OREGON LAW COMMISSION

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1 OREGON LAW COMMISSION INFORMATION ITEM July, 2000 A Report to the Statutes of Limitations Work Group regarding statutory time limitations on product liability actions From The Office of the Executive Director David R. Kenagy Prepared by Owen Von Flue Research Assistant

2 Questions Addressed What is the legislative history of ORS ? 2. What does the proposed federal product liability statute propose with regard to statutes of limitation and repose? 3. What are the state trends in products liability statutes of repose and limitations. Short Answer Legislative History: ORS was enacted in 1977 amidst a frenzy of national product liability reform. Oregon, like other jurisdictions, enacted a fixed statute of repose coupled with a statute of limitations. According to judicial interpretations of the legislative history it is clear that ORS was crafted in an attempt to strike an equitable balance between the need to limit manufacturer liability while still providing injured plaintiffs with adequate time to seek redress. Subsequent legislatures recognized plaintiffs did not have adequate time to seek redress when the statute of repose was applied to certain products. Therefore, exceptions to the statute were made. Whether the exceptions achieve social justice is a matter of opinion. Some argue that any exception to the fixed statute diminishes its efficacy, while others believe the current exceptions are not comprehensive enough and that additional exceptions are justified. Proposed Federal Legislation: The push for comprehensive federal products liability legislation also arose out of the so called crisis. Since 1982 successive attempts have failed to achieve enough support to become law. The 1997 attempt passed both houses only to fall victim to the President s veto. Currently, proposed legislation seeks to impose an 18 year statute of repose coupled with a 2 year statute of limitations for work place machinery. State Trends: While many jurisdictions have enacted specific time limitations for product liability actions, differences among the statutes far outnumber the simularities leaving no discernable trend. The political tension which dominates product liability legislation has in fact, yielded a wide range of different approaches. Oregon s fixed 8 year statute of repose and 2 year statute of limitations are quite typical of jurisdictions that apply fixed period statutes. Furthermore, Oregon s exceptions to the statute of repose are representative of the exceptions allowed in other jurisdictions with fixed statutes of repose. States that do not use fixed period statutes generally limit manufacturer liability to the useful safe life of the product. Whether fixed statutes or useful safe life determinations are more equitable depends on the perspective of the person answering the question. While fixed periods may unfairly limit liability when applied in specific cases, they are efficient in that case by case determinations are not necessary. Conversely, useful safe life statutes often require adjudication in order to appropriately draw the line of liability in each case.

3 Discussion ORS Legislative History: By the early 1970 s the country was in the midst of the so called products liability insurance crisis. There had been a vast increase in products liability cases, spurred on by the spread of strict liability in tort, set forth in Restatement (second) of Torts section 402A, published in More cases and higher awards resulted in an increase in products liability insurance premiums, with some smaller industries finding it difficult to purchase insurance. In 1975, an apparent problem arose in the field of product liability. A number of manufacturers and business periodicals alleged that product liability insurance had become unavailable or unaffordable. After some initial investigation, a Federal Interagency Task Force was established by the White House to study the product liability problem and report back to it...a report based on that document, entitled The Federal Interagency Task Force on Product Liability Briefing Report was released to the public on January 4, Final Report, Interagency Task Force on Product Liability. The Final Report was published on November 1, It recognized that the products liability insurance crisis was not a factor. It found, however, that a principal cause of the product liability problem was uncertainties in the tort litigation system and it recommended drafting of a Uniform Product Liability Act. The final report criticized the insurance industry for their lack of information regarding products liability claims and the basis for ratemaking. On October 31, 1979, a final Uniform Product Liability Act was published for individual adoption by the states. There was a general lack of enthusiasm for the Uniform Act and only bits and pieces were adopted by several states. When it became apparent that the states would not embrace the Uniform Act, the push began for federal legislation. There can be little doubt that ORS came about in large part due to the products liability frenzy happening around the country. By 1977 varying types of legislation had been introduced in almost every state for the purpose of imposing limitations upon recovery in products liability actions. Oregon certainly was not alone. Between 1976 and 1978 at least 28 states had enacted product liability reform. All of the reform measures included statutes of limitations and repose. In an effort to halt spiraling liability insurance costs, the legislature attempted to balance the competing equities of manufacturers and injured plaintiffs when it adopted ORS The defense bar argued that manufacturers and insurance companies should not be forced to defend lawsuits that arise years after a product was manufactured. They posited that the predictable limits of liability which statutes of repose guaranty, would stabilize insurance rates and manufacturing costs. Conversely, the plaintiffs bar claimed longer periods were necessary to detect harm, insurance rates are not significantly effected by statutes of repose and that manufacturers will make safer products if faced with the possibility of liability. Whether any significant connection between insurance costs and the alleged increase in product liability actions actually exists has been a matter of continuing debate. Evidence suggests that statutes of repose only affect a very small percentage of product liability suits which in themselves only represent a small fraction of the total number of tort claims. Stephen J.Werber, A National Product liability Statute of Repose Let s Not, 64 Tenn.L.Rev 763). Thus, their effect in stabilizing insurance

