C / vvA / ■' Interagency Task Force on Product Liability PB 265 542 Ki PRODUCT LIABILITY: Final Report of the Industry Study — Volume I ITFPL-77/04 UNDER DIRECTION OF U.S. DEPARTMENT OF COMMERCE KTui U.S. DEPARTMENT OF COMMERCE National Technical Information Service 5285 Port Royal Road Springfield, VA 22161 BIBLIOGRAPHIC DATA SHEET 1 . Report No. ITFPL-77/04-V-I 4. Title and Subtitle PRODUCT LIABILITY: INDUSTRY STUDY: Volume I 3. Recipient's Accession No. PB-265 542-Vol. I 5. Report Date 6 - April, 77 date of completion 7. Author(s) Gordon Associates , Inc 8. Performing Organization Rept. No. 9. Performing Organization Name and Address Gordon Associates, Inc. 1835 "K" Street, N.W. Washington, D.C. 20005 Interagency Task Force 10. Project/Task/Work Unit No. On Product Liability 11. Contract/Grant No. 6-36244 12. Sponsoring Organization Name and Address U.S. Department of Commerce Interagency Task Force on Product Liability Room 5412 Washington, D.C. 20230 13. Type of Report & Period Covered Final Industry Study 14. 15. Supplementary Notes Tni S report is the basis for Sections 3 and 4 of the Final Report of the Interagency Task Force on Product Liability. 16. Abstracts Nationwide telephone survey of 337 manufacturers * Analysis of results of product liability surveys conducted by 20 national trade associations. Findings cover information on: 1. Changes and impacts of the costs of product liability coverage 2. Risk assumption, deductibles and self-insurance levels. 3. Claims experience. 4. Damages sought and settlements paid. 5. Product safety and preventive programs. 6. Remedies * Industrial machinery, grinding wheels, castings, industrial chemicals, automotive components, medical devices, and pharmaceuticals. a. o o o a « 17. Key Words and Document Analysis. 17a. Descriptors Product Liability Product Safety & Preventive Programs Deductibles or Self-retention levels Self- insurance Claims experience Damages sought Settlements paid Primary Coverage "Umbrella" Coverage 17b. Identifiers/Open-Ended Terms Product Liability 17c. COSATI Field/Group REPRODUCED BY NATIONAL TECHNICAL INFORMATION SERVICE U. S. DEPARTMENT OF COMMERCE SPRINGFIFLD, VA. 22161 Court judgments Large Firms Medium-size Firms Small Firms Anonymous Product Exposure Contingent Product Exposure Direct Exposure "Going Bare" Potential Remedies -Workers Compensation modi- fication -Safety certification of products -Mandatory provision of Product Liability prevention services -Financial arrangements for limiting liability 18. Availability Statement No Restriction on Distribution 19. Security Class (This Report) UNCLASSIFIED 20. Security Class (This UNCLASSIFIED 21. No. of Pages 2 volumes i 22. Price FORM NTIS-3S 1REV. 10-73) ENDORSED BY ANSI AND UNESCO. THIS FORM MAY BE REPRODUCED USCOMM-DC 6265-P74 Interagency Task Force on Product Liability INDEX TO TASK FORCE REPORTS ITFPL-77/01 ITFPL-77/02 ITFPL-77/03 ITFPL-77/04 ITFPL-77/05 ITFPL-77 Final Report of the Task Force on Product Liability - 2 volumes to be published May 1977 Legal Study - 7 volumes to be published March 1977 PB 263-601 Insurance Study - 1 volume to be published March 1977 PB 263-600 Industry Study - 2 volumes to be published April 1977 PB-265 9x2 Selected Working Papers of The Task Force and The Advisory Committee on Product Liability. To be published May 1977 Briefing Report of The Task Force on Product Liability Preliminary report published January 1977 - Request N° : P.B. 262-515 Council of Economic Advisers Department of Commerce Department of Health, Education & Welfare Department of Housing & Urban Development Department of Justice Department of Labor Department of Transportation Department of the Treasury Office of the Assistant to the President for Economic Affairs Office of Management & Budget Small Business Administration Consumer Product Safety Commission PB 265 542 Interagency Task Force on Product Liability THIS STUDY PREPARED BY: GORDON ASSOCIATES, INC, UNDER CONTRACT TO THE U.S. DEPARTMENT OF COMMERCE - Contract No. 6-36244 NOTE: In partial fulfillment of its charter to conduct a study of products liability problems and to make recommendations thereon, the Interagency Task Force on Product Liability, through the Department of Commerce, retained the services of independent contractors for research studies in the industry, insurance, and legal areas. This product liability Industry study is based on a contractor's research study prepared by Gordon Associates, Inc., and is released for publication to aid in a better understanding of the overall problem. The findings, conclusions, opinions and recommendations expressed herein are those of the contractor and do not neces- sarily reflect the findings, conclusions, opinions or recommendations of the Task Force which are set forth in the report of the Interagency Task Force on Product Liability. Council of Economic Advisers Department of Commerce Department of Health, Education & Welfare Department of Housing & Urban Development Department of Justice Department of Labor Department of Transportation Department of the Treasury Office of the Assistant to the President for Economic Affairs Office of Management & Budget Small Business Administration Consumer Product Safety Commission Product Liability Industry Study VOLUME 1 VOLUME 1 INDUSTRY STUDY Table of Contents Page I . SUMMARY OF FINDINGS 1-1 Overview 1-1 Synthesis of Findings 1-4 Areas for Further Investigation 1-18 II. BACKGROUND AND SCOPE OF THE STUDY II-l Background and Overview II-l Rationale and Exposure Classification for Products Selected for Analysis .... II-3 Industry Studv Methodology II-6 III. A PROFILE OF PRODUCT INJURIES III-l Overview and Summary III-l Workplace Injuries III-4 Consumer Products Injuries 111-22 General Aviation Injuries 111-28 IV. MANUFACTURERS PRODUCT LIABILITY PROBLEMS AND EXPERIENCES — AN ASSESSMENT IV-1 Overview and Summary IV-1 Product Liability Industry Survey IV-15 Trade Associations Surveys IV-62 Selected Firm Visits IV-88 V. A FRAMEWORK FOR ANALYSIS OF PROPOSED REMEDIES V-l Overv iew V-l Candidate Remedies V-2 Description of Remedies for Evaluation V-5 Criteria for Evaluating proposed Remed ies V-7 Principal Remedies for Industry Studv Impact Analysis — Evaluation Matrix .... V-13 Table of Contents (continued) VI. PRODUCT LIABILITY — AN ASSESSMENT OF REMEDIES ... VI-1 Overview and Summary VI-1 Workers Compensation as Exclusive Source of Recovery VI-8 Safety Certification of Workplace Products VI- Developraent of Standards for Certifi- cation of Unregulated Consumer Products VI-28 Mandatory Provision of Product Liability Prevention Proqrams Financial and Insurance Arranqements .... VII. A SUGGESTED PROGRAM FOR ADDITIONAL PRODUCT LIABILITY RESEARCH ANDD REMEDY DEVELOPMENT .... Introduction and Overview Suggested Role of Government — Monitoring of Product Liability Remedy Implementation and Research .... Additional Research Into Product Liability Experience Sugqestions for Investiqa tions of Other Potential Remedies ATTACHMENT A — GOVERNMENT ROLE IN STANDARD SETTING AND HAZARD PROTECTION A-l VI-33 VI-38 VII -1 VII- -1 VII- -3 VII- -5 VII- -8 11 VOLUME 1 INDUSTRY STUDY LIST OF TABLES Page III-l Distribution of Selected Product Sources of Workplace Accidents Selected States f 1974 1 1 1-8 III-2 Distribution of Selected Product Workplace In- juries by Leadinq Industries, Selected States, 1974 111-12 III-3 Distribution of Selected Product Closed Compen- sation Cases State of New York 1966-72 111-15 III-4 Distribution of Selected Product Closed Workers Compensation Cases State of New York 1966- 72 1 1 1-18 III-5 "Worst 25" Consumer Product Injuries as Reported by NEISS - CPSC Calendar Year f 1975 Number of Injuries and Averaqe Severity 111-24 III-6 "Worst 25" Consumer Product Injuries as Reported bv NEISS - CPSC Calendar Year 1975 Fre- auencv/Sever ity Index Values (FSI) 111-25 III-7 Injury characteristics of Major Task Force Con- sumer Product Groups as Reported bv NEIS - CPSC Calendar Years 1973-75 111-27 III-8 General Aviation Accidents and Incidence - 1965- 1974 1 1 1-30 III-9 Fractional General Aviation Injuries with Related Causes ". 1 1 1-31 IV-1 Cost and Loss Experiences Factors - Telephone Survey Respondents by Product Cateqory IV-6 IV-2 Cost and Loss Experiences Factors - Telephone Survey Respondents bv Sales Volume IV-7 IV-3 Number of Firms in the Sample, Number of Res- ponses and Response Rates, by Product and Sales Cateqories IV-21 IV-4 Averaqe Total Gross Sales Per Firm, bv Product and Sales Cateqory 1975 TV-22 IV-5 Product Cateqory Sales as a Percent of Total Gross Sales, by Size Cateqory 1975 IV-24 IV-6 Extent of Current Product Liability Coveraqe, bv Size Cateqory IV-25 IV-7 Reasons for not Carryinq Product Liability In- surance Percent of Total Responses by Sales Cateqory IV-26 IV-8 Type of Product Liability Insurance Carried by Firms, by Sales Cateqory IV-27 IV-9 Type of Basic Primary Liability Coveraqe by Size Cateqory for Firms With Insurance Coveraqe IV-28 in LIST OF TABLES (continued) Paqe IV-10 Comprehensive General Liability Coveraqe Aver- aqe Cost per $1,000 Sales 1971 to 1976 f by Size Category IV-30 IV-11 Comprehensive General Liability Coveraqe Average Cost per $l f 000 in Sales, by Product and Size cateqories 1976 IV-31 IV-12 Estimated Averaqe Product Liability Cost Per $1,000 in Total Sales under Comprehen- sive General Liability Plans 1971-76 IV-33 IV-13 Estimated Averaqe Primary Product Liability Costs per $1,000 in Desiqnated Product cateqorv Sales 1971-76 IV-3 4 IV-14 Indexes of Averaqe Year-to-Year Chanqes in Costs of Comprehensive General Liability Coveraqe 1972-76, by Size Cateqorv IV-35 IV-15 Averaqe Deductible or Self-Insurance Retention Levels, by Sales Cateqorv 1971-76 IV-37 IV-16 Averaqe Limits of Liability oer Occurrence, bv Sales Cateqory 1971-76 IV-38 IV-17 Averaqe Limits of Liability per Occurrence 1976, Combined PD/BI bv Product, and Sales Cateaorv.. IV-39 IV-18 Restrictions on Current Product Coveraqe, by Size Cateqory IV-41 IV-19 Umbrella Coveraqe Averaqe costs per $1,000, bv Size Cateqory 1971-76 IV-42 IV-20 Number and Percent of Firms Reportinq anv Product Liability Claims, by Size Cateqorv 1971-76 IV-43 IV-21 Averaqe Number of Pendinq Claims bv Product Cateqory 1971-76 IV-45 IV-22 Averaqe Number of New claims, by Size Cateqory 1971-76. .• IV-47 IV-23 Averaqe Number of New Claims, by Product Cateqorv 1971-76 IV-48 IV-24 Averaqe Number of New Claims Per Year and Pendinq Claims at End of Year by Size Cateqorv for the Nine Specified Product Cateqories 1971-76 IV-49 IV-25 Averaqe Number of New Claims, by Product Cateqorv Nine Specified Products 1971-76 IV-50 IV-26 Total Damaqes Souqht in Pendinq Claims, Averaqe Amount per Firm, by Size Cateqorv 1971-76 (thousands of dollars) IV-52 IV-27 Total Damaqes Souqht in New Claims, Averaqe Amount per Firm, by Size Cateqory 1971-76 IV-54 IV-28 Averaqe Annual Settlement Amounts oer Firm, bv Size Cateqory 1971-76 IV-54 iv LIST OF TABLES (continued) Page IV-30 Average Amount of Damages Paid per Claim Dropped f Settled, or Adjudicated by Year: 1972-76 IV-57 IV-31 Product Safety Programs Number and Impact IV-59 IV-32 Special Programs for Reducing Product Liability Claims, by Size Category IV-61 IV-33 Special New Programs Considered to Reduce Claims, by Size Category IV-63 IV-34 Summary of Trade Association Surveys: Source Of Statistics IV-65 IV-35 Firm Characteristics of the Trade Association Survey Respondents IV-66 IV-36 Trade Association Surveys: Number of Firms not Insured and Reasons for not Carrying PL Insurance IV-68 IV-37 Trade Association Surveys: Median or Average Limits of Liability per Firm Responding 1971 and 1976. IV-70 IV-38 Trade Association Surveys: Number of Firms with Deductibles IV-71 IV-39 Trade Association Surveys: Changes in Median Or Average Deductible Trends IV-71 IV-40 Trade Association Surveys: Average Annual Per- centage Increases in Primary Insurance Costs . IV-73 IV-41 Trade Association Surveys: Number of Firms Re- porting Claims IV-75 IV-42 Trade Association Surveys: Total New Claims Presented 1971-75.. IV-77 IV-43 Trade Association Surveys: Aggregated Pending Claims/Suits 1971-75 IV-79 IV-44 Trade Association Surveys: Average Damages Sought Per Claim and Average Settle- ments Per Claim 1971-75 IV-80 IV-45 Trade Association Surveys: Court Judgments as a Percent of Total Claims and Claims disposed of 1970-75(6) IV-84 IV-46 Trade Association Surveys: Outcome of Court Judgments IV-85 IV-47 Trade Association Surveys: Summary of Product Liability Prevention Programs and other Impacts IV-87 IV-48 Trade Association surveys: Number of Firms Among Respondents Favoring Remedy IV-89 IV-49 Composition of Selected Firm Discussion Sample... lv-90 V-l Exclusive Source of Recovery Remedy Compensa- tion-Sole Relief Remedy V-14 V-2 Evaluation Matrix Safety Certification Remedy.... V-15 V-3 Evaluation Matrix for Products Liability Pre- vention Programs Remedy V-16 LIST OF TABLES (continued) Paqe V-4 Evaluation Matrix for Financial and Insurance Arrangements V-17 VI-1 National Machine Tool Builders Punch Press Sur- vey — Workers Compensation/Product Liabil- ity Litigation VI-12 VI-2 National Machine Tool Builders Product Liability Survey — Workers Com pen sat ion/Product Liability Litiqation VI-15 VI-3 Estimated Rate Chanqes for Increased Benefits Under Workers Compensation as Exclusive Source of Recovery for All Workplace Injuries VI-1 3 VI-4 Estimated Rate Chanqes for Increased Benefits Under Workers Compensation as Exclusive Source of Recoverv for Product-related Workplace Injuries VI-18 VI-5 Summary of Cost Impacts of Workers Compensation as Exclusive source of Recovery for Work- place Injuria^ VI-21 VI-6 Occupational Safety Inspection and Workload Data, Fiscal Year 1975 VI-26 VI-7 Estimated Impact of Certification Proqram Tar- qeted at Hiqh Risk Industrial Producers and Establishments VI-27 VI-8 Estimates of the Economic Impact of Proposed Product Liability Prevention Surcharqe on Insurance Premiums VI-37 VI CHAPTER I— SUMMARY OF FINDINGS OVERVIEW The Industry Study of Product Liability has conducted an assessment of the nature and maqnitude of problems encountered bv manufacturers of both industrial and consumer products and an assessment of potential remedies. The results presented in this report are based on a number of sources includinq the followinq: • An independent nationwide telephone survey of 337 manufacturers; • Discussions with 20 selected firms in hiqh risk product cateqor ies; • Analysis of results of oroduct liability surveys conducted by 20 national trade associations or interested orqanizations who have collected product liability information; • Analysis of Federal and State accident data reportinq systems coverinq product-caused injuries in both the workplace and marketplace; • Case studies and investiqations of the standards development and enforcement capabilities of five Federal industrial and consumer products safety aqencies; • Actuarial analysis of the benefit and employer costs of major pendinq leqislation concerned with reform of workers compensation, a major source of industrial products-caused accident reparations. 1-1 The findinqs that are presented here reflect ttfe followinq major concerns of the Interaqency Task Force on Product Liability which quided the conduct of analysis. They are: • Trends in the relative cost and availability of products liability insurance coveraqes; • Recent chanqes in claims experience; • Extent of damaqes souqht and settlements made; t Current product safety and preventive measures undertaken by manufacturers; • Assessment of remedies. Hiqhliqhted in the findinqs are differences between small and larqe firms, qenerally, and the specific experience of firms in the product cateqories selected for detailed examination by the Task Force. The product cateqories examined bv the Industry Study included those with distinct workplace or consumer impacts. They were: Products with Workplace Impact Products with Consumer Imoact Industrial machinery, includinq metal cut- tinq, metal forminq, woodworkinq and tex- tile machinery Power mowers Automotive components Pharmaceuticals Ferrous and non-ferrous metal castinqs Medical devices 1-2 Products with Workplace Impact Products with Consumer Impact Industrial qrindinq wheels Aircraft components Industrial chemicals The reader should bear in mind several caveats when interpreting Industry Study findinqs. First , it is extremelv difficult to validate manufacturer estimates of product liability insurance costs, as insurance coveraqes are often part of some comprehensive proqram. Second , trade association survev data reflect the characteristics and views of respective memberships which vary considerably. Th i r d , interpretation of results amonq the several survey sources, both those of the Industry Study and the trade associations, is difficult because of differences in basic instrument desiqn, data qatherinq and analysis aooroaches. Fourth , the results presented here are not meant to be definitive for the whole universe of manufactured products, but rather they represent the experience of t-he firms in the industries or product cateqories surveyed. The first major source of information resulted from an independent survey of manufacturers drawn from a universe of firms in the nine specified workolace and consumer product cateqories. The survey was desiqned to provide basic information on trends in the cost and availability of product liability insurance coverage, claims histories, settlements and awards and the experience of manufacturers in the establishment of product safety and product liability prevention proqrams. The second major source was a collection of twenty product liability surveys conducted by various trade associations of their respective memberships. These trade association surveys present comparable information to that derived from the 1-3 independent telephone survey of manufacturers. The information analyzed is of two types: aqqreqate results of trade association surveys submitted to the Task Force; and individual responses to some trade association surveys submitted to the Industry Study for detailed processinq. While the surveys mav reflect the interests of their respective memberships, they do present a mosaic of common problems in cost and availability of insurance, claims or settlements, product safety proqrams and an assessment of possible remedies. A third source of complementary information was a series of site visits and discussions with representatives of twenty firms screened by respective trade associations. These firms were selected in accordance with a combination of sales volume and product cateqories criteria comparable to those used for the nationwide telephone survey. The primary discussion topics were: identification of product liability preventive proqrams and their impact; present financial and leaal means of controllinq or limitinq product liability; and an assessment of the relative importance of Task Force remedy proposals. SYNTHESIS OF FINDINGS This summary of Industry Study findinqs presents the followinq : • A synthesis of findinqs from the Product Liability Industry Telephone survey, trade association surveys and discussions with selected firms in hiqh risk product cateqories; • A profile of product-caused accidents derived from Federal and State industrial and consumer product injury reportinq systems; 1-4 • An analysis of the impact and implementation requirements of potential remedies suqqested by the Industry Study; • Suqqested areas for future investiqation of industrial products liability problems, and other potential remedies. Findinqs From Product Liability Surveys of Manufacturers The followinq is a synthesis of findinqs based on results of the Industry Study telephone survey of selected product manufacturers, trade association surveys of membershios and discussions held with selected hiqh-risk oroduct firms. The findinqs cover information on: • Chanqes and impacts of the costs of product liability coveraqe; • Risk assumption, deductibles and self insurance levels; • Claims experience; • Damaqes souqht and settlements paid; • Product safety and preventive proqrams; • Remedies assessment. 