The Carter administration has decided to support controversial new legislation that would allow companies from different states to form product liability insurance cooperatives to pool all or part of their liability, the Commerce Department announced yesterday.
The legislation, called the "Product Liability Risk Retention Act of 1979," is an outgrowth of a Commerce Department working group that studied widespread problems in assessing product liability and the role of government.
Product liability deals with the problem of compensating persons injured by products. It defines the responsbility of retailers, distributors and manufacturers for products that cause injury.
Under the new bill, product sellers will be able to negotiate as a group with insurance companies for premium and other discounts.
"The act should in fact reduce insurance costs for some businesses, particularly small businesses that have good claims experience," said Victor E. Schwartz, chairman of the Commerce task force.
One of the major problems, the group has found, is the fact that the insurance industry is regulated on a state by state basis, and the extent of liability a manufacturer might have for its product differs from one state to the next.
Supporters of the bill say it would result in reduced insurance costs for some product sellers, faster payment of valid claims by persons injured by products and increased competition among providers of product liability coverage. They claim it also would reduce outflows of capital and premiums to off-shore jurisdictions which have been capturing much of the product liability insurance business from U.S. corporations seeking to set up companies to insure themselves.
The Commerce Department, which would administer major portions of the act, began looking into the issue of product liability insurance because rates charged in that area have grown to such high levels as to cause serious economic problems for purchasers, particularly small businesses.
The confusion caused by differing state regulations compounded the problem, and even the federal government was unable to assess what its own liability was in suits against the government.
The act would free risk retention groups from state laws which presently bar such activity.
The Commerce Department working group found, for example, that many companies have been forced to go without any product liability insurance under the existing situation, exposing them to the dangers of large claims that could wipe them out financially.
An unusual alliance of consumer groups and business trade groups supports the proposed legislation.
Consumer groups support the proposal because it gives companies a competitive alternative to commercial insurance, with the likely result that the companies would pay less for the insurance. That means, they claim, that the companies would have less pressure to raise prices to the consumer. In addition, the act should also assure seriously injured consumers of a source of recovery.
Business trade groups, on the other hand, clearly favor the act because it will allow businesses easier access to product insurance, and the ability to choose from competitive alternatives.
Insurance trade groups, like the American Insurance Association, the Alliance of American Insurers and the National Association of Independent Insurers have opposed the act because they feel it would give the new interstate insurance pools a competitive advantage over existing insurers because the interstate groups would not be subject to various state regulations that force existing insurers to take costly precautions.