Tort Liability for Physical Tort Liability for Physical and Economic Harmand Economic Harm

David BaumerDavid Baumer

Fall, 2006Fall, 2006

Tort Liability Tort Liability

Torts are a significant risk for firms and Torts are a significant risk for firms and enterprisesenterprises– Torts can be defined as an unwarranted Torts can be defined as an unwarranted

intrusion on a protected, personal right that intrusion on a protected, personal right that causes physical, economic, or psychological causes physical, economic, or psychological injuryinjury

– Injuries incurred by plaintiffs may be magnified Injuries incurred by plaintiffs may be magnified by modern technologyby modern technology

In the 19In the 19thth Century, dirty nuclear bombs were not a Century, dirty nuclear bombs were not a riskrisk

Products Liability makes use of two Products Liability makes use of two concepts: negligence and strict liability concepts: negligence and strict liability

NegligenceNegligence

A plaintiff is entitled to damages A plaintiff is entitled to damages from a negligent defendant iffrom a negligent defendant if– The def. fails to act as a reasonable The def. fails to act as a reasonable

person would have under the person would have under the circumstancescircumstances

Negligence is based on state lawNegligence is based on state lawState by state differencesState by state differencesAmerican Law Institute attempts to make American Law Institute attempts to make

uniform through the Restatementsuniform through the RestatementsWe are currently using Restatement IIIWe are currently using Restatement III

NegligenceNegligence

NegligenceNegligence– Conduct that falls below the standard Conduct that falls below the standard

established by law for the protection of others established by law for the protection of others against unreasonable risk of harmagainst unreasonable risk of harm

Reasonable person standard can be adapted to an Reasonable person standard can be adapted to an infinite variety of factual circumstancesinfinite variety of factual circumstances

– Reasonable person standard for a doctor is not the Reasonable person standard for a doctor is not the same conduct as for a lay personsame conduct as for a lay person

– For liability the plaintiff must also showFor liability the plaintiff must also show The negligent conduct caused the harmThe negligent conduct caused the harm Social policy must make the person responsible, and Social policy must make the person responsible, and There are no defenses available to the def.There are no defenses available to the def.

Legal CausationLegal Causation

Two criteria for legal causationTwo criteria for legal causation– But for test and But for test and – Reasonable foreseeabilityReasonable foreseeability

Provides a limit to the scope of liability for negligent Provides a limit to the scope of liability for negligent actsacts

DefensesDefenses– Assumption of riskAssumption of risk

Known risk, voluntarily assumedKnown risk, voluntarily assumed

– Contributory negligenceContributory negligence– Comparative negligenceComparative negligence

Jury allocates total damages based on percentage of Jury allocates total damages based on percentage of blame attributable to pl. and def. blame attributable to pl. and def.

NegligenceNegligence

Standards of behaviorStandards of behavior– In most instances it is based on industry In most instances it is based on industry

standardsstandards What would most doctors or engineers do under the What would most doctors or engineers do under the

circumstances?circumstances?

– Industry standards are not always conclusiveIndustry standards are not always conclusive Learned Hand formula:Learned Hand formula: Negligence is defined as B<PL, where B is the burden Negligence is defined as B<PL, where B is the burden

of cost of safety and P is the probability of an of cost of safety and P is the probability of an accident and L is the liability associated with each accident and L is the liability associated with each accidentaccident

Negligence and Computer Negligence and Computer ProgramsPrograms

The principles of negligence The principles of negligence generally apply to computer generally apply to computer programsprograms– For trading partners, most liability can For trading partners, most liability can

be contracted away through disclaimersbe contracted away through disclaimers– Still there are third parties who are not Still there are third parties who are not

in a contractual relationship with the in a contractual relationship with the software developerssoftware developers

– Note that to date computer programs Note that to date computer programs are not subject to strict liabilityare not subject to strict liability

Strict LiabilityStrict Liability

The seller is liable for selling an The seller is liable for selling an unreasonably dangerous productunreasonably dangerous product– Regardless of whether there was a Regardless of whether there was a

showing of negligenceshowing of negligence– As long as the pl.’s injuries are the result As long as the pl.’s injuries are the result

of a product defectof a product defect Strict liability—liability without blameStrict liability—liability without blame

– Section 402A of the Restatement Section 402A of the Restatement SecondSecond

Strict LiabilityStrict Liability

Under Section 402A of the Under Section 402A of the Restatement SecondRestatement Second– Liability is placed on sellers, Liability is placed on sellers,

Seller must be in the business of selling such Seller must be in the business of selling such products, and products, and

It is expected to reach consumers without It is expected to reach consumers without substantial changesubstantial change

– Privity of contract not requiredPrivity of contract not required– Harm could be physical or to the Harm could be physical or to the

property of the pl. property of the pl.