1-5 Chanqes and Impacts of the Costs of Product Liability Coveraqe As evidenced by the data in both the sales volume size and product cateqory comparisons obtained from the telephone survey, the cost of product liability insurance coveraqe has risen dramatically for all survey respondents, particularly within the oast year. Generally, the cost of product liability insurance has risen by nearly 2 times, with the laraest increases occurrinq in the smallest sales classes — less than $2.5 million. Cost increases in product liability insurance coveraqe fell most heavily on qrindinq wheels in the workplace product cateqory and on power mowers, pharmaceuticals and medical devices in the consumer cateqory, with medical devices havinq the hiqhest esimated rates for 1976. Trade association surveys reported annual premium cost increases durinq the 1974-1976 period to Be 2 to 6 times as hiqh as durinq the period from 1970-1974. The ranqe of annual increases in the last two years was from 22 to 287 percent, in contrast to a ranqe of from to 123 oercent in the period from 1970 to 1974. Hiqher percentaqe increases appear to have been associated with products havinq exposure with both workplace and professional uses — the same types of products which had the hiqhest increases in the telephone survey. The firm size differences noted in the telephone survey are also evident in the trade association data. When reportinq survey results the term small firm qenerally indicates a manufacturer with qross sales of less than $2.5 million. Medium-size firms are those with qross sales between $2.5 million and $100 million. Larqe firms are those with sales in excess of $100 miljion. There are some exceptions to this rule in the case of trade association surveys results. These differences are explained in the body of the report. 1-6 Pisk Assumption, Deductibles and Self-Insurance Retention Levels The telephone survey shows that the number of firms with deductibles has increased between 1971 and 1976, bv 80 percent for larqe firms, 130 percent for medium firms and 100 percent for small firms. The averaqe deductible or self-insurance retention level increased bv about 500 percent in larqe firms, 110 percent in medium firms and decreased 44 oercent in small firms. Smaller and medium size firms assumed the total risk for product liability more frequentlv than larqe firms: In 1976, 29 percent of small firms had no product liabilitv coveraae; 13 percent of medium-size firms had no coveraqe; while only 3 percent of the larqe firms were not insured. In the various trade association surveys, firms were usinq deductibles from two to six times more freauentlv in the 1974 to 1976 oeriod than in the orevious three years. Risk retention levels increased substantially in surveys dominated by larqe firms and tended to stay the same or decrease in smaller-firm dominated surveys. Trade association studies reoresentinq small firms indicated that between 4 and 21 percent of the firms were uninsured. Results for associations involvinq products not easily traceable to the manufacturer and consumer products had hiqher percentaqes of non-insured (11 to 20 percent) than those involvinq workplace products manufacturers (4 to 8 percent) . 1-7 In all studies small firms and anon*vmous product manufacturers qave "don't need" or "too expensive" as primary reasons for not insurinq. Larqe firms qave "self-insurance" as the main reason. Claims Experience More than half of the survey respondents (56 percent) reported product liability claims durinq the five-vear period from 1971 to 1975. The qreatest distinction is by size, with virtually all of the larqe firms respondinq (96 percent) reportinq claims, in contrast to less than 18 percent for small firms, i.e., those with less than $2.5 million in annual sales. The averaqe number of pendinq claims per firm has increased by nearly 6 times from a level of 3.5 in 1971 to 18.9 in 1976. In qeneral, larqe firms have the qreatest pendinq claims frequencv - 13.8 per firm in 1971 versus more than 65 in 1976. Small firms qenerally had limited numbers of claims. Consumer product cateqories with the larqest number of pendinq claims were power mowers and automobile components. Industrial machinerv and qrindinq wheels were hiqhest in the workplace product qroup. A siqnificant development is that the number of new product liability claims for telephone survev respondents reached an apparent plateau in the period from 1973 to 1975. The averaqe rate of new product liability claims reported by survev respondents was 11.1 per firm in 1973, 12.2 in 1974, 11.4 per firm in 1975 and 9.9 in 1976. The data for 1976 cover onlv about the first three-quarters of the year. 1-8 • The same qeneral trends are evident in the claims experience reported in several of the trade association surveys . • Amonq firms selected for discussions, traceabilitv of the product to the manufacturer and deqree of exoosure to unsupervised users (or consumers) more siqnif icantly affected a firm's claims exoerience and risk management posture than either size of firm or oroduct category. Damaqes Souqht and Settlements Paid • The averaqe amount of damaqes souqht oer firm in new claims increased from $476,000 in 1971 to $1.7 million in 1976. For larqe firms the averaqe increased from sliqhtlv less than $2.0 million to $7.5 million per firm in the same oeriod. • The averaqe amount of damaqes souqht per firm in oendinq claims rose from $434,000 to $3.5 million between 1971 and 1976 for all firms respondinq to the telephone survey. For larqe firms, the averaqe amount souqht rose from $1.9 million to $13.9 million. • The averaqe amount of settlements paid oer firm, includinq court awards, increased from $12,100 in 1971 to $28,800 in 1972, then remained at approximately the same level throuqh the first three Quarters of 1976. Product Safety and Preventive Proqrams • Approximately 40 percent of respondents in the telephone survey had developed some form of proqram directed at 1-9 reducing product liability claims. Larger firms were more inclined to have such programs than small firms. For those firms with programs, 70 percent of them were initiated before 1974. Improved auality control and labelinq were the most common approaches, with product redesign emphasized less often, primarily by large firms . f Over ten percent of firms reported exclusion of specific products as a restriction in their product liability coverage. Twenty-three firms, 7 percent of the telephone respondents, reported decisions to discontinue products in the last two years. Twenty-six firms decided to postpone introduction of products because of product liability related problems. • Insurance carriers' loss prevention engineers were reported to have made inspections during the oast two years in 74 percent of large firms and 54 percent of small firms. Recommendations for reducing claims were made in 42 percent of these cases, usually bearing on auality control and labeling. • Trade association surveys which were predominantly large firm oriented also indicated that oualitv control and redesign were effective preventive strategies. Consumer products manufacturers recognized labeling aporoaches and mentioned that advertising and warranty disclosure changes had been made. • Dropping products was included in 4 of the 5 surveys which addressed preventive programs. It received minor recognition in each as an unDopular, but sometimes only effective remedy. 1-10 • Selected firm discussions revealed extensive proqrams oriented more to safety than to claims prevention. A number of these firms had been active in development of governmental and voluntary standards for assessinq product safety. They have hiqh level workinq qrouos which are responsible for product auality, and have priority claims programs which are aimed at efficient and equitable handlinq of claims in the interest of goodwill and the firms* reputations. But more importantly, they are desiqned to feed back immediately to adjust the manuf actur inq processes, quality control measures or product enqineerinq and desiqn. • Quality of the product that enters the marketplace is assured throuqh repeated testinq alonq the line of manufacture in some cases and documentation of product condition when it leaves the place of manufacture throuqh test results and photoqraphs. • The firms interviewed also take orecautions to train the users and even monitor the product use. Behavioral research has been employed to desiqn instructions for use of products, and to insure that such instructions cannot be removed from the product. Remedies Assessment: Association Surveys • Remedies were assessed only in surveys dominated by larqe firms. Prominent amonq suqqested solutions was stronq support for a statute of limitations, and use of workers compensation as an exclusive source of reparations . 1-11 • Trade association surveys provided suopor.t for several leqal defenses, particularly, misuse and modification, state-of-the-art and compliance with qovernment safetv standards. • Support for limitations on damaqe awards, continqent fee control, and "loser pays" provisions were also qiven in response to several trade associations. Profile of Product-Caused Accidents Several analyses of State workers compensation. Consumer Product Safety Commission and Federal Aviation Administration accident reportinq systems present evidence that: • There is no aoparent trend in either the relative freouencv or severity of injuries amonq product cateqories selected by the Task Force for analysis that would explain the increase in claims and litiqation aqainst manufacturers. Workplace product-caused accidents Analysis of injury data from five State workers comoenstion accident reportinq systems for 1974 revealed the followinq: • Products desiqnated by the Task Force accounted for 4 to . 14 percent of all workplace accidents reported; • Most frequently reported Task Force-desiqnated products were motor vehicles, cuttinq and machine tools, chemicals, qrindinq wheels and woodworkinq machinery; 1-12 • On a relative basis, the mote severe injuries resulted from the use or misuse of such Task . Force^desiqnated products as aircraft, motor vehicles, chemicals and machine tools. Consumer product-caused accidents Analysis of injury data from the accident reportina systems of the Consumer Product Safety Commission and the Federal Aviation Administration revealed the followinq: • Only motor vehicles, amonq the five designated consumer product categories of the Task Force, appeared amonq the CPSC's "worst 25" consumer product cateqories that collectively accounted fox over sixty percent of all injuries reported to the CPSC over the period from 1973 to 1975; • Task Force-desiqnated products with hiqh relative severity levels, as reported by the Consumer Product Safety Commission, included chemicals, lawn mowers and drugs? • Product related accidents in General Aviation reported by the Federal Aviation Administration accounted for less than one-third of all fatalities and two-fifths of minor injuries? further there was no chanqe in these relative shares over the eleven years from 1964 to 1975. . 2 Remedies Analysis A variety of potential remedies to the current product liability problems of manufacturers of both industrial and consumer products were examined by the Industry Study. The ranqe 2 The assumptions underlyinq the analysis of these remedies, and the conclusions and ooinions derived therefrom, are those of the contractor and do not necessarily represent the conclusions of the Interagency Task Force on Product Liability. 1-13 of possible solutions within the scone of the analysis included: workers compensation as an exclusive source of recovery for workplace accidents; development of safety certification oroqrams for industrial and unrequlated consumer products; mandatory provision of product liability prevention oroqrams by insurers; and financial means of limitinq liability. The followinq summarizes the principal impacts and implementation requirements of potential remedies analyzed by the Industry Study. Workers compensation as an exclusive source of recovery for workplace accidents Impacts ; • Elimination of third-party recovery for additional damaqes and subroqation liens from workers compensation would result in the deflection of more than $80 Million annually from recoupment aqainst oroduct liability insurance lines. • Adoption of uniform equitable benefits under State workers compensation systems, to offset the loss of third-party recovery under tort law, would increase employer costs under workers compensation by a minimum of 22 to a maximum of 71 percent above current levels for an averaqe cost increase of $269 to $904 oer firm in estimated insurance premiums. Requirements for implementation ; • Elimination of subroqation and third oartv litiqation under workers compensation could be accomplished throuqh State statute within a time frame of 1-2 years followinq initiation. 3 See footnote 2, paqe 1-13 1-14 • Raisinq State workers compensation benefit levels to uniform standards would require passaqe of a Federal standards law? e.q., proposed Workers Compensation Standards Act of 1977 — U.S.H.R. Bill 2058 introduced in the 95th Conqress, 1st session and companion State statutes. This could be achieved within a time frame of 2-4 years. Safety certification of industrial and 4 consumer products Impacts : • Establishment of an industrial or workplace safety certification proqram directed at hiqh risk products at the time of oriqinal manufacture, installation or subsequent resale would require the conduct of 25 r 000 inspection and audits annually at an increased cost of $10 million to the Occupational Safety and Health Administration (OSHA) of the Department of Labor. • Workplace products certification would result in product manufacturers in hiqh risk cateqories exoendinq from $300 million to $3 billion for auqmentation of quality assurance and manufactur inq controls. This increased expenditure for quality auqmentation work recmires upwards of 150,000 additional technical specialists. • Consumer products safety certification impacts would be loqically directed at hiqh risk, unrequlated products not currently covered under Federal pure food and drua, and transportation safety laws. 4 See footnote 2 r Paqe 1-1 ? 1-15 Requirements f or implementation r • Establishment of a workplace Droducts safetv certification proqram would require amendment of the Occupational Safety and Health Act (OSHA) at the Federal level and companion State industrial safetv statutes. The establishment and develooment of the proposed proqram would reauire from 2 to 5 years to implement. • Implementation of a safety certification proqram for currently unrequlated products would require amendment of the Consumer Products Safety Act and the development of both voluntary and mandatory standards. Approximatelv 3 to 5 years would be required for development of the certification proqram. Mandatory provision of preventive proqram 5 services by insurers and self-msureds Impacts : • A premium surcharqe of 1-2 percent on product liability insurance would yield between $7.8 and $31.2 million annually for the conduct of product liability prevention proqram inspections and audits to control or abate potentially costly product exposures and losses. • The mandatory provision of preventive services bv insurers and other technical specialists, usinq the funds made available by the premium surcharqe, could provide between 19,500 and 78,000 insoections and audits annually with priority emphasis qoinq to small and medium-sized firms not currentlv served. 5 See footnote 2, paqe 1-13 1-16 Requirements for implementation ; • The establishment of mandatory preventive oroqrams would entail amendment of State industrial safety and insurance statutes to create central fundinq and monitorinq proqrams. This potential remedy would require between 1 to 2 years for enactment and development. Financial arranqements for limitinq liability Impacts: • Adoption of Federal accountinq and financial disclosure rules for valuation and writeoff of continqent liabilities and losses from product claims miqht offer siqnificant advantaqes to small to medium-sized firms desirinq to assume their own risks or form association or self-owned insurance companies. Requirements for implementation t • The establishment of Federal accountinq and financial disclosure rules for valuation and writeoff product continqent liabilities would require conduct of revenue impact analyses by the Treasury Deoartment, as well as review and comment by the Internal Revenue Service and Securities and Exchanqe Commission. Approximately 1-3 years would be required for authorization and imDlementation of this ootential remedy. 6 See footnote 2, oaqe 1-13 1-17 AREAS FOR FURTHER INVESTIGATION * Based on the analysis of current manufacturer product liability problems and potential remedies, the Industry Study suggests several areas for further investigation and research bv Federal, State and private agencies. The areas for investigation fall into two categories: research into the underlving dimensions and magnitude of the product liability problem and investigation of the feasibility of other potential remedies. The suggested areas for further investigation are discussed in detail in Chapter VII of this report. 1-18 CHAPTER II. — BACKGROUND AND SCOPE OF THE STUDY BACKGROUND AND OVERVIEW Product liability problems currently facinq American manu- facturers have been caused by a number of recent leqal, technical, and economic developments. State and Federal courts have held manufacturers strictly liable for injuries and orooerty damaqe arisinq from the use of products. The cost of the thousands of new products introduced annually has increased as a result of demands for better oualitv control, performance, and safety by consumers. Recent underwritinq and surplus losses among property and casualty insurers have resulted in increases in basic liability premium costs, and the removal or restriction of insurance coveraqes for some manufacturers and distributors of both industrial and consumer products. A Department of Commerce Study identified more than nine major product cateqories in which the product liability problem was said to be acute. However, neither industrial nor insuring organizations could qenerate data on the followinq critical areas to determine the nature and extent of the problems facinq manufacturers and distributors of these products: • Number, cause, and severity of claims • Risk arranqements and costs of insurance for basic, excess, and surplus coveraqes • Trends in premiums • Impact of product liability costs on final product prices i U.S. Department of Commerce, Product Liability Insurance : Assessment of Related Problems and Issues . Washington, D.C., March 12, 1976. II-I • Extent of restrictions, limits and policy cancellations * by underwriters • Remedies undertaken and product liability prevention programs of manufacturers. Remedies for abatinq and controlling product liability problems confronting American industry and commerce involve such potential solutions as reform in basic tort law; modification of workers compensation benefit levels and restrictions on third- party litigation; the active establishment of product redesign, recall, and safety retrofitting programs; and self-insurance programs. The purposes of the Industry Study, in light of this background are to: • Develop data and analyze problems, trends, costs, and risk management arrangements for product liability in nine basic industrial/consumer product cateqories. • Specify, analyze and evaluate the feasibility, cost and impacts of potential remedies for controllinq product liability. • Report basic findings and recommendations to the Interagency Task Force for use in formulating oolicy options. The balance of this chapter will be devoted to a review of the rationale for selection of product categories for detailed analysis, the principal methodologv emDloyed in the Industrv Study, and an overview of the report itself. II-2 RATIONALE AND EXPOSURE CLASSIFICATION FOR PRODUCTS SELECTED FOR ANALYSIS Rationale for Selection Accordinq to the Bureau of the Census , there are estimated to be in excess of 400,000 firms in the United States enqaqed in the manufacture of intermediate or final products. Each of these manufacturers is a potential tarqet for a product liability claim resultinq from the use of products by workers or consumers. It would be impractical to develop representative data for all products in use today. The alternative approach taken by the Task Force was to focus on a small number of products where the collection of useful statistics and insiqhts appeared practical within the time frame of this effort. The selection of the four workplace and five consumer product cateqories was based on insiqhts obtained from a Department of Commerce study of product liability insurance undertaken in the sprinq of 1976. The study concluded that there was a need to develop a better understandinq of how product characteristics, manufactur inq processes, requlation and standardization, exposure, and other factors affect product safety. The followinq matrix illustrates the product attributes covered by the selection of the nine product cateqories. 