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Product Liability Tort Reform: What's the Real Cost?

Corporations that make and sell products that hurt people have zealously fought and lobbied to reduce their liability. They've succeeded, too.  In the past decade or so, most states have enacted some form of product liability tort reform, ranging from non-economic damage caps to statutes that absolve sellers and distributors from any liability at all.  Their most appealing argument has always been that product liability litigation --lawsuits brought by victims who were injured in some way by a defective or unsafe product --are a drag or a drain on our economic system.

There's alot more to that story.  Pro-business groups assume that product liability always amounts to a "cost" on society. As Max Kennerly of the Litigation & Trial Lawyer Blog writes:

"In reality, as the Case Theorem makes clear, money paid out in tort liability  is not a "cost" to society, it's just a transfer from one party to another, because the money goes right back into the economy through payments to medical providers and insurers (who subrogated part of the injured person's claim).  The money left after those medical and insurance costs goes towards remedying the insured person's lost wages, and thus goes to the same healthy economic expenditures as before, like paying for their children's education, or buying a new house, or putting food on the table.  (Before someone claims, "but the lawyer's fees are a transaction cost," remember that, in personal injury litigation, the lawyer's fees are not added to the defendant's liability, but rather subtracted from the plaintiff's recovery, and so they do not add to the overall recovery.)"

Lawyers who practice products liability law understand when a person is hurt by a defective or unsafe product, that injury results in costs.  They will be borne directly by the victim and indirectly by the victim's insurance company or other entities like Medicare, Medicaid, or the hospitals who treated him.  When the companies responsible for introducing a harmful product into the marketplace and profiting from it, are held liable, those companies bear the costs of the injury. If the victim's own insurance company has paid for medical bills and other expenses, then the responsible party reimburses the insurance company.  If the victim is uninsured, then the responsible party pays for his medical bills rather than taxpayer-funded government programs. Products liability simply changes who pays these costs.  Products liability tort reform does not result in economic growth; it results in companies escaping liabilty for their unsafe products and decreasing a company's economic incentive to produce a safe product.

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