The Determinants of the Disposition of Product Liability Claims and Compensation for Bodily Injury

Abstract

The frequency and severity of products liability lawsuits have become a matter of increasing importance and concern to the public at large and to American business in particular. The number of product liability cases filed each year escalated dramatically in the 1970s both in absolute terms and as a fraction of all civil cases.' The economic incentives for safety created by these product liability claims no longer are a minor concern but are now a fundamental influence on the economic environment of the firm. In recent years many larger firms have established corporate product safety offices to integrate these product safety concerns into the design and manufacture of safer products...

To explore these issues I will use a sample of over 10,000 closed product liability claims, which is discussed in Section I. The first issue to be addressed is how the key economic and legal variables affect the disposition of product liability claims-which claims are dropped, which are settled, and which go to verdict. These issues are the focus of Section II. In Section III, I address the determinants of the compensation for bodily injury loss in out-of-court settlements and jury verdicts. The conclusions that emerge from this analysis are summarized in Section IV.