2 See footnote 1, paqe II-l. II-3 PRODUCT CHARACTERISTICS Con- Inherent Larqe sumer Risk When Dura- Number of Product Used bility Products Externally Requlated Machine tools Pharma- ceuticals Industrial chemicals Aviation components Gr indinq wheels Castinqs Power mowers Automotive parts Medical devices X X X It can be seen from the matrix that the oroduct selection is desiqned to include products which have hiqh inherent risk and products which tend to have a long useful life. Furthermore, althouqh industrial chemicals and castinqs were of primary interest from a workplace standpoint, the industries involved also produce a wide variety of consumer products. The collection of more detailed representative data and information on these product cateqories serves to provide a basis for comparisons amonq products. By qrouoinq oroducts in terms of II-4 attributes such as durability or inherent risk, insights can be qained with respect to the relative importance of these factors on worker/consumer injuries resultinq in product liability actions. Classification of Products bv Relative Exposure During the course of the Industry Study investigations, it became apparent that a most meaningful way of examininq the product liability problems of the selected categories was by their relative exposure and claims experience. Controllinq for the factors enumerated above, as well as prevention measures and claims behavior, the primary distinguishing factor was the degree of w traceability" or "anonymity" in the stages of final production and end use. The nine product categories in the following matrix have been further classified with respect to this distinction as to relative exposure. The three categories presented distinguish between product exposures that are "anonymous," "contingent," and "direct." Risk Exposure Category Anonymous* Contingent** Direct*** Machine tools Pharmaceuticals Industrial chemicals Aviation compo- nents Grinding wheels Castings Power mowers X X X II-5 Anonymous* Contingent** Direct*** Automotive parts X Medical devices X ♦Product disappears into others **Exposure depends on end use in workplace or orofessional practice and whether readilv traceable to manufacturers. ***Product qoes to ultimate user. Products such as industrial chemicals have varvinq deqrees of traceability ranging from generic druqs that disaopear into the production of others, to labeled pharmaceuticals used in both clinic and the home. A second category of risk exDosure, contingent, includes products traceable to an individual manufacturer; however, the risk of claims is a function of the end use in either a workplace or orofessional practice: e.q., machine tools or medical devices. The third cateqory encomoasses broad scale direct exposure throuqh extensive use bv consumers. There the exposure is raised siqnif icantly by trade names and labelinq. Products may have multiple "exDosures" under this classification scheme bv virtue of the deqree of traceabilitv and variety of end uses in both the workplace and market place. INDUSTRY STUDY METHODOLOGY General The Industry Study on Product Liabilitv involved the conduct of a number of studies and surveys of firms and secondary data sources addressing issues of concern to the Task Force. These were: II-6 • A nationwide telephone survey of 337 firms makinq products in the industrial cateqories desiqnated by the Task Force for study; • Analysis of 20 trade association surveys of members' product liability experience and problems; • Discussions with 20 selected manufacturers of both workplace and consumer products; • Data analysis of accident reportinq and compensation systems for several State workers comoensation aqencies, consumer product injuries reported to the Consumer Product Safety Commission, and qeneral aviation accidents reported to the Federal Aviation Administration; • Conduct of a series of case studies on product safety standards development and requlation by such principal Federal aqencies as the Occupational Safety and Health Administration (OSHA) , Food and Druq Administration (FDA) , Federal Aviation Administration (FAA) , and National Hiqhway Traffic Safety Administration (NHTSA) ; • Actuarial estimates of the impact of increased benefit levels on employer insurance costs which would result from adoption of uniform workers compensation standards as specified in H.P. Bill 2058 and the Federal Emplovee Compensation Act (FECA) . The followinq is a brief resume of the data and methods used to conduct each of the princioal surveys and studies for the Industry Study on Product Liability. II-7 Product Liability Industry Teleohone Survev » A telephone survey of product liability problems and experience in industry for the desianated product areas was devised to supplement and auament information derived from similar efforts conducted bv trade associations with their respective membershiDs. The survey instrument was desianed to elicit information from individual firms on such characteristics as qross sales volume, product liability insurance arranqements and availability, cost of insurance, claims, suits and settlement awards, and practices concernina product liability loss prevention and control proqrams. A nationwide telephone survey was conducted with 337 respondinq firms. The firms were eaually distributed into three cateqories bv size of sales and into the nine product cateqories selected for analysis by the Task Force. The firms were randomly selected usinq these criteria from a national listinq of firms prepared by Dun and Bradstreet, Inc. Firms selected for inclusion in the survey were screened for participation and upon their aqreement were sent copies of the survey instrument for development of basic data and information. Resoonses were handled by telephone contact with the desianated company official identified in the prescreeninq process. Trade Association Surveys Many trade associations contacted the Department of Commerce and the Task Force to receive quidance and technical assistance in the desiqn, conduct, and processinq of survevs of their respective memberships. Twenty trade associations or other interested orqanizations comoleted surveys of member product liability problems. The Industry Study staff processed and analyzed individual responses for seven associations, while II-8 thirteen groups supplied summaries of their survey results. Most of the trade association surveys included Questions which were comparable to some of those used in the independent Product Liability Industry Telephone Survey. Discussions With Manufacturers Discussions were held with a group of 20 manufacturing firms producing a variety of workplace and consumer products. The discussions were intended to provide detailed information on product liability prevention programs and contractual and financial means of limiting product liability claims. In addition, respondents were asked to assess the potential impact of a variety of the remedies which have been proposed to the Task Force. The companies included in these discussions were selected after initial screening by their respective trade associations. Firms were selected in the product categories and size groups that were used to select the sample for the telephone survey. Analysis of Accident Reporting and Compensation Data Data were acquired from a variety of State and Federal accident reporting systems which provide information on the trends, characteristics, and costs of both workplace and consumer product accidents. Information on product sources of accidents included data on frequency, severity of injuries, nature and type of accident, industry of occurrence, and average compensation costs per closed case. Workplace injury data were obtained from the data files of the Occupational Safety and Health Administration (OSHA), Department of Labor, for six State workers compensation systems under the Supplementary Studies Program of the U.S. Bureau of Labor Statistics. Injury data comprising employer first reports of industrial accidents were derived from records for the States of California, Maryland, Texas, II-9 Washington, and Wisconsin for the year 197*1. Tj°end data on closed compensation cases over the period from 1966 to 1972 were acquired from both published and unpublished data supplied to the Industry Study by the New York State Department of Labor and the New York State Workers Compensation Board. Characteristics of consumer product injuries were obtained from two principal sources. Reports of consumer injuries filed by hospital emergency rooms with the National Electronic Injury Surveillance System (NEISS) of the Consumer Product Safety Commission (CPSC) for the period from 1973 to 1975 were a primary source. Data on general aviation accident characteristics and trends were derived from tabulations of aircraft accident reports compiled by the Federal Aviation Administration (FAA) of the Department of Transportation for the period from 1964 to 1975. Safety Standards Development and Enforcement Case Studies A series of five case studies were completed covering safety standards development and enforcement capabilities of major Federal and voluntary agencies in the field of product safety. The objective of these case studies was to describe and assess the effectiveness of mandatory and voluntary standards and enforcement schemes; with particular attention to use of "system performance" and "good manufacturing practices" approaches as possible legal defenses. Exemplary product safety standards were used to guide the development of each case study for the following Federal product safety regulatory agencies: Occupational Safety and Health Administration, Department of Labor; Food and Drug Administration (FDA), Department of Health, Education, and Welfare; Consumer Product Safety Commission (CPSC); Federal Aviation Administration (FAA) and National Highway Traffic Safety Administration (NHTSA) of the Department of Transportation. 11-10 Actuarial Estimates of the Cost of Changes in the Workers Compensation Benefit and Employer Insurance Program To facilitate the assessment of the impact of the remedy suggested to the Task Force by several industry groups to make workers compensation the sole source of reparations for injuries received in workplace product accidents, an actuarial cost estimate was prepared. Three alternatives were specified for analysis. The first option assumed the adoption of uniform compensation standards as set forth in the proposed National Workers Compensation Standards Act of 1977, H.R. Bill 2058. The second alternative involves increasing the compensation rate standards proposed under H.R. 2058 for permanent total disability to the levels specified under the Federal Employee Compensation Act (FECA). The third alternative includes raising both permanent and total disability and schedule awards payments proposed under H.R. 2058 to the levels specified under the Federal Employee Compensation Act. Sources and basic data for this analysis were derived from State and FECA benefit levels and rates as modified by the proposed H.R. 2058, Workers Compensation Standards Act, the product liability closed claims survey results conducted by the American Mutual Insurance Alliance (AMIA), injury characteristics from the State of California and national workers compensation loss experience data as compiled by the National Compensation Insurance Council (NCIC). 11-11 OVERVIEW OF THE REPORT Chapter III presents a profile of product injuries occurring in both the workplace and marketplace. The comparative incidence, severity, trends, and compensation costs of product accidents are also analyzed to determine their impact on present product liability problems. Chapter IV presents an analysis of trends in products liaibility experience. Information presented in the discussion is based on analysis of data from the nationwide telephone survey of manufacturers in target product categories, as well as comparable information derived through trade association sources. Primary topics of discussion are trends and problems in manufacturer insurance coverage and cost, claims experience, product safety programs, and remedies undertaken to limit product liabilities. Chapter V presents a framework for analysis and selection of remedies, including a discussion of potential remedies analyzed by the Industry Study. Principal candidates include the following: • Elimination of third-party litigation under workers compensation, and adjustment of benefit standards; • Adoption of safety standards certification programs for industrial and unregulated consumer products; • Mandating the provision of product liability prevention services by insurers and self-insured firms; 11-12 • Adoption of Federal accounting and financial disclosure rules and tax regulations for writeoff of product-caused contingent liabilities and losses; Chapter VI presents an assessment of the impact, feasibility, and implementation considerations for each remedy proposal specified in Chapter V. Finally, chapter VII, presents sucerested areas for further investigation based on the analyses and findings presented in the this Study. An attachment and several technical appendixes have been provided. Attachment A, which appears following Chapter VII of this report, contains case studies dealing with standards development and enforcement capabilities of five Federal industrial and consumer product safety agencies. Four other technical appendixes appear in Volume II of the Industry Study Report. Appendixes A and B contain detailed tabulations of the Product Liability Industry Telephone Survey and the instruments used in data collection. Appendix C contains basic trade association surveys used in conducting the Industry Study analyses. An actuarial analysis of the benefit and employer insurance costs associated with proposals for making workers compensation the sole source of reparations for workplace product accidents is presented in appendix D. 11-13 CHAPTER III— A PROFILE OF PRODUCT INJURIES OVERVIEW AND SUMMARY Introduction Over ten million injuries and 100,000 fatalities occur annually in America s workplaces, homes, highways, and transportation systems based on estimates and reports prepared by the Bureau of Labor Statistics, Consumer Product Safety Commission, National Highway Traffic Safety Administration, and Federal Aviation Administration. While the economic and social costs of accidents in general ranee in the tens of billions of dollars annually, the present impacts of product-caused injuries are relatively unknown. Further, insurance reporting services cannot, as yet, identify the annual volume of product liability claims resulting from accidents and injuries. Present national accident reporting systems have not identified the incidence and characteristics of product injuries. The Consumer Product Safety Commission has, during the past few years, provided some insights into the dimension of product accidents through the development of its National Electronic Injury Surveillance System (NEISS). The Annual Survey of Work Injuries and Illnesses of the Bureau of Labor Statistics also provides statistics on workolace accidents. However, it does not uniformly identify product causes of workplace accidents. A similar condition exists for motor vehicle accident data developed by the National Highway Traffic Safety Administration, although this is presently beine corrected. The picture is somewhat better for general aviation, where sufficient data and details have been compiled to permit evaluation of the impact of product and other causes. To provide as complete a picture as possible of the dimensions of the present product liability problem, the Industry III-l Study undertook the task of compiling and analyzing available product-related accident and injury data from several sources. Information on product workplace accidents and their characteristics was developed from the records of several State workers compensation agencies — notably those of the States of California, Maryland, New York, Texas, Washington, and Wisconsin. Consumer product injuries and their characteristics were analyzed using detailed information prepared for the Task Force by the Consumer Product Safety Commission. Similar information on general aviation accidents was developed from the accident reporting systems of the Federal Aviation Administration. Taken together, these sources of product accident and injury data present a mosaic of information on the incidence, severity, nature, and compensation cost factors underlying the product liability problem. Summary of Major Findings The analysis of State workers compensation, Consumer Product Safety Commission, and Federal Aviation Administration accident reporting systems presents evidence that there is no apparent trend in either the relative frequency or severity of injuries among product categories selected by the Task Force for analysis Therefore, the increase in product liability claims and litigation against manufacturers does not appear to result from any increase in product-related accidents. Analysis of injury data from five State workers compensation accident reporting systems for 1 974 revealed the following: • Products designated by the Task Force accounted for 4 to 14 percent of all workplace accidents reported depending on the state analyzed. III-2 • Most frequently reported Task Force-designated products were motor vehicles, cutting and machine tools, chemicals, grinding wheels, and woodworking machinery. • On a relative basis, the more severe injuries resulted from the use or misuse of such Task Force-designated products as aircraft, motor vehicles, chemicals, and machine tools. Analysis of injury data from the accident reporting systems of the Consumer Product Safety Commission and the Federal Aviation Administration revealed the following: • Only motor vehicles, among; the five designated consumer product categories of the Task Force, appeared among the "worst 25" consumer product categories (in terms of frequency at accidents) that collectively accounted for over 60 percent of all injuries reported to the CPSC over the period from 1973 to 1975. t Task Force-desig,nated products with high relative severity levels, as reported by the Consumer Product Safety Commission included chemicals, lawnmowers, and drug,s. • Product related accidents in General Aviation as reported by the Federal Aviation Administration accounted for less than one-third of all aircraft related fatalities and two-fifths of minor injuries; further there was no change in these relative shares over the 11 years from 1964 to 1975. III-3 WORKPLACE INJURIES Introduction Information on product workplace accidents and their characteristics was derived from several State workers compensation agencies. Characteristics of workplace accidents reported to these agencies permitted the identification of selected product sources of injuries, nature and bodily location of severe injuries, compensation cost, and the industry of occurrence. Data of this type were derived for calendar year 197 2 * for the States of California, Texas, Maryland, Washington, and Wisconsin. Information compiled on similar characteristics of closed compensation cases over the period from 1966 to 1972 was derived from the State of New York's Workers Compensation Board. The combined data on product workplace injuries permitted comparison of the frequency, severity, and costs among several key jurisdictions. State Workers Compensation Data and Limitations Data used in the this discussion were derived from two sources: employers' first reports of injuries filed with State workers compensation boards and commissions and closed compensation cases. The employers' reports represent reports of accidents and illnesses at the time of occurrence, while closed compensation cases represent claims adjudicated by insurance carriers, accident boards, and commissions in the States. The distinction is important, in that the preponderance of industrial in juries and illnesses that occur may not result in time lost from work or in a claim being filed . Nevertheless, these two sources of data on workplace injuries do provide important information on the source or agency involved, the nature of the III-4 injury, the part of the body involved, the industry of occurrence, occupation, age, and sex of the injured worker. Because each State administers its own workers compensation program, the level of detail of injury reports and claims information captured vary considerably, along with methods for classifying and handling the data. Individual reporting requirements, together with differences in benefit and eligibility standards, create major difficulties in determining the comparability of State workers compensation injury and cost data. Employers first report data were obtained through the Department of Labor, OSHA-BLS Supplementary Studies Program for selected States in major jurisdictions of importance to the Industry Study on Product Liability for calendar year 1974. These data were coded to conform to the selected product categories of interest to the Task Force and special computer tabulations were prepared summarizing the information for each State. The Task Force designated product categories for tabulation and analysis with respect to employer first reports in the review jurisdictions. These products included those in the research agenda of the Task Force plus ladders. The "selected" product categories thus used in the following discussion are: • Task Force-designated Products Aircraft Castings-related products Chemicals Cutting and forming tools Grinders Grinding wheels III-5 Lawnmowers Medical devices Metal castings Motor vehicles Pharmaceuticals Textile machinery Woodworking machinery • Other Products of Interest Ladders It should be noted, however, that sources of workplace injuries examined in the following discussion include other product categories as well as major nonproduct causes such as falls, physical stress, etc. Information on the characteristics of closed compensation cases was derived from records compiled by the State of New York, Workers Compensation Board's Division of Research and Statistics. The data consisted of published aggregate tabulations of injury agencies, nature of injury and compensation costs for cases closed between 1966 to 1970, and unpublished tabulations of comparable information for 1971 and 1972. Relative Incidence of Selected Product Injuries in the Workplace Selected product workplace accidents account for varying proportions of injuries reported to the workers compensation Power lawn mowers were not expressly selected for study by the Task Force, however this consumer product was analyzed by the contractor in a manner comparable to the eight specifically designated products in order to broaden the information base dealing with consumer product-related injuries. Since there is no workers compensation product classification for automotive components, it was necessary to use the broader classification of motor vehicle accidents. III-6 agencies in the review jurisdictions. California has the highest relative proportion of selected-product injuries, 14.3 percent, followed by Maryland, Wisconsin and Washington with approximately 10 percent. Texas has the lowest proportion of the group, 3.7 percent . Percent of Total Workplace Injuries Related to Selected Products Percentage of Review Jurisdictions, 1974 Injuries Reported California 14. 