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104th Congress                                             Rept. 104-64
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     Part 1
_______________________________________________________________________


 
            COMMON SENSE LEGAL STANDARDS REFORM ACT OF 1995

_______________________________________________________________________


                 March 2, 1995.--Ordered to be printed

                                _______


 Mr. Hyde, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 956]

      [Including cost estimate of the Congressional Budget Office]
    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 956) to establish legal standards and procedures for 
product liability litigation, and for other purposes, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:
SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Common Sense Legal Standards Reform 
Act of 1995''.

                   TITLE I--PRODUCT LIABILITY REFORM

SECTION 101. SHORT TITLE.

  This title may be cited as the ``Common Sense Product Liability 
Reform Act of 1995''.

SEC. 102. FINDINGS AND PURPOSES.

  (a) Findings.--The Congress finds that--
          (1) the manufacture and distribution of goods in interstate 
        commerce is to a large extent a national activity which affects 
        national interests in a variety of important ways;
          (2) in recent years, the free flow of products in interstate 
        commerce has been increasingly burdened by product liability 
        law;
          (3) as a result of this burden, consumers have been adversely 
        affected through the withdrawal of products and producers from 
        the national market, and from excessive liability costs passed 
        on to them through higher prices;
          (4) the rules of product liability law in recent years have 
        evolved rapidly and inconsistently within and among the several 
        States, such that the body of product liability law prevailing 
        in this nation today is complex, contradictory, and uncertain;
          (5) the unpredictability of product liability awards and 
        doctrines are inequitable to both plaintiffs and defendants and 
        have added considerably to the high cost of liability 
        insurance, making it difficult for producers and insurers to 
        protect their liability with any degree of confidence;
          (6) the recent explosive growth in product liability actions 
        and punitive damage awards jeopardizes the financial well-being 
        of many industries, and is a particular threat to the viability 
        of the nation's small businesses;
          (7) the extraordinary costs of the product liability system 
        undermine the ability of American industry to compete 
        internationally, and is costing the loss of jobs and productive 
        capital; and
          (8) because of the national scope of the manufacture and 
        distribution of most products, it is not possible for the 
        individual states to enact laws that fully and effectively 
        respond to these problems.
  (b) Purposes.--Based upon the powers contained in Article I, clause 3 
of the United States Constitution, the purposes of this title are to 
promote the free flow of goods in interstate commerce--
          (1) by establishing certain uniform legal principles which 
        provide a fair balance between the interests of product users, 
        manufacturers, and product sellers,
          (2) by placing reasonable limits on product liability law,
          (3) by ensuring that product liability law operates to 
        compensate persons injured by the wrongdoing of others,
          (4) by reducing the unacceptable transactions costs and 
        delays which harm both plaintiffs and defendants,
          (5) by allocating responsibility for harm to those in the 
        best position to prevent such harm, and
          (6) by establishing greater predictability in product 
        liability actions.

SEC. 103. FEDERAL CAUSE OF ACTION PRECLUDED.

  The district courts of the United States shall not have jurisdiction 
pursuant to this title based on section 1331 or 1337 of title 28, 
United States Code.

SEC. 104. APPLICABILITY AND PREEMPTION.

  (a) Preemption.--This title governs any product liability action 
brought in any State or Federal court, on any theory for harm caused by 
a product. A civil action brought for commercial loss shall be governed 
only by applicable commercial or contract law.
  (b) Relationship to State Law.--This title supersedes State law only 
to the extent that State law applies to an issue covered by this title. 
Any issue that is not governed by this title shall be governed by 
otherwise applicable State or Federal law.

SEC. 105. LIABILITY RULES APPLICABLE TO PRODUCT SELLERS.

  (a) General Rule.--Except as provided in subsection (b), in any 
product liability action, a product seller other than a manufacturer 
shall be liable to a claimant only if the claimant establishes that--
          (1)(A) the product which allegedly caused the harm complained 
        of was sold by the product seller; (B) the product seller 
        failed to exercise reasonable care with respect to the product; 
        and (C) such failure to exercise reasonable care was a 
        proximate cause of the claimant's harm; or
          (2)(A) the product seller made an express warranty applicable 
        to the product which allegedly caused the harm complained of, 
        independent of any express warranty made by a manufacturer as 
        to the same product; (B) the product failed to conform to the 
        warranty; and (C) the failure of the product to conform to the 
        warranty caused the claimant's harm; or
          (3) the product seller engaged in intentional wrongdoing as 
        determined under applicable State law and such intentional 
        wrongdoing was a proximate cause of the harm complained of by 
        the claimant.
For purposes of paragraph (1)(B), a product seller shall not be 
considered to have failed to exercise reasonable care with respect to 
the product based upon an alleged failure to inspect a product where 
there was no reasonable opportunity to inspect the product in a manner 
which would, in the exercise of reasonable care, have revealed the 
aspect of the product which allegedly caused the claimant's harm.
  (b) Exception.--In a product liability action, a product seller shall 
be liable for harm to the claimant caused by such product as if the 
product seller were the manufacturer of such product if--
          (1) the manufacturer is not subject to service of process 
        under the laws of any State in which the action might have been 
        brought; or
          (2) at any point before or after entry of judgment, the court 
        determines that the claimant would be unable to enforce a 
        judgment against the manufacturer.

SEC. 106. DEFENSE BASED ON CLAIMANT'S USE OF INTOXICATING ALCOHOL OR 
                    DRUGS.

  (a) General Rule.--In any product liability action, it shall be a 
complete defense to such action if--
          (1) the claimant was intoxicated or was under the influence 
        of intoxicating alcohol or any drug when the accident or other 
        event which resulted in such claimant's harm occurred; and
          (2) the claimant, as a result of the influence of the alcohol 
        or drug, was more than 50 percent responsible for such accident 
        or other event.
  (b) Construction.--For purposes of subsection (a)--
          (1) the determination of whether a person was intoxicated or 
        was under the influence of intoxicating alcohol or any drug 
        shall be made pursuant to applicable State law; and
          (2) the term ``drug'' means any controlled substance as 
        defined in the Controlled Substances Act (21 U.S.C. 802(6)) 
        that has been taken by the claimant other than in accordance 
        with the terms of a lawfully issued prescription.

SEC. 107. MISUSE OR ALTERATION.

  (a) General Rule.--Except as provided in subsection (c), in a product 
liability action, the damages for which a manufacturer or product 
seller is otherwise liable under State law shall be reduced by the 
percentage of responsibility for the claimant's harm attributable to 
misuse or alteration of a product by any person if the manufacturer or 
product seller establishes by a preponderance of the evidence that such 
percentage of the claimant's harm was proximately caused by--
          (1) a use or alteration of a product in violation of, or 
        contrary to, the manufacturer's or product seller's express 
        warnings or instructions if the warnings or instructions are 
        adequate as determined pursuant to applicable State law, or
          (2) a use or alteration of a product involving a risk of harm 
        which was known or should have been known by the ordinary 
        person who uses or consumes the product with the knowledge 
        common to the class of persons who used or would be reasonably 
        anticipated to use the product.
  (b) State Law.--Notwithstanding section 104(b) of this Act, 
subsection (a) supersedes State law concerning misuse or alteration of 
a product only to the extent that State law is inconsistent.
  (c) Workplace Injury.--Notwithstanding subsection (a), the damage for 
which a manufacturer or product seller is otherwise liable under State 
law shall not be reduced by the percentage of responsibility for the 
claimant's harm attributable to misuse or alteration of the product by 
the claimant's employer or any co-employee who is immune from suit by 
the claimant pursuant to the State law applicable to workplace 
injuries.

SEC. 108. SEVERAL LIABILITY FOR NONECONOMIC LOSS.

  In any product liability action, the liability of each defendant for 
noneconomic loss shall be several only and shall not be joint. Each 
defendant shall be liable only for the amount of noneconomic loss 
attributable to such defendant in direct proportion to such defendant's 
proportionate share of fault or responsibility for the claimant's harm, 
as determined by the trier of fact.

SEC. 109. STATUTE OF REPOSE.

  A product liability action shall be barred unless the complaint is 
served and filed within 15 years after the time of delivery of the 
product. For the purposes of this section, the term ``time of 
delivery'' means the time when a product is delivered to its first 
purchaser or lessee who was not involved in the business of 
manufacturing or selling such product or using it as a component part 
of another product to be sold. This section applies only if the harm 
caused by a product did not include chronic illness. This section does 
not affect the limitations period established by the General Aviation 
Revitalization Act of 1994. This section does not bar a product 
liability action involving a manufacturer or product seller who made an 
express warranty in writing as to the safety of the specific product 
involved which was longer than 15 years.

SEC. 110. FOREIGN-MADE PRODUCTS.

  This title shall not apply to a product liability action involving a 
product or component part of a product, manufactured outside the United 
States, unless the manufacturer of such product or component part has 
appointed an agent in the United States for service of process from 
anywhere in the United States.

SEC. 111. DEFINITIONS.

  As used in this title:
          (1) The term ``claimant'' means any person who brings a 
        product liability action and any person on whose behalf such an 
        action is brought. If such an action is brought through or on 
        behalf of an estate, the term includes the claimant's decedent. 
        If such action is brought through or on behalf of a minor or 
        incompetent, the term includes the claimant's legal guardian.
          (2) The term ``commercial loss'' means any loss of or damage 
        to a product itself incurred in the course of the ongoing 
        business enterprise consisting of providing goods or services 
        for compensation.
          (3) The term ``economic loss'' means any pecuniary loss 
        resulting from harm (including the loss of earnings, medical 
        expense loss, replacement services loss, loss due to death, 
        burial costs, and loss of business or employment opportunities) 
        to the extent recovery for such loss is allowed under 
        applicable State law.
          (4) The term ``harm'' means any physical injury, illness, 
        disease, or death or damage to property caused by a product. 
        The term does not include commercial loss, or loss or damage to 
        a product itself.
          (5) The term ``manufacturer'' means--
                  (A) any person who is engaged in a business to 
                produce, create, make, or construct any product (or 
                component part of a product) and who (i) designs or 
                formulates the product (or component part of the 
                product), (ii) has engaged another person to design or 
                formulate the product (or component part of the 
                product), or (iii) uses the design or formulation of 
                the product developed by another person;
                  (B) a product seller, but only with respect to those 
                aspects of a product (or component part of a product) 
                which are created or affected when, before placing the 
                product in the stream of commerce, the product seller 
                produces, creates, makes, or constructs and designs or 
                formulates, or has engaged another person to design or 
                formulate, an aspect of a product (or component part of 
                a product) made by another; or
                  (C) any product seller not described in subparagraph 
                (B) which holds itself out as a manufacturer to the 
                user of the product.
          (6) The term ``noneconomic loss'' means subjective, 
        nonmonetary loss resulting from harm, including pain, 
        suffering, inconvenience, mental suffering, emotional distress, 
        loss of society and companionship, loss of consortium, injury 
        to reputation, and humiliation.
          (7) The term ``person'' means any individual, corporation, 
        company, association, firm, partnership, society, joint stock 
        company, or any other entity (including any governmental 
        entity).
          (8)(A) The term ``product'' means any object, substance, 
        mixture, or raw material in a gaseous, liquid, or solid state--
                  (i) which is capable of delivery itself or as an 
                assembled whole, in a mixed or combined state, or as a 
                component part or ingredient;
                  (ii) which is produced for introduction into trade or 
                commerce;
                  (iii) which has intrinsic economic value; and
                  (iv) which is intended for sale or lease to persons 
                for commercial or personal use.
          (B) The term does not include--
                  (i) human tissue, human organs, human blood, and 
                human blood products; or
                  (ii) electricity, water delivered by a utility, 
                natural gas, or steam.
          (9) The term ``product liability action'' means a civil 
        action brought on any theory for harm caused by a product or 
        product use.
          (10) The term ``product seller'' means a person who, in the 
        course of a business conducted for that purpose, sells, 
        distributes, rents, leases, prepares, blends, packages, labels 
        a product or is otherwise involved in placing a product in the 
        stream of commerce, or who installs, repairs, or maintains the 
        harm-causing aspect of a product. The term does not include--
                  (A) a seller or lessor of real property;
                  (B) a provider of professional services in any case 
                in which the sale or use of a product is incidental to 
                the transaction and the essence of the transaction is 
                the furnishing of judgment, skill, or services; or
                  (C) any person who--
                          (i) acts in only a financial capacity with 
                        respect to the sale of a product; or
                          (ii) leases a product under a lease 
                        arrangement in which the selection, possession, 
                        maintenance, and operation of the product are 
                        controlled by a person other than the lessor.
          (11) The term ``State'' means any State of the United States, 
        the District of Columbia, Puerto Rico, the Northern Mariana 
        Islands, the Virgin Islands, Guam, American Samoa, and any 
        other territory or possession of the United States, or any 
        political subdivision of any of the foregoing.

                   TITLE II--PUNITIVE DAMAGES REFORM

SEC. 201. PUNITIVE DAMAGES.

  (a) General Rule.--Punitive damages may, to the extent permitted by 
applicable State law, be awarded in any civil action for harm in any 
Federal or State court against a defendant if the claimant establishes 
by clear and convincing evidence that the harm suffered was result of 
conduct--
          (1) specifically intended to cause harm, or
          (2) conduct manifesting a conscious, flagrant indifference to 
        the rights of others.
  (b) Proportional Awards.--The amount of punitive damages that may be 
awarded to a claimant in any civil action subject to this title shall 
not exceed 3 times the amount of damages awarded to the claimant for 
the economic loss on which the claimant's action is based, or $250,000, 
whichever is greater. The requirements of this subsection shall be 
applied by the court and shall not be disclosed to the jury.
  (c) Applicability and Preemption.--Except as provided in section 301, 
this title shall apply to any civil action brought in any Federal or 
State court on any theory where punitive damages are sought. This title 
does not create a cause of action for punitive damages in any 
jurisdiction that does not authorize such actions.
  (d) Bifurcation at Either Party's Request.--At the request of either 
party, the trier of fact shall consider in a separate proceeding 
whether punitive damages are to be awarded and the amount of such 
award. If a separate proceeding is requested, evidence relevant only to 
the claim of punitive damages, as determined by applicable State law, 
shall be inadmissible in any proceeding to determine whether 
compensatory damages are to be awarded.

SEC. 202. DEFINITIONS.

