Academic exploration of product liability as to product safety levels:
American Law and Economics Review, Volume 20, Issue 1, 1 April 2018, Pages 46–81, https://doi.org/10.1093/aler/ahx013
Published:   14 July 2017
The abstract explains:

“This article shows that shifting losses from consumers with heterogeneous harm levels to vertically differentiated duopolists increases product safety levels, while narrowing the degree of product differentiation. Our setup features observable (but possibly nonverifiable) product safety levels and firms subject to strict liability according to a parametric liability specification. Firms’ expected liability payments depend on both product safety and price levels which critically influences the repercussions of shifting losses to firms. From a social standpoint, shifting some losses to firms is always beneficial.”

It’s an amazing world out there when one thinks about mass tort claims, corporate m&a, and due diligence. Some people “get” the issues, and others do not.  From the outside, it’s hard to know what was done – or not done – when m&a was contemplated. The point came to mind this week because of a report that Amex Foster Wheeler had acknowledged asbestos-litigation reserves of around $310 million after giving effect to hoped for insurance recoveries.  On seeing that story, I went back to check on when Amec Foster Wheeler was created. The deal was done in 2014, according to the “history” page at the web site. One wonders if the deal makers had the proper numbers in sight when negotiating.

The current situation is as follows, according to an August 14, 2017 story at builder.co.uk:

“The firm’s half-yearly results, released last week, stated: “The legacy Foster Wheeler business is exposed to significant numbers of claims relating to alleged exposure to asbestos. The quantum of these claims is actuarially forecast each year and provisions are held against these loss projections. However there is a risk that these loss projections will be exceeded and the provisions could be inadequate to meet the liabilities.”

The claims relate to various subsidiaries in the UK and US, where people were allegedly exposed to asbestos primarily in connection with equipment allegedly manufactured during the 1970s or earlier, according to the company.

Amec Foster Wheeler has asbestos-related liabilities of £420m. These include estimates of indemnity amounts and defence costs for current and future claims expected up until 2050, according to the report. Insurance recoveries relating to asbestos claims are estimated at £110m – leaving the firm with a bill of at least £310m.

Its latest annual report, released just a few weeks ago, warned: “We expect to have net cash outflows of $30.4m as a result of asbestos liability indemnity and defence payments in excess of insurance proceeds during 2017. This estimate assumes no additional settlements with insurance companies and no elections by us to fund additional payments.”

The company admitted that predicting the costs of future asbestos claims “is subject to a number of uncertainties that may result in significant changes in the current estimates.” These include things such as the number and type of claims filed as well as “uncertainties surrounding the litigation process” in different jurisdictions and cases.

In the US, which accounts for the “overwhelming majority” of cases, many of which are for mesothelioma or lung cancer, there were 3,800 claims made in 2016 – up from 3,420 in 2015.

The annual report said: “Increases in the number of claims filed or costs to resolve those claims could cause us to increase further the estimates of the costs associated with asbestos claims and could have a material adverse effect on our financial condition, results of operations and cash flows.”

Some of the company’s subsidiaries are defendants in “numerous asbestos-related lawsuits and out of court administrative claims in which the plaintiffs claim damages for bodily injury or death alleged to have arisen from exposure to asbestos,” it added.

Although the company has insurance cover in place, some of its arrangements are for “fixed monetary amounts and/or provide cover only for claims made before a specified future date.”

 

This week brings another example of how quickly science and technology are providing new opportunities and risks related to new products and/or liability risks.  Specifically, here’s a December 21, 2016 article from Weil explaining where things are going – quickly – on vehicles and technology as NHTSA tosses out proposed tules on vehicles being able to “talk” to each other to avoid crashes, etc. The title explains: The Future is Now: NHTSA Proposes Rule Requiring Cars to “Talk” to Each OtherThe Future is Now: NHTSA Proposes Rule Requiring Cars to “Talk” to Each Other .

 I’ve not yet read it, but a recent  law and economics paper on product liability looks interesting. The abstract is below. A prior draft is online at this page of SSRN. 

__________________________________________________________________________________

Cumulative Harm and Resilient Liability Rules for Product Markets


Andrew F. Daughety
Vanderbilt University

Jennifer F. Reinganum
Vanderbilt University

Abstract
 
In the traditional unilateral care model of products liability, expected harm is proportional to usage. Thus, all standard liability regimes yield the efficient choice of care by the firm, independent of the level of usage. This implies that liability for harm can be considered independently of market structure and competition. We find that when expected harm is cumulative (i.e., increasing and convex in usage), then different liability regimes produce different outcomes and yield different implications for social efficiency. Since the responsibilities for product and market performance are divided among relevant agencies and institutions, this presents a challenge to the correct design of rules for agents in the market. We argue for selection among alternative liability regimes based upon what we refer to as “resilience.” Strict liability is a resilient policy; no liability and negligence are not resilient. Thus, we provide a new argument for strict liability with respect to product-generated harms. 

 

Research from the UK appears to present a lesson in smart product design, in this instance as to nanoparticles. Prior studies have shown that nanoparticles cause inflammation in the lung, and show signs of having the adverse health impacts of asbestos. So, the researchers experimented with fiber length to see if different fibers produced different impacts.

Sure enough, there were indeed differences. Particles at or above 4 microns are more inflammatory than are shorter fibers (and there are some further subtleties on length/width ratios). The research paper is online, and the abstract is pasted below. The results are consistent with prior research on less uniform asbestos fibers. Hat tip to RJ Lee Group for flagging the research. 

