Administration Defines Product Liability Limits : Will Ask Congress to Restrict Scope of Jury Awards, Put Cap on Lawyers’ Fees

The Reagan Administration moved Wednesday to reform the way product liability cases are determined by federal courts, contending that consumers have been footing the bill for excessive jury awards and for high insurance premiums paid by many product manufacturers.

Atty. Gen. Edwin Meese III and Commerce Secretary Malcolm Baldrige announced that Congress will be asked to approve legislation to help solve what they called “the product liability crisis.”

Their joint proposal--the result of months of study by an interdepartmental task force--would place “reasonable limitations” on the liability of those who make and sell goods ranging from drugs to football helmets, and monetary awards generally would be restricted to a plaintiff’s medical bills and lost wages.

Cites ‘Liability Explosion’

Non-economic damages such as “mental anguish” and “pain and suffering” could not be compensated by more than $100,000, and limits would be placed on lawyers’ contingency fees.

Meese said at a news conference that “a tort (damage) liability explosion” in the nation’s court system has resulted in a dramatic rise in court costs, legal fees and insurance premiums--all of which, he said, take money out of consumers’ pockets. He acknowledged that much of the tort system is the responsibility of individual states but expressed hope that many states would use the Administration’s proposed legislation as a model, if it is enacted.

The liability issue has been a subject of wide debate, particularly in California, where residents will vote June 3 on Proposition 51, a measure that would scale down the size of personal injury awards by limiting liability for non-economic damages to each defendant’s percentage of blame. The Legislature, like those in most other states, has taken no final action of its own.

Sen. Bob Kasten (R-Wis.), who has long advocated reforming the system, said that he would join the Administration in developing a bill that would be able to pass the Senate this year. “The nationwide crisis is touching everyone,” Kasten said, “from cities and towns to day-care centers, from the manufacturers of vaccines to the tourism industry, from the makers of football helmets to the neighborhood drug store.”

Wants Competitive Prices

Baldrige told reporters: “As the costs associated with our product liability system, including the costs of liability insurance, climb upward, those costs will be reflected in higher unit prices which will make U.S. products less attractive in both domestic and foreign markets.”

Consumer advocates have warned that they will oppose any changes in the legal system that might prevent plaintiffs from obtaining full and fair compensation for damages caused by defective products or changes that could allow a manufacturer to escape responsibility for his actions.

But Assistant Atty. Gen. Richard K. Willard, the Justice Department’s authority on liability, said that the proposed legislation should be welcomed by consumers because it will eventually save them money on the price of goods.

Under the Administration bill, attorney fees would decrease in percentage as damage awards increase. The schedule would allow a 25% lawyer’s fee for the first $100,000, 20% for the next $100,000, 15% for the following $100,000 and 10% for the remainder.

Almost two-thirds of every dollar paid through the system now goes to attorneys’ fees or litigation expenses, advocates of the bill said.

Drafting Companion Bill

Willard said the bill would require specifically that liability be based on fault or negligence in making a product that is “unreasonably dangerous.” Also, the measure would limit the application of “joint and several liability”--under which a person is held liable for the fault of others--to situations in which those people have acted together to cause the injury, he said.

In addition to the proposed measure announced Wednesday, Meese and Baldrige said that the Administration is sending a companion measure to Congress that would limit the civil liability of government contractors to ensure that their liability does not keep the government from obtaining goods and services in a timely manner.

In a related development, the nonprofit National Insurance Consumer Organization issued a study Wednesday charging that the insurance industry had manufactured its so-called “insurance crisis” affecting cities, states and others. The study said that industry surpluses in the property-casualty field had reached a record $77 billion in 1985.

But Marc Rosenberg, vice president of the Insurance Information Institute, an industry group, said the $77 billion represents several sources of income besides profits and includes funds that must be paid in claims in future years.