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Welcome to Vegas Lawyer. This site is for people who were hurt in Nevada. Contact us for a free consultation. You may want to read the Las Vegas Personal Injury Law introduction on our home page. Also, you can get an overview of other claims like Wrongful Death, Auto Accidents, Slip & Fall, and Products Liability before you explore the Article below.

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  • Cost-Effectiveness Analysis And Product Liability


  • Cost-Effectiveness Analysis And Product Liability

    Product Liability

    Product liability litigation has been heavily influenced by CEA/CBA concepts. An explicit risk-utility analysis (RUA) has become the dominant form of analysis for resolving product liability cases (Wade 1973; see also Saratoga Fishing Co. v. Marco Seattle Inc., 69 F.3d 1432, 1440 [9th Cir. 1995]). RUA evolved from the Hand formula proposed originally in Carroll Towing (see, e.g., Saratoga Fishing Co., 69 F.3d 1432; Liriano v. Hobart, 132 F.3d 123,131 [2d Cir. 1998]) and is used in product liability litigation, especially design defect cases, to weigh the benefits of a product against its risks. Among other aspects, RUA considers the usefulness or desirability of a product; safety aspects of a product; availability of substitutes; and the possibility of improving safety without decreasing usefulness or increasing cost (Epstein 1987). The multifactorial nature of RUA makes it difficult to apply. In fact, a 1997 computer survey of cases involving product-defect balancing tests in prescription drug cases showed that courts had adopted numerous balancing tests, not all of which were compatible with each other or with the Restatement (Second) of Torts (Owen 1997).

    Practically speaking, the effect of RUA has been to bring strict liability cases for product design defects closer to the standards used in traditional negligence cases. When striking a balance between risk and utility, at some point the consideration of cost must come into play, and some courts have ruled that CEA is an integral part of RUA. In Proes v. Honda Motor Co. (31 F.3d 543 [7th Cir. 1994]), for instance, the plaintiff claimed she had been thrown from her car during an accident due to the failure of a defectively designed seat belt (see also, Prentis v. Yale Manufacturing Co., 427 Mich. 670, 688 [Mich. 1984]). The court noted that to prove the defendant's negligence, the plaintiff needed to show that another seat belt design "not only could have prevented the injury but also was cost-effective under general negligence principles" (i.e., that there were no other alternatives that were more cost-effective).

    Despite this case, MCOs may rightly be concerned about juror responses to CEA as opposed to how appellate judges will ultimately incorporate CEA into the standard of care. Two examples demonstrate the concern.

    In the first instance, Grimshaw v. Ford Motor Co. (119 Cal. App. 3d 757, 174 Cal. Rptr. 348 [Cal. App. 1981]), the plaintiff was a passenger in a 1972 Pinto when the car stalled on a freeway and was subsequently hit from behind. The force of the rear impact caused the gas tank to explode, severely burning the plaintiff and killing the driver. The plaintiff sued on the basis of negligence and strict liability for product design defects. During the trial, a CEA dealing with the safety of the Pinto gas tank surfaced. According to Ford's analysis, 180 burn deaths could be avoided if $137 million were spent on safety enhancements. Ford placed the value of each of the 180 lives at $200,000, for a total of $36 million (Green 1997; The T. J. Hooper, 60 F.2d 737 [2d Cir. 1932]). Total net savings realized by delaying safety improvements was $101 million. The CEA was never allowed into evidence at trial, and the jury never saw it. However, the jury heard testimony that pointed to the existence of the CEA, and it was made clear that Ford had weighed human lives against its profits (Grimshaw, 119 Cal. App. 3d at 813). The jury regarded this evidence as a "smoking gun" indicating Ford's culpability. The jury found for the plaintiff and awarded $125 million in punitive damages. Commenting on the defendant's behavior, the court had this to say:

    Through the results of the crash tests, Ford knew that the Pinto's fuel tank and rear structure would expose consumers to serious injury or death in a 20-to 30-mile-per-hour collision. There was evidence that Ford could have corrected the hazardous design defects at minimal cost but decided to defer correction of the shortcomings by engaging in a cost-benefit analysis balancing human lives and limbs against corporate profits. Ford's institutional mentality was shown to be one of callous indifference to public safety. There was substantial evidence that Ford's conduct constituted "conscious disregard" of the probability of injury to members of the consuming public.

    More recently, a jury severely punished General Motors for using CEA to justify not pursuing safety-oriented design changes concerning the location of the gas tank in certain car models (Pollack 1999: A7). In July 1999, the jury awarded $4.8 billion in punitive damages for severe burns following the explosion of a car's fuel tank in a rear-end collision (although it is likely that the verdict will be substantially reduced on appeal). According to published reports, the trial testimony showed that GM could have moved the fuel tank at a cost of $8.59 per car. An internal memo written by a GM engineer estimated that fuel tank fires cost GM only $2.40 per vehicle. In a subsequent statement, GM argued that the fuel-tank placement met all regulatory standards. But "jurors told reporters that they felt the company had valued human life too lightly. 'We're just like numbers, I feel, to them,' one juror [said]" (ibid.). As in the Grimshaw case, the jury treated the internal memo as a smoking gun of culpability.

    These cases suggest that MCOs face a daunting challenge to use CEA without conveying the impression that they treat individual lives cavalierly. As discussed below, internal memos such as those cited in the GM case are likely to expose MCO officials and physicians to withering cross-examination.

    This information came from an
    AHRQ online article.

    *** Any law, statute, regulation or other precedent is subject to change at any time ***

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