The trend toward broader legal standards of liability and higher damage awards could cause "enormous damage" to the American economy, a Justice Department official said yesterday.

The concerns of the needy are better addressed through the legislative system than through courts, "which are likely to be swayed too much by concern for the plaintiff before them," said Richard K. Willard, acting assistant attorney general of the department's civil division.

Speaking at a U.S. Chamber of Commerce luncheon, Willard called for business groups, legal scholars and the government to work together to "reverse the mindset" that has led the courts to make "outrageous liability decisions."

The Justice Department is currently defending the federal government in 8,900 cases seeking a total of $63 billion in damages on the basis of allegations that the U.S. government is responsible for various injuries or problems.

In fiscal 1984, the U.S. government paid a total of $429 million in such cases, which are called tort actions.

"Potential future liability is much greater," Willard said. In asbestos cases alone, a finding of liability on the part of the government could involve tens of billions of dollars, he said.

Willard noted that the Reagan administration supports a bill by Sen. Robert W. Kasten Jr. (R-Wis.) that would limit product liability. But "legislation is not the only or the best solution," he said; "we have to reverse the mindset" prevailing in the courts.

The legislative system, however, is a more proper arena for addressing the concerns of the needy than the courts, he said.

"If our current health and income maintenance programs for providing for the disabled and the indigent are deemed to be inadequate, then the public benefit programs should be examined through the democratic process, and not by a judiciary engaged in off-budget economic reallocations.

"Unlike the courts, which are likely to be swayed too much by concern for the plaintiff before them and lose track of limitations on societal resources, legislatures make these decisions fully aware of the competing claims of other interests on societal wealth. Moreover, they do so with input from all the people, not only the particular parties before them," Willard said.

Acknowledging that private companies spend millions to litigate and settle such cases, Willard called for a combined effort to "help the courts and legislatures recognize that the pendulum has reached an extreme point in its movement toward imposing liability."

Several court decisions have expanded the concept of liability beyond determining responsibility strictly on the basis of "fault," he said. In a "fault-based" system, the courts would permit claimants to recover damages only when the defendant "has engaged in activity that society deems harmful and wishes to deter."

Instead, some courts have held companies liable for injuries when they could not have known the risks created by their products, when they could not have made the products safer or when they could not prove that the utility of a product outweighed the risks, Willard said.

The "increasingly inflated size of judgments" is another area of concern, Willard said. "Once the plaintiff has won, the sky may be the limit."

The growth of punitive damages, particularly, "suggests that the awards are motivated more by concern for unfortunate plaintiffs than by a considered judgment that certain conduct is especially bad and should be discouraged above and beyond its cost.

"If this trend toward massive increases in punitive and non-economic damages continues, its impact on the economy of this nation is likely to be devastating," he said.