University of South Carolina Scholar Commons Faculty Publications Law School 6-1976 Punitive Damages in Products Liability Litigation David Owen University of South Carolina - Columbia, [email protected] Follow this and additional works at: https://scholarcommons.sc.edu/law_facpub Part of the Torts Commons Recommended Citation David G. Owen, Punitive Damages in Products Liability Litigation, 74 Mich. L. Rev. 1257 (1976). This Article is brought to you by the Law School at Scholar Commons. It has been accepted for inclusion in Faculty Publications by an authorized administrator of Scholar Commons. For more information, please contact [email protected]. PUNITIVE DAMAGES IN PRODUCTS LIABILITY LITIGATION DAVID G. OWEN TABLE OF CONTENTS I. INTRODUCTION -........ .... 1258 II. THE DOCTRINE AND FUNCTIONS OF PUNITIVE DAMAGES 1262 A. The Doctrine of PunitiveDamages and Its Com- patibility with Theories of Products Liability------ 1262 1. The Doctrine of Punitive Damages ---------- 1262 2. Compatibility of Punitive DamagesDoctrine with Theories of Products Liability ---- 1268 a. Strict liability in tort ------------------ 1268 b. Warranty -----------------.......-------------------------- 1271 B. The Functions of Punitive Damages and Their Applicability to Products Liability Litigation------ 1277 1. Punishment -------------------------------------------------- 1279 2. Deterrence ---------------------------------------------------- 1282 3. Law Enforcement ---------------------------------------- 1287 4. Compensation ---------------------------------------- 1295 III. COMPLICATING FACTORS IN ACHIEVING THE OBJEC- TIVES OF PUNITIVE DAMAGES IN PRODUCTS LIABILITY LITIGATION ------- ...----------------------.................------------------ 1299 A. Vicarious Liability and the Innocent Shareholder____ 1299 B. Liability Insurance for Punitive Damages -------- 1308 C. Measurement and Control of Punitive Damages Assessments -..-----------................---------------........ 1314 1. Measurement -----------------................------------------ 1314 2. Control -------------------------------- ...--------------1319 a. Judicial control over excessive awards----- 1320 b. Control over total punishment in mass disaster litigation --------------------------------------- 1322 IV. DEVELOPING A STANDARD OF LIABILITY FOR THE RECKLESS MARKETING OF DEFECTIVE PRODUCTS 1325 A. Classificationof Recurring Forms of Flagrant Misconduct of Product Manufacturers --------- 1325 1. Fraudulent-Type Misconduct ----------------------- 1329 2. Knowing Violations of Safety Standards ----------- 1335 3. Inadequate Testing or Quality Control ----------- 1339 4. Failure to Warn of Known Dangers --------- 1345 5. Post-MarketingFailures to Remedy Known Dangers --------------------------------------------------------- 1352 B. Toward a Standard of Responsibility ------------------- 1361 V. CONCLUSION ------------------ 1371 1257 PUNITIVE DAMAGES IN PRODUCTS LIABILITY LITIGATION David G. Owen*t I. INTRODUCTION Manufacturers have a powerful hold over the means for discover- ing and correcting product hazards.' Through the processes of design, testing, inspection and collection of data on product safety performance in the field, the manufacturer has virtually exclusive access to much of the information necessary for effective control of dangers facing product consumers. Indeed, the strict principles of modem products liability law evolved in part to motivate manufac- turers to use this information to help combat the massive problem of product accidents.' 0 1976 by David G. Owen. * Assistant Professor of Law, University of South Carolina. B.S. 1967; J.D. 1971, University of Pennsylvania.-Ed. t The author is grateful to Frampton Durban, Jean L. Perrin, Robert E. Stepp and William L. Todd, students at the University of South Carolina School of Law, for their valuable assistance, and to the many lawyers who supplied invaluable informa- tion on the cases treated in this article. 1. See NATIONAL COMMISSION ON PRODUCT SAFETY, FINAL REPORT 3-4 (1970) [hereinafter NOPS FINAL REPORT]; 2 F. HARPER & F. JAMES, THE LAW OF TORTS 756-57 (1956); Kessler, Products Liability, 76 YALE L.J. 887, 927 (1967); Noel, Comparison of Strict Liability in Products Area and Auto Accident Reparations, in THE ORIGIN AND DEVELOPMENT OF THE NEGLIGENCE ACTION 79 (U.S. Dept. of Transp. 1970). 