  As used in this title:
          (1) The term ``claimant'' means any person who brings a civil 
        action and any person on whose behalf such an action is 
        brought; if such action is brought through or on behalf of an 
        estate, the term includes the claimant's decedent and if such 
        action is brought through or on behalf of a minor or 
        incompetent, the term includes the claimant's legal guardian.
          (2) The term ``clear and convincing evidence'' is that 
        measure or degree of proof that will produce in the mind of the 
        trier of fact a firm belief or conviction as to the truth of 
        the allegations sought to be established. The level of proof 
        required to satisfy such standard is more than that required 
        under preponderance of the evidence, but less than that 
        required for proof beyond a reasonable doubt.
          (3) The term ``economic loss'' means any pecuniary loss 
        resulting from harm (including the loss of earnings, medical 
        expense loss, replacement services loss, loss due to death, 
        burial costs, and loss of business or employment 
        opportunities), to the extent recovery for such loss is allowed 
        under applicable State law.
          (4) The term ``harm'' means any legally cognizable wrong or 
        injury for which punitive damages may be imposed.
          (5) The term ``punitive damages'' means damages awarded 
        against any person or entity to punish or deter such person or 
        entity, or others, from engaging in similar behavior in the 
        future.
          (6) The term ``State'' means any State of the United States, 
        the District of Columbia, Puerto Rico, the Northern Mariana 
        Islands, the Virgin Islands, Guam, American Samoa, and any 
        other territory or possession of the United States, or any 
        political subdivision of any of the foregoing.

             TITLE III--EFFECT ON OTHER LAW; EFFECTIVE DATE

SEC. 301. EFFECT ON OTHER LAW.

  Nothing in title I or II shall be construed to--
          (1) waive or affect any defense of sovereign immunity 
        asserted by any State under any law;
          (2) supersede any Federal law;
          (3) waive or affect any defense of sovereign immunity 
        asserted by the United States;
          (4) affect the applicability of any provision of chapter 97 
        of title 28, United States Code;
          (5) preempt State choice-of-law rules with respect to claims 
        brought by a foreign nation or a citizen of a foreign nation;
          (6) affect the right of any court to transfer venue or to 
        apply the law of a foreign nation or to dismiss a claim of a 
        foreign nation or of a citizen of a foreign nation on the 
        ground of inconvenient forum; or
          (7) supersede any Federal law that prescribes a specific 
        regimen for punitive damages.

SEC. 302. EFFECTIVE DATE.

  Titles I and II shall apply with respect to actions which are 
commenced after the date of the enactment of this Act.
                        explanation of amendment

    Inasmuch as H.R. 956 was ordered reported with a single 
amendment in the nature of a substitute, the contents of this 
report constitute an explanation of that amendment.

                          summary and purpose

    H.R. 956, the ``Common Sense Legal Standards Reform Act of 
1995,'' is designed to promote fairness in product liability 
litigation and set appropriate parameters for judicial 
consideration of punitive damage claims. Our excessive reliance 
today on a patchwork of conflicting state statutes and common 
law relating to allegations of product defects excessively 
burdens interstate commerce, discourages innovation, 
exacerbates liability insurance costs, compromises American 
competitiveness, and forces Americans to pay higher price. The 
absence of federal standards and limitations also proves 
harmful to businesses and consumers in the range of cases 
involving punitive damages, not just in product related 
litigation. Both product liability reform and punitive damages 
reform implicate important Federal interests that necessitate 
action on the national level.
    Title I on product liability reform includes four 
particularly important features. First, product sellers receive 
important, reasonable protections against liability for 
manufacturer error in situations where claimants can collect 
from manufacturers. Second, a claimant whose alcohol or drug 
use is the primary cause of an accident appropriately is barred 
from recovering from those with lesser degrees of 
responsibility. Third, a defendant's liability for noneconomic 
damages is limited, in the interest of fairness, to its own 
proportionate share of fault or responsibility. Fourth, most 
product liability actions are barred from being brought more 
than 15 years after the product's delivery.
    Title II on punitive damages reform addresses burden of 
proof, proportionality of awards, and bifurcation of 
proceedings. Egregious conduct must be linked to the harm 
suffered by clear and convincing evidence. Punitive damages, 
awarded to punish or deter rather than compensate, are limited 
to three times the economic loss or $250,000, whichever is 
greater. At either party's request, consideration of such 
damages occurs in a separate proceeding.
    H.R. 956, in summary, addresses two major problematic areas 
in tort law that are not amenable to solutions at the local 
level. Businesses and consumers pay an unacceptably heavy price 
for congressional inaction.

                                hearing

    The ``Common Sense Legal Reforms Act of 1995'' (H.R. 10), 
an important part of the Contract with America, was introduced 
by Judiciary Committee Chairman Henry Hyde on the opening day 
of the 104th Congress (January 4, 1995). Section 103 of that 
bill focused on product liability reform. On February 13, 1995, 
the full Committee on the Judiciary held a hearing on ``Product 
Liability and Civil Justice Reform.'' The Committee received 
testimony on section 103 of H.R. 10 and on broader civil 
justice and tort reform issues. The Committee heard testimony 
from the following eight witnesses: Charles E. Gilbert, Jr., 
President, Cincinnati Gilbert Machine Tool Company; Larry S. 
Stewart, President, American Trial Lawyers Association of 
America; Richard K. Willard, Partner, Steptoe and Johnson; 
Robert B. Creamer, Executive Director, Illinois Citizen Action, 
representing Citizen Action; Peter A. Chevalier, Vice 
President, Medtronic Inc.; Thomas A. Eaton, Professor of Law, 
University of Georgia; Patrick J. Head, Vice President and 
General Counsel, FMC Corporation; and William T. Waren, Federal 
Affairs Counsel, National Conference of State Legislatures.
    On February 15, Chairman Hyde (for himself and Mr. Hoke) 
introduced H.R. 956, the ``Common Sense Legal Standards Reform 
Act of 1995.'' H.R. 956, modeled on section 103 of H.R. 10, 
also reflected insights from the Committee hearing.
               the appropriateness of federal legislation

    Article I, section 8 of the Constitution gives Congress the 
power to regulate interstate and foreign commerce. In an age 
when consumers generally do not reside in the states where 
products they purchase are manufactured, the power of Congress 
under Article I, section 8 to enact legislation on the subject 
of product liability cannot be subject to serious question. 
Even the sale of goods within the states that manufacture them 
have major effects on interstate commerce because of the 
pervasiveness of national markets. In addition, the current 
treatment of product liability claims in state and federal 
courts undermines the ability of the United States to compete 
with other countries. The Committee on the Judiciary, sensitive 
to the adverse effects of widely varying rules on product 
liability and the need for uniform protections, recommends 
action clearly authorized by the Constitution.
    The adverse impacts of punitive damage awards on interstate 
and foreign commerce are not limited to product liability 
cases--and for that reason Congress' authority under the 
Commerce Clause clearly permits addressing punitive damages 
reform in its broader context. In that connection, Richard K. 
Willard, a former Assistant Attorney General for the Civil 
Division, pointed out in testimony before our Committee.

          All manner of service providers--in areas such as 
        telecommunications, banking, transportation, insurance, 
        and professional services such as medical care, legal 
        representation, and social services--are tied in to the 
        national economy, and excessive awards collected 
        against them increase the costs of purchasing those 
        services nationwide, not just in the state of the 
        judgment.

He goes on to explain: ``What happens in one state affects the 
whole nation, and this `punitive tax' hits average Americans 
and small businesses worst of all.''
    The fact that some cases involving punitive damages appear 
to relate to intrastate activity does not undercut Congress' 
Commerce Clause authority because the availability of virtually 
unlimited punitive damage awards in some American jurisdictions 
creates a hostile legal environment that discourages business 
activity. The opinion of the Supreme Court in Hodel v. Virginia 
Surface Mining & Reclamation Association, Inc. is instructive:

        [T]his Court has made clear that the commerce power 
        extends not only to ``the use of channels of interstate 
        or foreign commerce'' and to ``protection of the 
        instrumentalities of interstate commerce * * * or 
        persons or things in commerce,'' but also to 
        ``activities affecting commerce.'' Perz v. United 
        States, 402 U.S. 146, 150 (1971). As we explained in 
        Fry v. United States, 421 U.S. 542, 547 (1975), 
        ``[e]ven activity that is purely intrastate in 
        character may be regulated by Congress, when the 
        activity, combined with like conduct by others 
        similarly situated, affects commerce among the States 
        or with foreign nations.'' 452 U.S. 264 at 277 (1981).

    Section 5 of the Fourteenth Amendment provides an 
independent constitutional ground for Congressional legislation 
limiting awards for punitive damages. Congress is given the 
authority, under section 5, ``to enforce, by appropriate 
legislation'' the provisions of the Fourteenth Amendment--which 
include a proscription on state deprivations of ``life, 
liberty, or property, without due process of law.'' As Richard 
Willard points out in testimony presented to the Judiciary 
Committee: ``Just as Congress has the authority under the 
Enforcement Clause of the Fifteenth Amendment to adopt voting 
rights laws that go beyond what the courts have required, so 
too the Enforcement Clause of the Fourteenth Amendment empowers 
Congress to adopt rules to ensure that proceedings in state 
courts do not infringe on the constitutional right to Due 
Process.''

Policy considerations

    The development of national and international markets 
necessitates a federal response to product liability issues--a 
response that may have been inappropriate at earlier times when 
Americans relied primarily on locally produced goods. There is 
a need for a significant measure of national uniformity in the 
law of product liability to free American businesses from the 
excessive costs and uncertainties associated with the potential 
application of widely diverging state laws.
    One of the problems with relying on individual states to 
develop product liability law us bias in favor of the in-state 
purchaser and against the out-of-state manufacturer. Such bias, 
unfortunately, proves harmful to consumers nationwide because 
manufacturers are forced to pass on their added costs. The 
efforts of states to protect their own residents, in other 
words, prove counterproductive in a national marketplace--a 
fact that underscores the need for substantial uniformity in 
product liability law. Justice Richard Neely of the West 
Virginia Supreme Court writes as follows in his book entitled 
``The Product Liability Mess'':

          The fact of the matter is that as a state judge I can 
        do nothing to make the overall law more sensitive to 
        concerns of national economic policy. The best I can 
        do, and I do it all the time, is make sure that my own 
        state's residents get more money out of Michigan than 
        Michigan residents get out of us. This I call the 
        competitive race to the bottom and it is at the heart 
        of the structural problems presented by uncoordinated 
        local jurisdictions. [pages 71-72)

He goes on to observe: ``Product liability law is, perhaps, the 
purest example of how lack of coordination among separate, 
independent state courts leads ineluctably to legal results 
that are unfavorable to business. * * *'' [page 73] It is the 
consumer that ends up paying for the added costs.
    In addressing reform of punitive damages, the Committee 
determined that the adverse impacts of excessive awards on 
interstate and foreign commerce extend to a wide range of cases 
that are not limited to situations involving products. As 
Richard Willard testified before our Committee, ``[a]ll manner 
of service providers * * * are tied to the national economy.'' 
The fact that punitive damages are not provided for under the 
laws of many countries--punitive damages, for example, ``are 
basically unknown in Continental Europe'' \1\--underscores how 
the potential for virtually unlimited punitive damage awards in 
the United States, with the enormous risks involved, places our 
country at a significant competitive disadvantage.
    \1\ Unpublished paper on European Union prepared by Theresa 
Papademetriou, Senior Legal Specialist, Legal Research Directorate, Law 
Library of Congress, February, 1995.
---------------------------------------------------------------------------
    The Committee acted to reform punitive damages not only to 
ameliorate adverse effects on interstate and foreign commerce 
but also to protect due process rights. Punitive damages are 
designed to punish an individual entity for wrongdoing or deter 
such conduct rather than to compensate an injured party. 
Allowing a jury to exercise virtually unlimited discretion to 
impose punishment or deterrence in the form of punitive damages 
is no more justifiable than allowing a criminal court to 
disregard the severity of an offense in its sentencing role. 
The issue of what limits to impose on punitive damage awards is 
a legislative policy decision that is within the competence of 
Congress.
    The constitutional and policy justifications for this 
legislation are sound. H.R. 956 addresses problems that require 
national solutions. Although many Members of our Committee 
believe strongly in states' rights, we recognize that some 
problems are national in nature and cannot be solved by diverse 
state legislation, however well intended.

                       need for this legislation

    Testimony at the February 13th hearing documented the need 
for this legislation. Richard Willard, who served as Assistant 
Attorney General in charge of the Civil Division of the 
Department of Justice from 1983 to 1988, described litigation 
reform as ``a necessary part of any effort to make real changes 
in the way government works'' and characterized ``the 
increasing number of unpredictable and outrageous claims for 
punitive damages'' as the ``most urgent problem in civil 
litigation.'' Patrick J. Head, with his extensive experience as 
a corporate counsel and his wide knowledge of product 
liability, referred to the ``widespread consensus that American 
businesses need to improve their competitiveness by reducing 
costs, by expanding the markets for their products, and by 
pursuing innovation.'' He noted that ``[o]ur current product 
liability system undermines all of these efforts.'' Peter 
Chevalier, a researcher, innovator, and medical device industry 
executive, observed that ``the current product liability system 
in the U.S. is having a severely detrimental effect on the 
ability of medical device manufacturers to innovate in this 
country.'' He pointed out that the ``environment for innovation 
and research has become so harsh'' that his company ``recently 
moved the headquarters * * * the business unit responsible for 
managing the development of breakthrough technologies, from our 
Minneapolis Corporate Center to the Netherlands.'' Charles E. 
Gilbert, Jr., a former Chairman of the Board of the Association 
for Manufacturing Technology, commented that ``[u]nder the 
current product liability system, everyone is hurt--the 
manufacturer; the injured claimants, who may be left 
uncompensated if all the manufacturers' resources are depleted 
due to the lack of available, affordable insurance; and the 
public, who is denied access to products.'' He went on to 
state: ``Innovation and job creation are hampered by fear of 
the unknown. New designs and the new equipment to produce new, 
safer products represent too high a business risk for many 
American firms.''
    The present patchwork of fifty separate state product 
liability laws and the potential for virtually unlimited 
punitive damage awards in a wide range of cases are simply 
costing America too much. Today, we discourage capital 
investment, dampen job creation, and deny consumers new, safer, 
and less expensive products. We also misuse the civil justice 
system to impose disproportionate punishments without basic 
safeguards.