3 Texas 3.7 Maryland 9.4 Washington 9.5 Wisconsin 9.9 Source: Table III-1. The major selected-product causes of workplace injuries, as indicated in table III-1 are motor vehicles, chemicals, cutting and forming tools, ladders, woodworking machinery, and grinding wheels. Motor vehicle injuries accounted for less than 1.9 percent of workplace accidents reported in Texas, in contrast to more than 7.3 percent in California. Cutting and machine tool product injuries generally accounted for approximately 3 to 4 percent of all accident reports filed with State workers compensation agencies in California, Washington, and Wisconsin. Work injuries due to chemical products comprised approximately 1 percent of work injuries in all five review jurisdictions. 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I IT to cr c ij cr cfl C -H 4) C i-H rH -H T3 >0 tH O 10 •»-> C C -P O JJ (0 -H -H 4-> H 4) <0 »j U 3 Z O O O U x: vi u 4) VM Ohm (0 3 'H (i u u ■O «"T O O O 4) (0 O CO I-l 41 > O c < (0 O StHJi:< .J H jc o 3 CO «. CO 4> CO 3 2 4> 4) o •H u > o 4> Eb Vi ^e •o CO 4> (0 JJ Eh O 4> 4> fH £ 4) 4J (A >l • X) >i Vl to 3 •H i-i CO C >l •H fH to VM c o (0 CO M •u o Vl VM a "D 4) 4> VI 4J o 4-> 4) CO rH Vl 4) •H CO VM 4J Vl O 41 c Sn O co iH 4i a •H E VI 4) o IT VM 4> O U 10 co o • c o o iJ 4-> -H U 4> 44 3 <0 ■o - fH O CO 3 UH XI Q.fH (0 <0 4-> UH Vl •D 4t - 4> x; c JC 4J-H CO o < 4) t-i JC U a VI 3 CO O « CO III-8 Major Selected-Product Sources of Workplace Injuries Review Jurisdictions Percent of All I n ,i u r i e s Reported State California Texas Maryland Washington Wisconsin Other Motor Cutting and Specified Vehicles Machine Tools Chemicals Products 7.3 3.0 1.0 3.0 1.9 .3 .8 0.7 7.2 — 1.6 0.6 3.1 3.9 1.1 1.4 4.2 2.5 .7 2.5 Source: Table III-1 . Nature of Selected Product Workplace Injuries One indicator of the severity of injuries is their nature, that is, whether they involve significant trauma or occupational disease exposure. Each of the review jurisdictions coded such information from accident reports submitted by employers. Generally, injuries involving amputations, fractures, burns and scalds, and occupational diseases create claims for more costly permanent disability and scheduled awards for loss of limbs or 2 bodily functions involving significant physical impairment. The following are general findings from the analysis of the severity of selected product workplace injuries. Injuries involving cutting and machine tools, woodworking machinery, and grinding wheels have relative greater incidence of serious physical impairment as represented by amputations and The terms amputation, fracture, burns, strains, etc. are defined and used by the various State workers compensation aerencies and are not necessarily uniform from State to State. III-9 fractures. For example, approximately 12 and *10 percent, respectively, of cutting and forming; tools accidents in Wisconsin and Washington involved amputations. In the case of woodworking machinery injuries in the State of Wisconsin, amputations accounted for one in five injuries? — -22.2 percent. Over one-half to four-fifths of chemical products injuries reported in the review jurisdictions entailed burns and scalds and exposures to occupational diseases. Maryland and California had the highest levels of chemical injuries attributable to occupational diseases--42.2 and 35.9 percent, respectively. Wisconsin and Texas cited burns and scalds, with 52.3 and 46.2 percent, respectively, as major types of chemical injuries. Strains and sprains comprised the bulk of ladder workplace injuries in most of the review jurisdictions. In California over three^fifths (61.8 percent) of ladder accidents involved this type of injury; for the State of Washington the level was 52.6 percent of all ladder injuries. The majority of motor vehicle accidents reported by the review jurisdictions involved three kinds of injuries — strains and sprains, fractures, and cuts and bruises. In California and Wisconsin, cuts and bruises, strains, and sprains and fractures comprised over 76.4 percent and 62.2 percent, respectively, of all reported motor vehicle workplace injuries. By contrast, these three types of injuries accounted for less than half of all reported motor vehicle workplace injuries in both Maryland and Texas . Industry of Occurrence One means of isolating the impact of product workplace injuries is to determine the industries in which they occurred. 111-10 Information on the top five industries of occurrence is displayed in table III-2, for each of the major selected product workplace injuries in the five review jurisdictions. In general, the top five industries accounted for one-third to over four-fifths of selected-product workplace injuries within a state. For motor vehicle accidents, the leading industries reported by the five review jurisdictions were State and local government, transportation, auto dealers, service stations, and wholesale trade. The range of concentration of motor vehicles injuries in these industry groups was less than 30.8 percent for Texas as against 48 percent for the State of Washington. In the latter case, farming and logging represented over 12.8 percent of motor vehicle injuries (see table III-2). Cutting and machine tool injuries in California and Wisconsin appeared more frequently in primary and fabricated metals products, machine tools manufacturing, lumber and wood products, and rubber and plastic products manufacturing. In the instance of the State of Washington, basic forest products industries, sawmills, and food processing comprised the bulk of such injuries (see table III-2) . Chemical injuries varied considerably by State. In California, Maryland, and Texas chemicals and allied products, electrical equipment and supplies, food and kindred products, special trade construction, and oil and gas extraction accounted for nearly two-fifths of reported chemical injuries. In Wisconsin, chemical injuries were predominant among food and kindred products, and machinery and fabricated metals products industries. For the State of Washington, more than 54.1 percent of chemical injuries occurred among auto dealers and service stations, smelting and lead manufacturing, construction, food processing, and farming (see table III-2). III-ll TABLE III-2. — Distribution of Selected Product Workolace Injuries by Leafllng lnddStrTe'S , Selected St&teg , 1SJ /4 « ; Rank By Industry Selected Product Categories Total First Second Third Fourth Fifth Subtotal Motor Vehicles California (SIC)l Number Percent Maryland (SIC) Number Percent Wisconsin (SIC) Number Percent Texas (SIC) Number Percent Washinqton (IC) Number Percent Cutting ^ Machine Tools Cal ifo r nTa (SIC) Number Percent Wisconsin (SIC) Number Percent Washinqton (IC) Number Percent Chem icals Cal ifornia (SIC) Number Percent Maryland (SIC) Number Percent Wisconsin (SIC) Number Percent Texas (SIC) Number Percent washinqton (IC) Number Percent Ladders California (SIC) Number percent Wisconsin (SIC) Number Percent Maryland (SIC) Number Percent Washinqton (IC) Number Percent 19,774 100.0 94 2,958 15.0 42 1,528 7.8 50 1,526 7.7 55 1,450 7.4 1 1,370 6.9 8,832 44.8 6,925 100.0 93 1,365 19.7 50 432 6.2 42 396 5.7 55 394 5.7 92 391 5.6 2,978 43.0 6,191 100.0 93 1,114 18.0 42 949 15.3 50 475 7.7 55 473 7.6 20 310 5.0 3,321 53.6 55 1,593 100.0 42 128 8.0 50 113 7.1 75 100 6.3 75 75 4.7 75 4.7 491 30.8 1,115 34 172 11 166 48 79 50 63 49 59 539 100.0 15.4 14.9 7.1 5.7 5.3 48.3 8,077 100.0 34 1,044 12.9 35 978 12.1 56 654 8.1 54 549 6.8 30 534 6.6 3,759 46.5 3,621 100.0 35 874 24.1 34 440 12.2 24 298 8.2 33 220 6.1 36 206 5.7 2,038 56.3 1,419 100.0 50 288 20.3 10 172 12.1 29 152 10.7 34 149 10.5 39 148 10.4 909 64.0 2,584 100.0 36 438 17.0 28 180 7.0 28 175 6.8 34 171 6.6 94 160 6.2 1,124 43.5 1,522 100.0 28 257 16.9 93 143 9.4 92 87 5.7 36 77 5.1 17 76 5.0 640 42.0 1,067 100.0 20 131 12.2 35 102 9.5 92 91 8.5 34 85 7.9 93 68 6.3 477 44.3 637 100.0 13 70 11.0 28 48 7.4 17 45 7.1 99 43 6.8 15 38 6.0 244 38.3 401 100.0 34 76 19.0 18 46 11.5 5 35 8.7 39 34 8.5 48 26 6.5 217 54.1 1,600 100.0 94 227 14.2 17 165 10.3 1 147 9.2 20 79 4.9 53 73 4.6 691 43.1 528 100.0 17 108 20.5 15 41 7.8 93 41 7.8 92 27 5.1 35 25 4.7 242 45.8 433 100.0 17 77 17.8 93 59 13.6 15 54 12.5 50 22 5.1 54 16 3.7 228 52.7 135 100.0 5 25 18.5 48 17 12.6 34 16 11.9 3 10 7.4 6 10 7.4 78 57.8 111-12 Selected Product Categories Total Rank By Industry First Second Third Fourth Fifth Subtotal Woodworking Machinery California (SIC) Number Percent Wisconsin (SIC) Number Percent Grinding Wheels Cal ifornia (SIC) Number Percent Wisconsin (SIC) Number Percent Isee reference notes classification (IC) codes. Reference Notes £or Table III-2 SIC Identification 1,756 100.0 24 453 25.8 25 381 21.7 37 131 7.5 15 79 4.5 94 73 4.2 1,117 63.6 618 100.0 24 162 26.2 25 79 12.8 15 61 9.9 35 31 5.0 17 26 4.2 359 58.1 1,262 100.0 35 278 22.0 34 219 17.4 33 139 11.0 37 111 8.8 36 51 4.0 798 63.2 301 100.0 35 104 34.6 33 99 32.9 34 35 11.6 37 10 3.3 36 3.0 257 85.4 for key to stand ard industrial classification (SIC) and industrial For California , Maryland , Wisconsin & Texas 1. Agricultural Production 13. Oil & Gas Extraction 15. General Building Construction 17. Special Trade Contractors 20. Food and Kindred Products 24. Lumber and Wood Products 25. Furniture and Fixtures 28. Chemicals and Allied Products 30. Rubber and Plastics Products 33. Primary Metal Industries 34. Fabricated Metal Products 35. Machines - Exceot Electrical 36. Electrical Eauipment and Supplies 37. Transportation Equipment 42. Trucking and Warehousing 50. Wholesale Trade 53. Retail General Merchandise 54. Food Stores 55. Automobile Dealers and Service Stations 56. Apparel and Accessory Stores 75. Automobile Repair, Services, Garage 92. Justice, Public Ordanance and Safety 93. State and Local Government 94. Government Human Resources and Public Health Agencies 99. Non-Classified IC Identification ; For Washington 3. P.H.A.C. Landscaping 5. Construction 6. Electrical Elevator 10. Sawmills 29. Wood Products Manufacturing 30. Logging 34. Automobile Dealers 39. Food Processing 48. Farming 111-13 Ladder injuries appeared for the most part to be concentrated in construction, with other significant industries including farming, food and kindred products, and wholesale and retail trades. These industries accounted for ^3.1 percent of ladder injuries for the State of Washington (see table III-2). Woodworking machinery injuries in the two review States that reported significant numbers of them — California and Wisconsin — were predominately concentrated in lumber, wood products, furniture and fixtures, manufacturing and construction. These industries accounted for 63.6 and 58.1 percent, respectively, of woodworking machinery accidents in California and Wisconsin (see table III-2). Grinding wheel injuries were concentrated most heavily in primary and fabricated metals manufacturing, machinery and electrical equipment, and supplies manufacturing. For California, these industries accounted for over 63.2 percent of grinding wheel injuries, while accounting for over 85.4 percent in Wisconsin (see table III-2). Extent of Compensation for Selected Product Workplace Injuries New York State has prepared a separate analysis of compensation cases, closed or adjudicated, that permit an examination of trends in the incidence, severity, and amounts of compensation over an extended period from 1966 to 1972. New York State Product Sources of Workers Compensation — Trends, Severity, and Benefit Costs Table III-3 presents an analysis of closed compensation cases by selected-product sources of accidents for the State of New York over the period from 1966 to 1972. In general, about one- 111-14 TABLE III-3. — Distribution of Selected Product Closed workers Compensation Cases State of New yoi k 1966-72 Weeks Of Cases Compensation! Product Group 1966-702 1971 1972 1971 3 1972 Chemicals: Number 1,868 1,759 1,874 183,249 178,140 Percent 1.57 1.43 1.54 4.04 3.57 Medical Devices: Number 2 3 16 5 78 Percent - - .01 - .02 Pharmaceuticals: Number -3 23 25 1,710 141 Percent _1 .02 .02 .04 .03 Metal Castinqs and Related Machinery: Number 3,128 2,604 2,267 53,931 51,117 Percent 2.63 2.11 1.86 1.19 1.03 (Metal Castinqs) : Number (2,763) (2,393) (1,959) (48,716) (46,654) Percent ( 2.52) ( 1.94) ( 1.61) ( 1.07) ( .94) (Related Machinery) : Number ( 365) ( 413) ( 308) ( 7,890) ( 4,463) Percent ( .31) ( .34) ( .25) ( .17) ( .09) Aircraft: Number 147 181 167 38,620 27,258 Percent .12 .15 .14 .85 .55 Grindinq Wheels and Grinders: Number 664 620 608 12,664 10,604 Percent .56 .50 .50 .28 .21 Selected Industrial Machinery: Number 5,906 4,668 3,090 109,458 89,506 Percent 4.96 3.79 3.35 2.41 1.80 (Cuttinq and Forminq Mach. Tools) : Number (3,550) (2,751) 2,280) (65,811) (53,743) Percent ( 2.98) ( 2.23) 1.87) ( 1.45) ( 1.08) (Woodworkinq Machinery) : Number (1,183) ( 945) 906) (24,446) (19,364) Percent ( .99) ( .77) .74) ( .54) ( .39) (Textile Machinery) : Number (1,173) (1,972) 904) (19,201) (16,399) Percent ( .99) ( .79) .74) ( .42) I .33) Ladders: Number 2,363 2,398 2,542 136,535 151,192 Percent 1.99 1.95 2.08 3.01 3.03 Power Mowers: Number 255 225 221 8,132 6,214 Percent .21 .18 .18 .18 .12 Motor Vehicles: Number 10,962 11,438 1 1,268 541,234 559,760 Percent 9.21 9.29 9.23 11.92 11.22 All Other Injury Aqents: Number 93,709 99,205 9 8,966 3,454,174 3 ,914,423 Percent 78.74 80.57 81.09 76.09 78.47 Total : Number 119,004 123,124 12 2,044 4,539,762 4 ,988,433 Percent 100.0 100.0 100.0 100.0 100.0 ^Weeks of compensation were not available for 1966-70. ^Fiqures shown for period 1966-70 are averaqes for the five years. ^unpublished tabulations of closed workers compensation cases, 1971-72, State of New York Workers Compensation Board, Division of Research and Statistics. ^There is not sufficient detail in the published 66-70 summaries for pharmaceutical breakdown . Source: Summary tabulations : Characteristics and Costs of Work Injuries in New York State: All Industry Report 1966-70, State of New York Department of Labor, Vol. III., February 1976. 111-15 fifth of all closed cases in New York over the 7-year period involved products designated for detailed study by the Task Force. There was no significant shift in the relative distribution of selected-product workplace closed compensation cases in New York State over the period. The leading causes of selected product workplace compensation claims in New York were motor vehicles, selected industrial machinery, metal castings, ladders, and chemicals, paralleling the findings from the analysis of other review jurisdiction injury reports. The order is as follows: Selected-Product Sources of New York Workers Compensation Claims Percent of Total Cases Product 1966-70 1971 1972 Motor Vehicles Selected Industrial Machinery Metal Castings and Related Machinery Ladders Chemicals 9.2 9.3 9.2 5.0 3.8 3.1 2.6 2.1 1.9 2.0 2.0 2.1 1.6 1.1 1.5 Source: Table III-3 A slight downward trend in the level of selected industrial machinery compensation claims in New York over the 7-year period is noted. The other leading product causes have remained relatively stable. The use of closed compensation claims data permits the development of information on both the extent of severity and comparative benefit costs. In the instance of the New York State 111-16 data this is indicated by the number of weeks of compensation awarded and the average amount provided. Unfortunately, the New York State data on the weeks of compensation awarded- — a proxy measure of severity — was available only for 1971^72, while the amounts of compensation provided were available in an aggregated form for the period 1966-70, and for single years only for 1971 and 1972. This makes the exact determination of trends, somewhat difficult (see table III-4). As in most workers compensation jurisdictions, the weeks of compensation awarded is a function of statutory benefit schedules and the extent of disability incurred as a result of the injury. The amount of compensation provided is further limited by statute to either a maximum compensation rate, for example, two-^thirds of the average weekly wage in the State, or a maximum amount, say $300 per week. Thus, the amount of compensation provided may be substantially below the actual wage or economic loss experienced by a worker as a result of an industrial injury or illness. The compensation provided typically reflects medical costs of treating the injury or illness, as well as indemnity payments made on a periodic basis for economic or wage losses in accordance with the limits set by the statutory schedule of benefits and compensation rate limitations. A third element to be noted when examining the New York State Workers Compensation closed case data is that the information covers a wide range of types of disability ranging from temporary spells of a few days or weeks in duration, to those involving permanent partial or total disability, or those involving payments to survivors in the instance of fatalities. The average closed workers compensation case in New York incurred more than 37 and U1 weeks of disability in 1971 and 1972, respectively. This is equivalent to more than two-thirds 111-17 cn C (N O r- •H >- a u fi JJ o 10 u 3 T3 CD C l-i M 41 J* rH 1-1 .H O • < s c 3 -* o • • u TJ 4) O Jf 4J >< CO 10 41 JJ 3 u t/1 4> A z J* rH M tu ■0 O o O •h S" a> u 3 4-1 3 4) <0 41 SB JJ O 10 41 10 E •H u 3 10 •* ij 4' j«r 41 c 4) CN CO to 41 u tr a 1 a rH O 10 E *-, «■■. , — tm. _ . rH IJ X u o f-i (N r« cn r» T rH ^r «tr t ot cn CO cn r-t m 00 en r» u 3 t 41 O r- cn o ■ro to TJ> rvi > cn «T rH TT o O CTt m o CN ro in cn to to r- f to • rH UJ C P- CD r- < r—t O r- CN CN1 rH rH CN m CN CN rH in cn >» ro cn to M cn If) ( rH CN IJ CO rH O to 10 (0 4) J« \c 0) 41 *H U >, (J ■ to IJ O u rH CO 10 S ro JJ ^ ^ r«k ^-> 41 o E 3 o J* JJ CN rH rH to ro rH Tf *T a> r~ r~ r^ cn r~ m CN r- to m r~t r^ 1— 00 00 o o CO CN in r~ ro CN CO r~ o > E tu u 3 u c C |-> rH r» o rH O rH rH o o O rH cn CN in CN to ^r cn "T o in to ^r rH ro P~ rH »r r-i CN T o • -H c 3 O jj 13 o o Oi • in r *3* • cn • rH • ro ■ rH • «T • cn o tu o in 41 O >< • H u I— 1 •■ CN ^ >~^ *• rH * CN •* rH •* r* ro r* r-l «* 00 «> o •H CO tu u jj u to CN CN in ro rH CD r~ r~t r-H 1— m rH 0) JJ o JJ a. s 10 4) — ■ *-~ •^* *^ CN cn •>Cf C CO r» to - 41 (0 a. iH CN JJ at t O • TJ z C"^ c to O IH 0> 4) . — ^ ^-, rr^ r% U-l 41 to M JJ LU a 10 rH to i— rH | ID CM O KO CO m CN ro r~ o cn CO CN CN ro cn r- m cn co r-i r~ to r- t— CN cn cn r- o O a TJ M O o E - r~ CM en Ol O cn «T ^r (N I-- CN CN ro 00 ro CO tc T r"i TT r~ cn *r ■ ~H » ro » CM •- r> ro » rH » to •. o 01 o -C rH 41 4-> o to en 4J o — ^ rH CN u u rH ■H JjC 3 to u C c O ** r- 00 rH 1 1 vo cr. ro cn m o in to rH O o O cn r^ ro o oc ro CN in cn oo r» *r CO rH o C CO l-i a •H O c 3 3 1- ro rH rH O in vc O tr in cn to CN ON m cc CO o ro in cn rH in CO rH c rH rH T m o cn • >j J3 o O o 1 CM • • 00 • w • ^ • in • to • to • •cf r c • CN • rH • «cr • 00 • r~ • rH o 41 3 • 41 4i ia •H e E to «. m •* rH r* ^-t k. m ». CN & ■> *» CO » o k r- » o l-i CO -C jj >J JJ < < to r» en m 00 m CN rH r- m rH in i— 00 rH CO "O O JJ o D en — — - « >^ CM r» CN 41 •H 10 tu JJ K> rH rH CN o to JJ C w O •H r» o to -H ■a u to 1 rH •H j= jj jj >i rH to O JJ rH CJ c 01 w o to CO •H 41 -H 4) o JJ 10 •• E D C H T3 U-l v> JJ (0 JJ | •H O O 41 c u 1 £ • •H TJ t3 o <0 • u sz 1-1 c ■H a T CO >• o 01 to <0 JJ JJ s 1 5E CO u CO ^^ o c . C 10 1-1 1-1 4) s: >1 O -C 41 rH M ■o 4J C U 01 ■H V -H D AC M 41 JJ T3 C -C c 41 C jS JJ JJ 10 10 O •H XI U O. CO «_^ •H o •H > to rH 0i IM JJ Jx ►J 3 rH >. U 10 E JS u JJ 1-1 3 to U-l CO O 0) M O s: Vj o 4) e o £) 0) 3 s* 3 < u IX r^ 41 O 10 C CD ■w 10 ££ 10 M 41 tr" JJ o 3 CO CO c CO CO c 4J C o CO T3 C to rH CO •H a. id X. tn c •H JS o 10 M JJ 0) o c JJ o c (0 £ E D Z tu 73 41 rH to to I rH (0 c JC to 3 rH to J= o CO « O 10 tr 2. •H JJ Jj rH 41 4J § C 1H 3 3 T3 •H JJ u 4) o ■H r-< o 41 u rH JJ ■H > 4) •• JJ 4i cn CO 3 CO 10 10 U O X 3 £ U 3 3 •H U u rH 41 CO 4J rH 4J tr •o -^ O 41 o 4) 0> IT aa 41 w « «3 rH O U 4J 41 «H c 0' X E-> w se > JZ •H c -C 3 o o 10 (0 r C£ CO •H 4J u jj Du 3 •* e-> O r» •H E rH «-^ n^ 'u •o o 4) u r-4 O rH CO o o rH O CTi o JC 0u X < o CO iJ a. X < m rH 111-18 of a year (71 percent) in 1971 and four-fifths (79 percent) in 1972. Among the selected group of products detailed by the Task Force for analysis, the more severe workers compensation cases occurred among aircraft, chemicals, ladders and motor vehicles. Aircraft closed workers compensation cases averaged more than 4.1 and 3.1 years of disability in 1971 and 1972. Chemicals, the next most severe of the selected product categories, averaged approximately 2 years of disability. Workers compensation closed cases involving ladders averaged slightly in excess of 1 year's disability, while motor vehicles averaged slichtly less than 1 year in duration. The average amount of compensation provided changed only slightly between the aggregate period from 1966-70 and the 2 single years of analysis, 1971 and 1972. The variation in overall average amounts of compensation provided over the 7 years varied by less than 8 percent from a low of $1,677 in 1971 to a high of $1,998 in 1972. While the absolute amounts of average compensation provided varied in accordance with the extent of severity of the injury, the amount of awards received per week was inversely related. As an indication of this, aircraft product related cases, which had the highest level of time loss in the preceding discussion, had the lowest average amount of compensation paid per weeks awarded--$25. 