America is notorious for its litigious nature. Peter Papasavas, a London-based partner with Cozen and O'Conner, the 80th largest law firm in the United States of America, and the leading firm in insurance litigation, warns UK insurers not to ignore the repercussions
Two recent jury awards in the US against automobile manufacturers have once again raised the eyebrows of manufacturers, including non-US companies, whose goods are sold in the US and all insurers, including British insurers, which underwrite those risks.
The first award on July 9, 1999 was a $4.9 billion (£3bn) jury verdict against General Motors Corporation (GM) and the second award on July 12, 1999 was a $295 million (£178m) jury verdict against Ford Motor Company (Ford). These awards beg the question is the American civil litigation system spiralling out of controlNULL
These high-profile awards are alarming not only because they involve product liability claims for individual accidents, but they significantly contribute to the public's perception that potentially huge punitive damages against larger corporations are acceptable. This is particularly true with the GM award which, for now, is the highest personal injury award in US. history.
In the GM case, a California state court jury in Los Angeles awarded Patricia Anderson, her four children and a family friend $107m (£65m) in compensatory damages and $4.8bn (£2.9bn) in punitive damages for burn injuries they suffered in a 1993 accident when the gas tank of their 1979 car exploded in flames in a rear-end collision.
The Andersons' car was stationary at traffic lights, while returning from church on Christmas Eve, when it was hit from behind in a car driven by a drunk driver. It was estimated that the drunk driver was travelling between 50 and 70 mph when it struck. Three of the children suffered burns to over 60% of their bodies and the two adults and the remaining child suffered second and third degree burns over a lesser percentage of their bodies. All of the occupants survived the accident.
The plaintiff's products liability claim against GM was based on the theory that the gas tank was defectively designed because it was placed too close to the rear bumper. A critical piece of evidence in the case was an internal GM document which was part of a general analysis of gas tank safety. In the 1973 study, a GM design engineer EC Ivey estimated that it would cost GM $200,000 (£121,000) to settle legal claims from each fire-involved fatality, or about $2.40 (£1.45) for each GM vehicle on the road. According to Brian Panish, the lead plaintiff's attorney in the case, GM had numerous failures in its crash test, but chose to leave the tank where it was because changing it would have cost $8.59 (£5.20) per car. One of the jurors said that the jury panel calculated its award based on the amount GM spent advertising cars with a similar gas tanks.
In the Ford case, a California state court jury awarded $5m (£3m) in compensatory damages and $290million (£175m) in punitive damages to the family of a couple and their son who were killed when a 1978 Ford Bronco swerved to avoid collision and rolled over on a motorway in 1993. The driver's mother, father and brother were killed in the accident, and his two sisters suffered minor injuries.
The plaintiff's lawyer said that Ford knew the Bronco's roof was unsafe but decided to save the small extra cost of reinforcing the roof with steel, a change that was subsequently made on post-1979 Broncos. The plaintiff's lawyer also justified the punitive damages award by emphasising that it is the equivalent to only ten days of profit for Ford.
GM and Ford have indicated that they will appeal these verdicts, so these awards will be reviewed by California appellate courts. The parties, particularly GM, will also challenge the level of compensatory damages on appeal. California appellate courts normally reduce punitive damage awards in excess of ten times actual damages to something closer to three to five times compensatory damages. The consensus among most legal experts is that either the verdicts will be overturned or the punitive damages on appeal will be reduced significantly.
Out of control
The question that manufacturers and insurers must ponder is whether these awards represent another example of an American legal system out of control. The answer does not lie merely within these two cases.
There have been at least nine empirical studies conducted over the past decade tracking punitive damage verdicts in the US. These studies, which have examined representative samples of verdicts in various jurisdictions between 1965 and 1995, support the view that punitive damages are rarely awarded in products liability lawsuits. The studies, including two conducted by the US. Department of Justice and the General Accounting Office, have found that punitive damages have been awarded in only one per cent to four per cent of all products liability verdicts. These studies also find that the median punitive damage award closely correlated to the level of compensatory damages at a rate less than twice the size of the compensatory awards.
Awards on the upNULL
Although the empirical data suggests that by 1995 punitive damage verdicts appear to have levelled off since the early-1980s, it is difficult to believe that since 1995, based on the anecdotal evidence, jury verdicts have not begun to rise significantly. For example, in 1998 there were at least eight jury verdicts in excess of $40m (£24m). This year alone there have been other verdicts for $760m (£460m) on behalf of 38 Lockheed employees and $581m (£352m) to a family which was overcharged $1,200 (£727) for television satellite dishes.
Juries in certain US jurisdictions, particularly in those states, California, Texas, Florida and Alabama where punitive damages are awarded most frequently, are awarding damages that, until recently, would have been considered unthinkable. Potential jurors who read news accounts of the $246bn (£149bn) in settlements last year between the tobacco industry and state attorneys general have come to realise that large corporations have the capacity to absorb such exorbitant sums. In a sense, the American public is becoming desensitised to the enormity of huge verdicts.
For medium and large corporations in particular, the combination of billion dollar profits, a faceless corporation and sympathetic plaintiffs who suffer horrific injuries is indeed a recipe for an eye-popping adverse jury verdict. But the battle only begins when the jury verdict is rendered because the final verdict in the US. rests with the appellate courts and the war over sky- rocketing damage awards will be won or lost on this level.
This is evident from perhaps the most notorious US. decision, the $2.9m (£1.75m) verdict rendered against McDonalds in 1994 on behalf of an elderly woman who spilt hot coffee on her lap as she drove away from a McDonalds restaurant. It was not so widely reported that the woman suffered third degree burns requiring skin grafts because McDonalds served its coffee 20 degrees higher than the standard in the trade. The punitive damage award of $2.7m (£1,6m) accounted for approximately two days of coffee sales. Most importantly, however, the court later reduced the award to $640,000 (£387,000) and McDonalds reportedly settled for approximately $400,000 (£240,000).
The empirical data until 1995 supports the view that jury verdicts are not out of control, whereas the increasing number and level of enormous jury awards suggest otherwise. Recognising the conflicting signals being sent by the empirical and anecdotal evidence, the jury is still out on the question whether American verdicts are out of control.