4 rates and product cost is questionable. In any event, the legislature was faced with the defense bar s strong lobbying effort and the opposing, but compelling interest of providing injured plaintiffs a reasonable opportunity to discover the injury and commence an action. Accordingly the Oregon lawmakers fashioned an agreeable compromise, an eight year statute of repose coupled with a two year statute of limitations. They effectively capped manufacturer liability at ten years while still providing adequate recourse to injured plaintiffs. The courts have been consistent in their interpretations of the legislative history and the conclusions above are uniformly supported in the case law. Real problems of statutory construction have occurred, however, when the courts have tried to apply the statute. In their efforts to reconcile the statute as written with the express legislative intent, the courts have relied extensively on the statutory history. Three decisions are particularly instructive: Baird v. Electromart Factory Direct, 47 Or.App. 565, 615 P.2d 335 (1980) (Resource Guide 1 ); Dortch v. A.H. Robins Co., 59 Or.App. 310, 650 P.2d 1046 (1982) (Resource Guide); Erickson Air-Crane Co. v. United Technologies, 303 Or. 81, 735 P.2d 614 (1987) (Resource Guide). In Baird, the plaintiff s home was damaged when her television set exploded on January 1, 1978 and she filed suit against the manufacturer March 19,1979. Since plaintiff had purchased the set on March 7, 1970 the defendant argued that the express language of the statute clearly required the action be commenced within the eight year statute of repose and the claim should be barred. Conversely, the plaintiff claimed that the language of provided up to ten years to bring a suit so long as the injury occurred in the first eight years.the court looked to the statutory history and found that the legislature intended to create an eight year statute of repose coupled with a two year statute of limitations. The statute of repose begins to run from a date certain, e.g. the date of manufacture or purchase, whereas the statute of limitations begins to run once the product causes a cognizable injury. The two operate together to provide plaintiffs up to ten years to bring an action. The Baird construction disregards the express wording of the statute and gives effect to the manifest intent of the legislature. 615 P.2d at 337. The committee determined, as a policy matter, that it wished to limit the manufacturer s exposure to a ten-year period. Id. The court went on to identify the paramount policy behind statutes of ultimate repose as a need to halt tort actions after a period of time because the evidence to support or contest liability becomes unavailable or unreliable. Id. Proponents of abolishing repose statutes now argue that new technology and better record keeping in the modern world makes reliable evidence available many years after production. In Dortch, the plaintiff was injured by a defective intra uterine device (IUD). She became aware of the injury to her body within eight years, but she did not know of the connection between the defendant manufacturer and the injury until after eight years had passed. The majority held that actionable injury within eight years of the date of purchase is the sine qua non of the grace period and that a cause of action is not actionable until the defendant is recognized as the source of harm. 650 P.2d at 1056 (Rossman dissenting). In other words, the court formulated and applied a discovery rule which requires discovery of both the injury and the tortfeasor within the eight year period of repose. Judge Rossman s dissent examines the legislative history of ORS to show how the majority s solution actually violates the legislative intent. He explained the problem thus: The application of a discovery rule in itself provides a grace period of sorts; i.e., during the period an

5 injury sustained is either undiscovered or its cause unknown, the applicable statute of limitation does not run. When the injury is sustained within eight years of the product s purchase, such a situation creates an anomaly in the system designed by the legislature and explained and applied in Baird. To allow the plaintiff a full two years from the date of discovery may extend the exposure of potential defendants beyond the intended ten year limitation on the commencement of product liability actions. To require the plaintiff to file an action within the two years of the date of injury is sustained assures that the action will be commenced in all cases within the ten-year period but will not give every potential plaintiff two years in which to bring an action; i.e., the two-year period runs even though the plaintiff is unaware of the injury. Neither alternative is consistent with the legislative intent. Both the majority and dissenting opinions in Dortch include numerous citations and quotes from the minutes of the House Committee on the Judiciary meetings of Erickson holds that ORS applies only to acts, omissions or conditions existing or occurring before or at the date on which the product was first purchased for use or consumption. 735 P.2d at 616. In support of the holding, Justice Gillette sums up the legislative history of ORS this way: [T]he assumption throughout legislative consideration of and the rationale behind HB 3039 was that manufacturers, distributors, sellers and lessors should have the benefit of a limited and predictable time period during which they would be exposed to liability for defects that existed when the product left a respective party s hands. That time period, codified in ORS (1), was the result of a compromise by business and insurance organizations in that the act or omission of the manufacturer covered by ORS to occurs when the manufacturer makes the product, but the time limitation does not begin to run until the time of purchase. Id, 735 P.2d at 616, 617 (Citing, Minutes, House committee on the Judiciary 9, 12 (May 16, 1977). Proposed Federal Legislation: Federal lawmakers have been attempting to pass a uniform federal product liability act for nearly twenty years. Recently, the 104 th Congress passed the Common Sense Product Liability Legal Reform Act, but were unable to override President Clinton s veto. 64 Tenn.L.Rev. 763; See Product Liability Reform Act of 1997, Report of the Committee on Commerce, Science and Transportation (1997) (Resource Guide). The so called Common Sense Act provided for an eighteen year statute of ultimate repose, which is longer than the current period of repose in any state, and a two year statute of limitations. Id. These limitations would apply to states as a ceiling leaving the states free to decide on shorter periods. Furthermore, the repose period would not apply to toxic torts, or to: vehicles, aircraft, trains and boats used for carrying passengers for hire. On September 22, 1999 the House Judiciary Committee passed a bill that provides for an 18 year statute of repose for workplace machinery. BNA Product Liability Daily, September 24, This bill also provides exemptions for injuries caused by toxic torts, automobiles and aircraft. Id. It remains to be seen whether this legislation will survive the President s scrutiny. The federal lawmakers are faced with the same fundamental policy question that has confounded state lawmakers: at what point does limiting manufacturer liability outweigh the interest in providing redress