58 in 1972. In contrast, motor vehicle product-related closed cases which had a level of disability of approximately 1 year in 1972 (49.6 weeks), had an average amount of compensation paid per week of $48.56. These differences are the result of higher compensation rates for less severe workers compensation cases and lower ones for permanent disability and fatal survivor annuities under New York State Workers Compensation Statutes. 111-19 Extent and Amount of Compensation, Overall and Selected-Product Sources of New York Workers Compensation Claims 1966-70 1971 1972 All Closed Cases Weeks of Compensation Amount of Compensation Average Amount Per Week Awarded 36.9 40.8 $1,918 $1,677 $1,998 $45.45 $48.97 Product Sources Aircraft Weeks of Compensation Amount of Compensation Average Amount Per Week Awarded Chemicals Weeks of Compensation Amount of Compensation Average Amount Per Week Awarded Ladders Weeks of Compensation Amount of Compensation Average Amount Per Week Awarded Motor Vehicles Weeks of Compensation Amount of Compensation Average Amount Per Week Awarded 213.4 163.2 $3,844 $3,464 $4,174 $16.23 $25.58 104.2 95.0 $3,872 $3,482 $3,528 $33.42 $37.14 56.9 59.5 $3,039 $2,728 $3,190 $47.94 $53.61 47.3 49.6 $2,173 $2,080 $2,409 $43.97 $48.56 Source: Table III-4 111-20 Summary of Findings The results of analyzing this selected body of State workers compensation injury reports revealed the following: • On average, selected products designated by the Task Force accounted for one in every ten workplace injuries in the review jurisdictions; this ranred from less than H percent of all workplace injuries reported in Texas to 14 percent of cases in California. • More than half of selected-product workplace injuries are caused by motor vehicles; other leading causes are cutting and machine tools, chemicals, ladders, wood- working machinery, and grinding wheels. • The more severe selected-product workplace injuries, as measured by the extent of lost time and the nature of injuries, involve aircraft, chemicals, ladders, motor vehicles, and machine tools. • The major selected product causes of workplace injuries occurred predominantly in the following industries: — Motor Vehicles State and Local Covernment Auto Dealerships and Service Stations Trucking — Cutting and Machine Tools and Crindincr Wheels Primary and Fabricated Metals Manufacturing 111-21 — Chemicals » Chemical and Allied Products Manufacturing Electrical Equipment and Supplies Manufacturing Food and Kindred Products Manufacturing — Ladders Construction — Woodworking Machinery Lumber and Wood Products Furniture Manufacturing CONSUMER PRODUCTS INJURIES Data on consumer product injuries were derived from the National Electronic Injury Surveillance System (NEISS) developed by the Consumer Product Safety Commission, consisting of a network of 119 hospital emergency rooms. At these data collection nodes, for each emergency room visit the agency of injury is reported as well as the category of injury (0-8) based on severity, type and nature of injury, and characteristics of the injured person. There were approximately 950 different product codes reported in 1974 and 1975, up from 725 in 1973 when the program was initiated. A severity index devised for NEISS assigns progressively higher (and arbitrary) weights to the 9 different categories of injuries, ranging in value from to 10 for categories and 1 respectively, to 2,516 for categories 7 and 8. The fact that a certain product group has an average severity index (per injury) of 31 does not mean that the injuries resulting from that product averaged out to be category 4. Rather the index is useful for comparative purposes only. 111-22 Multiplying the number of injuries reported (freaueney) by the average severity per injury yields another measure of product injury risk, the Frequency/Severity Index (FSI). This measure was also used in the analysis of the data. A small number of products caused a majority of all injuries for each of the 3 years. The "worst 25" consumer products, on average, represented less than 3 percent of all product codes for which accidents were reported, but caused more than three fifths of all injuries reported by NEISS. Concentration of Consumer Product Injuries in "Worst 25" Product Categories Reported to CPSC through NEISS Percent of Percent of Year Products In juries 1973 1974 1975 Source: Table III-5 Table III-5 lists the "worst 25" products for 1975, which predominated over the 3 years. The number of injuries reported for all products varied by less than 100,000 over the 3-year period with 315,371 in 1973, 305,508 in 1974, and 386,739 in 1975. In terms of the Frequency/Severity Index (FSI), the "worst 25" rankings change little, with stairs, bicycles, furniture, and sporting equipment all still very prominent. 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D i-H Vj > T> 4J TJ O •■-J •iH i-H TO(0i-HU4-»^H4-IC co 0- Oi >i c to o ro o CO Oi 10 4) •H O -«h C CO C O TO 3 X) 4JTJ4JO C & K -r* TJ to o o o 4-> ••H ,-H o o TO m «3 C C--t O rH x: TO CV413Q OTOJCVJ 41 •fH CJ CO mot 3l CD CD Z O u: S Cu Cjl, CJ hZflJUlOUtJCODO •J •• cj m vj r» 3 O rH CO CO CO 01 cm (NHH rH "T m ON CTi cm in tr r- tr CO n^fMONinro* r-t o w M tj TT OfH O O o rH tr tr i-i c o tr 00 rH CN CM oo 00 «*• CO Cfs 00 VO vo oovc^cMi-ivocotr VO en 0) z o r-» »H i-H iH r-t rH r-t >-t r* rH i-H r-t l-H rH rH r-t X 111-24 TABLE III-6. — " Worst 25" Consumer Product Injur ies as Reported by WEISS" "- I' PS I' Calendar Yea? 19 /b Frequency/Severity Index Values ( FSll Code Product FSI 1842 Stairs, steps 802,776 1202 Bicycle and bicycle ecmipment 702,797 1904 Foods 639,582 1901 Motor vehicles, except 2 wheeled 553,696 1211 Football, activity and equipment 386,804 1204 Baseball 306,495 641 Glass, unknown origin 277,634 1849 Doors, not otherwise specified 262,836 1205 Basketball 220,032 1807 Floors and floorinq materials 188,400 1819 Nails, carpettacks, and screws 183,406 1910 Licensed 2 wheeled vehicles, motorcycles, etc. 147,316 644 Chairs, not upholstered or not otherwise specified 145,050 1920 Druqs, prescription (tablets, capsules) 131,454 1439 Lawn mowers, not otherwise specified 125,048 683 Tables, not otherwise specified 121,408 694 Beds, not otherwise specified 118,720 442 Knives, not otherwise soecified 118,146 1815 Windows and window glass, other than storm windows 117,020 1284 Swimming pool, not otherwise specified 97,680 611 Bathtub and shower structures, not doors or panels 95,675 601 Beds, including springs and frames 94,281 645 Tables, cocktail 87,377 1813 Metal pieces, not otherwise specified 85,146 696 Ladders, not otherwise specified 83,148 Source: Unoublished tabulations of NEISS Consumer Product Injury Reports for Calendar Year 1975, Consumer Product Safety Commission (CPSC) . 111-25 As indicated in table III-7, sporting equipment accidents accounted for approximately one-fifth of all injuries . reported over the 3-year period. Bicycles constitute one in twenty consumer injuries reported (5.6 percent in 1975), while selected Task Force products such as drugs and chemicals account for less than 2 percent of the total. The average severity of all consumer injuries reported through NEISS remained fairly constant over the initial period, 3^.6 in 1973 and 32.6 in both 1974 and 1975. Selected-product categories with relatively more severe injuries than the aggregate average were chemicals, lawnmowers and drugs with ratings of 104.4, 77.7 and 62.7, respectively. Data from the Consumer Product Safety Commission (CPSC) were analyzed to develop a profile of major sources of consumer product injuries, and to determine if there are any trends which may be of consequence to the product liability problem. Data were available from the NEISS consumer accident reporting system for 3 calendar years — 1973 to 1975, and were analyzed with respect to individual product codes as well as major product groupings specified in the Task Force research agenda. The results of analyzing CPSC NEISS consumer injuries reports can be summarized as follows: • An average of 6.7 million injuries were sustained annually by consumers over the period from 1973 to 1975 based on sample surveys of hospital emergency room reports supplied to the CPSC. • Overall, less than 3 percent of the product classes accounted for approximately 60 percent of the injuries reported to the CPSC. 111-26 in r» ON r» vo t ON vo ■u r» • • • • • • • V > IN CM r- *r TT co CM D *J VO co r» CM O CM CO T3 •H rH O 14 u ft) eu > ft) ^t iH vo r- O r~ 00 vo u n CO f- • • • • • • • cv r» 00 o 00 *r r- T CM e < ft) KT co r» CM m CM ro 3 ^ cr V) ~. 10 c J> u o -H ft) co o r- *r in co CO vo CJ > r» • • • • • • • W < CM CM o «* o *»• T ft) lj >- VO ro r-» CM o CM ro O w a rH K ft) •H o * u fcl ft) 14 > .* m a> in c CO ro c E-< c ft) rH cr >4 10 m O -J u in r- 'J' ON VO as VO as X> O in ^r on ON o •r—i ft) r» n • o • in • TT • 00 • oo • CO • (C J > in i-H in m ^r CM 00 r-i m cm r^ o £ ^1 < & 4J in u in <— i r- vo en xr as O0 CM r-t in o ■H z 3 ft) Ij x> X) ** ON i-H <-i i— i in in r-i ft) S •H E <— i rH vo o 4-> u 3 co o 4J 55 <0 D (0 Ij ^ •r4 re *j D co 00 CO CM 00 VO r» vo «r co ON cm r* rH O x: u ro 00 00 • v • CO • ro • r~ • CJ O u vo rH CM in CM ro ON rH CM o CO o a 01 ►, ft) XI in 00 CM iH in in in «h u X e rH vo rH D 3 CO ■n (0 1 z c «T ■U J a U ft) U o CQ ft) Q (0 3 < 4J CO » r-i CT> -o £-• o ft) o iH «0 C O 3 rH 2C 10 u •M 14 'O (0 o O •H *J 04 o tr >1 c •H e u VI 3 u 3 T3 ft> o rH (U J-e •l-t (0 ft) -C a rH o CQ J T. u (0 < 14 O 1*4 00 4J 14 • o ^-, ao ft> to OS a. u >. ^— 14 3 c •n o C •H M CO CO 4J •r-l O e 3 6 T3 o O u V4 (X > 4J 14 ft) ft) VM e (0 3 CO (0 c 4J o o CJ 3 T3 10 O 10 l-i M cu CO 55 14 ft) ft) e •C 3 4J CO c VM o O u CO * c m o r» •H ON 4J rH 10 rH TJ 3 c XI ro (0 4-> » T TJ r- ft> ON £ rH (0 •H ». rH CO X) r~ 3 ON a rH c D 10 1-1 <0 •• ft) H CJ 14 vj 3 ro O X) co C ft) rH 10 CJ 111-27 • Predominant product categories among the "worst 25" reported to the CPSC were stairs, furniture, bicycles, foods, motor vehicles and sporting sroods; the average severity of all consumer products remained stable in both 1974 and 1975, at a rating of 34.6 percent. • Of consumer product groups selected by the Task Force, The most severe injuries occurred in chemicals, lawn mowers and drugs with severity ratings of 104, 78, and 63, respectively, for Calendar Year 1975. A cautionary note in interpreting these results is that data on consumer product injuries are in the form of frequency counts rather than incidence rates. Thus, no interpretations or inferences can be made regarding the likelihood of injury from using a particular product. All products do not have the same exposure or use; however, a first order approximation of the magnitude of the hazardousness of a particular product can be gained by analysis of this type of data. OENERAL AVIATION INJURIES Introduction and Summary The Federal Aviation Administration (FAA) collects and analyzes data annually on the incidence, causes, and characteristics of general aviation accidents. A historical time series of general aviation accidents was tabulated from this FAA data base for the period from 1965 to 1974 for the purpose of analyzing trends. Oeneral aviation accidents were divided into three broad categories product-related, human-related, and other. Accidents related to airframe, landing £ear, powerplant, systems, 111-28 instruments/equipment and accessories, and rotorcraft failures are grouped under "product"; pilot and personnel under "human" and airport/airway/facility, weather, terrain, miscellaneous and undetermined are included under "other". Injuries are classified according to their severity as fatal, serious, minor, and none/unknown. Data for analysis of general aviation accidents consisted of two types — aggregate levels of reported accidents per 1,000 flying hours and so-called fractional injuries or the ratio of injuries in a particular group, for example, products or personnel related to the total reported. This latter measure indicates the relative importance of each cause of general aviation accidents. For example, out of a total of 292 reported general aviation accidents in 1964, there were 74 fatalities due to product failures. Thus, fractional fatalities attributable to product sources for that year were .2534 (74/292). Time trend analyses were performed on both sets of data to determine if there was significant variation in any of the aggregate and fractional general aviation accident measures over the 10-year period. Least squares fits were made to the data sets and resulting slopes and product moment correlation coefficients were examined to determine trends. Results of Analysis Tables III-8 and III-9 display aggregate general aviation accident incidence rates and fractional ratios for the period of analysis. On average, there were less than .2 accidents per 1,000 flying hours over the 10 years from 1965 to 1974, with little variation in the overall incidence rate. The fractional ratios were computed for six years at the beginning, middle, and 111-29 V «r < & c in c < -l-l n 4-> ■c (C T> ■H H > < 1 r-l ku «0 V u c (V CJ c D 0> H e: K> 1 c 1 W w w 3 o X U CP 0) c (X •H > Cfl f— 1 4-> 0-, c ^ o> ^ o> ovc^ o^ crs o> 03 U •r-l 4J w •.-1 u J (0 x; o T3 C (0 w 4-» c •^ O O o •I-I u 4-> IS rtj o •r^ CO > <0 > *J <-t 0> It] •l-l < ■I i-H CN c 00 T p» VO •H 4-> x: a\ r-H CT* VO CO CO > C 4-J CN CN CN co CO CO < a* o TJ rH •■-i Q o Vj o I-H a> "C c ON i— I CN CM o CN 0) Vj c i-H O O in o O Cu in o o • T M- in (N *T CD c CO CO CO CO ro CO CO v co •H VJ CO 3 s: QJ o (C a, •rt CJ c o 4J to T5 •r-l -r4 01 4J 4-> VJ 4J u o in vo o • rH rH i—i CM CM CN 4J a (D O c •n 'D a* c •H T> M i-i •H o c < tv o o c co co ^H in rr ^r 10 •••J to c CTi .— I CM r- CO VO 4J 3 o cj> Csl CM CM CO ro c CO o CO rH CM CM CN CM CM o •<-t •H vj tH > Vj CD 4-» < 0J C/j ex <0 > r-\ Vj u c o ■■3 1 in i-H • in vo in T ■«r TT O CO (J-, 1 C a> O •H 4-> >: 1 T3 ro 4-> • •i-t rH IV 1 CJ O CD D UH x) ro n < c in in m CM in CO ro w rH c i— t CD r~ r~ vo CN 4-» t-H i-H o in co co i—i ■^r CN o A3 CO *r «* ■>* •^ •v ^r •I-l [J 4J vj T3 vm J (0 cd a> vm CO Dl, a. x: ro < 10 Vj En c o •H 4J •H Eh i-H JO » 4J CJ ■»r oo CN «=r o CO 3 C o 3 CO in VO V£> o CO a o IT! 'V in Ov rr <£> CM c* C "H VJ o CM CN co CM CO CN O 4-> tu u CU ro Vj 4J •• tfl CD -rJ o c vj «* in C* o CT ON O T3 >H i-H .-h i-H i-H i-H r-t to < 111-31 end of the 10-year period of analysis and displayed in table III- 9. Product sources accounted for less than half of all minor injuries reported, less than one-third of fatalities and approximately one-fourth of serious injuries. Weather and terrain-caused accidents accounted for over one-half to three- fifths of fatal general aviation accidents. The least squares estimation and correlation analysis performed on both aggregate and fractional data revealed no time dependence. This was attested to by a near zero slope and product moment correlation coefficient value of close to zero (- .028), confirming the time independence of injuries. Statistical analysis of FAA general aviation accidents and injuries revealed the following: • The relative incidence of general aviation accidents per thousand flying hours remained virtually constant over the period from 1965 to 1974; both in the aggregate and for each source; e.g., products, etc. • The incidence of product-caused general aviation injuries was lowest for fatal and highest for minor accidents; these relationships were constant over the entire decade of analysis. • The relative share of product-caused general aviation injuries did not increase over time and was not as significant a factor as personnel or weather and terrain sources . 