From Law360

Nine states have enacted tort reform legislation in 2011, intending to decrease litigation burdens and protect product manufacturers and sellers in products liability lawsuits. Most recently, on Sept. 1, the Texas Omnibus Tort Reform Act went into effect in Texas. Governor Rick Perry, who signed this extensive new legislation into law on July 27, said in a statement in May that the legislation “provides defendants and judges with a variety of tools that will cut down on frivolous claims in Texas,” allowing employers “to spend less time in court and more time creating jobs.”

Lawmakers touted the act as streamlining and lowering the cost of litigation in Texas courts, allowing parties to resolve disputes more quickly, more fairly and less expensively. The protections enacted to project manufacturers and sellers include: (1) new restrictions on frivolous lawsuits, including a “loser-pays” system and increased authority for trial courts to dismiss frivolous lawsuits immediately, (2) a new provision allowing plaintiffs seeking less than $100,000 to request an expedited civil action, and (3) a new provision encouraging timely settlement of disputes and discouraging parties from extending litigation by aggressively pursuing a better litigation outcome if they have already been offered a fair settlement.

South Carolina has its own new set of legislative protections for product manufacturers and sellers that takes effect on Jan. 1, 2012. Signed into law by Governor Nikki Haley on July 26, the South Carolina Fairness in Civil Justice Act includes a cap on punitive damages modeled after Florida law. The legislation caps punitive damages at $500,000 or three times the compensatory damages awarded, whichever is greater. However, if the jury finds that the defendant’s wrongful conduct was motivated primarily by financial gain, or the defendant's actions rise to the level of felony charges, then the award can be increased to the greater of $2 million or four times compensatory damages.

If the plaintiff proves the defendant intended to harm the claimant, was convicted of a felony arising out of the same act or acted under the influence of drugs or alcohol, there is no cap for punitive damages. If requested by a defendant, the new South Carolina law also requires all claims for punitive damages to be tried in a bifurcated proceeding, separate from compensatory or nominal damages, before the same jury. It also includes an appeals bond cap and revisions to the statute of repose for construction cases.

Seven other states have also enacted tort reform legislation in 2011 with the intent to protect manufacturers and sellers in products liability lawsuits. In January, Wisconsin passed its Omnibus Tort Reform Act. Like the new Texas legislation, the Wisconsin Act creates a “loser pays” system under which a plaintiff may be liable for costs and fees for a frivolous lawsuit. It also caps punitive damages at $200,000 or double the amount of compensatory damages, whichever is higher, and enacts limits on when a manufacturer or seller can be held liable if the plaintiff cannot identify the specific product that allegedly caused the injury, The Wisconsin Act formally adopts the criteria for admissibility of expert opinion testimony set fort in Federal Rule of Evidence 702 (the Daubert standard), and it adopts the “reasonable alternative design” test rather than the “consumer expectation” test for determining whether a product is defective in strict liability claims.

In April, Oklahoma passed legislation that caps non-economic damages at $350,000 with exceptions for gross negligence, fraud, or other intentional malicious conduct. Economic damages remain uncapped. This legislation takes effect Nov. 1, 2011.

In May, Tennessee passed the “Tennessee Civil Justice Act of 2011,” which takes effect on Oct. 1, 2011 and places a $750,000 limit on the award of non-economic damages in most personal injury lawsuits and health care liability actions, with certain limitations. The Tennessee Act also places significant limitation on the availability of punitive damages. Like the new South Carolina Act, it limits the award of punitive damages to an amount not to exceed two times the total of compensatory damages or $500,000, whichever is greater.

Similar to the exceptions for the award of non-economic damages, these limits on punitive damages awards will not apply where the defendant had intended to inflict serious physical injury, where the defendant altered or destroyed records with the purpose of avoiding or evading liability and where the defendant’s judgment was substantially impaired by alcohol or drugs.

The act also prohibits punitive damages against the seller (not the manufacturer) of a product, unless: (1) the seller exercised substantial control over the aspect of the product for which recovery is sought, (2) the seller altered or modified the product and the alteration was a substantial factor in causing the harm for which recovery is sought, or (3) the seller had actual knowledge of the defective condition of the product at the time. In drug and medical device cases, punitive damages will not be allowed if the drug or medical device was manufactured and labeled in accordance with an FDA approval or license or if it was sold over-the-counter and was generally recognized as safe and effective and as not being misbranded.

In June, Alabama enacted its Small Business Protection Act, which prohibits products liability suits against the seller of a product who did not manufacture or cause a defect in the product.

Also in June, North Carolina passed new legislation modifying the way in which punitive damages awards are assessed. North Carolina already had a cap on punitive damages at $250,000 or three times the compensatory damages awarded, whichever is greater. The new statute also provides that, for punitive damages awards over $100,000, only 25 percent is awarded to the plaintiff, while the remaining 75 percent is remitted to the North Carolina Civil Penalty and Forfeiture Fund.

The North Carolina Act also: (1) formally adopts the criteria for admissibility of expert opinion testimony set forth in Federal Rule of Evidence 702 (the Daubert standard), (2) creates a presumption, rebuttable by clear and convincing evidence, that drugs approved by the FDA for safety and efficacy are safe and effective for their approved use, and (3) establishes a $10,000 cap on attorney’s fees awarded by the court in small cases (damages under $20,000) when the court finds an insurer unreasonably refused to settle prior to trial.

Other state legislation this year includes the 2011 Arizona tort reform statutes, which create monetary caps on contingency fees and on appeal bonds, and new legislation in Florida, which repealed the crashworthiness doctrine in cases brought against automobile manufacturers for vehicle malfunctions when there is an accident. Previous rulings prevented Florida juries from apportioning fault in accidents, meaning they couldn't consider a driver's fault in the accident, even if he was drunk, texting and otherwise distracted while driving. Under the new law, juries will be able to consider all of the facts, when determining fault in accidents where there was an alleged automobile design defect.

All nine of the states listed above have taken measures this year to decrease litigation burdens and protect product manufacturers and sellers in products liability lawsuits. As these new state statutes begin to be tested in products liability cases, time will tell if they are effective at providing the intended protections.