Enterprise, Products & No-Fault Liability
Prof. Ursin
Spring 2014
1. Intro
a. 9/11 Fund: East recovery. Can either bring a tort action (against the airlines, for example) or use the fund. If you have insurance paying out for your injury instead, can’t recover that amount via the fund. Cap for damages was 221k, cap on P&S (pain and suffering) 250k. Example of “no fault compensation,” the alternative to normal tort law.
b. Enterprise Liability Overview
i. Proponents – Green, James
ii. EL is the umbrella that covers SL, expansion of tort liability, no-fault, and damages reform. In literature, sometimes referred to as “strict products liability.”
iii. Includes the idea of expanding tort liability thru SL and other pro-P liability rules and/or the adoption of no-fault plans
iv. After a while, no fault comes “unlinked” from EL, despite being under the umbrella, so writers begin to think EL doesn’t include“no fault” concepts/theories.
2. Traditional Tort Theory and Enterprise Liability Challenge
a. Law, Theories, and Agendas:
i. Holmes, “The Common Law”: Felt tort law (and negligence law in general) should be a means to shift losses according to fault, w/ the goal being to improve society, “corrective justice.” No improvement if you’re just shifting losses instead of making up for a loss, let alone shifting them to those who aren’t at fault.
1. Holmes feared the state might become a “mutual insurance company” with everyone paying into something by taxes that would compensate people injured by accidents.
ii. Learned Hand Test:
1. Look at:
a. Probability of the harm (P)
b. Gravity of the resulting injury (L)
c. Burden of guarding against injury (B)
2. If P x L > B, then Δ held liable.
a. (P x L) = the cost of taking risky action, the cost of the accident
b. B = cost of reducing or avoiding the risk of harm
3. Negligence tort law should only be designed to deter those accidents worth avoiding. A reasonable person would not take action where it would be financially prohibitive.
iii. Rylands v. Fletcher: Reservoir leaks in the tunnels under his property and ends up damaging property next-door, liable for damage regardless of fault: Have something on your land that’s not naturally there à strictly liable for it. Originally, this case was very limited to its facts, but still not popular.
iv. Leon Green: Green and Lewellyn (“Lew”) laid out the framework for product liability. They thought up “legal realism,” the idea that judges should be free to do what is just and fair, as opposed to having to follow rules, because judges just decide according to what they want anyway: courts should rewrite the law. Both were prompted by the worker’s comp (WC) movement, wanted to extend WC ideas to other areas where accidents were just as inevitable (Green liked auto compensation plans w/ WC scheme, for example).
1. Green felt that the tort principles reflected policy factors that have now changed, so tort law should change too: Look at policy factors (aka duty factors) to see whether we should alter liability/duty rules.
2. Felt “principles meant nothing” because they were just generalized rules based on the factors that determined the initial judgment: Laws are based on judicial decisions, and those decisions were influenced by reactions to social problems at the time and the subjective worldviews/ideologies of judges.
3. Sees juries ignoring fault requirement in order to give “bootleg protection” to plaintiffs
4. Green wanted to examine/reconsider existing tort doctrines using 5 factors, wanted tort law to reflect modern values, new types of accidents/problems, etc. These factors à the Rowland factors we see later, CA courts use them a lot by the 1960s.
a. Administrative Factor: Workability of the rule. Can juries administer it? Can judges apply it?
b. Moral Factor: or, considerations of fault. The idea of fault is a factor in the negligence system, even though it’s not the only factor.
c. Economic Factor: Impact on economic activity, society, etc. Don’t want to chill certain activities.
d. Prophylactic Factor: Whether future harm will be deterred/prevented. Thinks of using liability rules à safety incentives. If we impose liability, we’re going to make the potential Ds want to act more safely and prevent accidents, etc.
e. Justice Factor: Looks at capacity to bear loss. Not the capacity of the individual, but whether the class of ppl of which they are a part could bear this kind of loss. This was a pretty radical idea at the time.
v. Karl Llewellyn: Suggested doctrine of strict products liability based on food cases.
1. In K law, there’s implied warranty of merchantability, which uses SL, so courts used implied warranty of merchantability to create SL for food, regardless of privity. People got P&S in these cases even tho that is not a K damage, it is a tort damage (made applying SL here looked like tort law). Lew says courts are stretching warranty law to fit a need beyond what “warranty law” really was supposed to provide.
2. Wants to extend SL beyond food: Put loss where it can be helped, by placing loss there you give an incentive to keep down future losses, it’s placed where they can actually do something to increase safety.
vi. Seavey: Didn’t want WC to inform tort principles because WC is an insurers liability issue, not a tort liability issue, and SL in the food cases was K law and irrelevant to tort law à WC and food cases shouldn’t influence tort law. Argued Green was proposing “sentimental justice” for victims by pursuing loss spreading, etc. instead of what justice requires.