111-32 CHAPTER IV--MANUFACTURERS PRODUCT LIABILITY PROBLEMS AND EXPERIENCE— AN ASSESSMENT OVERVIEW AND SUMMARY Introduction Several studies and surveys conducted by the Bureau of Domestic Commerce of the U.S. Department of Commerce during the Spring of 1976 resulted in the collection of some preliminary information concerning a growing product liability problem confronting certain manufacturers. This was typified by reports of large increases in product liability insurance costs, limits on coverage, rising claims, and large court judgments in product liability suits. There were also allegations about firms "going bare" — that is, not securing any coverage for product liability risks. In some cases the cost of insurance was reported to be reaching proportions where it threatened the ability of some producers to continue in existence. The examination of accident profiles for industrial and consumer products in the preceding chapter indicated that the relative incidence and severity of accidents and injuries in both categories have not increased. The issue then was to develop more substantial information concerning the question of what has precipitated the problem, and to sort out what appeared to be conflicting information about causes as reported by the various interested parties — manufacturers, insurers, and the legal profession . To accomplish this fact finding, the Industry Study performed a data-gathering and analysis effort that relied principally on three sources of information — a product liability telephone survey of industry, discussions with representatives of selected IV-1 firms, and the analysis of product liability surveys, conducted by a number of trade associations of their respective memberships. One major source of information was a telephone survey of manufacturers drawn from the nine product categories designated by the Task Force. Approximately 540 firms were selected through random sampling procedures in accordance with two criteria: (1) sales volume and (2) product category. Over 90 percent of the firms contacted during a telephone screening process agreed to participate in the survey. The nine product areas cover manufactured goods used both in workplace environments and by consumers. The survey was designed with the objective of determining trends in the cost and availability of product liability insurance coverage, trends in claims, settlements and damage awards, and the extent of the use of safety programs and their impact. This information was collected separately for small, medium, and large firms. Three hundred and thirty-seven firms (about 68 percent of the firms that agreed to participate) responded to the survey in telephone interviews. While this is a small number of completed responses, the information derived nevertheless provides a fairly comprehensive picture of the recent experiences and problems encountered by industrial and consumer products manufacturers by virtue of both the coverage of significant portions of total sales in each product category and the inclusion of small and medium-sized firms. However, the information derived from the Product Liability Industry Telephone Survey is only representative of the experience of those firms responding in the product categories selected and is not meant to be representative of the collective experience of all manufacturing firms. The second major source of information was a collection of 20 product liability surveys conducted by various trade associations IV- 2 and other groups of their respective memberships. These surveys present comparable information to that derived from the independent telephone survey of manufacturers. The information analyzed is of two types: (1) aggregate results of trade association surveys submitted to the Task Force and (2) individual responses to some trade association surveys submitted to the Industry Study for detailed processing. While the surveys may reflect the interests of their respective memberships, they do present a mosaic of common problems concerning trends in cost and availability of insurance, claims and settlements, product safety programs, and assessments of possible remedies. A third source of complementary information was a series of site visits and discussions with representatives of twenty firms screened by respective trade associations. These firms were selected in accordance with a combination of sales volume and product category criteria comparable to the categories derived for the nationwide telephone survey. The primary discussion topics were: the identification of product liability preventive programs and their impact; present financial and legal means of controlling or limiting product liability; and an assessment of the relative importance of Task Force remedy proposals. Glossary of Terms Used in Chapter IV A number of terms are used differently in this chapter than may be the case in ordinary usage or in the more specialized fields related to the product liability problem. They are defined here to assist the reader in following the analyses in ,his chapter. Large firms are companies whose annual gross sales are over $100 million. Medium- size firms are those whose annual f?ross sales are between $2.5 and $100 million in the telephone survey IV- 3 and selected firm discussions and between $5 and $100 million in the trade association data analyses. Small firms are those whose annual gross sales are below $2.5 million in the case of the telephone interviews and the selected firm discussions and below $5 million in the trade association analyses. Firms which have anonymous product exposure make products which disappear into those of other firms, such as industrial chemicals, small parts and castings. Firms which have contingent product exposure make products which are traceable to the manufacturer, but the product's safety and hence the liability, is dependent upon proper use in the workplace or by some technician or professional. Examples of contingent exposure products are industrial machinery and medical devices. Direct exposure products are those which are traceable to the manufacturer but are distributed to the consumer or ultimate user from the manufacturer. Examples are power mowers, home carpentry tools and sports equipment. Firms that are assuming the risk of their product liability by going bare and not purchasing product liability insurance are described as self - insured along with those which have recognized self insurance programs in the formal sense used by the insurance industry. In describing premiums, insurance costs, and settlement amounts, a very unrepresentative impression can be made because of a few very large dollar figures which are averaged in with the many smaller ones. The analyses in this chapter strive for the most typical representation or common firm experience. As a result, average dollar amounts are presented by firm size category in the telephone survey analysis, and sometimes further clarification is attempted through normalization which ffives the amounts per thousand dollars of gross sales. In the trade IV- 4 association analyses, the data are not available to aim for this decree of specificity in the relationship between the variable and size of firm; often large amounts from large firms are included with smaller firms. In order to give the most representative picture of these survey results — the median — the amount which has half the cases above it and half below — is used at times instead of the arithmetic average in reporting central tendency in the trade association data. If only average amounts are available, known extreme figures are statistically extracted or balanced leaving a more representative adjusted average . Synthesis of Findings Cost and loss experience factors and trends This summary is based on the Product Liability Industry Telephone Survey findings with additional references to the trade association surveys or the selected firm discussions where their findings amplify or clarify the Industry Survey interpretations. The summary is directed at providing in capsule form, major findings on basic cost and loss experience factors by both product category and sales volume size (i.e., small, under $2.5 million in gross sales; medium, $2.5 to $100 million in gross sales; and large, $100 million or over). The information provided in tables IV-1 and IV-2 identifies these differences among several leading indicators. The indicators are: • The cost of comprehensive general liability insurance per $1,000 of sales; • The estimated product liability insurance cost per $1 ,000 of sales; • Average deductible limits or risk retention levels; IV- 5 Table IV- 1 Comparative Analysis of Leading Indicators for Small, Medium and Large firms - Product Liability Industry Telephone Survey Under C )ver $2.5 mil. $2.5-$100 mil. $100 mil. Total CGL Cost/$1,000 Sales 1971 $2.87 $1.25 $0.67 $1.17 1975 4.86 2.36 0.89 2.32 1976 7.42 3.88 1.24 3.59 Estimated Product Liability Insurance Cost/$1,000 Sales 1971 $1.10 $.93 $0.54 $0.74 1975 2.58 1.47 0.78 1.40 1976 5.32 3.23 1.09 2.81 Percent Change 1971-1976 383% 247% 102% 280% 1975-1976 106% 120% 39% 101% Average Deductible or Risk Retention Level ($000) 1971 13.2 57.3 54.3 51.0 1975 8.9 33.6 207.4 138.3 1976 7.4 120.4 334.5 232.6 Percent of Firms Reporting Claims 1971-1976 18 50 96 56 Average No. of Pending Claims Per Firm 1971 .01 .58 13.79 3.4 1975 .06 3.18 46.82 14.0 1976 .08 3.46 65.01 18.9 Percent Change 1971-1976 700% 496% 371% 456% 1975-1976 33% 9% 39% 35% Average No. of New Claims Per Firm 1971 .02 .9 16.1 4.3 1973 .06 1.2 39.0 11.1 1975 .08 1.6 38.2 11.4 1976 .07 1.3 33.4 9.9 Average Amount of Damages Sought Per Firm 1971 $250 $102,100 $1 ,936,700 $434,000 1975 3,400 1,642,900 6 ,142,300 1,976,700 1976 2,100 1,394,300 13 ,892,400 3,526,900 Average Settlement Amounts Per Firm 1971 $ 900 $1,400 $ 45,400 $12,100 1973 600 3,200 96,200 28,200 1975 100 6,100 70,200 22,200 1976 100 7,500 92,100 27,800 Source: Product Liability Industry Telephone Survey, Gordon Associates, Inc. December 1976, Tables IV-10, IV-12, IV-15, IV-21, IV-26 and IV-28. IV- 6 ul m o fi CO rH rH CO d rl 01 (Ji H Oi f in m in fo n o cc rn n r- in £ j? M po r^ o QJ Ul m OJ \0 T O fN i W -H in cn ^t > O ro c* in M CP A* o| 01 1H u m 01 5 3 o <) fh i dp dp in in CO X r- Hino rH r-\ cn vo O ^ ro m # *> 'J >D "* .-1 "I ^«lft » o IN r-4 ID ffi CO r-H ^ O OMD O r- \£> \D \£> m r^ (N ro in ^ C* rH ^ cd co en ^ *■ CO TT CN VO Cn ^ 0) 3 C XI cn O rH in m fN «?• CN CN 1 > M j: >h a. a, 01 -H T> 0J 01 Eh -H in o*» CTi 01 IW r** H 00 rH rH 4 tru rH m CN i-4 4-> 01 t- in a 3 to •O vc C T> r> H C .-1 VO Id -H >i u u •H <> re *-i en a h e O tn df> d° ■H rH cn m KD rH E a» U rH O CN CN VD rH rH o o CO try C •H Ul 11 r-1 c 01 •H (11 H £ u 2 >J 1-1 0) V. r-H -H c Tl (1 C ig M 2: M in CD ifl ^ CO * ^ in cn r- p- VO dP dP dP t vc r- cd KF O CN * rH rH O m H ■■fr O Cn m ^ co *r co m m rH ^" CTi HHOl rH ^ «T o cn in VO CTI rH ■^ r- r- m p- fN *r cn in ro vD r- •H 4-1 4-1 r~ T tn 1U O cn CO en 10 < c TJ |H H 3 3 "C ja 10 u E-i a iH >, 10 c C CO T 1 in O a •H — on r- T 01 Ul >, 01 > w 3 to 01 c E e -H u 10 u-i H U c en ■h c ■U -H re T) n ci r> j: E 01 a CO ON en' LTi 01 cu Ul Ul 1-4 e 4J 0. 3 U •H 3 ■0 e •0 01 01 in vo en en rH rH cn in cn Ul 0) rr (0 B Q v> O 4-> c c: ■H 3 Ch 1 u QJ a, 01 tn jj « £ M m 01 3 > (i < Ul < > 4-> ™ c 01 1 ■H fe ^H Ui 01 Ul 0) 0i 0) Ul (T 4-1 ffl C U 3 01 O > < 1 >, 4-* 01 u £ 01 4-1 Oi 01 CO 3 10 1 f>l CN a 3 i to re CN CO (N C a rH IN CN CN M >! 4-1 •H •H re ■H iJ 4-1 U 3 Ul 0) rH 01 re re 4J B H CI : • < 01 CN X 1 -H > -a H C en m vo r^ r» r- cn en cn cn IV- 7 • Extent of respondents reporting claims; • Average number of both new and pending claims; • Avera.ee amount of damages sought and settlements paid per responding firm. The important elements in the discussion that follows are the relative incidence and shift in both the cost of product liability insurance coverage, and contributory loss experience factors over the five years from 1971 to 1976, as well as, the impact on small versus lar«?e firms and workplace versus consumer products . Changes and impacts of the costs of product liability coverage As evidenced by the data in both the sales volume size and product category comparisons, the cost of product liability insurance coverage has risen dramatically for all survev respondents, particularly within the past year. Generally, the cost of product liability insurance has risen by nearly 2 times, with the largest increases occurring in the smallest sales classes — less than $2.5 million. Cost increases in product liability insurance coverage were largest for grinding wheels in the workplace product category, and for power mowers, pharmaceuticals and medical devices in the consumer category. Medical devices had the highest estimated rates for 1976. • Trade association surveys reported annual oremium cost increases during the 1974-76 period to be generally 2 to 10 times as hierh as during the period from 1970 to 197 2 *. The range of annual increases in the last two years was from 22 to 225 percent in contrast to a range of to 55 percent in the period from 1970 to 1974. Hierher IV- 8 percentage increases appear to have been associated with products having contingent exposure with both workplace and professional uses, the same types of products which had the highest increases in the telephone survey. The firm size differences noted in the telephone survey are also evident in the trade association data. Risk assumption, deductibles and self-insurance retention levels • The telephone survey shows that the number of firms with deductibles has increased between 1971 and 1976, by 80 percent for large firms, 130 percent for medium firms and 100 percent for small firms. The average deductible or self-insurance retention level increased by 516 percent in large firms, 110 percent in medium firms and decreased 44 percent in small firms. However, smaller and medium size firms assumed the total risk for product liability more frequently than large firms: In 1976, 29 percent of small firms had nc product coverage; 13 percent of medium-size firms had no coverage; while only 3 percent of the larp-e firms were not insured. • In the various trade association surveys, firms were using deductibles from two to six times more frequently in the 1974 to 1976 period than in the previous three years. Risk retention levels increased substantially in surveys dominated by large firms and tended to stay the same or decrease in smaller-firm dominated surveys. • Trade association studies representing mostly small firms had non-insured percentages of 4 to 21 percent. Results for associations involving anonymous and IV- 9 consumer products had higher non-insurance percentages (11 to 20 percent) than those for workplace products manufacturers (4 to 8 percent). • In all studies, small firms and anonymous product manufacturers gave "don't need" or "too expensive" as primary reasons for not insuring. Large firms gave self-insurance as their main reason. Claims experience More than half of the telephone survey respondents (56 percent) reported product liability claims during the six-year period from 1971 to 1976. The greatest distinction is by size, with virtually all of the large firms responding (96 percent) reporting claims, in contrast to less than 18 percent for small firms, i.e., those with less than $2.5 million in annual sales. The average number of new claims filed annually more than doubled between 1971 and 1972, from 4.3 to 10.3. Since 1972, there has been no significant chancre in the trend of new claims filed except in the case of small firms where a slight upward trend is noted. However, during the 1971-76 period, the average number of pending claims per firm has increased by nearly 6 times, from of 3.5 in 1971 to 18.9 in 1976. This large increase in pending claims appears to result from delays in disposing of claims since the average number of new claims filed annually has not increased significantly since 1972. In general, large firms have the largest numbers of pending claims — 13.8 per firm in 1971, versus more than 65 in 1976. Small firms generally had limited numbers of claims. Consumer product categories with the largest number of pending claims per firm in recent years were power mowers and automobile components. Industrial machinery and grinding wheels were the leaders in the workplace Droduct group. IV-10 • A significant development is that the number of new product liability claims for telephone survey respondents reached an apparent plateau in the period from 1973 to 1975. The average rate of new product liability claims reported by survey respondents was 11.1 per firm in 1973, 12.2 in 1974, 11.4 in 1975, and 9.9 in 1976. (It should be noted that the fierure for 1976 covers only the first three quarters of the year.) This pattern was similar for most of the nine product groups studied . • The same general trends are evident in the claims experience reported in the trade association surveys. • Among firms selected for discussions, traceability of the product to the manufacturer and degree of exposure to unsupervised users (or consumers) more significantly affected a firm's claims experience and risk management posture than either size of firm or product category. Damages sought and settlements • The average amount of damages sought per firm in new claims increased from $476,000 in 1971 to $1.7 million in 1976. For lars-e firms, the average increased from slightly less than $2.0 million to $7.5 million per firm in the same period. • The average amount of damages sousrht per firm in pending claims rose from $434,000 to $3.5 million between 1971 and 1976 for all firms responding to the telephone survey. For large firms, the amount sought rose from $1.9 million to $13.9 million. IV- 11 The average amount of settlements p % aid per firm, including court awards, increased from $12,100 in 1971 to $28,800 in 1972, then remained at approximately the same level through the first three quarters of 1976. For large firms, the amount paid rose from $45,400 in 1971 to $99,000 in 1972, then leveled off at about the 1972 figure. Trade association surveys provided additional information on the outcome of settlements through in- court activity. The limited available data indicate that only three to seven percent of the claims filed resulted in court judgments. There is no indication in the small number of in-court settlements reported, that they are increasing in number or size of award. Industrial machinery products seem to be slightly more involved in court actions than the other prooucts studied . Product safety and preventive programs • Approximately 40 percent of respondents in the telephone survey had developed some form of program directed at reducing product liability claims. Larger firms were more inclined to have such programs than small firms. seventy percent of these programs were initiated before 1974. Improved quality control and labeling were the most common approaches, with product redesign next but emphasized less often, primarily by large firms. • Over ten percent of the firms reported exclusion of specific products as a restriction in their product liability coverage; 23 firms (7 percent of the telephone IV- 12 respondents), reported decisions to discontinue products in the last two years. Twenty-six firms decided to postpone introduction of products because of product liability related problems. • Insurance carriers' loss prevention engineers were reported to have made inspections during the past two years in 7H percent of the large firms and 54 percent of the small firms which have insurance coverage. Recommendations for reducing claims were made in 42 percent of these cases, usually bearing on quality control and labeling. • Trade association surveys which were primarily representative of large firms also indicated that quality control and redesign were effective preventive strategies. Consumer products manufacturers emphasized labeling approaches and mentioned that advertising and warranty disclosure changes had been made. • A question on dropping products was included in 4 of the 5 trade association surveys which addressed preventive programs. It received minor recognition in each as an unpopular but sometimes only effective remedy. • Selected firm discussions revealed extensive programs oriented more to safety than to claims prevention. A number of these firms had been active in development of governmental and voluntary standards for assessing product safety. They have high level working groups which are responsible for product auality, and have priority claims — following programs which are aimed at efficient and equitable handling of claims in the interest of goodwill and the firms' reputations, but IV-13 more importantly, are designed to feed back immediately to adjust manufacturing processes, quality' control measures or product engineering and design. • Quality of the product that enters the marketplace is assured through repeated testing along the line of manufacture in some cases, and by documentation of product condition when it leaves the place of manufacture through test results and photographs. • The firms interviewed also take precautions to train the users and even monitor the product use. Behavioral research has been employed to design instructions for use of products, and to insure that such instructions cannot be removed from the product. Remedies assessment Trade association surveys • Remedies were assessed only in surveys dominated by large firms. Prominent among suggested solutions was strong support for statutes of limitations, and use of workers compensation as an exclusive source of reparations amonf capital floods manufacturers. • Trade association surveys provided additional support for several lep-al defenses; particularly, misuse and modification, state-of-the-art and compliance with government safety standards. • Support for limitations on damage awards, contingent fee control and "loser pays" provisions were also given in responses from several trade associations. IV-14 Selected firm discussions • These firms strongly supported extensive preventive programs and establishment of, and compliance with, safety standards as the best remedy. They support these means as much out of a desire to avoid injuries as to avoid claims. • Other remedies that received support from the selected firms were related to modification of tort through standards and other defenses, such as misuse or alteration, and state-of-the-art determination for time of manufacture, or award amount guidelines. The contingent fee system for attorney compensation was severely criticized. These firms also tend to support proposals for guaranteed insurance contingent upon compliance with standards. PRODUCT LIABILITY INDUSTRY SURVEY Introduction A telephone survey of manufacturing firms was undertaken to verify the reliability of data from trade association sources and to provide more adequate coverage of the nine product categories which the Task Force had identified as those