             liability rules applicable to product sellers

    Section 105 is aimed at restoring legal fairness to product 
sellers and reducing costs to consumers. In a majority of the 
states, product sellers are liable for harms caused by a 
product as if they were the manufacturer, Ultimately, product 
sellers are held liable in less than five percent of product 
liability actions; nevertheless, they are drawn into the 
overwhelming majority of product liability cases. This is 
because thirty-one states treat product sellers as if they 
manufactured the product--they are made liable for a 
manufacturer's mistakes.\2\ The seller, however, rarely pays 
the judgment because it is able to show in over ninety-five 
percent of the cases where any liability is present that the 
manufacturer is the party who actually caused, and is 
responsible for, the harm. Based on this showing, the seller 
gets contribution or indemnity from the manufacturer, and the 
manufacturer ultimately pays the damages.
    \2\ Approximately nineteen states have enacted reforms to limit 
product seller liability for harm caused by a manufacturer's defective 
product. See. e.g., Colo. Rev. Stat. Sec. 13-21-402 (1991); Del. Code 
Ann. tit. 18 Sec. 7001 (1989); Ga. Code Ann. Sec. 51-1-11.1 (Michie 
1990); Idaho Code Sec. 6-1407 (1989); 735 ILCS 5/2-621 (1992) (formerly 
Ill. Rev. Stat. ch. 110, para. 2-621 (1989); Iowa Code Sec. 613.18 
(1993); Kan. Stat. Ann. Sec. 60-3306 (1983), Supp. 1993); Ky. Rev. 
Stat. Ann. Sec. 411.340 (Michie 1992); La. Rev. Stat. Ann. Sec. 2800.53 
(West 1992); Md. Cts. & Jud. Pro. Code Ann. Sec. 5-311. (1982); Minn. 
Stat. Sec. 544.41 (West 1988); Mo. Rev. Stat. Sec. 537.762 (1988); Neb. 
Rev. Stat. Sec. 25-21, 181 (1989); N.C. Gen. Stat. Sec. 99B-2 (1989); 
Ohio Rev. Code Ann. Sec. 2307.78 (Anderson 1991); Tenn. Code Ann. 
Sec. 29-28-106 (Supp. 1992); Wash. Rev. Code Sec. 7.72.040 (West 1992).
---------------------------------------------------------------------------
    The current state of the law generates substantial, 
unnecessary legal costs. Many product sellers are small 
wholesalers and retailers. This provision will prevent wasted 
time and effort for these small businesses and also, wasted 
expenses on attorneys. These costs are currently passed on to 
the consumer in the form of unnecessary higher prices for 
products and services. Thus, this provision also helps 
consumers by cutting the hidden ``litigation tax.'' It would be 
much more efficient for the claimant to sue the manufacturer 
directly and to sue the product seller only if it has done 
something wrong.
    The ``Common Sense Legal Standards Reform Act of 1995'' 
will logically remedy this situation. Under the bill, product 
sellers would no longer be subject to strict liability; they 
would be liable only for their own negligence or fault, breach 
of their own warranty, or intentional wrongdoing. Thus, the 
legislation would eliminate product sellers being needlessly 
brought into product liability lawsuits.
    To protect consumers, there are two key exceptions to the 
general rule: (1) where a manufacturer cannot be brought into 
court in the state; or, (2) if a manufacturer lacks the funds 
to pay a judgment. In these circumstances, the product seller 
would have to bear responsibility for the manufacturer's 
conduct. There is a sound social policy behind this provision--
it will encourage product sellers to deal with responsible 
(often domestic) manufacturers who do business in the state and 
have assets.

Defense based on claimant's use of intoxicating alcohol or drugs

    In eleven states, people can recover in product liability 
actions even though a substantial cause of an accident was the 
fact that the plaintiff was inebriated or under the influence 
of illegal drugs.\3\ The ``Common Sense Legal Standards Reform 
Act of 1995'' will put an end to this absurd situation; if the 
principal cause of an accident is the claimant's abuse of 
alcohol or illicit drugs, then he or she will no longer be able 
to recover. The provision is based on a statute in the State of 
Washington. Wash. S.B. No. 4630, Sec. 902 (enacted March 10, 
1986).
    \3\ The majority of states have laws which would not permit 
recovery in this situation. One state, Washington, has enacted a 
defense similar to the ``Common Sense Legal Standards Reform Act of 
1995'' approach. Six jurisdictions continue to recognize contributory 
negligence as an absolute defense. Alabama, Maryland, North Carolina, 
South Carolina, Virginia and Washington, D.C. Thirty-two states have 
adopted some form of modified comparative fault standard: Arkansas, 
Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, 
Indiana, Iowa, Kansas, Maine, Massachusetts, Minnesota, Montana, 
Nebraska, Nevada, New Hampshire, New Jersey, North Dakota, Ohio, 
Oklahoma, Oregon, Pennsylvania, South Dakota, Texas, Tennessee, Utah, 
Vermont, West Virginia, Wisconsin and Wyoming. In eleven states, 
recovery is allowed even through a substantial cause of the accident 
was drug or alcohol use.
---------------------------------------------------------------------------
    The alcohol/drug defense implements sound public policy. It 
tells persons that if they are drunk or on drugs and that is 
the principal cause of an accident, they will not be rewarded 
through the product liability system. This provision ensures 
that an individual who impairs his or her ability to act safely 
should not be able to shift the cost of this risk to a product 
manufacturer, seller or any other defendant in a product 
liability case.
    The very strong public policy underlying this rule 
justifies preemption of conflicting state laws--it is a 
national policy of overriding importance to the American 
public. Thus, if a state has pure comparative fault as its 
general rule of tort law, this provision will prevail if a 
claimant was under the influence of alcohol or any drug and 
such condition was more than 50 percent responsible for the 
harm. On the other hand, if a state retains the contributory 
negligence defense and believes that a person's claim should be 
barred if the person's fault in any way contributed to his or 
her harm, this bill is not preemptive. It only addresses 
situations in which, currently, a person could bring a 
successful claim when such person was more than 50 percent 
responsible due to drugs or alcohol.

Misuse and alteration

    Section 107 represents an important reform. It would assure 
manufacturers and sellers that they can develop and sell 
products without undue concern about unknowable and 
unpredictable liability--liability attributable to claims 
resulting from the misuse or alteration of their products. The 
language of the section provides incentives to the manufacturer 
of a product to provide express warnings or instructions which 
state law determines to be adequate. Thus, if reasonable care 
is taken to provide warnings or instructions adequate as a 
matter of state law, a manufacturer or product seller could 
reduce damages to the extent it establishes, by a preponderance 
of the evidence, the percentage of harm caused by failure to 
heed the express warnings or instructions.
Several liability for noneconomic loss

    Section 108 introduces uniformity into the law of joint and 
several liability, as applied in product liability actions by 
adopting the California rule, which holds that defendants are 
liable only for their proportionate share of a plaintiff's 
noneconomic losses. We protect a defendant from being held 
liable for subjective nonmonetary losses that are attributable 
to the fault or responsibility of another individual or entity.
    The concept of a defendant paying for its own proportionate 
share of fault or responsibility sounds self-evident to most 
people. Many states, however, give expression in their law to 
the principle of joint and several liability which, in its 
unrestrained form, means that a party with relatively nominal 
responsibility--perhaps one percent--can be held liable for the 
fault attributable to others--perhaps 99 percent.
    The rule of joint and several liability originally entered 
the common law to deal with cases in which it was impossible to 
apportion responsibility for a plaintiff's harm among two or 
more tortfeasors. The typical case was one in which several 
defendants had acted together, ``in concert'' courts usually 
said, to cause a single, indivisible injury. The courts held 
that, in these circumstances, each defendant must be 
responsible for the total amount of damages resulting from the 
injury.
    Over time, the rule of joint and several liability became 
the norm in most states, applicable in all cases in which there 
were two or more defendants. Each defendant was to be severally 
liable for his or her share of plaintiff's damages and jointly 
liable, as was each other defendant, for the full amount. The 
rationale for this extension of the rule was that it increased 
the probability that a deserving plaintiff would be fully 
compensated even if one or more of the persons responsible for 
his or her harm was insolvent or beyond the reach of the court.
    The argument that it is better to require a defendant who 
conduct contributed to the harm in any way to pay all of the 
damages rather then to deny full recompense to an injured party 
ignores the harshness of damage awards that are 
disproportionate to fault or responsibility. The result of the 
principle of joint and several liability is the litigation 
imposes severe risk for solvent businesses--often necessitating 
excessive settlement offers, increasing liability insurance 
costs, and making goods more expensive for consumers. All of 
these factors have negative implications for our 
competitiveness in international markets and our ability to 
keep enterprise--with all the jobs involved--in the United 
States.
    I recent year, the rule of joint and several liability has 
been highly criticized. The rule routinely turns lawsuits into 
searches for peripherally involved persons whose pockets are 
deep enough to pay these very large awards.
    As a result, 33 states have abolished or modified the rule 
of joint and several liability. They have done so, however, in 
a great variety of ways and, thereby, have contributed to the 
already serious problem of inconsistency among the tort laws of 
the 50 states. In fact, one of the unintended consequences of 
the state tort reform movement of the 1980s was to dramatically 
increase the need for uniform federal law governing the 
liability of manufacturers for harm caused by goods moving in 
interstate commerce. This is nowhere more true than with 
respect to joint and several liability.
    Section 108 is based upon the reform of joint and several 
liability adopted by the State of California in 1986 through a 
popular referendum. (Proposition 51). The effect of this 
referendum was to abolish joint liability for noneconomic 
losses: pain and suffering, inconvenience, mental anguish, 
emotional distress, loss of society, loss of consortium, injury 
to reputation, humiliation and any similar losses which cannot 
be objectively quantified in dollar amounts. Defendants were 
made liable only for their share of these noneconomic losses, 
as determined by each one's proportionate responsibility for 
the plaintiff's harm. Section 108 makes this ``California 
rule'' the uniform rule in all product liability actions. In a 
civil action brought on any theory for harm caused by a 
product, the liability of each defendant for plaintiff's 
noneconomic damages is several only, and not joint.
    In applying this section, the trier of fact will determine 
the proportion of responsibility of each person responsible for 
the claimant's harm, without regard to whether or not such 
person is a party to the action. So, the trier of fact will 
measure a defendant's share of fault or responsibility for the 
claimant's loss by reference not simply to those who happen to 
be fellow defendants in the lawsuit, but to all responsible for 
plaintiff's harm, including defendants, third-party defendants, 
settled parties, non-parties and persons or entities that 
cannot be tried (e.g., bankrupt persons, employers and other 
immune entities).
    In 1992, the California Supreme Court, in a unanimous 
decision, held that Proposition 51, on which Section 108 is 
based, could not achieve its purpose unless read this way. 
DaFonte v. Up-right, Inc., 2 Cal. 4th 593, 828 P.2d 140 (1992).

          The statute plainly * * * shields every defendant 
        from any share of noneconomic damages beyond that 
        attributable to his or her own comparative fault. The 
        statute contains no hint that a defendant escapes 
        liability only for non-economic damages attributable to 
        fellow defendants while remaining jointly liable for 
        non-economic damages caused by others. DaFonte, 2 Cal. 
        4th at 602, 828 P. 2d at 145.

The Court went on to hold that the ``only reasonable 
construction'' of Proposition 51 is that a defendant's fault 
must be compared to ``all fault responsible for the plaintiff's 
injuries, not merely that of `defendant[s]' present in the 
lawsuit.'' DaFonte, 2 Cal. 4th at 603, 828 P. 2d at 146 (fault 
apportioned to negligent employer).
    A Florida statute also, like Section 108, requires 
apportionment of fault to each defendant ``on the basis of such 
party's percentage of fault and not on the basis of the 
doctrine of joint and several liability.'' Fla. Stat. 
Sec. 768.81(d). Once again, the state Supreme Court, in Fabre 
v. Marin, 623 So. 2d 1182 (1993), concluded that, in the 
``unambiguous'' language of the statute, ``the only means of 
determining a party's percentage of fault is to compare that 
party's percentage to all of the other entities who contributed 
to the [claimant's harm], regardless of whether they have been 
or could have been joined as defendants.'' Fabre, 623 So. 2d at 
1885 (fault apportioned to immune spouse).
    Section 108 essentially is a compromise between the 
principle of joint and several liability--with its 
disproportionate attendant costs--and the concept of liability 
limited to degree of fault or responsibility. As a result of 
section 108, a defendant can only be held liable for 
noneconomic losses in proportion to its share of the total 
fault or reponsibility--regardless of whether all who caused 
the harm are defendants in the case. Liability for economic 
losses is unaffected by this section, leaving in place, for 
example, the law of those states which have relieved minimally 
responsible defendants of joint liability for such losses.
    A defendant, however, can continue to be held liable--to 
the extent authorized by state law--for economic losses that 
exceed its proportionate share. Thus, an injured party can 
obtain disproportionate recovery from one defendant for 
pecuniary losses the plaintiff sustains if state law allows it. 
This provides plaintiffs with a substantial measure of 
protection while recognizing--in the treatment of noneconomic 
damages--the equities of those defendants with limited fault or 
responsibility.
    The distinction this legislation draws between the 
treatment of economic and noneconomic damages is rooted in 
principle. We do not impinge on rights a plaintiff may have 
under state law to fully recoup pecuniary losses because such 
recompense may be necessary to avoid exacerbating the 
plaintiff's harm. An individual who cannot recover medical 
expenses, for example, may be denied access to essential 
treatment. If lost earnings are not replaced, individuals and 
families may not have the resources to pay for food and 
shelter. Bankruptcy is a prospect for many victims of serious 
injury if financial relief for out-of-pocket expenses is not 
available. Although there is an element of unfairness in 
requiring a defendant to pay disproportionately for economic 
damages--even if other responsible entities lack resources--
humane considerations dictate that we not impinge on full 
recovery of such losses from any liable defendant if allowed in 
a particular state.