Strict LiabilityStrict Liability

Liability is based on selling a defective Liability is based on selling a defective productproduct– Liability is borne by the seller who may not be Liability is borne by the seller who may not be

a manufacturera manufacturer– Any business in the distribution chain is Any business in the distribution chain is

potentially liablepotentially liable– Firms that sell products that are altered after Firms that sell products that are altered after

sale are not liable for harm that occurs sale are not liable for harm that occurs – Note that buyers, users, and bystanders can Note that buyers, users, and bystanders can

sue seller of defective productssue seller of defective products

Product DefectsProduct Defects There are three types of product defects:There are three types of product defects:

– Manufacturing defectsManufacturing defects Actual product does not conform to the product Actual product does not conform to the product

designdesign Cannot claim superior quality control as a defenseCannot claim superior quality control as a defense

– Design defectDesign defect Can be based on failure to adhere to govt. standardsCan be based on failure to adhere to govt. standards Below industry standards for safetyBelow industry standards for safety Fails the Learned Hand testFails the Learned Hand test

– Again the factors include probability of injury, liability Again the factors include probability of injury, liability associated with the injury, and the costs of an associated with the injury, and the costs of an alternative designalternative design

– Alternatively, some courts have employed a Alternatively, some courts have employed a consumer consumer expectation test—muchexpectation test—much more prone to emotional more prone to emotional appealsappeals

Product DefectProduct Defect

Failure to adequately warnFailure to adequately warn– Could be a failure to warn or Could be a failure to warn or – Failure to adequately warnFailure to adequately warn– Adequacy of warnings is a much Adequacy of warnings is a much

litigated issuelitigated issueNo duty to warn about obvious dangersNo duty to warn about obvious dangersSellers are entitled to assume that users will Sellers are entitled to assume that users will

heed warningsheed warningsThere should be warnings for foreseeable There should be warnings for foreseeable

misuse of productsmisuse of products

Product DefectsProduct Defects

Restatement Third (1998)Restatement Third (1998)– No change in manu. DefectsNo change in manu. Defects– Risk/benefit test adopted, consumer Risk/benefit test adopted, consumer

expectations is part of the risk/benefit expectations is part of the risk/benefit criteriacriteria

– A seller is liable when foreseeable risks A seller is liable when foreseeable risks could have been reduced by a warningcould have been reduced by a warningWarnings do not relieve the seller of making Warnings do not relieve the seller of making

the product saferthe product safer

Consumer Product Safety Consumer Product Safety CommissionCommission

CPSC is a federal agencyCPSC is a federal agency– Supposed to protect consumers from Supposed to protect consumers from

unreasonable risks posed by productsunreasonable risks posed by products– Establishes numerous regulations for consumer Establishes numerous regulations for consumer

productsproducts Authority of the CPSC extends to consumer products Authority of the CPSC extends to consumer products

that are not regulated by other agencies, such as the that are not regulated by other agencies, such as the FDAFDA

Firms are supposed to report adverse events to the Firms are supposed to report adverse events to the CPSCCPSC

In extreme cases, the CPSC can issue product recallsIn extreme cases, the CPSC can issue product recalls

Consumer Product Safety Consumer Product Safety CommissionCommission

A firm must notify the CPSC whenA firm must notify the CPSC when– A product does not adhere to CPSC regs. or an A product does not adhere to CPSC regs. or an

industry standard enacted in lieu of a CPSC industry standard enacted in lieu of a CPSC reg. reg.

– A product contains a defect that could be a A product contains a defect that could be a substantial product hazardsubstantial product hazard

– A product creates an unreasonable risk of A product creates an unreasonable risk of serious injury or death, or serious injury or death, or

– A product is subject to 3 or more lawsuits A product is subject to 3 or more lawsuits within two calendar yearswithin two calendar years

Reporting adverse events is confidential Reporting adverse events is confidential and is not an admission of liabilityand is not an admission of liability

Tort ReformTort Reform Many businesses contend that products Many businesses contend that products

liability law is too consumer orientedliability law is too consumer oriented– Some states have eliminated joint and several Some states have eliminated joint and several

liability for sellers of defective productsliability for sellers of defective products– Since product liability law is state law, forum Since product liability law is state law, forum

shopping is commonshopping is common– Comprehensive reform has been blocked by Comprehensive reform has been blocked by

consumer groups and trial lawyersconsumer groups and trial lawyers– Current system is rife with exceptions for non-Current system is rife with exceptions for non-

profits, small airplane manufacturers etc. profits, small airplane manufacturers etc. – Other reforms have been attempted by Other reforms have been attempted by

reducing punitive damage multiples and reducing punitive damage multiples and making the loser pay atty. fees making the loser pay atty. fees

