| During the 1970s American insurance companies declared a product liability "crisis." They argued that the adoption of strict liability and the rise of "consumerism" during the 1960s had produced a litigation "explosion" of one million product claims annually. Many of these, they said, were unwarranted and resulted in excessive monetary awards. Insurers dramatically increased product liability premiums and called for substantial reform of the nation's tort system. This dissertation examines those assertions, analyzes why insurers made them, and argues that they were incorrect. To do so, I first trace the evolution of product liability law, liability insurance, and the "consumer movement," including events leading to a National Product Safety Commission. I then document insurers' increasingly strident alarms in trade publications such as National Underwriter and Business Insurance, and examine the critical lack of data concerning product liability claims that fueled insurers' fears and speculation. Next, I explain the deteriorating financial returns that insurers experienced during the period, as well as the factors beyond product claims that contributed to such returns, including subjective pricing of product liability insurance and broadly-worded "occurrence" coverage.; The dissertation then turns to federal government investigations of the purported crisis. An Inter-Agency Task Force concluded that insurers had spread misinformation and engaged in "panic pricing." During congressional hearings, insurance industry representatives acknowledged that the actual number of annual claims had been less than one-tenth the widely disseminated one million figure. The dissertation attributes the end of the "crisis" to high interest rates and to operation of the traditional property-casualty "underwriting cycle."; I conclude that although the insurance industry did not engage in actual fraud, as some critics claimed, its contentions were reckless and its actions irresponsible for an industry "affected with the public interest." The episode teaches that during periodic alleged insurance crises in which insurers (and policyholders whose premiums they dramatically increase) issue urgent calls for tort reform, legislators should exercise cautious skepticism and historical awareness. |
