Professor Kip Viscusi of Harvard Law School, a leading risk-analysis expert, considers the Chevrolet Malibu case in the context of jury assessments of liability and punitive damages.

[For a full version of the article, which includes a description of a study of mock juries' outcomes in risk-analysis cases, see W. Kip Viscusi, Corporate Risk Analysis: A Reckless Act? 52 Stanford Law Review 547-597 (2000).]

II. The Risk-Balancing Reference Point
E. Risk Analysis After Accidents

From the standpoint of risk analysis and recordkeeping objectives, companies face a complex Catch 22 situation. If they undertake no post- accident risk evaluation, they might be found irresponsible for failing to address the risks that caused the accident. Investigating the cause of a major accident will be a signal to the jury that the company was concerned for safety, because learning what caused an accident is often a key ingredient in preventing recurrences. But a frank post-accident report that is shared with the plaintiffs could affect the company's liability for the accident if the report finds fault with the company practices that led to the accident. If, however, the company fails to maintain or produce such accident reports, it may be subject to litigation for not fulfilling its obligation to learn about product hazards and provide reasonably safe products. From a societal standpoint, there is a desire both to make the appropriate liability decision for the current accident and to provide incentives for the corporation to adopt appropriate safety measures in the future.

The sections below consider a variety of concrete cases in which corporate risk analyses have played a role in court. In most of these examples companies were found liable, often for punitive damages. * * *

In some corporate risk analyses, the analysis may not be economically sound. In such cases, some liability may be warranted. But technical shortcomings in the analysis are not apparent matters of concern in the cases discussed below. What the attorneys and the jurors reacted to was the fact that the company had undertaken the analysis, had specifically confronted the risk decision, and had chosen not to adopt every feasible safety measure. Whether doing so would have been sensible given the state of information before the accident never enters as an explicit concern. The practical danger is that jurors react in hindsight, comparing the cost of the product design change with the costs to the identified victim. The result is that jurors place insufficient weight on the fact that adverse outcomes often have very low probabilities. The company must make a product-wide decision; and cannot identify in advance the potentially injured parties and craft only those safety improvements that will affect them.

* * *

III. Benefit-Cost Analyses at Ford Motor Company
A. The Ford Pinto

A useful starting point for considering the role of corporate risk analysis is the Ford Pinto case, Grimshaw v. Ford Motor Co. 174 Cal. Rptr. 348 (Cal. Ct. App. 1981). Although the incident occurred a quarter century ago, it remains perhaps the best-known example of a corporate risk analysis provoking public outcry. Moreover, this classic case embodies many key elements that appear in other cases.

Grimshaw v. Ford Motor Co. involved the rear impact of a Ford Pinto. In 1972, Richard Grimshaw was a thirteen-year-old passenger in a Ford Pinto that had stalled and come to a stop in the middle of a freeway. A car that had slowed to approximately thirty miles per hour hit the Pinto from behind, causing a fire that killed the driver and catastrophically injured Grimshaw.

The plaintiff's suit claimed that the placement of the gas tank behind the rear axle and the design of the fuel filler pipe were defective designs that created the risk of fire. Grimshaw was awarded more than $2.5 million in compensatory damages and $125 million in punitive damages. The punitive award was subsequently reduced to $3.5 million. See generally Gary T. Schwartz, The Myth of the Ford Pinto Case, 43 Rutgers L. Rev. 1013 (1991) (describing the public debate and misconceptions surrounding the case)

The most publicized aspect of the Ford Pinto experience was a systematic analysis of the benefits and costs of safety improvements. Mother Jones magazine published the analysis, which trial lawyer Stuart Speiser called "possibly the most remarkable document ever produced in an American lawsuit . . . ." At a press conference, Mother Jones and Ralph Nader released the analysis. Its story documenting this benefit-cost analysis by Ford engineers received a Pulitzer Prize. While the Ford Pinto case dealt with a rear impact, the engineering analysis undertaken by Ford pertained not to rear impact crashes but to rollover risks and a regulation that had been proposed by the NHTSA. Nevertheless, the analysis demonstrates how corporate engineers undertake safety studies. Moreover, this same kind of analysis has been the subject of other Ford and General Motors risk assessments.