in which the product liability problem may be severe. Survey Methods and Data The survey was undertaken to assure adeouate coverage of the nine industrial/consumer product categories of special interest to the Interagency Task Force evaluation, to assure coverage of small, as well as large manufacturers within these product IV- 15 categories, and to provide a consistent basis for evaluation * across product categories. The nine product categories selected for analysis were as follows: • Products with workplace impact: 1. Industrial machinery, metal cutting, metal forming, woodworking and textile machinerv 2. Ferrous and nonferrous metal castings 3. Industrial grinding wheels 4. Industrial chemicals • Products with consumer impact: 1 . Power mowers 2. Automotive components 3. Pharmaceuticals 4. Medical devices 5. Aircraft components The sample of manufacturing firms was drawn from Dun and Bradstreet lists of firms by 4-die-it SIC categories. The Task Force identified applicable SIC codes for each of the nine industrial/consumer product categories. Sampling was done on a stratified basis. Firms in each of the nine industrial/consumer product categories were arrayed by sales volume. A random sample of about 20 firms was drawn from each of three strata within each IV-16 industry category. The first stratum was composed of firms with $100 million or greater total annual sales volume. The third stratum included all firms with sales volumes of less than $2.5 million. The remaining firms comprised the second stratum. After partitioning the universe of manufacturers into the 27 product/sales volume groups, firms from each croup were selecting randomly and contacted by telephone. The purposes of these contacts were to determine whether the firm was appropriately classified by SIC code in the Dun and Bradstreet files, to determine whether the firm was, in fact, manufacturing the product category specified, and whether thev were willing to participate in the survey. If this screening indicated that the firm was not appropriately classified by SIC code or product category, a replacement was selected randomly to obtain the desired sample size. No replacements were made for firms declining to participate in the survey. These firms were included in the overall nonresponse calculations. The overall response rate was 68 percent; response rates for individual product category/sales volume croups ranged generally from about 50 percent to 90 percent. It should be emphasized that the sample was not designed to meet rigorous criteria for makirn? statistical projections to national estimates for the product categories of interest. It did provide sufficient coverage for these product categories to develop reasonable indicators of trends in insurance premiums and coverage, as well as claims experience of the firms, by size category. The questionnaire stressed Quantitative measures of both the overall product liability insurance and claims experience of the sample firms and their product liability experience for one of the nine product categories specified. Emphasis was placed on IV-17 obtaining data on several critical measures: premiums for product liability insurance coverage, self-insurance or deductible retention levels, limits of liability, number of claims, amount of damages sought, and the number and amount of settlements. These data were collected for a 6-year period — 1971 through 1976. Analysis of the data for a 6-year period allows assessment of trends in the number and severity of claims; the number and amount of settlements; product liability insurance premiums for basic, excess and surplus coverage; as well as policy restrictions and limits of liability. The questionnaire also elicited responses concerning product liability problems encountered by the firms, the impact of product safety programs, and remedies undertaken by the firms to reduce product liability claims. The impact of recommendations made by carrier loss prevention surveys was also addressed in the questionnaire. The questionnaire is presented in Appendix B of Volume II of this report. The Product Liability Industry Survey was directed at uncovering evidence of problems among a selected proup of product manufacturers. Many of the products included in the scope of the Industry Study are critical for both the maintenance of strategic capabilities and production of essential goods and services in the marketplace. Because of the survey design which also accounted for differences in the size of manufacturing firms in these selected product categories, the reader will be able to determine where the greatest impacts of the emergin? product liability problems have occurred. The presentation of Product Liability Industry Survey findings follows a sequence from general characteristics (e.g., response patterns and sales volumes) to specific issues of IV-18 interest to policymakers (e.g., trends in underlying loss experience and costs for product liability coverages). The data and findings are displayed by both product and sales volume categories. To assist the reader in following the presentation, each section has been headed by a series of questions underlying basic issues concerning Industry Product Liability Problems. These issues are as follows: • What were the response patterns and general sales characteristics of firms in the selected product categories? • What were basic patterns and trends in insurance coverages, costs, limits of liability, restrictions, and exclusions among firms in selected product categories and between small and large firms? • What were the underlying trends and patterns in claims experience, that is, claims frequency, new claims formation, backlog of pending claims, extent of damages sought and settlements paid for product liability claims? • What preventive and remedial -actions have been undertaken by manufacturers in these selected product categories to assure high standards of product quality and safety? IV-19 Survey Results » What are the characteristics of responding firms? The distribution of sample firms Dy product category and sales category is presented in table IV-3. The number of firms in each sample, the number of responding firms, and the response rates by product/sales category are provided. Variation in the number of firms by category in the sample was due to three factors: (1) limitations in the number of firms in the universe (e.g., there were only seven firms with sales greater than $100 million manufacturing industrial grinding wheels); (2) time constraints which limited the number of firms whicn could, be identified during the screening process for a specific product category (examples include small and medium size firms manufacturing aircraft components); and C3) firms which met requirements and agreed to participate during callbacks, even though the number of firms required were already included in the sample. Courtesy required inclusion of these firms in the sample. As shown in table IV-3, 11 of the 27 cells had response rates greater than 75 percent; T6 of the product/size categories had response rates of 65 percent or greater. Only three of the categories had response rates less than 50 percent. The response rates by product category ranged from 53 to 80 percent. The overall response rate for the sample was 68 percent. Table IV-4 presents average sales per firm by product category and sales stratum for 1975. It must be noted that 28 of the 113 medium-size firms responding to the question had 1975 sales of less than $5 million and 54 had less than $10 million. All product category/sales strata appeared to have significant increases in sales between 1971 and 1975. Continuing increases IV- 20 TABLE IV-3. — Number of Firms in the ' Samole , Number of Responses and Response RaTes , By Product and gales Categories Product Category Industrial products Industrial machinery Metal castings Grinding wheels Industrial chemicals Less than $2.5 million Number Number Percent Contacted Responses Response $2.5 to $100 million Number Number Percent Contacted Responses Response 18 14 78 20 11 55 18 11 61 20 13 65 16 8 50 18 15 83 17 12 71 21 18 86 Consumer products Power mowers Automotive components Pharmaceuticals Medical devices Aircraft components All product cate- gories 18 15 83 18 14 78 20 9 45 21 14 67 22 12 55 19 12 63 20 13 65 19 13 68 18 9 50 18 9 50 167 103 62 174 119 68 Product Category Industrial products $100 million and over Number Contacted Number Percent Responses Response All Firms Number Contacted Number Responses Percent Response Industrial machinery Metal castings Grinding wheels Industrial chemicals 20 18 90 18 14 78 8 3 38 17 14 82 58 43 74 56 38 68 42 26 62 55 44 80 Consumer products Power mowers Automotive components Pharmaceuticals Medical devices Aircraft components All product cate- gories 19 8 42 19 15 79 19 16 84 17 15 88 21 12 57 158 115 73 55 37 67 60 38 63 60 40 67 56 41 73 57 30 53 499 337 68 Source: 1976. Product Liability Industry Telephone Survey, Gordon Associates Inc., December IV-21 01 cm in VO rH in CO 00 00 on cm £ v m CM ■«»■ co ro n ro cm CN E ro CO 3 e Z u •H Bu rH *T cr* VO o c* m r- v© ro ■* rH *-* 00 o in * o r- 00 CTl ON o t-\ m t-i CM 00 P- rH rH en CN c/> 00 o in cm CO r- o> in t CM r-i CM rH "tf rH rH CN •-1 CM CM M 41 > l-l O u 0) 00 "T co ro oc in vo in cm «3- JJ n JQ rH rH rH i-t rH rH rH rH u c e rH D to 3 T3 z O c u o a. •H > -t r~ in rH o> r- O ro O VO 6 o rH O t~\ «a- r> oo o> If vo 00 *■ o •■ » ». * * E o o VO 00 r» tt o in cm r- o rH >-. o v> rH O r- o> VO r- oo TT 0> o -H e— 1 *»" «r in CM CM in ro vo ro in vo VO u o> X e 01 V 0> o (A, c o> o rH V) r-H •H Vj 0) r-l 0> rH > rH XI fO U •H e to O e 3 cr z (0 a' o to 4J o o to rH Vj u C C <0 (0 u c 0) o > -H rH < rH Vj 1 rH 0) 1 •H X • e e ^r 3 1 in z > • ►H CM U J c CO CO 1 — 0) rJ rH cm in r~ CO f rH CM 00 o u ro u u 3 o u a. w XJ o 3 O to 3 ■D C WHTf CO (N O OMf) rH f~ VO 00 rH CM CO 0\ 00 i-> 00 rH P~ VD VO CM O O CM VO cn O t-i rH CM D rH W W rH tT 0) c 0> H X (0 u c tfl rH TJ 3 fO C t3 -U -H C 01 U HE(J CO XJ o 3 T> O 0> B 3 (0 c o u ic «f r- est r» ro vo cm in t-i co oo cm in r- i— ro vo vo CM C» rH "W r-t T CT> rH rH 0\ CN P- CM rH CO VO «r r» vo co •■ CO in o CM r» CM in CM 10 c 01 c w (0 CO rH 0> 10 CJ O -H 01 01 » > O -H E -K o vj E I 0) JJ «3 U •H > jj a> 3 -u 01 J-J OH 1 " co io re E O u vj -H (J ICO 14 jC Q)-H o 3 T5 CO O 0) VJ -H a U O rH IT C •r-t •D C o a CO 01 u to E Wl o> X E 3 c o> jC j-J CO 01 •U CO u •H c 0) X E 3 z H c o •a u O O 0) > u 3 10 o> c o J= a o> rH 01 >1 u 4-> to 3 •a c X o 3 •O o 0) CJ Vj 3 o w IV-22 were estimated by the firms in the sample for 1976. Overall, the firms in the sample had an increase in total gross sales from 1971 through 1976 of approximately 70 percent. Table IV-5 presents information on the percentage of total sales attributed to the nine designated product categories, by sales category for 1975. The small and medium-size firms surveyed are, on the average, highly specialized in the specific product categories selected for the study. The large firms generally are less specialized in these product categories. The percentage of total sales for the specified product categories has remained fairly constant from 1971 through 1976, by product category and sales category. Overall, this has approximated 70 percent for each of these years. Small and medium firms have averaged approximately 80 percent; large firms approximately 50 percent . What was the extent and types of product liability coverage among responding firms? Approximately 86 percent of firms in the sample carried some form of product liability insurance. Conversely, 14 percent did not carry any form of product liability coverage. This ratio varied somewhat across product categories. Generally 75 to 97 percent of firms in the several product categories carried some product liability coverage. However, as indicated in table IW6, it was not the large firms which elected to go without insurance or "self-insure". The smaller firms were much less likely to have product liability coverage. Ninety^-seven percent of firms with sales of $100 million or over had insurance coverage, while only seventy-one percent of firms with sales of less than $2.5 million had coverage. IV- 2 3 0) oo o m vo CM CO «» CM 1— CM 10 x co co cm co co CO COCO CM Cr. E e CM u 3 •H z Cu rH 4-> «-l c < in o in c* o> CM ^ *!■ VO O u r*> oo in vo 'Xi r- r~ r- in r~ • at to £X CT> u r-t 0) > U o 0) i-H x> •o Vj e c CD to nw VD mtHH CO cu 10 X> e lH rH r-t r-t r-t r-t CTl CJ cu <4-l| c 3 Q o| o ■H z k 4J r-t • C rH 4-1 o

"> o ro « r> O CM HHr-fO eri IO^ t/> 10 u •■H 10 IO CJ to|cr C o c o to to 4-> ■H to CU e X) r-t r-t r-t r-t r-t r-t r-t r-l r-t o N 6 r-t TJ t>- H o 3 u Vj 1/5 o z o o r-t o cr > 1 10 *- 4-1 0) ID u oo in oo r» oo r» o> \o r- • u 4J H • cu cr 3 u -o cu O 10 c c Vj 10 c o o £- o o •a sz 1 U •ft to a 1 U r-l OJ 4J XI r-t r-t r-t rH rH 00 e ►H O ID e u >. E-i • a •H M CO CM z M-l 4J a VJ- to CD IU 3 < c 4-> o T3 Eh 10 jC c cu u C M 4J CJ 00 SlOH CM oo in CO ** CO cu u 00 CO 00 CT\ r~ r- oo a> r» CO X) >• 0) CU e 4-> (0 (X 3 •H a> c rH ►3 > to U r-t CD <0 to 4J c to at 4-) i 9) cu 4J CO a •■H X) <0 •r4 1-3 4-1 > CO C O c c 4J 4-> CJ 1-1 4-> ■H -H o cu (0 10 3 o CJ x: to e to a to to c CJ CJ •o cr 3 CJ CO rH CD 4J ehcj o O <0 CJ D- •«H o cu •D 10 CT cu x: o 4J •o kl 4J O B C CD CJ 3 to O U-n E CJ c ex TO u ■h x: ■O u •rH > O 3 •H U a rH 4J J rH O cd CU 4-> CU CJ TJ to (0 to ro U ? > 3TJ O CU M •• 4-) r-l •H 10 CT "** a o •H CD 4J u •r-t CU cu CJ (0 U CJ C U E V OH O U-r* O rH z o u 05 ID 4J-H >o 3 •s 4J (0T3 W < r-t CO (X a C C 0> U C H IOH (0 c o o ex 3 £ CU -rt M o IV- 2 4 TABLE IV-6. — Extent of Current Product Liability Coverage , bv Size Category Size of Firms Less than $2.5 million $2.5 to $100 million $100 million and over All size categories Number Percentage of Firms Yes No Yes No 71.3 28.7 72 29 87.4 12.6 104 15 97.3 2.7 11C 3 85.9 14.1 286 47 Source: Product Liability Industry Telephone Survey, Gordon Associates, Inc., December 1976. Reasons given for not carrying product liability insurance are presented in Table IV-7. The primary reasons were the expense and a belief on the part of a number of firms that tliey do not need coverage. Nineteen firms indicated the former and fifteen the latter. Four firms indicated that they could not obtain coverage at any cost. In only one instance did a firm report that previous coverage had recently been canceled and in only two instances did firms indicate a preference for self- insurance. Approximately 64 percent of the firms carried both primary and umbrella product liability insurance. However, as shown in table IV-8 the type of coverage is closely related to the size of the firm; the larger are firms more likely 'to carry both forms of coverage than smaller firms. Gv.er 92 percent of firms with $100 million or more total sales carried both primary and umbrella coverage. Only 28 percent of firms with less than $2.5 million In this report the term "umbrella" coverage is used to represent all forms of excess insurance coverage. IV- 2 5 u to 0) ON 1/1 V E o i-l i-H u £ ■i-t 3 Gu 2 i-l j-i «J <: C HI V© lf> fN o • • • u in V i-l at a- M 0) > o r-t TJ u > > c CO J-l ^H o u i-i D <0 o 01 'O n -H a w- u > h P c CrllO o CO) ■H ■r< W -Hi-I >C rH u k|o •iH a> in *r rH u|Q E JQ •oiw E SJ|OJ o 3 K o z W l rH OH v> C <0 U 4J o c u o *J o> CM ■«r 00 E- u • • • 4-1 M in • u 4) **■ r*i o 10 o :n & c x/y u 10 c *3 E a i-l i-H 1 u E > c in 3 M (0 • Z u r>) 03 D v> ►J !fl «-> T c c C <: m m (V P» r- ON H jC o • • • p i-l i-H o CM ID i-l iH 93 a. (0 a ft 10 c O o c TO C TO 10 (D 01 U o (J >» «o t-> 3 c O ID ■H O > ID (D l-i U 04 10 01 OTJ u at u 3 a> c c ai n E 3 Wi 0) jQ E a o c I-l to 4' o o (0 CO < c o T3 S-l O o > 3 (0 01 c o .c a 01 rH fl> VI u to 3 X} c <0 4J V 3 o u a* 0) o 3 O IV-26 c co CO ^ J» t- CO JO p- «— t— ■=»■ h e CM C 3 •H Z tb rH 4J rH C t— CM in Ov «t o r— •o c c 4) in =T vO CO CO -Q o 8 r— C 3 OZ •H rH rH 4J co in CVJ vO c O • • » • CO o L ■=T CO CM CVJ t- O 0) o\ D r- a, T> v» C >J M t- o> > bC c j-> il> o iH to rHr- •W o .H C JO •H in CO on E JQ CM t— r— tH E _jM O 3 CO O 2 -!_> C/J - o •W- 3 M •^ T3 JO] o c O 4J (U CVJ CM •=r vO L o • • • • Q-j tffl in l o J3- vO CVJ E • a> CM VO 1— d-<| t- c\i a. Ol-H ■» Cr, 4) D > e f-> o 1 X* •H 1 =r in Ov 1 L go ■=T C\J CM > to B HO in 3 • z Ci] C\J J •«* PQ *y «< c a E-« co a> t~ CM CM jC O • • * • *> C CM •a- CO CO t. C •H J t- c C a, co C0 CO TJ u 60 o co a C CO >» CO rH CO a b c- 4) rH CO L. ■H C C CO •H rH O 60 o 0) CO x> o CO rH CO o CO C E X CO <0 j-> J- O 3 3 4> O u O 4> CO o C > >>C *S- £ s o rHiH rH O +> 3 •o o C B O •H o O m Q vO t— ON r— «- *> cfl ■H O o co co «c c o •o t. o C3 . >> 4) > « t. bO 3 C CO •H •a a> c c o o Q. J3 CO D, CO t- e t. >. •H c Cm 4-> CO t« 3 O •o C U M . E 43 3 tH C rH •H co o o E u 3 3 Z o »- 00 IV-27 in total sales carried similar coverage. Approximately 66 percent of firms in the "medium" sales category carried both forms of coverage. Very few firms in the sample (4.2 percent) relied only on umbrella coverage. Smaller firms were significantly more likely to carry no product liability insurance than large ones. Nearly one-quarter of all firms with less than $2.5 million in sales did not carry any form of product liability insurance during the past 6 years. Further, these firms were much more likely to relv on only basic product liability coverage than larger firms in the sample. Coverage patterns were very similar across the nine product categories of interest in this study. In each category, the insurance coverage (both primary and umbrella) was approximately the same as in the total sample. Approximately 83 percent of firms in the sample obtained primary product liability coverage under comprehensive general liability (COL) plans. As shown in table IV-9, there is a relationship between the size of the firm and the type of product liability insurance coverage. COL coverage increases from 12 percent of small firms with basic coverage to. over 93 percent for large firms with $100 million or more annual gross sales. TABLE IV-9. — Type of Basic Primary Liability Coverage by Size Category for Firms With Insurance Coverage Size of Firms Less than $2.5 million $2.5 million $100 million and over All size categories COL Coverage Other PL Coverage Percent- Number Percent- Number age of Firms age of Firms 72.2 57 27.8 22 81.6 84 18. 4 19 93. M 99 6.6 7 83.3 240 16.7 48 Source: Product Liability Industry Telephone Survey, Cordon Associates, Inc., December 1976. IV- 2 8 What were trends in the cost of product liability coverage among responding firms by sales volume and product category? The cost of liability insurance is influenced by the size of self-retention levels assumed by firms together with limits of liability. Changes in both of these options are discussed later in this section. However, in order to keep the increases in premium rates in perspective, two comments are made on policy options. First, deductibles or self-retention levels for bodily injury and property damage changed little during the period 1971- 75 for those firms in the survey. Between 1975 and 1976 the average firm in the over $100 million sales category increased deductibles (combined PD&BI) from about $207,000 to $335,000. A sizable increase in deductibles also occurred for medium size firms (see table IV%15). Secondly, average limits of liability did not change appreciably during the 6-year period for all sales categories . Calculated costs for CCL coverage per $1,000 in total sales for the years 1971 to 1976 are presented in table IV-10. The calculated costs are provided for all firms in the sample which reported for the respective year in each of the three size categories. A sizable increase in costs per $1,000 sales is evident from 197^ to 1976 for all size categories. However, the larger firms have a substantially lower cost for comprehensive general liability coverage than firms in the small and medium size categories. Further, the size of this differential has been increasing. Table IV- 11 presents costs per $1,000 of total gross sales by product category and size categories for 1976. The relationship of COL premium costs to size of firm is evident in each product category. In all product categories, firms with over $100 IV-29 a- o E in t— on CM 3 o OO rn OO m o • • • • «y a OJ O (Q E a- t~- ON i— a w 3 CM a a 2 » L t~- • u C7N o > > c < t- O vO t— t^ a M O o r— a vO hO u b£ o • • • • to b) U - 1-t > c o o a> V o ol «r r> o *— r^ SO n E ro t— CO CD n >)w 3 *— < u rn 2 c o o oj • CU O OJ in ON :»- i- .OT^O >i o in in -O ■3" o ■hi t*- o « • • • C3 -ii CT ■*» m ■■* o *• 01 r- >> CU c« 4J «- > 0) V • X. c n a- vO a- a- bO 3 ii|n B CM in oo >D a CO OtCT 3 *~ T3 CD . c C > n CT> o H m O • » « V L t-« o » on *~ o *~ CO • ^. o s Q o t. >. £ t, ■rt t« O CU V< •-> O o a\ in a- CO 1 E CM m i— ro $* 3 1 u 3 t— o ■o . v «- 2 c o cu >- c l-l 1 C7\ CO o >> > O r— in r— t~- a p n O ao CM vO T— 3 ■r< O • • « • s <-• CO «» cm *— o »— H -J N^ V a en c ca < c o L co H J iH c 1) 11 u r-+ o > CO u o r~l •H CU CO 3 >> t-l r-t ■H a o (. E f-t •o u H o o W B o O u *> in B CO bd B &■ 1) • V W u 0J O C p CO *> O O id C • • o >r- ■H o CU u c *»■ <-» O a CU CO M — rH _J «*■ «» < 1 IV- 30 c O'N^J' CM CO to E co CM <\i CO r- CM t- (\J •— ••" B 3 CM L Z •H fa rH t T> ^-1 0) c -X a co o> 4J 3 oi o O £ OCHOM t\j .