Statute of repose

    The absence of a uniform statute of repose for product 
liability cases has resulted in enormous legal costs and 
staggering potential liability for manufacturers whose products 
are alleged to cause harm decades after their intended use. In 
such cases, where witnesses have disappeared or have died, 
memories have faded, and evidence has been lost, manufacturers 
are severely disadvantaged in their efforts to defend 
themselves. Many states have provided statutes of repose, but 
they vary in length and in their applicability to various 
products. A uniform statute of repose is needed, in order to 
provide certainty and finality in commercial transactions.
    Section 109 serves the broad public policy goal of finality 
in commercial transactions by providing that, after 15 years, 
manufacturers will be protected from having to defend claims 
other than those for latent illness. There are important 
considerations favoring statutes of repose:
          After the passage of a reasonable length of time, 
        manufacturers should be free from burdens of disruptive 
        and protracted liability so that they may be able to 
        plan their affairs with a degree of certainty. Statutes 
        of repose promote the public goal of certainty and 
        finality in the administration of commercial 
        transactions by terminating liability at a set time;
          Difficulty exists in locating reliable evidence and 
        defending claims many years after a product's 
        manufacture;
          Statutes of repose prevent the unfairness that occurs 
        when manufacturers are held liable for goods that have 
        been beyond their control and subject to misuse or 
        alteration for decades;
          Statutes of repose are necessary to avoid the 
        possibility of juries unfairly imposing current legal 
        and technological standards on product manufactured 
        many years prior to suit;
          Statues of repose are an appropriate response to the 
        current litigation explosion. The pendulum has swung 
        too far towards penalizing defendants even when they 
        have exercised all reasonable care;
          Statutes of repose help encourage the kind of 
        innovation needed to make the U.S. strong at home and 
        competitive abroad. They are necessary to prevent 
        certain manufacturers from being discouraged from 
        producing beneficial goods due to the high cost or 
        unavailability of product liability insurance;
          A rational statute of repose provides consumers ample 
        opportunity to discover manufacturing and design 
        defects, while at the same time allowing manufacturers 
        to quantify better their liability exposure;
          Statutes of repose allow an injured party to pursue 
        claims against those defendants whose more recent 
        activities (e.g., failure to maintain, improper 
        handling, etc.) more proximately caused the injuries;
          Statutes of repose enable companies to make sound 
        business decisions (acquisitions, e.g.) without having 
        to be concerned about exposure for damages and harm 
        incurred decades earlier.
    Because of these arguments the Committee concluded there 
was a need for a uniform statute of repose for product 
liability actions. After this 15 year period of time, when 
evidence has been lost and witnesses have died or disappeared, 
it is disruptive, costly and unfair to burden manufacturers 
with protracted litigation related to products that have been 
out of their control for many years.

Punitive damages

    Federal legislation limiting punitive damages is necessary 
because excessive punitive damage awards burden interstate and 
foreign commerce, unfairly penalize defendants out of 
proportion to injuries sustained, and add needless uncertainty 
to the litigation process--with the consequence that the 
settlement value of cases with tenuous liability can be 
inflated greatly. Businesses and consumers pay an unacceptably 
heavy price. Efforts to implement punitive damages reform at 
the state level have proved uneven--leading to widely varying 
rules across the country.
    The United States Supreme Court has recognized that 
punitive damages awards have ``run wild.'' Pacific Mutual Life 
Insurance Co. v. Haslip, 499 U.S. 1, 18 (1991). The problems 
are not merely anecdotal. A recent study by the Texas Public 
Policy Foundation found explosive increases in both the 
frequency of punitive damage awards and their size. From the 
early 1980s to the early 1990s, the total number of punitive 
awards in Dallas County, Texas, was 14 times greater and the 
average award, adjusted for inflation, was 19 times higher. In 
Harris County (Houston), total awards were up 26 fold and the 
average award was up eightfold.
    Similarly, a 1987 study by the Institute for Civil Justice 
found that the average punitive damage award in Cook County, 
Illinois, between 1965 and 1969, was $43,000. Between 1980 and 
1984, it was $729,000--an increase of about 1,500 percent or 17 
times over 20 years.
    In years past, when punitive damage awards were rare, the 
result in an individual case had little if any national impact. 
However, the increased frequency and size of these awards are 
now having a serious impact on all aspects of our society. The 
Texas Public Policy Foundation study found that punitive 
damages have a ``splash effect,'' that high punitive awards 
penalize everyone as risk costs are shifted forward through 
higher prices to customers; backward through lower payments to 
employees, vendors, and investors; and sideways through their 
insurance mechanisms to other policyholders.
    As noted earlier, Richard K. Willard testified before the 
Committee on February 13, 1995, and emphasized the national 
implications of excessive punitive damage awards. Mr. Willard 
noted:

          * * * these awards are not just taxes on the company 
        involved--they are taxes on all of us, in virtually all 
        phases of our lives. What happens in one state affects 
        the whole nation, and their ``punitive tax'' hits 
        average Americans and small businesses worst of all.

    The Supreme Court, in both the Haslip case and in TXO 
Production Corp. v. Alliance Resources Corp., 113 St. Ct. 2711 
(1993) has indicated that punitive damages in an amount that is 
highly disproportionate to the level of compensatory damages 
may violate constitutional due process. In addition, both the 
American College of Trial Lawyers, in 1989, and the American 
Law Institute, in 1991, have recommended that the amount of 
punitive damages be limited to a specified ratio of 
compensatory damages. However, the Supreme Court has so far 
refused to establish ``a mathematical bright line.'' H.R. 956 
would establish that ``bright line.''
    Limitations on punitive damages do not interfere in any way 
with the rights of victims to collect compensation in the form 
of both economic and noneconomic damages for the harm they 
suffer. The portion of a tort recovery for such pecuniary 
losses as wages and medical expenses and such intangible, 
nonmomentary losses as pain and suffering--to cite some 
examples--is unaffected by punitive damages reform. When 
Congress decides to limit punitive damages, we are setting 
parameters on punishment. The principle of proportionality 
which guides the formulation of punitive damages reform also 
guides our efforts in the criminal law area.
    The ``clear and convincing evidence'' rule applicable to 
claims for punitive damages is an intermediate burden of proof 
that recognizes the quasi-criminal nature of a punitive damages 
award. The term ``clear and convincing evidence'' is defined in 
section 202 as ``that measure or degree of proof that will 
produce in the mind of the trier of fact a firm belief or 
conviction as to the truth of the truth of the allegations 
sought to be established.'' It is a higher standard than 
``preponderance of the evidence'' applicable to most civil 
claims--but a lower standard that ``proof beyond a reasonable 
doubt'' applicable in criminal cases. The fact that something 
may be more probable than not, which generally is sufficient 
for purposes of establishing a right to compensation, cannot 
justify imposing punishment. It is offensive to our sense of 
basic fairness to punish individuals or entities based on a 51 
percent likelihood.
    The substantive standard for awarding punitive damages is 
that ``the harm suffered was the result of conduct--(1) 
specifically intended to cause harm, or (2) conduct manifesting 
a conscious, flagrant indifference to the rights of others.'' 
Punitive damages are appropriate to punish or deter deliberate, 
egregious misconduct but are entirely inappropriate for 
negligence or carelessness. The potential for compensatory 
damage awards coupled with marketplace constraints on harmful 
conduct provide the appropriate incentives for individuals and 
entities to adhere to reasonable standards of care and also 
avoid defects in the design of products.
    The proportionality principle applicable to punitive damage 
awards is expressed in the ceiling of three times the economic 
loss or $250,000, whichever is greater, this formula, it must 
be emphasized again, does not detract from a claimant's ability 
to obtain noneconomic damages for intangible losses such as 
pain and suffering. A plaintiff who collects punitive damages 
essentially gets a windfall that Congress can limit without 
impinging on compensatory damages.
    Three times the amount of economic loss can result in very 
sizeable penalties and operate as a powerful deterrent to 
misconduct. In cases where the economic loss is not 
substantial, punitive damages nevertheless can total a quarter 
of a million dollars--itself a sizeable sum. If a number of 
people are harmed by conduct meriting punitive damages, the 
potential awards--in the aggregate--may possibly exceed the 
individual ceiling substantially.
    Section 201 also provides for a separate proceeding to 
determine punitive damages at the request of either party in a 
case. Bifurcation serves the important purpose of shielding a 
jury from the prejudice that may result if evidence relevant 
only to punitive damages is presented before liability is 
determined. A defendant's ``deep pocket''--which may be 
relevant to deterring egregious misconduct--is irrelevant on 
the issue of liability. A jury, however, may confront 
difficulty in disregarding such information pursuant to 
judicial instructions. The prudent course is to authorize 
separating the compensatory and punitive damages phases of a 
case in the interest of enduring that decisions are based on 
relevant evidence. Bifurcation also prevents confusion relating 
to the burden of proof--since the general rule in civil cases 
is a preponderance of the evidence to assess liability, in 
contrast to the ``clear and convincing'' standard often 
favored--and incorporated in H.R. 956--for proof leading to a 
punitive damages award.

Committee consideration

    On February 23, 1995 the Committee met in open session and 
ordered favorably reported the bill H.R. 956, as amended, by a 
rollcall vote of 21-11, a quorum being present.

Vote of the committee

    The following rollcalls took place during Committee 
deliberations on H.R. 956 (February 22 and February 23, 1995).
    1. A motion by Mr. Hyde to table the motion (offered by Mr. 
Conyers) to postpone Committee consideration of H.R. 956 until 
March 1. The motion to table the Conyers motion was approved by 
a rollcall vote of 20-15.
        AYES                          NAYS
Mr. Hyde                            Mr. Conyers
Mr. Moorhead                        Mrs. Schroeder
Mr. Sensenbrenner                   Mr. Frank
Mr. McCollum                        Mr. Schumer
Mr. Gekas                           Mr. Berman
Mr. Coble                           Mr. Boucher
Mr. Smith                           Mr. Bryant of Texas
Mr. Schiff                          Mr. Reed
Mr. Gallegly                        Mr. Nadler
Mr. Canady                          Mr. Scott
Mr. Inglis                          Mr. Watt
Mr. Goodlatte                       Mr. Becerra
Mr. Buyer                           Mr. Serrano
Mr. Hoke                            Ms. Lofgren
Mr. Bono                            Ms. Jackson-Lee
Mr. Heineman
Mr. Bryant of Tennessee
Mr. Chabot
Mr. Flanagan
Mr. Barr

    2. An amendment by Mrs. Schroeder to strike the section 
allowing several liability for non-economic losses and 
requiring that non-economic losses be included in the formula 
for calculating punitive damages. The Schroeder amendment was 
defeated by a rollcall vote of 14-18.\1\

    \1\ Both Ms. Jackson Lee and Mr. Schumer stated for the record 
that, had they been present, they would have voted ``aye'' on the 
Schroeder amendment.

        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mrs. Schroeder                      Mr. Moorhead
Mr. Frank                           Mr. Sensenbrenner
Mr. Berman                          Mr. McCollum
Mr. Boucher                         Mr. Gekas
Mr. Reed                            Mr. Coble
Mr. Nadler                          Mr. Smith
Mr. Scott                           Mr. Gallegly
Mr. Watt                            Mr. Canady
Mr. Becerra                         Mr. Inglis
Mr. Serrano                         Mr. Goodlatte
Ms. Lofgren                         Mr. Hoke
Mr. Schiff                          Mr. Bono
Mr. Buyer                           Mr. Heineman
                                    Mr. Bryant of Tennessee
                                    Mr. Chabot
                                    Mr. Flanagan
                                    Mr. Barr

    3. An amendment by Mrs. Schroeder to the definition of 
``product'' to exclude any product causing harm, injury, 
illness, or disease affecting reproductive organs or causing 
fetal malformation or demise. This amendment was defeated by a 
13-20 rollcall vote.\1\
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mrs. Schroeder                      Mr. Moorhead
Mr. Frank                           Mr. Sensenbrenner
Mr. Schumer                         Mr. McCollum
Mr. Berman                          Mr. Gekas
Mr. Boucher                         Mr. Coble
Mr. Bryant of Texas                 Mr. Smith
Mr. Nadler                          Mr. Schiff
Mr. Scott                           Mr. Gallegly
Mr. Watt                            Mr. Canady
Mr. Serrano                         Mr. Inglis
Ms. Lofgren                         Mr. Goodlatte
Ms. Jackson-Lee                     Mr. Buyer
                                    Mr. Hoke
                                    Mr. Bono
                                    Mr. Heineman
                                    Mr. Bryant of Tennessee
                                    Mr. Chabot
                                    Mr. Flanagan
                                    Mr. Barr

    \1\ Mr. Reed and Mr. Becerra stated for the record that, had they 
been present, they would have voted ``aye'' on the Schroeder amendment.

    4. An amendment by Mr. Barr to add findings and purposes to 
title I. The Barr amendment was adopted by a rollcall vote of 
19-13.
        AYES                          NAYS
Mr. Hyde                            Mr. Conyers
Mr. Moorhead                        Mr. Frank
Mr. Sensenbrenner                   Mr. Schumer
Mr. McCollum                        Mr. Berman
Mr. Gekas                           Mr. Bryant of Texas
Mr. Smith                           Mr. Reed
Mr. Schiff                          Mr. Nadler
Mr. Gallegly                        Mr. Scott
Mr. Canady                          Mr. Watt
Mr. Inglis                          Mr. Becerra
Mr. Goodlatte                       Mr. Serrano
Mr. Buyer                           Ms. Lofgren
Mr. Hoke                            Ms. Jackson-Lee
Mr. Bono
Mr. Heineman
Mr. Bryant of Tennessee
Mr. Chabot
Mr. Flanagan
Mr. Barr

    5. An amendment by Mr. McCollum to raise the cap on 
punitive damages to a maximum of one million dollars. The 
McCollum amendment was defeated by a 14-15 rollcall vote.
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Schumer                         Mr. Moorhead
Mr. Berman                          Mr. Sensenbrenner
Mr. Boucher                         Mr. Gekas
Mr. Reed                            Mr. Gallegly
Mr. Nadler                          Mr. Canady
Mr. Scott                           Mr. Inglis
Mr. Watt                            Mr. Goodlatte
Ms. Lofgren                         Mr. Hoke
Ms. Jackson-Lee                     Mr. Bono
Mr. McCollum                        Mr. Heineman
Mr. Coble                           Mr. Bryant of Tennessee
Mr. Schiff                          Mr. Chabot
Mr. Buyer                           Mr. Flanagan
                                    Mr. Barr

    6. An amendment by Mr. McCollum providing a defense against 
punitive damages for a manufacturer or product seller of drugs, 
where a drug, devise or biologic was (1) subject to premarket 
approval by the FDA or (2) is generally recognized as safe and 
effective pursuant to FDA regulations. The McCollum amendment 
was defeated by a 10-21 rollcall vote.
        AYES                          NAYS
Mr. McCollum                        Mr. Hyde
Mr. Coble                           Mr. Moorhead
Mr. Smith                           Mr. Gekas
Mr. Schiff                          Mr. Gallegly
Mr. Buyer                           Mr. Canady
Mr. Heineman                        Mr. Inglis
Mr. Bryant of Tennessee             Mr. Goodlatte
Mr. Chabot                          Mr. Hoke
Mr. Schumer                         Mr. Bono
Mr. Boucher                         Mr. Flanagan
                                    Mr. Barr
                                    Mr. Conyers
                                    Mr. Berman
                                    Mr. Bryant of Texas
                                    Mr. Reed
                                    Mr. Nadler
                                    Mr. Scott
                                    Mr. Watt
                                    Mr. Becerra
                                    Ms. Lofgren
                                    Ms. Jackson-Lee

