The Commerce Department yesterday proposed that businesses be given a tax break for setting aside funds from pre-tax income for self-insurance against product liability claims.
At the same time Commerce called for the creation of a federal interagency council to develop a policy to deal with the issue of product liability, which it called "a problem of national importance that must be addressed."
At a news conference to announce proposals that came out of a two-year Task Force study conducted by the department into growing problems involving product liability, Commerce General Counsel C. L. Haslam outlined several possible options the White House has to help ease the growing problem.
Pointing out that product liability premiums have increased substantially in recent years for manufacturers of pharmaceuticals, industrial equipment, medical devices and sporting goods, the report pointed out that increased product liability costs "may be one of several factors that may cause small manufacturers of highrisk products to terminate operations."
The report states that costs associated with product liability insurance increased over 200 percent from 1975 to 1976.
It added that "anecdotal data show much higher increases - over 1,000 percent - for some individual firms."
The report categorizes prospective actions as short-term and long-term solutions.
For the short term, the paper suggests a tax break. It also recommends that the administration not pursue either a federal insurance or reinsurance program relating to product liability now.
The tax break proposal would cover all firms which establish set-aside, self-insuring funds, with an upper ceiling of $25,000 a year.
But if a firm can demonstrate that it spends more than five percent of its gross receipts for product liability insurance, it would be allowed to deduct up to $100,000 from pre-tax earnings for a set-aside fund, under the commerce plan.
Victor Schwartz, chairman of the task force, emphasized that the $25,000 and $100,000 figures clearly targeted the proposal at small businesses, which he said were most affected by the problems.
He also stressed that the tax proposal is being studied by the Treasury Department, for its economic impact.
Commerce officials said that 13 other federal agencies also are studying the problem, and will submit their ideas on the subject to the White House within the next 60 days. The Commerce release yesterday was designed to provide a basis for discussion.
Some of the long-range recommendations made in the report were to:
Study the feasibility of federal product liability insurance regulations.
Draft a model product liability law that could be implemented at the federal level or utilized by states.
Draft legislation for federal standards that would make Workers' Compensation the sole source of monetary recovery for workers injured in product-related accidents.
Study the practicality of a no-fault plan.
Study the possibility of loans to qualified small businesses for product liability loss prevention technical assistance.
Schwartz said that there is a general agreement that no federal regulatory agency should be set up to deal with the problem. He said it is difficult for insurance companies to set nationwide rates when every state has a different policy toward liability.
Schwartz said the tax break proposal would allow small businesses to pay less for insurance right away. He explained that if a firm could set aside $100,000 under the tax break, it would only have to buy a $100,000-deductible insurance policy, because it could cover any loss up to that amount with its own fund.