1. Aside from a few narrow exceptions (wild animals kept on property, blasting) Seavey felt there’s no acceptance of the idea that there could be liability w/o fault or liability.
2. Very different from Green because Green felt WC was changing how we handled accidents and Seavey felt it should play no role in the analysis and strict liability wouldn’t catch on.
3. Disagrees w/ Green’s idea about deciding who’s at fault based on resources. Seavey likes that Cardozo rules according to the parties before him, not the classes each side belongs to.
4. Seavey, “Mr. Justice Cardozo and the Law of Torts” (he loved Cardozo)
a. Cardozo wrote Macpherson v. Buick (abolishing privity for policy reasons because it made more sense to allow P to sue the manufacturer, not the dealer, so manufacturer will be liable for a product that could foreseeably injure someone).
b. Seavey liked that Cardozo looked at how courts had been reaching illogical results from precedents that had been based on poorly understood tort principles. Privity was one of those illogical principles.
c. Green had policy-choices being central to the way the law should be applied, while Cardozo didn’t let policy play a role: Seavey just wants to hold the negligent person liable w/o policy considerations.
b. Mature Enterprise Liability Challenges and Responses
i. Traynor’s Escola concurrence (CA, 1944): Became the framework for SPL. Res ispa loquitor was allowing juries to basically apply SL (they tend to find for P even when D puts forth evidence of due care, so it’s essentially SL), so Traynor felt we should just say what we’re doing already.
1. Policies for SL that Traynor saw (not based on any data, just his ideas)
a. Put responsibility where it can best be shouldered à more care used by manufacturers, safety incentives, as opposed to a negligence rule (this idea is similar to Green’s prophylactic factor).
b. Loss spreading among the public is better than having the injured deal with 100% of the costs (gets this idea from Lew)
i. Critics would later say loss spreading is more expensive than other options like insurance, forcing ppl to buy into insurance through buying the product at its elevated price, and maybe people will just buy a cheaper product.
2. Few SL cases outright to draw on for precedent. Looks to warranty law, food cases.
a. Implied warranty of merchantability à SL for food producers despite the fact that customers weren’t in privity of K. Traynor says that courts used “fictions” to extend warranties to consumers in these cases, so why not do it here to meet social needs in this area too?
ii. Fleming James, “General Product – Should Manufacturers by Liable w/o Negligence”: Wanted the courts to take it upon themselves to remake tort law/tort doctrines that no longer serve us (based on the same reasons as those mentioned by Traynor), supports adopting SPL. Architect of negligence law reform. Critiqued traditional tort theory, saying ppl like Seavey aren’t being realistic about how the prevalence of insurance in society has changed what it means to be “liable,” can’t “shift loss” like we used to w/ negligence.
1. Wanted to do this through the courts (legislature to complicated). Looks at extending food cases to all products, wherever SL policies apply or there’s inevitable accidents. Likes all of the policies behind SL/tort reform.
2. Pointed out that adopting widespread SL = need to decrease damages too, based on WC model.
a. Hints at decreasing damages to just meet victims’ “basic needs.” Losses can be spread, but only to the extent needed to help victims recover for accidents.
3. No more privity limitations
4. Proposed extending food-case-type liability to retailers and bystanders.
a. Confronts the fact that ppl are concerned about SL being unlimited, says we can limit it by asking P to be able to trace his injury back to a quality or condition in the product that was unreasonable dangerous for either a use to which the product would be ordinarily put, or for a special use the D was on notice of
i. This is the definition for products liability that the restatement ends up adopting
ii. Then he broadens what he’s saying, says liability will be for “typical risk” associated w/ the product, then says liability will be for “dangerously defective” products. Shows that James is hit w/ a limitation of SL: can’t define “defect”
iii. Cooperrider, “A Comment on the Law of Torts”: Characterizes James’ treatise as “let the plaintiff be compensated and the loss be spread.” Feels James and his contemporaries prefer unrestricted juries and judges, feels this would threaten the rule of law
iv. Prosser, “The Assault Upon the Citadel”: Dislikes James’ ideas. Feels SL and its policies are just thought up by unrealistic academics, SL “won’t be the law for 50 years.” Critiques the policy reasons for SL:
1. Safety incentive: could be created by negligence doctrines. James felt SL creates a greater safety incentive, while Prosser thinks its stupid to assume manufacturers will actually respond to a safety incentive
2. Loss Spreading: Prosser thinks this is based on Traynor’s Escola concurrence, and that’s just a concurrence—Prosser dislikes a mere concurrence being given that much weight. The opinion isn’t the law, never has been, don’t take it seriously.
a. Feels the Escola concurrence is a step toward socialism. Traynor had characterized changes to tort law as being a slow expansion based on the food cases, but Prosser characterizes it as “sweeping” change that would put a huge burden on manufacturers all at once. Feels any change will take place slowly.
i. So James feels we’re almost there, Prosser is on the other end of the spectrum.