    7. An amendment by Mr. Schumer providing for a sunset of 
titles I and II, five years after the date of enactment, unless 
the Secretary of Commerce certifies not less than 90 days prior 
to that date, that liability insurance rates have declined not 
less than ten percent. The Schumer amendment was defeated by a 
12-18 rollcall vote.
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mrs. Schroeder                      Mr. Moorhead
Mr. Schumer                         Mr. Sensenbrenner
Mr. Berman                          Mr. McCollum
Mr. Boucher                         Mr. Gekas
Mr. Reed                            Mr. Coble
Mr. Nadler                          Mr. Smith
Mr. Scott                           Mr. Schiff
Mr. Watt                            Mr. Canady
Mr. Becerra                         Mr. Inglis
Ms. Lofgren                         Mr. Goodlatte
Ms. Jackson-Lee                     Mr. Buyer
                                    Mr. Bono
                                    Mr. Heineman
                                    Mr. Bryant of Tennessee
                                    Mr. Chabot
                                    Mr. Flanagan
                                    Mr. Barr


    8. An amendment by Mr. Bryant of Tennessee to reduce the 
damages in a product liability action by the percentage of 
responsiblity for the harm to the claimant, that is 
attributable to a misuse or alteration of the product. The 
Bryant amendment was adopted by a 21-12 rollcall vote.
        AYES                          NAYS
Mr. Hyde                            Mr. Conyers
Mr. Moorhead                        Mr. Berman
Mr. Sensenbrenner                   Mr. Bryant of Texas
Mr. McCollum                        Mr. Reed
Mr. Gekas                           Mr. Nadler
Mr. Coble                           Mr. Scott
Mr. Smith                           Mr. Watt
Mr. Schiff                          Mr. Becerra
Mr. Gallegly                        Mr. Serrano
Mr. Canady                          Ms. Lofgren
Mr. Inglis                          Ms. Jackson-Lee
Mr. Buyer                           Mr. Goodlatte
Mr. Hoke
Mr. Bono
Mr. Heineman
Mr. Bryant of Tennessee
Mr. Chabot
Mr. Flanagan
Mr. Barr
Mr. Schumer
Mr. Boucher


    9. Amendment by Mr. Berman providing several liability only 
for defendants found less than 20% responsible for the 
claimant's harm. The Berman amendment was defeated by a 14-19 
rollcall vote.
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Schumer                         Mr. Moorhead
Mr. Berman                          Mr. Sensenbrenner
Mr. Boucher                         Mr. McCollum
Mr. Bryant of Texas                 Mr. Gekas
Mr. Reed                            Mr. Coble
Mr. Nadler                          Mr. Smith
Mr. Scott                           Mr. Gallegly
Mr. Watt                            Mr. Canady
Mr. Becerra                         Mr. Inglis
Mr. Serrano                         Mr. Goodlatte
Ms. Lofgren                         Mr. Buyer
Ms. Jackson-Lee                     Mr. Hoke
Mr. Schiff                          Mr. Bono
                                    Mr. Heineman
                                    Mr. Bryant of Tennessee
                                    Mr. Chabot
                                    Mr. Flanagan
                                    Mr. Barr


    10. An amendment by Mr. Schiff to amend the cap on punitive 
damages, so that it would be three times both economic and non-
economic damages. The Schiff amendment was defeated by a 16-17 
rollcall vote.
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Schumer                         Mr. Moorhead
Mr. Berman                          Mr. Sensenbrenner
Mr. Boucher                         Mr. McCollum
Mr. Bryant                          Mr. Gekas
Mr. Reed                            Mr. Smith
Mr. Nadler                          Mr. Gallegly
Mr. Scott                           Mr. Canady
Mr. Watt                            Mr. Inglis
Mr. Becerra                         Mr. Goodlatte
Mr. Serrano                         Mr. Hoke
Ms. Lofgren                         Mr. Bono
Ms. Jackson-Lee                     Mr. Heineman
Mr. Coble                           Mr. Bryant of Tennessee
Mr. Schiff                          Mr. Chabot
Mr. Buyer                           Mr. Flanagan
                                    Mr. Barr

    11. An amendment by Mr. Nadler limiting the cap on punitive 
damages to actions in federal court. The Nadler amendment was 
defeated by a rollcall vote of 14-17.
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Schumer                         Mr. Moorhead
Mr. Boucher                         Mr. Sensenbrenner
Mr. Bryant of Texas                 Mr. McCollum
Mr. Reed                            Mr. Gekas
Mr. Nadler                          Mr. Gallegly
Mr. Scott                           Mr. Canady
Mr. Watt                            Mr. Inglis
Mr. Becerra                         Mr. Goodlatte
Mr. Serrano                         Mr. Buyer
Ms. Lofgren                         Mr. Hoke
Ms. Jackson-Lee                     Mr. Bono
Mr. Coble                           Mr. Heineman
Mr. Schiff                          Mr. Bryant of Tennessee
                                    Mr. Chabot
                                    Mr. Flanagan
                                    Mr. Barr

    12. An amendment by Mr. Watt to remove the clear and 
convincing evidence standard from the bill. The Watt amendment 
was defeated by a rollcall vote of 10-19.
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Bryant of Texas                 Mr. Moorhead
Mr. Reed                            Mr. Sensenbrenner
Mr. Nadler                          Mr. McCollum
Mr. Scott                           Mr. Coble
Mr. Watt                            Mr. Schiff
Mr. Becerra                         Mr. Gallegly
Mr. Serrano                         Mr. Canady
Ms. Lofgren                         Mr. Inglis
Ms. Jackson-Lee                     Mr. Goodlatte
                                    Mr. Buyer
                                    Mr. Hoke
                                    Mr. Bono
                                    Mr. Heineman
                                    Mr. Bryant of Tennessee
                                    Mr. Chabot
                                    Mr. Flanagan
                                    Mr. Barr
                                    Mr. Schumer

    13. An amendment by Mr. Watt to make a product seller 
liable for ``reckless conduct''. The Watt amendment was 
defeated by a rollcall vote of 13-16.
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Schumer                         Mr. Moorhead
Mr. Bryant of Texas                 Mr. Sensenbrenner
Mr. Reed                            Mr. McCollum
Mr. Nadler                          Mr. Gallegly
Mr. Scott                           Mr. Canady
Mr. Watt                            Mr. Inglis
Mr. Becerra                         Mr. Goodlatte
Mr. Serrano                         Mr. Buyer
Ms. Lofgren                         Mr. Hoke
Ms. Jackson-Lee                     Mr. Bono
Mr. Coble                           Mr. Heineman
Mr. Schiff                          Mr. Bryant of Tennessee
                                    Mr. Chabot
                                    Mr. Flanagan
                                    Mr. Barr

    14. An amendment by Mr. Nadler providing for an exception 
to the statute of repose where a manufacturer or seller is 
alleged to have known of a defect in a product but concealed, 
misrepresented or failed to warn of the defect. The Nadler 
amendment was defeated on a 10-19 rollcall vote.\1\
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Schumer                         Mr. Moorhead
Mr. Bryant of Texas                 Mr. Sensenbrenner
Mr. Reed                            Mr. McCollum
Mr. Nadler                          Mr. Gekas
Mr. Scott                           Mr. Coble
Mr. Watt                            Mr. Schiff
Mr. Serrano                         Mr. Gallegly
Ms. Lofgren                         Mr. Canady
Ms. Jackson-Lee                     Mr. Inglis
                                    Mr. Goodlatte
                                    Mr. Buyer
                                    Mr. Hoke
                                    Mr. Bono
                                    Mr. Heineman
                                    Mr. Bryant of Tennessee
                                    Mr. Chabot
                                    Mr. Flanagan
                                    Mr. Barr

    \1\ The original version of the transcript contained a number of 
errors in the vote count on this amendment. THe transcript did not 
correspond with the records of the Committee tally clerks, nor did it 
correspond with the notes of the official reporter. Subsequently, the 
Official Reporters to House Committees acknowledged in writing that 
errors did occur in the original version of the transcript and a 
corrected version was provided to the Committee. The Committee is 
satisfied that this is an accurate statement of the vote on this 
amendment.

    15. The motion to favorably report H.R. 956, as amended, to 
the House. The motion was agreed to by a rollcall vote of 21-
11.\1\
        AYES                          NAYS
Mr. Hyde                            Mr. Conyers
Mr. Moorhead                        Mrs. Schroeder
Mr. Sensenbrenner                   Mr. Schumer
Mr. McCollum                        Mr. Berman
Mr. Gekas                           Mr. Bryant of Texas
Mr. Coble                           Mr. Nadler
Mr. Smith                           Mr. Scott
Mr. Schiff                          Mr. Watt
Mr. Gallegly                        Mr. Serrano
Mr. Canady                          Ms. Lofgren
Mr. Inglis                          Ms. Jackson-Lee
Mr. Goodlatte
Mr. Buyer
Mr. Hoke
Mr. Bono
Mr. Heineman
Mr. Bryant of Tennessee
Mr. Chabot
Mr. Flanagan
Mr. Barr
Mr. Boucher

    \1\Had Mr. Reed been present he would have voted ``aye''. Had Mr. 
Becerra been present he would have noted ``nay''.
                      section-by-section analysis

                   TITLE I--PRODUCT LIABILITY REFORM

Section 101--Short title

    This section states that title I may be cited as the 
``Common Sense Product Liability Reform Act of 1995.''

Section 102--Findings and purposes

    Section 102(a) consists of a detailed congressional 
statement of findings delineating how current law relating to 
product liability burdens interstate and foreign commerce. The 
statement points to consumers ``adversely affected through the 
withdrawal of products and producers from the national market, 
and from excessive liability costs passed on to them through 
higher prices,'' industries put at risk by ``the recent 
explosive growth in product liability actions and punitive 
damage awards,'' and the ``ability of American industry to 
compete internationally'' undermined by ``extraordinary costs 
of the product liability system.''
    Section 102(b) states that the purposes of title I are to 
promote the free flow of goods in interstate commerce. The 
means of accomplishing this objective, emphasized in the 
statement, are (1) uniform legal principles, (2) reasonable 
limits, (3) compensation for injured persons, (4) reduction of 
transaction costs and delays, (5) better allocation of 
responsibility, and (6) greater predictability.

Section 103--Federal cause of action precluded

    This section makes it clear that this title does not create 
a new basis for federal court jurisdiction, nor does the bill 
create a new federal cause of action for product liability 
claims. Specifically, title I does not establish federal 
question jurisdiction under 28 U.S.C. Sec. 1331, nor does it 
create new jurisdiction based upon acts of Congress regulating 
commerce under 28 U.S.C. Sec. 1337. The resolution of product 
liability claims is left to the state courts or federal courts 
that currently have jurisdiction over those claims. Thus, 
product liability actions will continue to be handled primarily 
in the state courts. Existing federal court jurisdiction based 
upon diversity of citizenship--28 U.S.C. Sec. 1332--is 
retained.

Section 104--Applicability and preemption

    Section 104(a) provides that this title governs any product 
liability action brought in any State or Federal court on any 
theory for harm caused by a product. Consistent with the 
definitions of ``commercial loss'' in section 111(2) and the 
definition of ``harm'' in section 111(4), section 104 states 
that a civil action for commercial loss is not a product 
liability action subject to title I, but rather is governed by 
applicable commercial or contract law.
    Thus, insofar as a claim is for a ``commercial loss'' as 
defined in section 111(2), state or federal commercial or 
contract law will continue to control. Section 111(2) defines a 
``commercial loss'' as the ``loss of or damage to a product 
itself.'' Where the claim is solely for loss of or damage to 
the product itself, the modern trend of the law is to permit 
only the non-tort claims to proceed under commercial or 
contract law. The United States Supreme Court noted in East 
River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858, 871 
(1986), that ``[w]hen a product injures only itself the reasons 
for imposing a tort duty are weak and those for leaving the 
party to its contractual remedies are strong.'' See also Bocre 
Leasing Corp. v. General Motors, ______ N.Y.2d ______ (Jan. 10, 
1995).
    Typically, state courts have interpreted the statute of 
limitations in such cases to run from the date of sale, 
regardless of when the plaintiff ``discovered'' the existence 
of a claim. See, e.g., Uniform Commercial Code Sec. 2-725(1). 
Thus, the spectre of a long period of uncertainty about the 
possibility of the filing of future claims does not exist in 
this area of the law.
    Consistent with East River S.S. Corp., in using the terms 
``shall be governed only by applicable commercial or contract 
law'' in section 104, the intention is that the Uniform 
Commercial Code, which has been adopted in nearly all states, 
or other state or federal contract law would apply. It is not 
intended that the term ``commercial'' be construed so broadly 
as to include tort concepts such as negligence or strict 
liability.
    Section 104(b) states that this title supersedes state law 
only to the extent that it applies a new rule of law with 
respect to a particular subject (i.e., legal issue) covered by 
this title. For example, the bill does not include a defense 
based upon assumption of risk. So, if state law allows such a 
defense, it would remain the law of the state. An alternative 
example, however, would be the provision (section 105) 
contained in H.R. 956 dealing with product seller liability. 
Since the bill addresses that subject, it would preempt state 
law on that specific subject. When the bill covers a specific 
topic, however, preemption would occur only when the bill 
addresses a specific subject within that topic. For example, 
section 108 of H.R. 956 provides several liability (i.e. 
liability in proportion to fault) for noneconomic loss. Thus, 
it leaves the States free to make their own determinations 
about the apportionment of economic damages.

