Abstract: Mercenary, Mendacious Mythology? Assessing the Insurance Industry's Explanation for the Product Liability "Crisis" of the 1970s
During the 1970s American insurers declared a "crisis" in product liability. They argued that strict tort liability and the rise of "consumerism" had produced a litigation "explosion." Many claims, 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. I will discuss insurers' assertions and analyze why they made them—especially the critical lack of data that fueled their fears. I will note the deteriorating financial returns that insurers experienced during the period, as well as the factors beyond product claims that contributed to such returns, including highly subjective pricing of product liability insurance and broadly worded "occurrence" coverage. I will discuss federal government and insurance industry investigations of the purported crisis and the results of these examinations. Then I will turn to the end of the "crisis" and its relationship to high interest rates and the property-casualty "underwriting cycle." I will conclude with an assessment of some contemporary critics' claim that the insurance industry perpetrated an actual fraud upon the public, legislators, and regulators, and suggest the episode's relevance to recurring calls for tort reform.