3. Liability insurance: Points out how Traynor is the only one to have mentioned how insurance would function within the proposed system. Says it’s ok for insurance to distribute losses, but not ok for it to decide which group will bear the loss.
a. True that James and his contemporaries were outliers in discussing liability insurance’s role in tort. James felt it was so prominent in allocating losses that it made the old tort law outdated.
4. What Products: Guesses what products will be covered by SL. Definitely food, drugs because they’re
ecause any other product would “do the same thing” – wants no escape for “a product whose norm is danger” i.e. prescription drugs
3. Modern Theoretical Perspective: Economics and Justice – these writers, writing around 1960, turn away from traditional interprise liability theory as well as traditional tort theory.
a. Schwartz, “Foreword: Torts Scholarship”: asks whether the idea behind tort law should be distributing loss or fault, aka James vs. traditionalists.
b. Guido Calabresi, “The Decision for Accidents: An Approach to Non-fault Allocation of Costs”: Alternative to both sides, more sophisticated version of EL (tho he still calls it EL). Less concerned about loss spreading, and focused on the justifying SL by saying we should be “allocating resources” where they need to go.
i. Welfare Economics: Goal is to maximize social welfare/satisfaction. If 50% of people take cars and 50% take the train, for example, but a subsidy makes it 70/30 instead, economists would dislike because they want market to not be distorted, want price of products to accurately reflect society.
1. In EL context, means products should accurately reflect the costs of their accidents, just like they reflect the costs of their materials, because accidents are another cost of doing business.
2. Price should reflect accidents/costs regardless of fault, thus justifying SL w/o using loss-spreading argument.
a. Example: If Pepsi sells for 5 because it’s made using cheaper materials and Coke is selling at 10, but cheaper glass has more accidents associated with it, until that’s reflected in the price, ppl will flock to Pepsi. If Pepsi causes accidents that can be valued at 10, then add that to the cost, Calabresi said, so Pepsi now costs 15. Thus, Pepsi’s more expensive and loses its market share. If Pepsi wants to be competitive, it’s going to use safer glass like Coke and be brought down to 10.
i. We see how the safety incentive only comes into play for things that’d be your fault anyway and avoids “socialist” loss spreading by focusing on efficiency.
ii. Discusses safety incentives/deterrence as the main goal, NOT compensation of victims or loss spreading: If compensation was our goal, we’d have social insurance, which would mean companies would have no liability, and thus no safety incentives.
1. Diverges from Prosser and James on this view (pro-social insurance, compensate victim is main goal).
2. Calabresi is kind of arguing against James here. James said SL will eventually “achieve” social insurance if compensation and loss spreading are the goals. Calabresi feels those are dangerous goals because we won’t end up w/ deterrence, and deterrence creates safety, and we want safety.
a. Calabresi argues deterrence can be achieved best not w/ social insurance or litigation, but w/ a system where there’s compensation but also deterrence: stupid to focus on deterrence alone because ppl wouldn’t get compensated and the victims would seek a better system à social insurance.
b. This is also another problem w/ fault liability, he says. Fault system is so bad at compensation, pressure will lead to it being replaced by social insurance. So the fault system is so broken, in his opinion, we can’t help but end up w/ SL later.
c. Franklin, “Liability for Hepatitis”: Blood banks should be liable when a blood transfusion gives someone hepatitis. Bases the appropriateness of SL application here by using economics, like Calabresi.
i. 4 Rationales for SL :
1. D is in the best position to control for bad products. Best to impose liability on the party with the most knowledge than have a wasteful trial/bad results at trial due to P not being able to prove a complicated case. Thinks this justification doesn’t apply here: blood banks are small, accessible, keep records, so any alleged negligent acts at issue aren’t difficult to prove
2. Safety incentive: He uses a Calabresi-style argument – Manufacturers will make safer products to prevent accident costs, so we should put responsibility for accidents on those that can best handle/respond. Feels this one is the most compelling for the blood bank situation.
a. Points out that this assumes things about how manufacturers behave – if manuf decides it’s cheaper to pay the accident claim than make the product safer, he’ll act accordingly and tort law will do nothing but compensate the victim.
3. Resource allocation: “If social costs are not reflected in price, then there will be excessive demand for underpriced products and the overall allocation of resources throughout society will be distorted.” Calabresi. Customers need to be aware of the true cost of a given product.
4. Loss spreading: The safety incentive argument is beginning to push the loss spreading argument out of the spotlight at this point in time.