Section 105--Liability rules applicable to product sellers

    Section 105 deals with the liability of product sellers and 
specifies when they are responsible for harm caused by a 
product. Generally, under subsection (a) product sellers are 
liable only for their own negligence, their failure to comply 
with their own express warranty, or their intentional 
wrongdoing. Under subsection (b), product sellers are liable 
for a manufacturer's errors only if that manufacturer cannot be 
made subject to the jurisdiction of the court or is unable to 
pay a judgment.
    Specially, subsection (a) states that a product seller 
(other than a manufacturer) shall be liable to a claimant, only 
if the claimant establishes that (1) the product seller failed 
to exercise reasonable care with respect to the product that 
allegedly caused the harm and such failure was the proximate 
cause of the claimant's harm; (2) the product seller made an 
express warranty applicable to the product, independent of any 
express warranty made by the manufacturer with respect to the 
same product, and the product failed to conform to the seller's 
express warranty and that failure caused the claimant's harm; 
or (3) the product seller engaged in intentional wrongdoing (as 
determined under applicable state law) and such intentional 
wrongdoing was the proximate cause of the claimant's harm.
    Subsection (b) defines those narrow circumstances where a 
product seller remains liable as if it were a manufacturer. 
Specifically, those fact situations are when the manufacturer 
responsible is not subject to service of process under the laws 
of any state where the action might have been brought or if the 
court determines that the claimant would not be able to enforce 
a judgment against the manufacturer.
    During Committee consideration of H.R. 956, an amendment 
was adopted to subsection (b)(2). That amendment (``if at any 
point before or after entry of judgment,'') was added to the 
exception language which makes a product seller liable as if it 
were a manufacturer in instances where the claimant is unable 
to enforce a judgment against the manufacturer. This amendment 
does not override state laws regarding time limits for 
commencing an action against or conditionally dismissing a non-
manufacturer, or on levying judgments, or other statutes 
related to the certifying and collection of judgments. The 
amendment was offered and accepted in an effort to ensure that 
reasonable time limits set by the states on these issues would 
not be cut off by the mere entry of judgment under this 
provision.
Section 106--Defense based on claimant's use of intoxicating alcohol or 
        drugs

    Section 106(a) establishes a complete defense in product 
liability actions if the claimant was under the influence of 
intoxicating alcohol or any drug when the accident or other 
event which resulted in the claimant's harm occurred, and such 
condition was more than 50 percent responsible for the accident 
or other event which resulted in the claimant's harm. Section 
106(b) provides that state law will determine whether a person 
was intoxicated or under the influence of intoxicating alcohol 
or any drug.

Section 107--Misuse or alteration

    Section 107(a) would reduce the damages otherwise 
recoverable against the manufacturer or seller of a product by 
the percentage of responsibility for the claimant's harm 
``attributable to misuse or alteration of a product by any 
person.'' The burden to establish the percentage of 
responsibility for the claimant's harm would lie with the 
manufacturer or product seller. Section 107(a)(1) provides 
incentives to the manufacturer of a product to provide express 
warnings or instructions which state law determines to be 
adequate. Section 107(a)(2) allows a manufacturer or product 
seller to reduce its damages if it can show by a preponderance 
of the evidence that the claimant's harm was proximately caused 
by a use or alteration which an ordinary person (one who uses 
or consumes the product) knew, or should have known, involved a 
risk of harm. Under section 107(c), no reduction would be 
permitted if the misuse or alteration were attributable to the 
claimant's employer or co-employees and they are immune from 
suit pursuant to the state law applicable to workplace 
injuries. This provision, however, does not affect the full 
application of section 108 as to several liability for 
noneconomic loss.

Section 108--Several liability for non-economic loss

    This section would eliminate joint and several liability 
for noneconomic losses, but would retain it--to the extent 
available under the law of a particular state--for economic 
losses. Specifically, this provision states that each defendant 
in a product liability action shall be severally liable for the 
claimant's noneconomic losses (i.e., such as damages for pain 
and suffering, emotional distress, etc.). Thus, each defendant 
will be liable for noneconomic damages in proportion to its 
share of the fault for the claimant's harm. The proportionality 
provisions apply to all wrongdoers. Each defendant will remain 
jointly and severally liable for economic losses (i.e., lost 
wages, medical expenses, etc.), if applicable law so provides. 
Both ``economic loss'' and ``noneconomic loss'' are defined 
terms in section 111(3) and section 111(6) of the bill, 
respectively.
Section 109--Statute of Repose

    Section 109 provides a uniform ``statute of repose'' for 
product liability actions--a time limit of fifteen years on 
litigation involving products. It states that a product 
liability action shall be barred unless the complaint is filed 
and served within fifteen years after the time of delivery of 
the product, meaning the time when a product is delivered to 
its first purchaser or lessee who was not involved in the 
business of manufacturing or selling the product or using it as 
a component part of another product to be sold. In providing 
that a product liability action shall be ``barred'' unless the 
complaint is filed and served within 15 years after the time of 
delivery, the term ``barred'' is intended to mean what it says. 
Thus, the section precludes the application of judge-made 
exceptions which have crept into the interpretation of statutes 
of limitations and repose, such as doctrines of tolling, 
estoppel and concealment. Were such doctrines to be applied to 
section 109, it would defeat the very purpose of having a 
single, easily understood period within which all product 
liability claims are to be brought.
    This provision does not apply to claims involving ``chronic 
illness'', nor does it affect the eighteen year statute of 
repose (``limitation period'') for general aviation aircraft 
established by the General Aviation Revitalization Act of 1994 
(Public Law 103-298). The Committee intends the term ``chronic 
illness'' to mean a physical illness, the evidence of which 
does not ordinarily appear or manifest itself less than 15 
years after exposure to the product. So, a person would not 
know for significant, extended period of time that they are 
ill--such as with asbestosis. Consequential effects of an acute 
harm caused by a product are not intended to be covered by the 
term ``chronic illness.''
    During Committee consideration, an amendment was adopted to 
the statute of repose section providing that ``(t)his section 
does not bar a product liability action involving a 
manufacturer or product seller who made an express warranty in 
writing as to the safety of the specific product involved which 
was longer than 15 years.'' So, where, prior to a sale, a 
manufacturer or product seller has expressly warranted in 
writing that a specific product will be safe for a period in 
excess of 15 years, the statute of repose will have no 
application during the life of the warranty. In such an 
instance the manufacturer or product seller has freely made a 
promise to the customer in order to induce the sale and should 
be held accountable during the full life of the promise. For 
this exception to apply, however, the warranty must be (a) 
``express''; (b) ``in writing''; (c) ``as to the safety''; (d) 
``of the specific product''; and (e) address a period of time 
``longer than 15 years''.
    Thus, statements such as the product is a ``good product'', 
``works well'' or is ``problem-free'' are not expressed 
warranties ``as to the safety'' of the specific product. Such 
statements speak only to general product attributes and, and 
therefore, are not warranties as to safety. Further, in order 
for an express warranty to speak to future performance for a 
period of time ``longer than 15 years'' there must be explicit 
language in the writing so stating. General, vague or imprecise 
terms such as ``durable'', ``long lasting'' or ``permanent'' 
will not qualify as a warranty ``longer than 15 years''.
Section 110--Foreign-made products

    This section states that title I shall not apply to a 
product liability action involving a product or component part 
of a product, manufactured outside the United States, unless 
the foreign manufacturer has appointed an agent in the United 
States to receive service of process from anywhere in the 
United States.

Section III--Definitions

    Section III defines various terms used in title I. They are 
summarized or discussed here out of alphabetical order to place 
them in a thematic context.
    A ``product liability action'' [section 111(9)] is brought 
by or on behalf of a ``claimant'' [section 111(1)] on any 
theory for ``harm'' [section 111(4)] caused by a ``product'' 
[section 111(8)] or product use. H.R. 956's definitions of 
product liability action and other terms in section 111 are not 
intended to expand in any way the application of strict 
liability in tort. ``Claimant'' embraces ``person[s]'' [section 
111(7)]--a broad range of individuals and entities. ``Harm'' is 
product caused physical injury, illness, disease, death, or 
property damage but excludes ``commercial loss'' [section 
101(2)]--loss or damage to a product itself. ``Commercial 
loss'' is limited to ``loss of or damage to a product itself 
incurred in the course of the ongoing business enterprise 
consisting of providing goods or services for compensation.''
    ``Product'' is broadly defined to include items ``capable 
of delivery itself or as an assembled whole, in a mixed or 
combined state, or as a component part or ingredient'' that are 
``produced for introduction into trade or commerce'', possess 
``intrinsic economic value'', and are ``intended for sale or 
lease''. Tissue, organs, blood, and blood products--that are 
human in origin--as well as electricity, utility delivered 
water, natural gas, and steam are explicitly excluded from the 
product definition.
    ``Economic loss'' [section 101(3)] is measurable pecuniary 
loss in contrast to the subjective, nonmonetary nature of 
``noneconomic loss'' [section 101(6)].
    H.R. 956 provides a ``product seller'' [sec. 111(10)] with 
limited protection from liability for product defects if the 
seller does not also qualify as a manufacturer. A product 
seller is involved in placing a product in the stream of 
commerce or engages in installation, repair, or maintenance of 
the harm causing aspect of a product.
    Individuals and entities with businesses involving leasing 
or renting products to others are considered product sellers 
under title I of H.R. 956. Consequently, civil actions against 
a product lessor or renter for harm caused by a permissive user 
of that product are deemed to be a product liability action as 
that term is defined in the bill. For example, any law of any 
state that permits a claimant, absent a showing of negligence 
on the part of the vehicle owner, to pursue a claim against the 
owner of a rented or leased motor vehicle for harm caused by a 
permissive user of that vehicle would be preempted by title I 
of the bill. Therefore, a civil action against the lessor or 
renter of a product for harm caused by the permissive use of 
that product would be considered a product liability action.
    A ``manufacturer'' [section 111(5)] is ``engaged in a 
business to produce, create, make, or construct any product (or 
component part of the product).'' Under limited circumstances, 
a product seller can be considered a manufacturer and therefore 
rendered ineligible for seller related limitations on 
liability. These circumstances may arise when a seller (1) 
``produces, creates, makes, or constructs and designs or 
formulates, or has engaged another person to design or 
formulate, an aspect of a product (or component part of a 
product) made by another'', or (2) ``holds itself out as a 
manufacturer'' to the product user.
    The term ``state'' [section 111(11)] appears in the bill 
primarily in the context of references to State law. ``State'' 
is used in the broad sense to include not only 50 states but 
also the District of Columbia, U.S. territories and 
possessions, and political subdivisions of the foregoing.
                   TITLE II--PUNITIVE DAMAGES REFORM

Section 201--Punitive damages

    Subsection (a) provides that punitive damages may be 
awarded in any civil action in any Federal or State court if 
the claimant establishes by ``clear and convincing evidence'' 
that the harm suffered was the result of conduct: (1) 
specifically intended to cause the harm; or (2) manifesting a 
conscious, flagrant indifference to the rights of others. There 
must be an awareness that the conduct was likely to result in 
the harm complained of--not merely an act of negligence or a 
good faith error. The clear and convincing evidence standard is 
now the law in twenty-four states. This language is modeled 
after a proposal by the American College of Trial Lawyers 
(ACTL).
    Section 201(b) is intended to ensure that punitive damages 
will be awarded in proportion to the degree of harm caused by 
the product. Punitive damages may be awarded up to (``shall not 
exceed'') three times the amount awarded to the claimant for 
economic loss, or $250,000, whichever is greater. The 
alternative monetary ceiling of $250,000 assures that, where 
there are comparatively modest economic losses but particularly 
egregious conduct, a quarter of a million dollars in punitive 
damages may be awarded. The ``shall not exceed'' language in 
subsection (b) makes it clear that juries are free to award 
less than three times economic loss.
    Subsection (c) states that, except as provided in section 
301, this title shall apply to any civil action brought in a 
federal or state court on any theory where punitive damages are 
sought. This title does not create a cause of action for 
punitive damages in any state that does not permit such 
actions.
    Section 201(d) allows either party the option to obtain a 
separate proceeding on the issue of whether punitive damages 
should be awarded. Thus, a trial would be divided into 
segments. The first would address compensatory damages, 
including non-economic losses. The second would deal with 
punitive damages. Bifurcation allows the jury to more easily 
separate the burden of proof required for basic liability 
(i.e., proof by a preponderance of the evidence) from that 
required for an award of punitive damages (clear and convincing 
evidence). It also prevents evidence that is relevant only to 
the issue of punitive damages from prejudicing the 
determination of liability for compensatory damages.
    Section 202 contains the definitions for title II of the 
bill. The definition of ``claimant'' is essentially identical 
to that contained in title I, except that it refers to ``civil 
actions'' rather than ``product liability action''.
    The term ``clear and convincing evidence'' is defined as 
that ``measure or degree of proof that will produce in the mind 
of the trier of fact a firm belief or conviction as to the 
truth of the allegation sought to be established.'' The 
definition makes it clear that this level of proof is more than 
a ``preponderance of the evidence'' but less than that required 
in a criminal case (``beyond a reasonable doubt'').
    The definitions of ``economic loss'' and ``state'' are 
identical to those contained in title I. ``Harm'' is defined to 
mean ``any legally cognizable wrong or injury'' for which 
punitive damages may be awarded.

