Ruling in Faulty Products Case Upholds Law Limiting Lawsuit Awards

December 7, 2007

The Arizona Supreme Court unanimously upheld the constitutionality of a state law that limits the responsibility for payment of damages in lawsuits, including those for faulty products.

Deciding a case which drew interest from industry and plaintiffs’ groups, the unanimous ruling rejected an insurance company’s challenge to a law that means defendants in most lawsuits don’t have to pay other defendants’ shares of damages.

The ruling also concluded that it covers product liability lawsuits.

The case stemmed from damage caused to a home by water leaking from a filtration system that was made by one company with parts from another.

State Farm Insurance Cos. sued both companies to recover more than $19,000 that State Farm had paid to a policyholder for water damage blamed on a defective canister in a home’s water filtration system.

Premier Manufactured Systems Inc., the company that assembled and sold the filtration system, was ruled responsible for only 25 percent of the cost.

However, State Farm wanted to force Premier to pay the entire cost because Worldwide Distributing, the company that manufactured the defective canister, had gone out of business and had no insurance coverage.

The insurance company argued that it’s impossible to allocate “fault” in product liability cases and that holding each defendant’s responsibility to only its share of the total damage award effectively deprives a claimant of the right to sue an entire distribution chain.

However, the Supreme Court said the state’s limits on how much each defendant can be forced to pay don’t violate the Arizona Constitution’s protection for the right to sue to recover damages.

“Our Constitution provides only that a statute cannot limit the ‘amount recovered;’ it is not a guarantee that the entire judgment will be collectible from a single defendant or indeed from any of the responsible parties,” Justice Andrew Hurwitz wrote for the court.

The Arizona Trial Lawyers Association, a group representing plaintiffs’ lawyers, filed a brief in support of State Farm. An industry group, the Product Liability Advisory Council, backed Premier.

The case is State Farm vs. Premier Manufactured Systems, CV-06-0338-PR.

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