An Impact Analysis of Judge-Made Products Liability Policies

Abstract

This paper assesses the impact of changes in products liability law by measuring liability insurance expenditures. Expenditure for liability insurance premiums is used as an index of resource redistribution from sellers of defective products to individuals who have been harmed by such products. Using multiple regression, comparative state data are analyzed for the period immediately prior to the enactment of the Consumer Products Safety Act in 1972, when doctrines concerning manufacturers' liability for defective products were changing in the direction of stricter negligence standards and thus greater liability for the manufacturer. Three types of products liability policies were in effect among the 50 states at that time. They were strict liability in tort, negligence plus warranty with no privity requirement, and negligence plus warranty with privity of contract required. Data from states with strict liability policies are compared with data from states where the negligence plus warranty standards were used. In states where manufacturers were subject to greater liability for defective products, more money was spent on liability insurance. This example from one area of tort law shows that common law decisions can have important social effects, and suggests a method for measuring those effects.