             TITLE III--EFFECT ON OTHER LAW; EFFECTIVE DATE

Section 301--Effect on other law

    This section lists a number of laws and legal defenses that 
are not superseded or affected by the bill. The bill does not 
waive or affect the defense of sovereign immunity of any state 
or of the United States. Furthermore, nothing in the bill shall 
be construed to supersede any federal law. The legislation does 
not affect any provision of the Foreign Sovereign Immunities 
Act of 1976. The bill does not preempt state choice-of-law 
rules with respect to claims brought by a foreign nation or a 
foreign citizen. Nor does the bill supersede any Federal law 
that specifically allows punitive damage awards, such as the 
illegal wiretapping statute (18 U.S.C. Sec. 2520) or title VII 
of the Civil Rights Act of 1964, as amended.
Section 302--Effective date

    This effective date section states that the provision of 
title I and title II apply to actions commenced after the date 
of enactment.

                      committee oversight findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         committee on government reform and oversight findings

    No findings or recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI of the Rules of the House of 
Representatives.

               new budget authority and tax expenditures

    Clause 2(l)(3)(B) of House rule XI is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               congressional budget office cost estimate

    In compliance with clause 2(l)(C)(3) of rule XI of the 
Rules of the House of Representatives, the Committee sets 
forth, with respect to the bill, H.R. 956, the following 
estimate and comparison prepared by the Director of the 
Congressional Budget Office under section 403 of the 
Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 23, 1995.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 956, the Common Sense Product Liability Reform 
Act of 1995, as ordered reported by the House Committee on the 
Judiciary on February 22, 1995. CBO estimates that enacting 
H.R. 956 would not result in any significant cost to the 
federal government. Because enactment of H.R. 956 would not 
affect direct spending or receipts, pay-as-you-go procedures 
would not apply to the bill.
    This bill would set new standards for federal and state 
product liability cases and would limit the amount of punitive 
damages that may be awarded to a plaintiff to three times the 
plaintiff's economic award or $250,000, whichever would be 
larger. The new standards included in H.R. 956 would address 
when a product seller is liable for damages, when a defense 
based on a claimant's use of drugs or alcohol could be used, 
and how several liability for non-economic loss would be 
determined. In addition, the bill would prohibit the filing of 
law suits unless the complaint is filed within 15 years after 
the injured party received the product.
    Because product liability cases are handled primarily in 
state courts, CBO estimates that enacting this bill would have 
no significant budgetary impact on federal courts. State courts 
could initially incur additional costs if potential plaintiffs 
attempted to file their cases before the existing state laws 
are superseded. In the longer run, increasing savings could be 
realized to the extent that enacting this bill would discourage 
potential plaintiffs from filing product liability suits. Based 
on information from the National Center for State Courts, CBO 
estimates that the amount of such costs or savings would be 
significant.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susanne S. 
Mehlman.
            Sincerely,
                                              James L. Blum
                              (For Robert D. Reischauer, Director).

                     inflationary impact statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee estimates that H.R. 956 
will have no significant inflationary impact on prices and 
costs in the national economy.
                            DISSENTING VIEWS

                              Introduction

    The undersigned reject the legislation on product liability 
adopted by the Committee. Not only has the Republican majority 
gone off-message from their ``Contract with America'' in 
totally preempting the States, but they have also dealt a 
vicious blow to the middle and working classes--supposedly the 
constituency most receptive to the Contract's provisions. 
Powerful forces, indeed, must have exerted great sway on the 
Contract's drafters to produce a bill that runs so counter to 
the themes and values supposedly embodied in their new charter 
of liberty.
    For the same Members who have used the first 50 days of the 
104th Congress to castigate the Federal government's unwanted 
entrance into so many areas of State and local life, H.R. 956 
must be considered their equivalent of a ``Great Society'' 
piece of legislation to invade State prerogatives in the area 
of tort law. Since the earlier origins of the Republic, the 
States--and not the Federal government--have provided the means 
for victims of injury and tortious harm to sue to collect 
compensation for their economic damages as well as their non-
economic damages. In particularly egregious--though highly 
limited--areas of harm where the victim suffered as a result of 
flagrant or intentional actions by the offender, punitive 
damages have also been awarded as a deterrent to future 
misconduct.
    And while understandably, a small group in corporate 
America have always despised State law protections for citizens 
against defective products, they generally have fared well 
under the State system because of their resource advantage in 
the litigation. It was only in the past 15 years that powerful 
coalitions banded together to attack the tort system developed 
in State law by seeking a uniform set of so-called Federal 
``reforms'' aimed at severely reducing their liability, and 
even the number of suits that could be brought against them. 
They were not successful. Because States themselves have been 
sensitive to striking the right litigation balance between 
their injured citizens and businesses who generate jobs and 
commerce within their borders, Congress in the past decade has 
properly deferred to the States and rejected well-funded 
assault after assault on the State system. In doing so, the 
Congress was aided by the empirical evidence, which bears out 
the fact that the balance struck by the States has indeed been 
evenhanded, and in no way an inducement to a tort litigation 
explosion alleged by the proponents of such legislation. 
Moreover, the state system of tort law has had an added 
benefit; for it has lead to self-regulation and self-discipline 
by manufacturers of products without the need for Federal 
bureaucracy to oversee every aspect of the production of every 
product.
    Now, however, the coalition seeking radical surgery of the 
State laws have drafted their wish list, handed it off to the 
new majority, who, while swallowing hard in going against the 
sacred themes of their Contract, nevertheless have stepped 
forward to push this composite of radical change, captioned 
``civil justice reform''. No one can dare accuse the majority 
of being half-hearted or incomplete in the effort. For, H.R. 
956 eviscerates product liability on all conceptual fronts: it 
restricts the number of cases that can be filed; it eliminates 
many potential defendants from cases; it places a cap on 
punitive damages, but a cap with discriminates in favor of the 
very rich; and it causes great inconvenience to plaintiffs by 
often requiring them to go to another jurisdiction to file 
their case.
    As will be explained below, the legislation is radical. It 
is not reform; it is a wholesale revolution brought solely in 
the name of corporate defendants. Victims of civil harm--unlike 
victims of crime--are not considered relevant to the debate. 
The new majority is thus embarked on a journey of taking an 
area of law that works well to protect all Americans, and 
substituting a new Federal system that will only work well for 
a class of businesses troubled by having to defend against 
suits for defective products brought by families on behalf of 
housewives and children. That is a disgrace, and will be 
recognized as such once the American people learn just what the 
abstract-sounding ``civil justice reform'' is all about. We 
intend to make sure that they do.

                      i. the state tort law system

    As part of our civil justice system, tort law in general 
and product liability law in particular, have evolved over the 
centuries to reflect societal values and needs. Because it is 
``common law''--that is, judge-made law--state tort law has 
been ``molded, refined, examined and changed in the crucible of 
actual decision, and handed down from generation to generation 
in the form of reported cases. In theory, the judges [draw] 
their decisions from existing principles of law; ultimately, 
these principles [reflect] the living values, attitudes and 
ethical ideas of the people.''\1\
    \1\ Lawrence M. Friedman, A History of American Law 17 (1973).
    The tort system provides a number of benefits to society:
          1. It compensates injured victims;
          2. It deters misconduct that may cause injury and 
        punishes wrongdoers who inflict injury;
          3. It prevents injury by removing dangerous products 
        and practices from the marketplace;
          4. It forces public disclosure of information on 
        dangerous products and practices otherwise kept secret;
          5. It expands public health and safety rights in a 
        world of increasingly complex technology.\3\
    \3\ Joan Claybrook, Consumers and Tort Law, 34 Fed. B. News & J 127 
(1987).
---------------------------------------------------------------------------
    The product liability system accomplishes its purposes of 
effecting behavior through the forces of the private market. 
Since often time dangerous and reckless activity is not 
prohibited by any governmental regulation, the States have 
chosen to rely upon the ``invisible hand'' of the tort system 
to alter behavior so as to prevent such conduct.
    If the courts move too far and upset the liability rules 
which carefully balance the interests of injured citizens and 
wrongdoers, history indicates that they and the Sate 
legislatures are able to respond through the necessary 
adjustments. For example, during the 1980's, a majority of 
State elected to adopt a number of product liability reforms 
involving areas such as punitive damages, joint and several 
liability, and strict liability.\4\ In the great tradition of 
being the ``laboratories of democracy,'' each State has thus 
been able to calibrate its own tort system and consider and 
adopt reforms based on the particular needs of its citizens and 
its desire to attract commerce. Restatements of law issued by 
legal scholars can serve as a catalyst to nationwide uniformity 
when and if the States consider it to be in their own best 
interests.
    \4\ See e.g., Thomas Koenig and Michael Rustad, ``The Quiet 
Revolution Revisited: An Empirical Study of the Impact of State Tort 
Reforms on Punitive Damages in Products Liability,'' 16 The Justice 
System Journal 21 (1993); Henry Cohen and La Vonne Mangan, ``Fifty-
State surveys on Selected Products Liability Issues,'' CRS Reports for 
Congress 95-300A, February 24, 1995.
---------------------------------------------------------------------------

                   ii. procedural history of h.r. 956

    Although the Judiciary Committee has not previously elected 
to consider broadscale product liability reform, H.R. 956 has 
been rushed through the Committee on the most expedited 
possible basis. The Committee scheduled only a single day 
(February 13) of hearings on the issue of product liability 
reforms and on that occasion limited its review to only a 
single panel of witnesses and only a single round of 
questions.\5\ Although the hearing's focus was on product 
liability reforms included in H.R. 10, on February 23, the 
Committee marked up H.R. 956, legislation far broader in scope 
than H.R. 10. The Committee markup was scheduled on a mere two 
days notice and occurred without the benefit of any 
subcommittee consideration.
    \5\ Product Liability and Civil Justice Reform: Hearings before the 
House Comm. on the Judiciary, 104th Cong. 1st Sess (February 13, 1995) 
[hereinafter, ``1995 Product Liability Hearings''].
                        iii. empirical evidence

    In recent years, a great wealth of empirical data has been 
produced relating to the causes of litigation in general, and 
product liability cases in particular. Surprisingly, none of 
this data in anyway supports the conclusion that Congress needs 
to take action to limit or minimize the impact of product 
liability cases or the size of punitive damages as H.R. 956 
does. This lack of empirical foundation was acknowledged at the 
Judiciary Committee's recent hearing through the following 
colloquy between Rep. Bryant (D-TX) and proponents of product 
liability reforms:

          Mr. Bryant. [When] you ask the question, is there any 
        comprehensive objective study [or] body of evidence 
        that indicates they have a [product liability] crisis? 
        And they [proponents of product liability reform] 
        always begin to disassemble and you can't get an answer 
        to it.
          * * * * * * *
          [to the panel] If you have got an objective, 
        comprehensive study to talk about, I want to hear about 
        it.
          Mr. Head [Vice President and General Counsel of FMC 
        Corporation]. There is no such thing. The State courts 
        don't capture the data. Marc Galenter of Wisconsin said 
        it right, pick a number, any number: So folks are 
        picking numbers as it suits them. The States will 
        eventually capture it, but today it isn't captured in 
        any useful form.\6\
    \6\ 1995 Product Liability Hearings, Transcript at 82 and 85.

    Review of the empirical evidence clearly supports a number 
of conclusions: first, that product liability cases have not 
``exploded'' and that they constitute a very small portion of 
the civil justice system; second that where cases are brought 
they do not result in excessive awards and only infrequently 
result in punitive damages; third that product liability cases 
do not negatively impact American competitiveness; and fourth 
that the real crisis in the courts stems from the increasing 
number of commercial disputes between businesses.

Product liability cases have not ``exploded,'' rather, they constitute 
        a very small portion of the civil justice system

    The most recent and exhaustive empirical studies 
demonstrate that product liability filings make up an extremely 
small percentage of all litigation, and that most types of 
product liability cases are on the decline. The most recent 
analysis of State court cases by the National Center for State 
Courts finds that product liability cases are only 4% of all 
Tort filings. Tort filings, in turn, are only 9% of all civil 
filings, and civil filings are only 27% of all filings. This 
means that product liability filings represent a mere 36 
hundredths of a percentage point of the civil caseload and 97 
thousandths of a percentage point of the total caseload in the 
state courts.\7\ Moreover, in recent years the number of 
product liability filings has been steadily declining.\8\ 
Indeed, the more salient problem is the failure of product 
liability victims to sufficiently utilize the tort compensation 
system. According to a recent Rand Corporation study, only ten 
percent of people who are injured ever use the tort system to 
seek compensation for their injuries.\9\
    \7\ State Court Caseload Statistics: 1992 Annual Report 15-16, 
(March 1994), National Center for State Courts: Williamsburg, VA. This 
data is not an aberration. In 1991, the Center for State Courts found 
that product liability lawsuits also represented only 4 percent of all 
tort cases and that tort cases represent only 10 percent of all civil 
cases. See also, 1995 Product Liability Hearings, Statement of 
Professor Thomas A. Eaton (summarizing findings concerning tort 
litigation in selected Georgia counties).
    \8\ Since 1990, the national total of state tort filings has 
decreased by 2 percent. State Court Caseload Statistics: 1992 Annual 
Report, (March 1994), National Center for State Courts: Williamsburg, 
VA.
    Excluding the unique case of asbestos, the number of product 
liability filings in federal court declined 36 percent from 1985 to 
1991. See Marc Galanter, ``Pick A Number, Any Number'' Legal Times 
(February 17, 1992); See also Terrence Dungworth, Product Liability and 
Business Sector: Litigation Trends in Federal Courts, Institute for 
Civil Justice (1988).
    \9\ Hensler, et al., ``Compensation for Accidental Injuries in the 
United States,'' Rand Corporation, Institute for Civil Justice (1991), 
Executive Summary at 18.
Where cases are brought they do not result in excessive awards and only 
        infrequently result in punitive damages

    When cases are brought, the evidence indicates that juries 
do not show any particular bias toward the victim. To the 
contrary, a 1994 study by Jury Verdicts Publications found that 
plaintiffs in product liability suits won only 41 percent of 
the cases, and the plaintiff recovery rate has been on the 
decline since 1989 when it peaked at 55 percent.\10\ When 
verdicts are awarded, they are neither ``erratic'' nor 
``excessive'' as proponents of H.R. 956 claim; rather awards 
for compensatory damages have been shown to be fair and 
rationale. For example, a recent General Accounting Office 
study of product liability verdicts concluded that the size of 
damage awards generally correlated to the severity of the 
injury suffered and the amount of the actual economic loss.\11\ 
If anything, the evidence bears out that jurors are 
increasingly skeptical about the legitimacy of tort victims' 
claims and are hesitant to provide large damage awards.\12\ And 
recent studies have found a national ``pro-defendant'' trend 
that has resulted in far fewer large tort awards.\13\
    \10\ ``Current Trends in Products Liability,'' Jury Verdict 
Research Series at 26 (I.R.P. Publications 1994).
    \11\ U.S. General Accounting Office, ``Product Liability: Verdicts 
and Case Resolution in Five States.'' GAO/HRD-89-99 (September 29, 
1989).
    \12\ Valerie Hans and William Lofquist, ``Jurors Judgments in 
Business Liability in Tort Cases,'' 26 Law & Society Review 85 (1992).
    \13\ Theodore Eisenberg & James Henderson, ``Inside the Quiet 
Revolution in Products Liability,'' 39 UCLA L. Rev. 731 (1992).
---------------------------------------------------------------------------
    Punitive damage verdicts have also been found to be 
exceedingly rare. A 1992 study by Professor Michael Rustad of 
the Suffolk University Law School (termed by the Supreme Court 
as ``the most exhaustive study'' of product liability 
awards\14\) uncovered just 353 punitive awards in product 
liability cases between 1965 and 1990.\15\ Excluding the 91 
asbestos cases, there were an average of only 11 such awards 
reviewed each year in the entire country. Furthermore, over 
half of the punitive damage awards in the study were either 
reduced in settlement negotiations or reduced or reversed by an 
appellate court.\16\
    \14\ See Honda Motor Co., Ltd. v. Oberg, 114 S.Ct. 2331, 2341, n. 
11 (1994).
    \15\ Michael Rustad, ``In Defense of Punitive Damages in Products 
Liability: Testing Tort Anecdotes with Empirical Data,'' 78 Iowa L. 
Rev. 1, 38 (1992).
    \16\ Id. at 55.
    And in the few cases where punitive damages are awarded, 
they have been found to play a vital role in deterring 
businesses from consciously developing and placing dangerous 
products into the marketplace.\17\ For instance, more than 75 
percent of the non-asbestos defendants subject to punitive 
awards between 1965 and 1990 took some sort of post-litigation 
step toward making their products safe, usually in the form of 
fortified warnings, product withdrawals or added safety 
features.\18\ Similarly, a manufacturer of children's pajamas, 
the fabric of which was 100 percent untreated cotton 
flannelette, stopped making the highly flammable garment in 
1980 only after a Minnesota jury ordered the company to pay $1 
million in punitive damages to a 4-year old girl who had been 
badly burned when her pajama top caught fire.\19\
    \17\ See Michael Rustad, ``Demystifying the Functions of Punitive 
Damages in Products Liability: An Empirical Study of a Quarter Century 
of Verdicts'' (1991).
    \18\ See 1995 Products Liability Hearings, Statement of Larry 
Stewart, President of the Association of Trial Lawyers of America, at 
7.
    \19\ Id. at 7-8.
---------------------------------------------------------------------------

