not permitted to consider that the product has killed 10, 20 or 1,000 people in another state. That's the most troubling aspect of this Supreme Court decision.

I cannot say what effect it will have on innovation. That really is of very little concern. The paramount duty of any manufacturer is to comply with its time-honored duty to test products before it puts them on the market.

Pub Date: 6/02/96

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