Table 4 highlights the components of the Ford Pinto benefit-cost analysis. The character of the risks was estimated using data from a broader car population. Panel A lists potential injuries and Ford engineers' unit estimates of the values for these injuries. Ford estimated potential risks as 180 burn deaths, 180 serious burn injuries, and 2100 burned vehicles. The unit values applied to these injuries were similar to the value of court awards in product liability cases at that time, as well as to the values used by the NHTSA in its regulatory analyses. Each of these values was based on estimates of the present value of lost earnings. Based on Ford's analysis, the total cost of not fixing the gas tank design would be $49.6 million. In contrast, as indicated in Panel B, the cost of increased safety would be $137.5 million. By this tally, the expected benefits from improved safety were smaller than the costs; consequently, undertaking the design change was not worthwhile.

Table 4
Benefit-Cost Calculations for the Ford Pinto

A: Benefit Calculations for increased safety in Pinto bgas tank design
Outcome of faulty design	Ford's unit value	Ford's total value
180 burn deaths	$200,000	$36 million
180 serious burn injuries	$67,000	$12.1 million
2,100 burned vehicles	$700	$1.5 million
Total		$49.6 million
B: Cost calculations for increased safety in Pinto gas tank design
Number of units	Unit cost	Total cost*
11 million cars	$11	$121 million
1.5 million light tucks	$11	$16.5 million
Total		$137.5 million
* Excluded is lost sales because of $11 price increase

Based on current economic knowledge in the value-of-life area--as opposed to the state of economic knowledge a quarter century ago--we know that a different kind of analysis would have been appropriate. In terms of the mock-juror survey, Ford followed the compensatory damages method for determining the value of life rather than the willingness-to-pay method. * * *

The basic problem is that jurors do not undertake a comprehensive risk analysis approach, regardless of its character. Jurors have a tendency to compare the often very small per-unit safety cost with the costs borne by the injured victim. Rather than examine the entire market and the associated benefits and costs, jurors will be offended by, or will not fully understand, a comprehensive risk-analysis approach and will focus their assessment more narrowly on the identified victim and the costs of preventing that injury. The fact that these costs would also have been incurred for thousands of consumers who were not injured will not loom as large, as Judge Easterbrook emphasized. Thus, there is a tendency to exhibit "hindsight bias" rather than to consider the expected costs and expected benefits at the time of the safety decision.

* * *

IV. Product-Risk Analyses at General Motors

General Motors faced a fuel tank issue analogous to that in the Ford Pinto case in two cases. The first was a 1998 Georgia case, Moseley v. General Motors Corp., Moseley v. General Motors Corp., 447 S.E.2d 302 (Ga. Ct. App. 1994) , rev'd, Webster v. Boyett, 496 S.E.2d 459 (Ga. 1998), which involved a side saddle fuel tank design that had been the target of numerous other lawsuits. In this particular case, Moseley was driving a GM pickup truck that was hit broadside by a drunk driver of another pickup truck. Moseley survived the crash and suffered no internal injuries, but the gas tank ruptured and the truck caught fire, and Moseley was burned alive after impact. The jury concluded that the product defect pertained not simply to the placement of the fuel tanks, but also to the straps that bound the tank to the car and could potentially puncture the tank.

In terms of the overall risk posed by this particular truck design, GM trucks did not fare much worse than Ford trucks: The GM trucks had 1.51 deaths per 10,000 crashes, as compared to 1.45 deaths per 10,000 crashes for Ford. GM's extensive testing of the fuel tank system was the object of the litigation. The truck exceeded NHTSA standards by a substantial degree: From a regulatory standpoint, the truck design was not inadequate. But a key witness in the case presented the detailed GM analysis of fuel-fed fires and the costs of eliminating them, making "they knew" the "constant refrain among the jurors interviewed." The jury awarded the plaintiffs $4 million in compensatory damages, $1 in pain and suffering, and $101 million in punitive damages. To calculate the punitive damages amount, the jurors engaged in an arbitrary mathematical exercise. They awarded an amount equal to twenty dollars for each of the 500,000 GM trucks on the road, and added a bonus $1 million "exclamation point."