Product liability cases do not negatively impact american 
        competitiveness

    Proponents of H.R. 956 have further argued that 
federalizing State tort law is necessary to protect the 
competitive position of American manufacturers. This contention 
is also not supported by any empirical data, as competitiveness 
studies and industry surveys indicate that liability costs 
represent less than one percent of the total costs for most 
industries.\20\ And even this small cost should not be 
considered a unique ``liability tax'' on U.S. businesses, since 
all companies, both domestic and foreign, are subject to the 
same liability laws for harmful products sold in this country. 
In actuality, many countries with less ``threatening'' tort 
systems often impose substantially greater taxes and 
governmental safety regulation that result in compliance costs 
far greater than that imposed by the American system.\21\ 
Moreover, the current product liability system can be seen as 
providing an innovation incentive for businesses to develop 
safe products, as American products have developed an 
international reputation for safety and reliability.\22\
    \20\ Kenneth Jost, ``Tampering with Evidence: The Liability and 
Competitiveness Myth,'' ABA Journal (April, 1992).
    \21\ See ``Not Guilty,'' The Economist (February 13, 1993); Werner 
Pfennigstorf and Donald Gifford, ``A Comparative Study of Liability Law 
and Compensation Schemes in Ten Countries and the United States,'' 
Industry Research Council (1991).
    \22\ See Joan Claybrook, ``The Consumer Stake in Product 
Liability,'' Toxics Law Reporter (February 20, 1991); Nathan Weber, 
``Product Liability: The Corporate Response,'' The Conference Board 
(1987).
The real crisis in the courts stems from the increasing number of 
        commercial disputes between businesses

    H.R. 956 makes no effort to address the true litigation 
explosion in America which is between businesses themselves. 
Contract cases, which make up only one type of all commercial 
litigation, have increased by 232 percent over the period 1960-
1988 and are growing at a faster rate than tort filings.\23\ 
Comprising 18.4 percent of all civil filings, such contractual 
disputes constitute the greatest percentage of all civil 
actions. Thus, businesses themselves should be seen as 
constituting the main source of any burden on the U.S. court 
system and the well being of the economy. It is therefore 
ironic that product liability cases where businesses are the 
harmed parties are completely excluded from the H.R. 956's 
purview.\24\
    \23\ Marc Galanter and Joel Rogers, ``A transformation of American 
Business Disputing? Some Preliminary Observations,'' Dispute Processing 
Research Program, Working Paper DPRP 10-3 (Univ. of Wisconsin Institute 
for Legal Studies, 1991).
    \24\ See Section 103 of H.R. 956 (``A civil action brought against 
a manufacturer or product seller for commercial loss shall be governed 
only by applicable commercial or contract law.'')
---------------------------------------------------------------------------

                        IV. Federalism Concerns

    The federal government has traditionally deferred to the 
States regarding tort law in general, and product liability in 
particular. Unfortunately, H.R. 956 would decimate over two 
centuries of respect for federalism by superimposing a new set 
of federal standards on the States.
    The Chief Justices have testified that the search for 
uniformity, which is purportedly at the heart of H.R. 956, will 
ultimately prove counterproductive.

          It follows that Federal standards, however well 
        articulated, will be applied in many different contexts 
        and inevitably will be interpreted and implemented 
        differently, not only by the State courts but also by 
        the Federal courts * * * Moreover, State Supreme Courts 
        will no longer be, as they are today, the final 
        arbiters of their tort law * * * a legal thicket is 
        inevitable and the burden of untangling it, if it can 
        be untangled at all, will lie only with the Supreme 
        Court of the United States, a court which many experts 
        feel is not only overburdened but also incapable of 
        maintaining adequate uniformity in existing Federal 
        law.\25\
    \25\ 1995 Product Liability Hearings, Statement of the Conference 
of Chief Justices at 6-7.

    The National Conference on State Legislatures also 
testified in opposition to the legislation. The Conference 
decried the ``one-size-fits-all federal solution on the 
States,'' and noted that federalizing this area of law would 
lead to greater confusion rather than certainty:
          [m]ore likely than ``predictability'' is the prospect 
        that this massive nationalization of civil law will 
        cause years of uncertainty, unpredictability and an 
        increasing flow [of] litigation to the Supreme Court. 
        It is time to set aside old assumptions about the 
        wisdom of Congress and the Supreme Court dictating 
        domestic policy in the states. Federalism offers 
        accountability, innovation and responsiveness in the 
        formulation of public policy. The era of federal 
        paternalism is over.\26\
    \26\ Id. Statement of the National Conference of State Legislature 
at 5.

    This massive shift of responsibilities from the State to 
the federal level comes at the same time when legislative 
momentum appears to be shifting in the exact opposite 
direction. As Rep. McCollum (R-FL), argued during consideration 
of a bill which would provide local communities with the 
discretion to allocate funds previously earmarked to provide 
---------------------------------------------------------------------------
100,000 new policeman:

          There are thousands of options that are out there, 
        not just the ones Washington may dream up as to what is 
        best for one city. It might be one thing that is good 
        for Sacramento, CA and another good for New Brunswick, 
        GA and another for Madison, WI. Who knows what is best 
        for these communities? That has been the problem with 
        the Democrats over the past 40 years controlling this 
        Congress. They believe that Washington knows best. We 
        believe the local communities know best * * *.\27\
    \27\ 141 Cong. Rec. H1721 (daily ed. February 14, 1995) (statement 
of Rep. McCollum).

    The same logic articulated by Republicans should apply to 
the issue of product liability responsibilities--the States, 
not the Congress knows best.
    H.R. 956 reaches far into State substantive civil law, 
forcing States to provide the necessary judicial structure to 
resolve product liability disputes without permitting them to 
decide the social and economic questions in the law that their 
courts administer. As a result, it constitutes a new unfunded 
mandate on the State civil justice systems, in contravention to 
the spirit and letter of unfunded mandate legislation recently 
adopted by the House.\28\
    \28\ H.R. 5, 104th Cong., 1st Sess. (1995).
---------------------------------------------------------------------------

                   V. Additional Substantive Concerns

    In addition to the general problems raised above concerning 
the overall purpose and effect of H.R. 956, we have a number of 
more specific concerns relating to particular provisions of the 
legislation.
    Although section 103 of H.R. 956 indicates that the bill is 
to generally supersede State law, the various limitations are 
drafted in a manner so that they only preempt State laws which 
are more favorable to plaintiffs and do not supersede State 
laws which are more favorable to corporate defendants.\29\ It 
seems clear that rather than seeking uniformity, the bill's 
drafters prefer to preempt only those State laws which are 
perceived as being more favorable to victims than to corporate 
defendants.
    \29\ Section 104 of H.R. 956 limits the types of claims which may 
result in liability, it does not establish any new claims; section 105 
creates a new defense based on claimant's use of intoxicating alcohol 
or drugs, it does not supplant any other defense; section 106 limits 
joint liability for non-economic losses, it does not mandate joint 
liability for economic loss; Title II limits the criteria for and 
amount of punitive damages, it does not mandate its award or eliminate 
any lower caps which may have been established by the States.
Limitation on product seller liability

    Section 104 of the legislation provides that 
notwithstanding State law, which traditionally allows sellers 
to be sued under a variety of legal theories for injuries 
caused by defective products, a seller may only be sued for 
breach of an express warranty, failure to exercise reasonable 
care, or intentional wrongdoing, unless the court determines 
the victim would be unable to enforce a judgment against the 
manufacturer. This could be construed as eliminating a seller's 
common law liability for (i) failure to warn a consumer about 
its unsafe characteristics and (ii) ``negligent entrustment'' 
(e.g., selling a firearm to an intoxicated person or liquor to 
a drunk driver). Section 104 would also eliminate the doctrine 
of implied product warranties by sellers, long accepted by the 
States pursuant to the widely respected Uniform Commercial 
Code.
    The section would also severely limit a victim's ability to 
bring suit against a seller as a means of obtaining more 
appropriate redress from the manufacturer. Sellers have long 
been considered to be an integral link in the chain of commerce 
(for both information about a product and knowledge about 
possible defects), and are often in the best position to bring 
a manufacturer into a court proceeding so that liability can be 
fairly established (potentially eliminating the retail seller's 
ultimate financial responsibility. For example, since sellers, 
unlike consumers, have an ongoing relationship with 
manufacturers, they are in a far better position to be able to 
establish jurisdiction over a manufacturer. Product sellers are 
also more like to be privy to information concerning alleged 
design and manufacturing defects, which are integral to a 
victim's ability to establish liability.

Limitation on liability where plaintiff has used alcohol or drugs

    Under the State common law doctrine of ``contributory 
negligence,'' a victim's damages are limited to the extent that 
his or her own negligence contributed to the accident in 
question. Section 105 alters this rule by specifying that 
notwithstanding State law, it shall be a complete defense to a 
product liability action if the victim was intoxicated and was 
more than 50% responsible for the accident. This constitutes a 
new federal substantive defense that would completely exculpate 
defendants from liability even where they are found to bear a 
significant responsibility for the harm in question. To this 
extent, it would significantly reduce the deterrent effect of 
State tort laws. Since Section 105 provides for no exceptions, 
it can result in a number of unfair results. For example, under 
the provision, manufacturers of devices designed to protect 
against using a product while intoxicated--such as 
breathalyzers now installed on some cars--would appear to be 
fully immunized from liability.

Limitation on joint and several liability

    Section 106 would alter the State common law rule of joint 
and several liability between defendants. Under this 
traditional rule, where more than one defendant is found 
liable, each defendant is held to be liable for the full amount 
of the damages. The justification for the rule is that it is 
better that a wrongdoer who can afford to do so pay more than 
its share, rather than an innocent victim obtain less than full 
recovery. Also, a defendant who pays more than its share of 
damages can seek contribution from the other defendants. This 
section would supersede State law by eliminating joint and 
several liability for non-economic damages (such as pain and 
suffering) in product liability cases.
    The effect of section 106 would be to shift costs from 
wrongdoers to victims. The provision discriminates against 
groups less likely to be able to establish significant economic 
damages, such as women, minorities, and the poor. Moreover, the 
elimination of joint and several liability would actually 
increase courts' caseloads and increase litigation costs, by 
discouraging settlements and requiring injured consumers to 
initiate multiple claims.
Statute of repose

    Section 107 would create a new federal ``statute of 
repose,'' barring any product liability action not brought 
within fifteen years of the date of delivery (except in cases 
of ``chronic'' illnesses).\30\ The statute of repose provision 
would result in a number of occasions where a defective product 
leads to harm that is totally non-compensable, and as such, is 
perhaps the most egregious provision in the whole bill. For 
example, it would apply in cases where the product had an 
actual useful safe life in excess of 15 years or where the 
defect or harm is not discoverable within the fifteen year 
period (such as a seat belt which is not tested until the time 
of an accident). As such, it would shift a large share of the 
costs of defective products form manufacturers to victims and 
society as a whole.
    \30\ The fifteen year figure is entirely random. Oddly, the fifteen 
year period is three years less than the statute of repose adopted last 
Congress pertaining to general aviation aircraft. See The General 
Aviation Revitalization Act of 1994, Pub. L. 103-298, Sec. 3(3), 108 
Stat. 1552, 1553 (1994).
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Limitations on punitive damages

    Title II of H.R. 956 would place a number of new 
restrictions on the extent to which defendants are subject to 
punitive damages in all civil cases. It would limit the award 
of punitive damages to only those cases where the victim had 
established by ``clear and convincing evidence'' that the harm 
suffered was the result of conduct specifically intended to 
cause harm manifesting a ``conscious, flagrant indifference to 
the safety of those persons who might be harmed by the 
product.'' Title II would also arbitrarily limit the amount of 
punitive damages to three times the amount awarded for economic 
injuries (e.g., lost wages and hospital bills) or $250,000, 
whichever is greater. Finally, Title II would permit a 
defendant to request a separate proceeding to determine whether 
punitive damages should be awarded and the extent of such 
damages.
    These changes would in large part eliminate the role of 
punitive damages in the product liability system, thereby 
reducing the system's overall deterrent effect. For a civil 
case, these proposed evidentiary and substantive standards come 
very close to ``criminalizing'' tort law for purposes of 
punitive damages: in other words, an injured victim would 
almost have to show that a manufacturer acted with ``criminal 
intent''--and not gross negligence. Permitting defendants to 
bifurcate proceedings concerning the award of punitive damages 
will lead to far more costly and time consuming proceedings, 
generally working to the disadvantage of harmed victims. 
Moreover, the proposed caps on punitive damages would have a 
disproportionately negative impact on women, minorities, and 
the poor; since they generally have less wages, a greater 
proportion of their damages are likely to be non-economic.

                             vi. conclusion

    Collectively, the supposed ``reforms'' included in H.R. 956 
would severely limit victims' ability to recover compensation 
for damages caused by defective products and other 
circumstances. In addition to raising core issues of fairness, 
the legislation would intrude into an area which has 
traditionally been the sole province of the States, many of 
which have enacted their own liability law changes in recent 
years. Moreover, the proposals would create a confusing overlay 
of federal and State laws, leading to increased costs and 
complexities in otherwise straightforward tort cases. These 
changes, which are designed to limit so-called ``frivolous 
lawsuits'' are not supported by a single objective empirical 
study; indeed they are being propounded at a time when the 
great wealth of data suggests there is no product liability 
explosion in our society. For these and the other reasons set 
forth above, we strongly believe H.R. 956 should be rejected.
                                   Jerrold Nadler.
                                   Zoe Lofgren.
                                   John Conyers.
                                   Howard L. Berman.
                                   Patricia Schroeder.
                                   Jose E. Serrano.
                                   Bobby Scott.
                                   John Bryant.
                                   Melvin L. Watt.