Other CountriesOther Countries

Other countries (Japan) have resisted strict Other countries (Japan) have resisted strict liabilityliability– Place more emphasis on placing responsibility Place more emphasis on placing responsibility

for safety on consumersfor safety on consumers– Have limited discoveryHave limited discovery

Makes is more difficult to prove a product defectMakes is more difficult to prove a product defect

EU has been much more in line with U.S. EU has been much more in line with U.S. product liability lawproduct liability law– Make use of the consumer expectations testMake use of the consumer expectations test– Make all sellers and importers liable for Make all sellers and importers liable for

defective productsdefective products

Computer ProgramsComputer Programs In the past, computer programs have been In the past, computer programs have been

viewed as a serviceviewed as a service– Also guide books etc. have never been subject Also guide books etc. have never been subject

to strict liabilityto strict liability Expert systems and medical treatmentExpert systems and medical treatment

– Treatments are recommended based on huge Treatments are recommended based on huge databasesdatabases

– Are doctors liability if they rely on an expert Are doctors liability if they rely on an expert system?system?

What if they exercise their own judgment and go What if they exercise their own judgment and go against the recommendations of the expert system?against the recommendations of the expert system?

Software developers may also be liable under rules of Software developers may also be liable under rules of negligence or even strict liabililtynegligence or even strict liabililty

Intentional Torts Involving Intentional Torts Involving Computer SystemsComputer Systems

Among the intentional torts involving Among the intentional torts involving computer systems arecomputer systems are– Hackers, spammers, embezzlement, viruses, Hackers, spammers, embezzlement, viruses,

electronic trespasselectronic trespass– Trespass to chattelTrespass to chattel

Electronic trespass via software robotsElectronic trespass via software robots Normally damages are equal to the difference Normally damages are equal to the difference

between the value of the property before and after between the value of the property before and after the trespassthe trespass

In order to obtain an injunction there is a question as In order to obtain an injunction there is a question as to whether the pl. has to show a risk of interference to whether the pl. has to show a risk of interference in service or merely a trespass in service or merely a trespass

Intentional Torts Involving Intentional Torts Involving Computer SystemsComputer Systems

Spam—electronic junk mailSpam—electronic junk mail A number of states passed anti-spam laws, A number of states passed anti-spam laws,

but were hampered by jurisdictional but were hampered by jurisdictional limitationslimitations

In 2003 Congress passed the CAN SPAM In 2003 Congress passed the CAN SPAM ActAct– Email marketers can send unsolicited email as Email marketers can send unsolicited email as

long as there is an opt-outlong as there is an opt-out– A valid subject line A valid subject line – A legitimate physical address of the mailerA legitimate physical address of the mailer– A label if the content is adult [Sexually explicit]A label if the content is adult [Sexually explicit]

CAN SPAMCAN SPAM

If a recipient opts out, the sender has If a recipient opts out, the sender has 10 days to comply10 days to comply

There are exceptions for There are exceptions for – religious messages, messages required religious messages, messages required

by law, and national security messagesby law, and national security messages Pre-empts existing anti-spam laws Pre-empts existing anti-spam laws

that do not deal with fraudthat do not deal with fraud There are substantial fines for firms There are substantial fines for firms

that do not comply with this lawthat do not comply with this law

Viruses, Trojan Horses, WormsViruses, Trojan Horses, Worms

Of course it is well know n that some Of course it is well know n that some people do some bad things with people do some bad things with computerscomputers– Computer VirusesComputer Viruses

Often ignited by opening email attachmentsOften ignited by opening email attachments

– Trojan horses may do womething Trojan horses may do womething deestructive but cannot replcated deestructive but cannot replcated themselvesthemselves

– WormsWorms

Viruses, Trojan Horses, WormsViruses, Trojan Horses, Worms

Deliberately sending viruses and other Deliberately sending viruses and other malicious codes could be viewed as malicious codes could be viewed as electronic trespasselectronic trespass– Email companies ancould be liable as wellEmail companies ancould be liable as well

In 1986 Congress passed theIn 1986 Congress passed the– Computer Fraud and Abuse ActComputer Fraud and Abuse Act

– Makes it a crime to access or cause damage to any Makes it a crime to access or cause damage to any computer used for govt. purposes or be financial computer used for govt. purposes or be financial institutions institutions

– Has been augmented by the USA-Patriot Act Has been augmented by the USA-Patriot Act – Deliberately transmitting viruses is a criminal actDeliberately transmitting viruses is a criminal act

Electronic CoercionElectronic Coercion

Courts do not like these kind of Courts do not like these kind of measuresmeasures