6 to injured plaintiffs? And, even if this theoretical point in time can be sufficiently identified with regard to a single product, how can generally applicable statutes of repose equitably account for the wide differences between products? The best a statute can do is to approximate the market average optimum point and then apply that point to all products regardless of individual deviations. Some manufacturers will be exposed to an inordinate period of potential liability given the relatively brief intended life of their product. On the other end of the spectrum, manufacturers whose products cause injury only after long latency periods will escape liability altogether. The abbreviated 1997 Senate Report, which contains a representative federal proposal with arguments for and against national product liability legislation is available in the companion Resource Guide. For a full history and discussion of the federal products liability effort See, Victor E. Schwartz, Mark A. Behrens, Federal Product Liability Reform in 1997: History and Public Policy Support its Enactment Now, 64 Tenn.L.Rev. 595 (Resource Guide); Stephen J. Werber, A National Product liability Statute of Repose Let s Not, 64 Tenn.L.Rev 763 (Resource Guide). State Trends: Almost all states have enacted products liability statutes of limitation. Oregon s two year statute is quite typical. Furthermore, either by codification or judicial interpretation, most states, including Oregon, apply a discovery rule to the limitations period. Thus, little debate currently exists regarding this aspect of products liability. Statutes of repose, on the other hand, are the source of great discord. In fact, some states have declared statutes of repose unconstitutional under the open courts provisions of their state constitutions. Oregon does not have an open courts provision per sé, and the constitutionality of our statute is not in question. Sealey v. Hicks, 309 Or. 387, 788 P.2d 435 (1990). Two main trends exist regarding statutes of repose: fixed statutory periods of repose coupled with exceptions for products or classes of products that because of their unique potential to cause harm, are not amenable to equitable limitations based on a fixed period; and, useful safe life limitations. Again, which method best prevents unsafe products and equitably apportions the costs of product liability is largely a matter of opinion informed by the economic interest of the person or group expressing the opinion. Oregon has adopted the fixed statutory period and as indicated in the May 16, 2000 from Steve Blackhurst (Resource Guide), Oregon has subsequently made exceptions to the statute for certain products. As Mr. Blackhurst notes, the exceptions seem to have been made on an ad hoc basis at the behest of particular plaintiffs. Because of the intense political tension surrounding products liability, it has been difficult to proactively enact principled exceptions. There is nothing like a concrete example of manifest injustice to shock the conscious and engender support for legislative action. Reactive legislation, while helpful for the product at hand, leaves behind a residue of legal uncertainty. Clearly a statute which applies without exception to all products will be manifestly unjust in some circumstances. Absent the exception for asbestos, for example, Oregon victims would effectively be barred from seeking redress from culpable manufacturers. Ultimately, either the victim or the state would bear the cost of the injury and the manufacturer would escape liability. Accordingly, all jurisdictions which have fixed period statutes of repose also have exceptions for some products. Whether or not the products receiving exception are worthy is strictly a matter of opinion about social justice. The particular exceptions in Oregon s

7 statute are regarded by most jurisdictions as worthy of special treatment. Certainly, a strong case can be made that other products also justify exception. Conversely, the manufacturing industry and defense bar formulate compelling arguments against the existing exceptions. Obviously, universal agreement in this arena, should not be expected any time soon. Many jurisdictions have enacted or support useful safe life statutes. These states attempt to balance the rights of persons injured by products against the argument that manufacturers should not be liable for eternity with respect to products they have manufactured. It has been argued that limiting manufacturer liability with respect to products to the ordinary useful life of that product is a more equitable solution to the problem. While useful safe life statutes are conceptually appealing to plaintiffs, because they allow for case by case, product by product, determination of liability and are thus more flexible and equitable than flat line statutes of repose, they are not perfect in their application. Compared to fixed period statutes, useful safe life statutes increase the need for judicial proceedings thereby reducing efficiency and predictable. Arguably, these characteristics substantially diminish the efficacy of useful safe life statutes. 1 The Resource Guide contains selected materials referenced in this Information Item. It is located in the Office of the Executive Director of the Oregon Law Commission and is available for review.