A federal interagency task force yesterday accused the insurance industry of "panic pricing" without support of statistical data in setting rates for product liability insurance rates.
Product liability insurance protects manufacturers, distributors and retailers against claims by consumers for damages caused by their products. The task force was mandated to explore "the full scope of how our legal and private persons who are injured by products."
The 600-page report, the result of an 18-month-long study, takes manufacturers to task for not making products as safe as technology would allow. It also criticizes the uncertainties of law-suits in this area for creating problems in insurance rate setting.
While the study does not outline corrective measures for the problems it cities, the Commerce Department is to review it to determine if any federal action is needed.
The report estimates that 60,000 to 70,000 product liability claims were made in 1976.
"There was absolutely no basis for estimates that appeared in some trade industry press stating that one million claims were filed (in 1976)." the task force statement accompanying the report said.
The report blames three specific situations for contributing to the "the recent dramatic rise in product liability insurance rates:
Insurance companies have not used any statistical data to set their rates. Although the task force found "very substanial increases in product liability insurance premiums in the years 1974 through 1976." it also found that "there have been no published data that show a similar nationwideincrease in the average size of verdicts rendered against defendants in (the same) industries."
While the task force did suggest "that there has been a substanial increase in the number of pending claims . . . these increases did not appear . . . to be large enough to support insurance company premium increases.
Part of the product liability problem stems from the "fact that some manufacturers are producing unreasonably unsafe products. These products are mismanufactured - they suffer from defects in construction."
The court system for such claims, which differs in every state. has led to major problems in setting product liability rates. the study found.
Because the laws of each state are so different, the task force reports. "It is almost impossible to predict when courts will change the product liability rules and broaden the exposure of insureds. The instability in product liability law appears to have increased defense and investigation costs."
While the report concludes. "There is no widespread problem" for firm seeking to acquire product liability insurance it recognizes that small manufacturers of with "high-risk product lines are having difficulty" obtaining coverage.
The task force warned that problems obtaining insurance in pharmaceutical and other high-risk product lines "may reinforce trends against new product development with the result that some socially beneficial products may never be developed or may be discontinued. This is especially true for smaller firms."
But, the report adds, "Some of the products that are not produced may be ones whose potential for causing harm outweighs their social utility."
On the issue of the failure of business to produce products as safe as they could be, task force project director Ted Barrett II said in an inte-view yesterday. "Companies need quality control. There is an indication that particularly smaller companies don't pay enough attention to quality control techniques. People make mistakes."
Mavie A. Walters, vice president of Insurance Services Office, a nonprofit association funded by the liability insurance industry, said her association and the industry "have taken mayor steps to amend, to improve and expand the data base in the field of product liability."
Former Sen. Robert Taft, Jr., general counsel for a special committee of trade associations working for the revision of product liability laws, said "The reportlays a sound foundation for solving the crushing problem of workplace product liability costs and exposure. The problem threatens the competitive position of U.S. industry, the survival of many smaller companies and the availability of recovery for injured workers."
Taft's committee is proposing to make a no faultmethod of workers' compensation the exclusive method for recover for injuries incurred while at work, one area investigated by the task force.