"Suspicion has been raised that high aspect ratio nanoparticles or nanofibers might possess asbestos-like pathogenicity. The pleural space is a specific target for disease in individuals exposed to asbestos and by implication of nanofibers. Pleural effects of fibers depends on fiber length, but the key threshold length beyond which adverse effects occur has never been identified till now because all asbestos and vitreous fiber samples are heterogeneously distributed in their length. Nanotechnology advantageously allows for highly defined length distribution of synthetically engineered fibers that enable for in-depth investigation of this threshold length. We utilized the ability to prepare silver nanofibers of five defined length classes to demonstrate a threshold fiber length for acute pleural inflammation. Nickel nanofibers and carbon nanotubes were then used to strengthen the relationship between fiber length and pleural inflammation. A method of intrapleural injection of nanofibers in female C57Bl/6 strain mice was used to deliver the fiber dose, and we then assessed the acute pleural inflammatory response. Chest wall sections were examined by light and scanning electron microscopy to identify areas of lesion; furthermore, cell–nanowires interaction on the mesothelial surface of the parietal pleura in vivo was investigated. Our results showed a clear threshold effect, demonstrating that fibers beyond 4 µm in length are pathogenic to the pleura. The identification of the threshold length for nanofiber-induced pathogenicity in the pleura has important implications for understanding the structure–toxicity relationship for asbestos-induced mesothelioma and consequent risk assessment with the aim to contribute to the engineering of synthetic nanofibers by the adoption of a benign-by-design approach."

Here is an interesting post from the Mass Torts Profs Blog on Judge Moss in Philadelphia granting a defense motion to seal a punitive damages verdict for plaintiffs that was entered in one Prempro trial. The defense argument was that the punitive damages verdict for the plaintiff might bias the jury in an ongoing Prempro trial in the same court.

What to do with sponsored research – take it at face value, disregard it completely, or use it subject to considering whether to reduce its weight due to the sponsorship (assuming the sponsorship is disclosed). The debate today ranges across a wide spectrum of information sources and decision-makers.

Of note yesterday, an NYT article by Reed Abelson reports that the Cleveland Clinic announced plans to make disclosure of all payments from drug companies and other sources. According to the article:

“It appears to be the first such step by a major medical center to disclose the industry relationships of individual doctors. And it comes as the nation’s doctors and hospitals are under mounting pressure to address potential financial conflicts of interest that can occur when they work closely with companies to develop and research new drugs and devices.
The Cleveland Clinic’s Web postings are the most recent part of a conflict-of-interest effort at the clinic after some of its leading doctors came under fire several years ago when the news media disclosed some of their financial links.”

On the topic more generally, one good source for general reading is a cogent New York Times article by Adam Liptak regarding the Exxon Valdez case and its footnote 17 regarding the Court’s refusal to rely on research sponsored by Exxon. Titled From One Footnote, a Debate Over the Tangles of Law, Science and Money,” the article also details a like ruling by Judge Weinstein in a drug class action.

The sponsored research topic also is being aired through symposia, such as Cornell sponsoring a symposium on Empirical Legal Studies (agenda here). There also is a good blog devoted to Empirical Legal Studies.

A new en banc 5th Circuit opinion from a strongly divided court grants the extraordinary remedy of mandamus to overturn perceived forum shopping related to a “rocket docket” in the Eastern District of Texas. Much is being made of this opinion in many contexts, including patent law and product liability cases.

Opinions on venues and “rocket dockets” are taking on even more importance as litigants seek fast outcomes and ROI. That said, the Illinois Supreme Court has been issuing rulings since 1983 trying to stop perceived forum shopping in Illinois with respect to Madison and St. Clair counties (and other venues) but those counties remain extraordinarily active venues.

For some time now, I’ve been writing about potential changes in product liability law due to rapid changes in communication and science. In a February, 2007 article for Corporate Counsel, I addressed various changes, including the widespread availability of scientific information and its impact on information-related tort claims. The article included my prediction that “sophisticated intermediary” types of defenses would change in light of all the available information. I’ll pat myself on the back and note that I was right – in a drug case in 2007, the West Virginia Supreme Court cast aside the “learned intermediary defense due to the wide availability of information to consumers. See Johnson and Johnson v. Karl, 220 W.Va. 463, 647 S.E.2d 899 (2007). The Court there said many things, including the following:

“When the learned intermediary doctrine was developed, direct-to-consumer advertising of prescription drugs was utterly unknown . . . Since the 1997 proliferation of drug advertising, only four high courts have adopted the learned intermediary doctrine . . . None of those courts gave thorough consideration to the changes that have occurred in the prescription drug industry with respect to direct-to-consumer advertising. We however, find such changes to be a significant factor in deciding this issue . . “

So, with that as background, I particularly enjoyed reading an excellent new article by Sarah (Sally) Olson of Wildman regarding the Johnson case and other additional specific examples of the Internet’s effect on tort claiming. The article is titled: Net’s Impact on Strict Product Laibility Law. The effects she describes include increased numbers of public consumer complaints of defects, consumer input into design, whether a company needs to monitor blogs, whether a company run blog or website will produce its own liability if a company is not accurate in what it says publicly, and various other points. Ms. Olson’s article is well worth reading in full and considering how it might apply in your context.

After that, think also about reading a 2008 book titled: Stop The Presses: The Crisis and Litigation PR Desk Reference. Written by Richard Levick and Larry Smith of Levick Strategic Communications, the book’s chapters 7 and * deal with blog strategies and lots of other “crisis” issues that did not exist 5 years ago in any material way. Then I’d suggest reading their chapter 9 on the impacts of media as related to increased prosecutorial activity. That’s a topic I’ve also covered in a more limited context in a 2006 Corporate Counsel article focused on “toxic torts” and criminal prosecutions.