The tank placement did have a constructive purpose in the vehicle design. GM wanted the truck to have a large fuel capacity so that drivers would not need to refuel the trucks frequently. Achieving this objective required the use of two tanks located outside of the frame rails that comprise the underbody of the truck.

In a 1973 analysis, GM engineer Edward Ivey prepared a benefit-cost analysis of the fuel fed fire fatality issue. It is instructive to review this analysis in detail. Consider first his calculation of the health costs associated with fuel fed fires. Based on Ivey's "value analysis," there would be a maximum of "500 fatalities per year in accidents with fuel fed fires where the bodies were burnt." He assigned each fatality a value of $200,000, thus following the same approach taken in the Ford Pinto analysis. Multiplying five hundred fatalities by the value of $200,000 each, and dividing by the forty-one million GM automobiles currently on the highways, yielded an estimated fatality cost of approximately $2.40 per automobile. He then amended this calculation to focus on new models sold during the current model year, for which he estimated fifty-five fatalities for the five million new models, leading to an estimated accident cost of $2.20 per new-model automobile.

He concluded:

This analysis indicates that for G.M. it would be worth approximately $2.20 per new model auto to prevent a fuel fed fire in all accidents. . . . This analysis must be tempered with two thoughts. First, it is really impossible to put a value on human life. This analysis tried to do so in an objective manner but a human fatality is really beyond value, subjectively. Secondly, it is impossible to design an automobile where fuel fed fires can be prevented in all accidents unless the automobile has a non-flammable fuel.

It is noteworthy that this analysis pertains to fuel fed fires more generally, and not to those in the specific target population of vehicles that was the object of the litigation. It is likely that the risks will be quite different for trucks with side saddle fuel tanks rather than the entire fleet of motor vehicles sold by GM. Consequently, the Ivey memo is not directly pertinent to the specific aspects of the Moseley case, except insofar as the memo indicated the character of corporate thinking. As in the case of the Ford Pinto analysis, the $200,000 value per fatality uses a compensatory damages measure of the value of life, which was the approach used by NHTSA at that time. This amount is smaller than the willingness-to-pay measure of the value of life developed later in the economics literature.

The GM approach was consistent with state-of-the-art research on value-of-life estimates at that time. Just as companies should be judged against the state-of-the-art with respect to scientific knowledge pertaining to safety designs rather than the state of future knowledge, they should not be expected to have applied methods of analysis that had not been developed by economic literature until after the corporate decisions in question were made. In the 1970s the dominant approach to measuring the value of life was the human capital method, which focused on the present value of the lost earnings of the deceased. This was, for example, the basis for the government's approach with respect to traffic safety. Indeed, the first estimates of the value of life from a prevention standpoint using the appropriate concept of the value of a statistical life did not occur until later in the 1970s. Federal agencies did not use this concept until 1982, after a debate between the Occupational Safety and Health Administration (OSHA) and the U.S. Office of Management and Budget over the merits of the proposed hazardous communication regulation, which was appealed to then-Vice President Bush. Based on OSHA's analysis using human capital assessments, which he termed the "costs of death," the costs of the regulations exceeded the benefits. Using the willingness-to-pay measure of the value of life, however, the benefits exceeded the costs. For all contemporary benefit-cost analyses, one would expect the value-of-life measure to reflect the willingness-to-pay value, as in Scenario 4.

[Scenario 4 - used in jury study] To determine whether the safety improvement was worthwhile, the company used a value of $3 million per accidental death, which is the value used by the National Highway Traffic Safety Administration in setting auto safety standards. The company estimated that the annual safety benefits of this safer design would be $30 million (10 expected deaths at $3 million per death), while the cost would be $40 million. As a result, the company believed that other safety improvements might save more lives at less cost.

The Ivey memo played a pivotal role in the July 9, 1999 Los Angeles jury verdict against GM in a case involving a rear-end crash, which involved a rear- end crash into a 1979 Chevrolet Malibu. The record-setting verdict consisted of $107.8 million in compensatory damages for the six burn victims as well as $4.8 billion in punitive damages. Many observers speculated that the 1997 and 1998 landmark cigarette settlements of the state attorneys general lawsuits provided an anchor that led the jury to think in terms of billions of dollars rather than millions.

