Krauss in Wall Street Journal: Federal Choice-of-Law Rule Would Respect State Sovereignty

Product liability law should be allowed to evolve as a partial expression of each state's view of the allocation it wishes to make of the risks of living says Professor Michael Krauss, writing in the Wall Street Journal of the dilemma today's product liability suits create for consumers.

Krauss explains that unlike early product liability suits that pitted local plaintiffs against local defendants, today's suits involve plaintiffs and defendants in different, and sometimes far-reaching, locations. A result of that disconnect is that juries are able to make large awards to plaintiffs without regard to the effect on the community's economy.

Krauss argues that a federal choice-of-law rule would leave product liability in the state's hands while also providing an incentive for the state to respond to its citizens' actual risk preferences.

The op-ed appearing in The Wall Street Journal was adapted from Krauss's longer article in The Brigham Young Law Journal.

Tort-Eating Contest, The Wall Street Journal Online, May 2, 2007. By Michael Krauss.

"A manufacturer might want to charge higher prices in West Virginia to cover the legal 'premium' it must pay for unavoidable product-liability rules there. It wouldn't work. Mountaineers could simply purchase the product in neighboring Maryland and bring it back home -- and current jurisdictional rules essentially provide that West Virginia tort law will apply to all accidents occurring there, regardless of where the consumer bought the product.

"West Virginia consumers, in other words, obtain the same tort 'coverage' -- but for a lower premium -- if they buy the product in Maryland. As a result, manufacturers aren't able to lower the price of their products in Maryland to reflect that state's less onerous (or ridiculous) product liability rules, because they may end up incurring the higher liability costs of West Virginia. I believe this helps to explain the product liability mess in the U.S. We have more product liability than we want because of a beggar-thy-neighbor 'Byrd Effect.'

"Suppose, however, a federal law declared that the laws and rules governing product liability applicable to a given product are the rules of the state where that product was first sold at retail.

"Thus, if a West Virginian bought his lawn mower in Maryland, it would be Maryland law that determined product liability, even if an accident involving an alleged defect happened later in West Virginia. (Labeling is generally easy and would provide reliable identification of the state of first sale.) Manufacturers could now price goods in each state to reflect that state's liability rules -- allowing consumers to pay for the liability protection they wanted. Competition would provide consumers with knowledge of what this all means. West Virginia retailers would have a keen incentive to explain to consumers how they receive greater protection -- in return for a higher purchase price -- much as current retailers of name-brand products have an incentive to stress the reasons why the brand they sell carries a premium price as compared to generics.

"Of course, consumers might not want to pay for this extra protection. Suppose that the West Virginia retail price of a lawn mower includes a premium reflecting the outlays required by a product liability rule requiring full compensation to a consumer injured through his own misuse of a product. The consumer might say, 'Thanks but no thanks. I'll take my chances,' and buy his lawnmower in Maryland, where this 'misuse protection' is not bundled into the purchase price. West Virginia retailers lose sales; and if the losses became apparent, these retailers would be well placed to pressure political representatives to modify liability rules so as to better reflect consumers' actual preferences."

The article is available online through subscription.