=r o> in • « • • cm <\j in cm «— ^r vo vo co cr. t--vo =f cm com o • in CO • VO r- o> c t - © > »— Li O 4) X) T3 X> in co on cm in co o> cm t~ o> B CD hi vO C CO E 3 «- «— r- *~ *~ co 4) O T) C— z 41 c O- C a 0) r- o X •H fc < 01 rH CD C o 0> •HI •H a co cvj ^- in ■— novo cm -M O fH A> o CO -*» c0 •H c o > a> o o 4-> •H •H 3 c 0} 0) •H CO •H CD o t— cy^^f CM 0>vO VO CM in < X) E E v *"■ r— t«- c .13 ■H ►J O O 3 Z o T3 *>l O rH o •w- O CO 3 c -o L ■a o CD C •» cu Ol 4-> a . c t. 01 CO SNr- zr vo «-co o CO 41 41 a. in J-> 3 • • h * • • • » • H > Ol • to o cm j* ^r co ^r cm vo co co CO m L X CO O £ bfl 3 •H •Hi TJ 4> to C C c C o O a> o »— a. x: jr •H c 01 a. a> oa r-l CO 41 41 t- rH x» f- in co t«- cm ("--a - vo CO CT> L. rH a c •H 1 -» B *T 41 E B 3 to H O O in Z B >. 1 o w •H t. 1 o cm c «H 3 «--w c Q. CO CO O CM o CM o t~- o> m CM O T3 1 CO n coco o> VO co moo r~- o ^■ c :> c £ ■U 3 • » » • • » * m * • C M rH 41 ■U CO O o x: co cm co .^■ co vo ^r in in t- 4) XI >. DO 91 O H B 4J J4J 9} 3 •H ca o> > >> n L rH o j: in E 01 a oi v a •o 4) 3 O CO rH CD 4^ E rH O 4J •H o JJ TJ CO bO CD XI o O CO -H i o •o L, .-o o E C 4> O 3 oi o o > E 3 0] c a. u C •H XI •o L. -H t- O •n 41 ■HI a Hi) JH o 1) CD J- 3 CD o O -H 4J CO to CO t- 3 > 3 01 01 b (. L, •• o rH •H CO b0-H o. O -H HI 4J JJ a o 4) 4> 3 CO i. CI C L 6^ OH Q_ c bO JO O TJ •H 4-> .H J-> t. O fl cO CO 4> rH B c. O L 0] rH TJ 01 CD f~ E E O t- C rH 3 3 b 4J 3 .-0 C 3 E *— co in vO CO r- o e a o c 3 — i 2S * Eb o r-l c f-l I- -o r-l «C © c C*vO« O. -0 J» 0> •ST ^— o ^ •9 o*M 9) r— f- CO ON .^ - CO O ^ -fc> 3 j-> S5 O o O o o ^ CM a HH o .c •t-t -**cW O f- o ul 4> o 91 1)1 rt > m ^a o c «« -t*-* ■o o c m aj c JD CT* t— o «n t— «— o Oi OJ s m vO t— r— t- «-- TJ 0,3 c 3 2 C o ><-< o o **.-« ■r-l — * — c r- 1 t- "O «k r-rf.O< r-l o c >. -4 J* ^ c aj :* O o» in CO CT» o J3*^ E n in vO tn in t— o > XJ-J ** 3 • * • * • • £. ^ o ») o o o o o o »— 3 -J»~4 o O -C CO ■oi r— CJ fl cJ 3* -«■ • 4) 3J £3 c M C T* S« o C o otot T-l «— ■r^ JC u r-l c "O Q. CM of r-l <9 c at X — • X» CO *— « — VO co ■W o r-l trf"^ S E CO in SO vO vO vO Q. ^ a o 2 « U VI o c «*» 3 -»■ t. C "O E *» Q* o © c b 0} t* a J-> CL 3 co r— vO O t^ CO -»H 3 a* o< a o* c* O O ^■ CM V. ■o j-*o» m-»-> : * » • « m • c J* • » o o o r— ^~ T» CO «4 r-l •^1 CM o .c O ■*»-o "3 d 4-» &4=3< e JO s r-l 1 3 o 3 t4 ' *3 •r-l ^-> C JO cm ,-3 r-l c <• — aj» r-l • 9 ■r-l 1 col ■v-t J3 co f- CM CO vO CO JC -J > e E »— »— CM CM CO CO *3 1-1 ni in 3 2 « J-> ci] ** • 3 CQ m -W> 3 «r< X> O *— »— V— •— CM in » O -C c •• 3> O t-» « <• © jO o J E 3 c 3 O CO (. *" CM co •«■ in vO 1 1 31 r— r— t-- t— r— r- 9 o» o» Cf\ cn CT» Ov X 1 vO IV- 3 3 c V O^XSiO a- oovo a- oo o £1 f\J t— r- «— »- 00 *- r- *»■ B •— *£> 3 t- z o> ^-N CJ\t— i- VO woiain'- m o t— vo oo in ■3" 00 CO r- r- in o • • • • • o «- r- p- 00 inruo--"- LCI «» «— «— r- v " ,_ t. - in wl i o I o • o oo . I *5 M t-| U] -J CD m «- Co CO c^ .O (M «- t- s on 3 p- z o> 1- -^ VO«3r-^ (tl o in a- cmd •- I- CO (\J VO r- <- p-r- o ct> vo in on oo r— m ^£> cr* oo p- in -a- on o o o o eg oo •— oo oo o cr> in o> CT* oo »-0O (MOr- *- vO oo vo CT* vO *o b 4> JO 8 a> o V a c o T3 t. O o « > • t_ 00 3 C CO ■a «> c c o o a. jc n a c 00 p-«3 in t- a- vo t- on invo O r- O O 00 r- vo p- coco oo oo a-ointMr- oo i-ft-NO «- « 3 O T3 B t- t-l S -w t. r-l c in in >■> 4> 4J L n c a c c a 4J O O jj •w •H o a> V (4 3 OO o x: 10 B m ana c •w O •o ■o s OO (U J= O O B O a. o •o c (0 o e C 4> O 3 0} O O ^1 e 00 C 0- o L •H J= T3 t. -rl > o 41 t-l O. r-l •P 1 ^ O 1> u -*-> 1* CJ 4J ±> cd in .a L. 3 > 3 T3 (fl c •• o T-l -rH (0 00-H a O -H 0) t> CI 4) m 3 a t. act. B •>-> O r-l <~ JQ o T3 ■H 4J •W 4J L. O !fl .T> Tl f-4 B «- O c 11 Hum *JHD 3 3 4J cfl T3 t. r- CO 3 a 0) t- C J) o sj: « •H •o n a: o m C o_ «t a. x «c c O M o IV- 3 4 0) 4) jO m x> OO o o vO ■U E t— *• »— CM CM f- CO 3 ON •H o C CO N <0 c ■H X x> V CO c M o O m w i~ 0) *> 4X •o c CO CO *a c H C 3 O cj cd i-4 N o Z O •H CO •H t-H 0) n tOl r-l < 4> •H X W 3 E t» II >« >H cr c C CO 1 r- cd o > ij| V -t iH« bO 3 ». * r-l t- c CO CJ CO S. •H CO C O 3 O o o a. o 3 a c *— 7) a bf «¥ &. s: r-l f- 4J o X *j CD a> vO CO =r r— ON CO c H > r-( •o m o *— t- CO s o < •Hi in c L s >» J3 ■H c M co OJ-H CM ♦i ON 4-> «»■ ai J it *> 3 CO O CO •o co r-l c c X CO c u •H M co J- o V ♦-< -o co ■H a >» c c rH*- 8 CD *i M V r-l u 3 J3 •H » C3| ft CO C ■U r-l 1 B XI o =t on «-• vO •H • E cm CM CM =r sr a> o X> SI" in 3 jC 4-> CO *— • Z *J •H 1 cm c J > -«» n •H M c X CO cd W CO CO a* in oo m t«- CO i. 3 J x: •o o> On vO m »» O 4> ■o 00 4J c • • • » • ■H a o < M o o »•• r— CM X) u H 01 0} o -J 1 1 CM 1 c •H J- CD D E CO c« •o x> r- a, • • CD O it cm m =r in tO | 3 ON 3 s» t— t— S— t— 1 Z r— O i I 1 i 1 1 *— CM CO t^ CM oo =r in i t»- t- t~ t- i- i on ON ON ON ON 1 IV- 3 5 1974-75 and 1975-76. It should be noted that the data shown represent average indexes of current year costs to prior year 2 costs across all firms within a specified size category. Prior year costs in each calculation are set at $1.00. How have deductible limits, retention levels and policy restrictions changed over the past 5 years among responding firms? As shown in table IV-15 deductible or self-insurance retention levels changed only moderately during the period 1971 through 1975. Most of the large increases among firms reporting non-zero retention levels have occurred only during the past year. Retention levels have been consistently much higher for firms with over $100 million in sales than for firms with less than $100 million in sales. Further, a much larger percentage of the large firms (approximately 55 percent in 1976) reported any deductible limits than the small (24 percent) or medium-size firms (37 percent). Reported limits of liability per occurrence for primary product liability or CHL coverage, by size category, are shown in table IV-16. These limits have not changed significantly during the period 1971 through 1976. Firms with less than $2.5 million in sales reported consistently lower limits of liability per occurrence than the larger firms in the sample. Table IV-17 presents limits of liability per occurrence for 1976 by product and size category. Significant variation exists across product categories and within product categories by size of sales. The metal castings, industrial chemicals, and aircraft component industries reported significantly higher limits of liability than the other product categories. The limits of liability were, in most product categories, highest for larger 2 These indexes can result in fairly significant differences from indexes of average current year costs to average prior year costs. The latter types of index is weighted by the size of premiums in both the current and prior years. IV- 3 6 a B 3 Z 00 CO r- a- mm »- cm ooo CM^T a- t— O o o ^ in « • oo a- in CO (\J o ft- CM cm coa- a- t— oo cmvo O o B <0 C- B o o OO o CM I c 4- •- rH col > to co) t- O.H U bi O Ol tOTJJ <0 i0 8 t- z cm J. t in CO £> V B X CO 3 t- Z r- 00 t-O CM CM CM 000 O oi c (0| to tO uj -— » to M tu B CM 3 t- Z CM M C 10 U a J B oa 3 «* «- z !-• t— 4> O TJ O 0) W3- t— co •=r in CO CM O n t- CO cm in O O O in t— c o ■o tft (*1(M oooo cot- in oo «> o CJ in 3 *— r- oo co «— at OtD c j=o CO »- co CM^r i-t •o c o a n oo t-o 3 - CXt- « c o JC a ^T 9 ft- CM ft- CM CMO to JZ «. to m • ft ft • • ft ft c_ o to r-l oo =r f-in o to POCM ■H XI CO co •— a- r— cm in CO s: c H CM s •H Cm S 3 O ■h n c 4J cq 3 r- r> ino «-«■ t--«- O «-.r-l ■o «~ CM •-■=r to e •H .0 to t-i c O to C M >» 4-> =T CO t--CO «- CM ino 3 4-> •H • • • • • • « • c to •-I oo =r int- o cm VO •- o t- •H on in m cm in <0 JS 4J to 60 to to JO CO t-l c B) 3 I- CO c V T3 to jJ > o n ■U > o o t-i 1-1 M M to M to CO 3 CO »H CO PQ •h PQ o 0) •o •o r-4 (. 1-t ■H to o c >>•« ■H >■,•« >■>•« o >>•» •o JC (ft to c s c in L DO t. c 4J cu 3 Q 3 Q « 3 O to 3 Q ■H to c •*"> Cu o t-jCu CM •oa. 4J ft-jCU to - o c o c *» C tfl c f- CO c • > •H i-l T> r- •H 13 ■H "D CJ •H T) to CO o CO rH to «» (0 c to to D t. -^ o .H >, C >. C to >. C >, C 6 o *> c 1H •H tH o .H -H JC c .H H tl ■H »H 3 C CO 3 H •H JO J-> i-l £> 4-> o •H /5 H H-t JO z t-trH O •o e •O E •M T3 e O •o e r- CM 3 CO O o o in O O 0} rH o o o o O o PQ U ■ CO O to rn CO u ^-1 m u r-i 1— CM «> i-t rH tO *» ■» -] B < O IV- 3 7 «- - V a o o OO CTV 00.5J- vo m B moo mt— rv) m O-v ON 3 t— vO -Z. !— o> r- r~* m a- ■3- »- ino t- 3- o ■a- in h- O oO>- r- JT o a- •— mCT. mvo ^vO o » - * » c. 4> o (M »— CO t— t— m 1— «- B moo mt— c\j m On On 3 U1 z f~ o> oo r- o o On ON oo O T— ^-» o «» «- JW •— rvj V a s 1> O 3 xmz m ro m r— i-lojvU on ott* oi «— • oo o o m .=»■ vo a- f- mt-. on o o t- «- m •- m m vo o vo oo a- t--o mvo On On c-- t-- ON«— mt— oo o =r in moo oo r— mt— moo oo a- oo in a- o ON rvj VO t— t- O on f- mvo vo in o in c— rvi oo ON vo o> vo in o o n m < c o •o t. o a a >. 41 > • (. bo 3 c to ■H ■D V C c £> o a J3 ■n a. 4> 4) i. r-l 4) n {-• a c >. ■H (. vV< t> 9) '«-. 3 O T3 C c M 4> O >. E 4J 3 ■»< C .-1 c o n u O O M •H M l-l 4) H • n r-l 03 m ■^ to o U (. ■o rH C ^ o o c >. «B iH >.•» >>•» o >.•« 13 K. bO !fl C S C. in c. 00 (. C PL, 4) 3 Q 3 Q * 3 Q 4) 3 Q ■H j-> c i-> cu o •*->o. rvi ■*-)Cv, •rf ■H T3 ^ ■H T3 •H T3 o i-l T3 4) 4) ^( 4) «>» 4) c 4) 41 O O 4) r-t >, C >. C id >, C 4) >. C B (. N •H -4 ^1 o »-l -H jC C --I W N F-» T-4 3 3 ■H E -H O J-> ■H O 4J o -H O ■H •h a SE O CO X) B T> B ■w •o e 01 ■d B ^ CO o O O in O O ») rH O O o o O oa o ■ CQ O 9) rH CO O f-H oa u r™ t\i 4)-W r-( ■» •» _) B < IV-38 t- a> cotr\mo O c» COCNJ VO m n .o CVJ «- t- m C\J (M(\ltM«- Os B s *" (. 3 ■H Z Ct, .-4. .-» C0^> in t— o in m m=r a\0 i» < 4J O •H O B O <\J i- CTs»- on moo o> i— t— in •— •— t— m in oo o r-ONOo •- m VO • vO L. r- V OS > »— o ,_ c ■a L. 4> c 0) Xt CO O in t~- «- o in <\j t- o a\ o B S r- i— «— r— «— 00 4) c 3 O o Z 4> ■H a 4> r-l o .H •» c H ■H M'-n O OO o o OrOt-O*" .3- • OO 0"> 0>vO I™ a t- tx O EO •» « M «k * * M 3 0) o -ri -vy •— sr in *- in =T O 4J « — J^- «— !■• CO O CO ■w- | rH r™ CO j3 ^ f-H C < •r^ TJ CO! ■H a> rHi C|t- E .o. r- in omti o o oo o in o> c •H an mi e r- T— «— ^ t~ o n H O 3 T3 ffl 4J(H O Z t. •w ojo r- o j sra -W- o M Ol >> o,| •H O COVOOfl r~ zr mo en Os 4» ml in LO E O in o> 4-3 > T5 • i-)-*> •» r* t™ ^~ 00 r— • u •Hi £ C C\J _4>^ -=r bO 3 i-d m (0 ■W- C CO CO f-t _)l 00 3 •o 4> '"v O C C 4> Q .c c O O br Cu •m o a J2 vO iH to a L •D r-l r* 4> CO 0> 0) r-« t, t, t-i > C t-f a> 4> » • o » Z iH d t- o <\J «M 4J r— ■W- CO 1 vO C C0'-» o TJ m r~- (0 4J O in on poo t-sinoo o c o £ •HO t— OO OO v£> CJivO h-oin r— c M td t- 4J E O cm mcnm en in t»--=r vo vO 4) J ■rA-Vt- •» o >> CO (0 J r— e 4-3 «c (0 3 •H H a> (0 4-3 c n 1 c 4> X! 4-3 CO •H ja cO •H >» <0 CO 4) 4-3 O 4) 4-3 u oo C O c c 4J 4-3 o o 4-3 •H ^l O 4> CO CO 3 bo o j3 me to Ol CO CO C o o •o (U £ V O (0 O Q. 4-3 ■o L CO o E C 4) o 3 n o o -h s O c a. O t- •w x: •o t. -H > O 3 •H a. Hi> 3H c 0) O , J () (J •o CO 4-3 CO (0 CO L 3 > 3 O O 4) t, •• O rH •H ca bO-w a O -H D 4J C -r4 4) CD 3 CO L O C C E 4-'> O r-) vw a l JO O ■D ■H 4J ^ 4J c O CO .-fl v0 o s c O t, CO rH T3 CO 4) C E S O U iH bO 3 3 L 4J 3 CO C 3 E a) o J. ta o t-4 Z O a. CO 3 •o C T> 4- 1 -H "D C CO T3 t. O 3 .C CU-H 0-. <: a. s «< «c r~ CO M o IV- 3 9 firms. In all categories, (except pharmaceuticals^) the. limits of liability per occurrence were lowest for firms with .less than $2.5 million in sales. The most frequently cited restriction covering primary products liability or COL insurance coverage was the exclusion of specific products (see table IV-18). Over 10 percent of firms reported such restrictions. Further, 23 firms reported that during the past two years they had decided to discontinue production of products because of product liability problems. Twenty-six firms reported a decision to cancel or postpone introduction of new products because of anticipated product liability problems. Cost per $1,000 for umbrella coverage, by sales category, for 1971-76 are presented in table IV-19. Significant increases occurred only during 1976 for medium and large firms while there was essentially no change for small firms during this period. However, the rates for large and medium firms are significantly less in all years than the rates for small firms. The difference in rates for umbrella coverage is less pronounced than for primary product liability coverage between large and medium size firms. What was the claims experience of responding firms by product category and sales volume over the past 5 years? The number of firms reporting any claims during the period 1971 through 1976 is shown in table IV-20. Responses indicate that less than 18 percent of firms with less than $2.5 million in total sales experienced any claims during this period. The corresponding figures for medium and large firms were approximately 50 percent and 96 percent, respectively. Claims attributed to the nine product categories are also shown. About IV- 40 4J c U u u o a 17 u C ■Li § £ •ihIq co •-H o I cj I > ►J m c 0) r~ CO u • e wi CM u CD --H CU Gui i-H .H U < o JQ <* e 3 z Vj 01 > o -w c -U 01 e J3 vo e O 3 o Z o IT) c o r-t 4J r-4 c •H 01 e o u o o> o Dj r-4 W H o O U 01 -O in e • 3 CM Z to- c o •iH 1-1 4-> •-H c i-i 0* e o u in ot • cu CM v> C U (0 01 JC jQ ■»j e 3 OT Z CO m m o •»» CM vo en i-H Vj i-H en r~ 0) • • • JQ C* o 00 e i-H o> u 01 a • CM i-H o o CM i-H c t-H m a* 4-1 (0 1-1 o o CO a < CM 00 o • • • c ON o in o ■D VJ O o I-H r-4 i-H vo 01 > Vj 3 CO C) c o jC a 0) i-H ON O • • • Eh l-H i-H co >■ Vj 4J (0 3 ■o c CM i-H ^ t-H >i 4-1 1-4 ^H iH X> (0 1 o 1 o Li Vj Vj O c 0> a a 3 o tr r-l ■D (0 (0 •o » O OT Vj IT CO i-H 01 Vj c o> 01 4J o c a. O > ,-H OT •H O O vu 14-1 4J CJ VVJ (J o o •■ U O 01 ••H 4J 0> c c u Vj C 01 OT o o Vj 4J 01 tr c •H CO iH CO 3 OT Vj CO 4J CO 4J O 0> Vj Vj vm 3 CJ 3 o Vj CO os 3 0> 01 i-H 3 i-H 3 01 CJ > *o u x; U s 2 O fc. 4> •rt Q Ct, 0) C ^ fH Q. CO o LTi ft— oo t~- CO • r-t CO t— t>- CO vO t— on O H CO 4> r— CO •> t, c •H o 4) 4> O o > JO O o O E vO t— VO on in CT\ CO . 3 t- co 0> o o o> CO 1-1 •o Z ft— »— < -Ml c «J c a C o Ol O •H r-l CO ■=T •a- -=T en on CO CO •H 4-> 3 • • » « • • •• o E CO o O o O o o o >. c_> o sz 4) a> vO| s u > tr I r— 3 « — c • 4> < a 4> b0 C > o £} C O 4> L •H s •H jC be O r-l 3 o cm CM t— cr> on •o a cfl u r-t ss on .=r in VO t«- t— C 4> £- s o. 4) > CO 0) H o o O 4) o o c - C TJ >> CO N «r> t- in O zr 5 4J r-H 00 o CO ■a- in •^ ■=r vO •=r L 0) V 4J 4J 3 * • • • • « •H 3 -O in CO O o s: o o O o O *~ «n •o c F • C_> H Cm M 3 cm o 1 1 ■*» J- >. » 4) ■P J3 •H ft— c r* E r-t 1 o C 3 ■H > iH 4) C J3 M r-l £) CO r-t E CO ft— t>- on -=T m 4) •H U3 •H 3 r— »— CM CM cm JC J J s 2 *3 CO <: in n ■P E-« • cm ft— O CM •H c (0 CO OO t- CO t>- CM in ■o a, £W3 • ■ • ft • • c •u CO o O -C on CT) m CM cr> m •H » CJ c «• 0) 4) 4) 4> ^i a J S 3 3 c 3 O CO • c r-» «M on .=r in vO vO CO f- C^ r~ h- r- c- t«- 4) CTi OV ov o> a\ C7V X r- IV-42 «3 C in^r ;» in ■i- a, ■H Cu r-l C r-t 41 < o tr\ao r-O e co ^■ -3- CO • 3 f— »— r* r— NO z c-- ON c. u V 4> > O 04J E c 41 •O 4) vo -=r «- On O C O « * • • 4> CO t. in -a- no in Q 4) cr> t— cm ecu * o • vol ■H O bf M H . a c 1 r-l I- M *-* •H 4> •U r~ S -O cr> in on vo to c cr E o CO CM 4> o O 3 r— 4J a OZ cd V > •H PS t- ■«• O O O to fad 9) e 4) GO l 4J c < w COI o ■j- a •H*> c t-* c o «-J«i r-i a> o =r o o •o Ol N ■w o • k V * (. •^ B t- ON O o o o 4-> oo 4» -=r to rr no CJ c o a. o » o » o -of - >> £. «> 4) CD L. > 04 m O V c B 4-> J3 CO ON NO ON 3 T)M E in m ^3- NO CO al to itn 3 C0|rH • z 4> u CM C t. «» o CO > J3 -O u Q. E •t-i 4) D H c r-t ■z -I 1 o 4) S -Q ■H H 1 cfll i~l *i • -H »-l C N» O J ■H 4) t— m ^r no b CM E O * • • o ■u 1 4-* S. t~- CM CM t— to > a in 4) »-CO ■— CO 3 i-t 3 »a. X> ■o CM c id O <*■ M _J c aa a. C t- >. < ca 4> *» H >j .c x> co •=»- cm m ■H C e (0 4> J 9) n »-CO to ±> O 3 "O o *-oo t-4 •H O cd J 4-> O 3 T3 O c e 4J a. • • -t-» a 4) cfl 3 ■a O rH ■o 4» C O o Nt-I 3 O a to v o O 4) o CO r-t » z 4) >* z iH a < CO IV- 4 3 12 percent of firms with less than $2.5 million in» sales reported claims in these product areas, compared to MO percent with sales of $2.5 to $100 million, and 76 percent with sales of over $100 million. The average number of claims pending per firm at the end of each year for the period 1971 through 1976, by product category, are shown in table IV-21. These data indicate a significant upward trend in the number of pending claims throughout the period from 1971 to 1976 (through the third quarter) for all product categories. Further, these increases have accelerated during the past two years. Consumer products, particularly, power mowers and automotive components, exhibit an exceptionally high number of pending claims for the period 1974-76. The number of pending claims varies significantly by size of firm as shown below for all firms reporting: Average Number of Pending Claims Per Firm by Size Category 1971^76 Size of Firms 1971 1972 1973 1974 1975 1976 Less than $2.5 million .01 .02 .03 .03 .06 .08 $2.5 to $100 million .58 .81 1.17 2.55 3.18 3.46 $100 million and over 13.79 17.17 22.38 39.52 46.82 65.01 Source: Product Liability Industry Telephone Survey, Hordon Associates, Inc., December 1976. The proportion of firms in each size category in the sample would influence the averages presented in table IV-21. However, this does not appear to affect the results indicated since the IV- 4 4 TABLE IV-21.--AveraKe Jjuafeej; OS. PgndtriR £laima fcy. Product Category 1971-16 Product Category Industrial products Industrial machinery Metal castings Grinding wheels Industrial chemicals 1971 Number of . Claims/Firm Number 1 1.9 1.9 3.6 0.1 36 35 25 32 Year 1972 Number of 1973 Number of Claims/Firm Number' Claims/Firm Number 2.2 2.9 3.9 1.7 36 35 25 34 6.00 3.9 4.3 3.2 35 35 25 36 Consumer products Power mowers 6.2 Automotive components 1.8 Pharmaceuticals 10.1 Medical devices 1.9 Aircraft components 3.5 All product cate- gories 3.5 33 26 32 33 21 273 9.1 3.3 9.1 3.7 6.3 4.6 33 27 32 35 23 280 10.2 4.0 10.1 6.4 7.7 6.2 33 27 32 36 23 282 Product Category Industrial products Industrial machinery Metal castings Grinding wheels Industrial chemicals Consumer products Power mowers Automotive components Pharmaceuticals Medical devices Aircraft components All product cate- gories 1974 Year 1975 1976 Number of Number 1 N umber of Numbe N umber of Claims/Firm CI aims/Firm CI aims/Firm Numb 7.1 4.9 6.6 4.6 36 35 25 37 10.1 6.5 7.3 10.2 38 35 25 38 18.1 8.6 11.4 8.5 39 35 25 36 16.9 34 19.3 34 48.1 35 32.2 T1.3 12.5 8.3 29 32 38 23 39.0 12.3 12.7 11.0 29 32 39 23 36.9 13.7 12.9 11.3 28 33 39 24 11.4 289 14.0 293 18.9 294 Number indicates the number of firms responding. IV- 4 5 numher of firms reporting was quite uniform across the three size categories for all product groups. Further, the rate of increase in the number of pending claims does not appear to vary significantly by size of firm. Table IV-22 presents the average number of new claims per firm for the period 1971 through 1976. The 1976 data are for the first three quarters of the calendar year. There was a sharp rise in new claims for large firms between 1971 and 1972, but the data indicate no significant' change in tne number of new product liability claims during- the npriod from 1972 to 1976 for medium and large firms. There' were gradual increases for small firms during the entire period. The information on new claims, by product category, provided in table IV-23 generally shows a similar pattern. Increases, in new claims for the individual product groups either leveled off after 1972, or continued at more moderate rates in most cases. Pending claims and new claims directly related to. the nine product categories designated in the study are shown in table IV- 24. New claims for large firms increased quite sharply during 1975 and 1976. For medium and small firms there was a moderate increase throughout the 1971-^76 period. As shown in table IV-25, the largest increases for the designated product categories during the last two years occurred in automotive components. Table IW26 presents the average amount of damages sought in pending claims per firm by size category. The amount has been increasing significantly each year from 1971 through 1976. In 1975, the last year for which all pending claims are reported, pending damages sought represented about .9 percent of total sales; for 1976 they will approximate 1.M to 1.6 percent of sales, while in 1971 they represented only .3 percent. 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