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The wrong kind of reform: Arizona and Premier Manufactured Systems

In State Farm Insurance Companies v. Premier Manufactured Systems, Inc. (Az. Ct. App. Aug. 29, 2006), manufacturers can escape product liability by shifting blame upon a part supplier. While this appears to be a defense-friendly verdict, it adds further inefficiency to a product liability system: first, it creates perverse incentives because manufacturers that vertically integrate will be treated worse than manufacturers that do not. Second, it encourages plaintiffs' attorneys to file shotgun complaints against dozens of parts suppliers.

The Coase Theorem would note that this legal rule will not actually shift liability in the long run: either end-manufacturers already demand indemnification for suppliers through existing contractual relationships (as recently happened in the case of exploding Sony batteries in Dell laptops), or those contractual relationships will be modified to reflect the new legal rule. So the only effect of this opinion is to squeeze one particular plaintiff, and to raise expenses to all parties in future litigation.

There are problems with strict products liability to be sure, but they will not be resolved by twisting the concept of comparative fault in such a manner.

(Side note: it was a subrogating insurance company arguing against reducing manufacturer liability. Just another reason why it is nonsensical to claim that insurance companies are the sole motivating force behind reform.)



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.