2. See, e.g., Montgomery & Owen, Reflections on the Theory and Administration of Strict Tort Liability for Defective Products, 27 S.C. L. REV. 803, 809-10 (1976); Morris, Negligence in Tort Law-With Emphasis on Automobile Accidents and Un- sound Products, 53 VA. L. REv. 899, 908-09 (1967). The National Commission on Product Safety estimated in 1970 that 20 million Americans are injured in the home each year in product accidents. See NCPS FINAL REPORT, supra note 1, at 1. In addition, it has been estimated that as many as seven million workers annually are injured in product accidents on the job. See Weinstein, Twerski, Piehler & Donaher, Product Liability: An Interaction o1 Law and Technology, 12 DUQUESNE L. REV. 425 (1974), biting PRESIDENT'S REPORT ON OCCUPATIONAL SAFETY AND HEALTH (May 1972). A recent survey of the National Center for Health Statistics estimated that over 62 million accidents occurre, A this country in 1974. See NATIONAL SAFETY COUNCIL, ACCIDENT FACTS 2 (1975). Since the estimate of the National Commission on Product Safety excluded accidents from foods, drugs, cosmetics, motor vehicles, insecticides, firearms, cigarettes, radiological hazards, and certain flammable fabrics, NCPS FINAL REPORT, supra note 1, at I n.*, it may be conservatively estimated that the total annual figure for product acci- dents exceeds 30 million injuries and perhaps is considerably greater. The National Safety Council has estimated the national cost of all accidents at $43.3 billion for 1974. See NATIONAL SAFETY COUNCIL, ACCIDENT FACTS 4 (1975). Approximating 1258 June 19761 Punitive Damages 1259 Most manufacturers, both from a desire to avoid liability and from a generalized sense of social responsibility, prudently use their resources to prevent excessively hazardous products3 from reaching or staying on the market. On occasion, however, manufacturers abuse their control over safety information and market defective products in flagrant disregard of the public safety. One manufac- turer of color televisions, for example, included in each set a high voltage transformer it knew was prone to catch fire and, when informed that its sets were causing frequent fires, refused to spend the one dollar per unit it knew would eliminate the hazard. 4 In another case, a major drug company submitted fabricated test data to the Food and Drug Administration to obtain approval for the sale of a dangerous new drug. Approval was granted, and approximately 500 persons developed cataracts as a result.5 The strict liability theory of modem products liability law explicit- ly addresses 'the loss distribution problems that arise when an injury is caused by a defective product marketed by an "innocent" manufac- turer, since liability is imposed even though the manufacturer has exercised due care.6 But the principles of strict liability are ill- equipped to deal with problems at the other end of the culpability scale where an injury results when a manufacturer markets its products in intentional or reckless disregard for consumer safety. Nor has the criminal lIw filled this void.7 A legal tool is needed that will help to expose this type of gross misconduct, punish those the figure for product accidents at one half the total for all accidents, the current annual cost of product accidents may exceed $20 billion. 3. "The most persistent issue in the law of torts is the determination of when an actor has imposed excessive risk of harm on another." C. FRiED, AN ANATOMY OF VALUES 257 (1970). See 0. HOLMEs, THE COMMON LAW 144-46 (1881). The hazards in a product are considered to be "excessive," for the purposes of this article, when the product is marketed in a "defective condition." The difficult issue of when a product's condition may properly be characterized as defective is beyond the scope of the present article. Roughly speaking, in this article, a product is considered to contain excessive hazards and thus to be defective if it is marketed in a condition that generates more accident costs than social utility. Stated otherwise, a product is defective if the costs of improving its safety are less than the benefits resulting from the improvement. See note 169 infra and accompanying text. However, the principles of punitive damages developed in this article are of general application and are not dependent upon any particular definition of defectiveness. 4. See Gillham v. Admiral Corp., 523 F.2d 102 (6th Cir. 1975); notes 474-80 infra and accompanying text. 5. See Toole v. Richardson-Merrell, Inc., 251 Cal. App. 2d 689, 60 Cal. Rptr. 398 (1967); notes 336-51 infra and accompanying text; cf. Roginsky v. Richardson- Merrell, Inc., 378 F.2d 832 (2d Cir. 1967). 6. See RESTATEMENT (SEcoND) OF TORTS § 402A(2)(a) (1965). 7. See note 156 infra and accompanying text. 1260 Michigan Law Review [Vol. 74:1257 manufacturers guilty of such flagrant misbehavior, and deter all manufacturers from acting with similar disregard for the public wel- fare. The punitive damages remedy is such a tool. Whether punitive damages may appropriately and usefully be awarded in products liability litigation is a question that has remained remarkably unexplored by both courts8 and