The basic facts of the case are similar to those of many other burn injury cases. On Christmas Eve in 1993, Patricia Anderson was driving home from church with her four children and a friend of the family. After slowing to stop for a red light, her Chevrolet Malibu was hit from the rear by a drunk driver believed to be going fifty miles per hour by the plaintiffs and seventy miles per hour by the defendant. The ensuing fire in the Malibu caused severe burn injuries to the passengers, including some disfigurement.

Once again the Ivey memo played a prominent role in the courtroom battle even though GM maintained that the memo did not contribute to the vehicle's design. The cost of a safer design that could have prevented the injury by moving the gas tank twenty inches away from the rear bumper rather than eleven inches was $8.59 per vehicle, according to evidence presented by the plaintiffs. The Ivey memo loomed particularly large as the plaintiff's attorney claimed that it showed that GM was "caught red handed." According to Ivey's analysis, the cost to the company of fuel tank fires was $2.40 per vehicle. Linking the memo with the $8.59 figure, which Ivey did not do, implied that the costs of safety to the company outweighed the benefits.

The plaintiff's lawyers demonized the GM decision as the result of an immoral calculation. As one of the lawyers observed after the trial, "'The jurors wanted to send a message to General Motors that human life is more important than profits." ' After the trial, jurors highlighted this tradeoff: "Jurors told reporters that they felt the company had valued life too lightly. 'We're just like numbers, I feel, to them,' one juror, Carl Vangelisti, told Reuters. 'Statistics. That's something that is wrong." '

By their very nature risk analyses convert life and death issues into statistics. Moreover, benefit-cost tests intrinsically involve cost-health tradeoffs that some may find shocking. One juror reflected a zero-risk mentality rather than a more rational risk tradeoff mentality in her comment: "There was no evidence that the car they put out there was as safe as what they could have put out there." But making such tradeoffs is inevitable. The task for the courts and society is to overcome the kinds of biases shown in the experimental results and vividly evidenced in the GM case.

Jurors' reckless disregard for rationality is reflected in their justification for the $4.8 billion punitive damages award. The jurors selected that figure by linking it to General Motors' advertising expenses over a long period. Linking damages to advertising expenses is entirely arbitrary. The amount was also "two-thirds more than GM's entire profit for 1998," which is a benchmark that shows the award magnitude, but is also unrelated to safety decisions for 1979 Chevrolet Malibus. This kind of voodoo economics which the jury viewed as a sound basis for decisions contrasts with the much more reasoned balancing in the Ivey memo. As the Washington Post observed, such punitive damages awards "send a message to the public at large that the courts are more like a casino than a hall of justice."

Undertaking at least part of a benefit-cost analysis and making some judgments regarding the desirability of safety measures is not unique to these specific cases. For example, the plaintiffs in another case focused on allegedly faulty door latches in the Chevrolet Blazer. The plaintiffs claimed that GM estimated a $216 million parts cost and a $700 million labor cost if a recall was initiated, for a total amount of $916 million. Evidence of an internal timeline of GM's cost analysis, which indicated that GM knew of the safety latch problem and what it would cost to fix it, contributed to a $150 million damage award, of which $100 million was for punitive damages, in the case of a man paralyzed after his Blazer crashed. Indeed, even more fundamental efforts by the company to learn about its products' dangers, such as crash test results and video tapes of those crash tests, can and have been used against it in litigation.

These and other cases show that courts split on how to treat defendants' knowledge of safety issues. Courts should uniformly incorporate benefit-cost analysis, risk-utility tests, and balancing efforts into negligence standards. This is the goal of our legal system and regulatory oversight efforts. In practice, however, undertaking a thorough analysis of the risks, comparing the risk costs and benefits, and then, in accordance with the result of the risk analysis, proceeding not to undertake the most vigilant safety measures identified may severely damage a company if jurors regard this knowledge as grounds for punitive damages.

This review of cases indicates that juries often regard corporate risk analyses as red flags. Rather than indicating concern with appropriate safety levels, such risk assessments may be viewed as an indication of callous disregard for human health. The evidence in the case analyses is consequently quite consistent with the mock juror evidence.