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New legal protections for Arizona manufacturers awaits governor's signature

PHOENIX -- Arizona manufacturers are on the verge of getting new legal protections against lawsuits.

On a 38-20 vote, the state House voted Tuesday to carve out an exemption from laws that now allow courts to award punitive damages in product defect lawsuits. HB 2503, which already has been approved by the Senate, now goes to the governor.

Punitive damages, also called exemplary damages, are above and beyond any money awarded to compensate victims for their injuries and any property damage caused. Under Arizona law, they are designed to punish those whose conduct is considered so egregious as to merit a special financial penalty to deter similar conduct by others.

But Marc Osborn, who lobbies for the Arizona Chamber of Commerce and Industry, said that plaintiffs will sometimes sue for punitive damages just to force the defendant to settle.

"Punitives are used as a club,' he said.

"In a lot of cases, insurance policies don't cover punitive damages,' Osborn said. That raises the spectre that if the lawsuit is successful, an individual or company will have to pay a punitive award out of its own funds.

The measure, if approved by the governor, would spell out that punitive damages could not be awarded if the product was "designed, manufactured, packaged, labeled, sold or represented' in accord with a government agency approval.

But that concerned Rep. Katie Hobbs, D-Phoenix.

She read a letter on the House floor from former Phoenix police officer Jason Schecterle who was in his patrol car in 2001 when it was struck from behind by a speeding taxi. The vehicle, a Ford Crown Victoria, burst into flames and Schecterle suffered third and fourth-degree burns over much of his body.

Schecterle noted that other police officers elsewhere were injured or killed in similar circumstances.

"Only after being threatened with litigation by the widows of dead police officers and survivors like myself did Ford provide the fix for its exploding gas tanks,' he wrote. Schecterle said Ford was "well aware' of the problem but did not implement a fix until threatened with punitive damages.

Ford did not admit to any defect or liability.

But in a 2002 announcement, the company agreed to make significant changes in the design of the Crown Victoria ``police interceptor' vehicles, including changes in the area around the fuel tank to keep gasoline from spilling.

That agreement came not only after the Scheterle accident but after Chandler police officer Robert Nielsen died in 2002 after his Crown Victoria burst into flames when it spun out of control and crashed into a pole. That accident resulted in then-Gov. Jane Hull halting the purchase of any of those vehicles for the Department of Public Safety.

Osborn said he was not intimately familiar with all the facts of Schecterle's case. But he said that just because a vehicle had a gas tank that exploded when hit at high speeds from behind did not merit punishing the manufacturer.

"If a vehicle was built in compliance with the law, punitives should not be an issue,' he said.

But Schecterle, in his letter to lawmakers, said the Crown Victoria he was driving did meet federal and state safety standards. The issue in his lawsuit was that the company knew of the problem with the gas tank on vehicles sold for police use but did not implement "a simple fix that could have saved me.'

Osborn said nothing in the legislation limits the compensatory damages a jury could award.

Schecterle, however, said that is insufficient.

"Companies like Ford simply 'internalize' compensatory damages as just another cost of doing business,' he wrote. "This bill's legacy promises more ruined lives and less justice and compensation for Arizonans killed or maimed by companies who put profits over safety.'

Osborn said the measure is not a blanket escape for manufacturers.

He said federal laws already require automobile and tire manufacturers to report known flaws to regulators. "If that did not occur, then obviously the protection would not apply,' Osborn said.

The legislation also has other exceptions.

For example, there would be no protection from punitive damages any company that sells a product after a final order from a government to remove the item from the market. The law also exempts cases where a manufacturer intentionally and in violation of applicable regulations withheld information from a government agency or misrepresented safety information.

And any company that made an illegal payment to a government official or employee to get product approval also would not be shielded.

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