Torts - Cases, Principles, and Institutions Fifth Edition, 2016a

Witt & Tani, TCPI 9. Liability without Fault?
consumers dropping out of the market will tend to be the lowest risk would-be users remaining in
the pool. And once again the riskiness of the pool and the price of the product will have to go up.
In theory, this dynamic of adverse selection in the product market—of consumer dropouts
and price hikes—may continue until there are no consumers remaining in the market. If this
were to happen, products liability would have accomplished the goal of improving product safety
by eliminating entire classes of products from the market altogether—often products that are very
useful and that we would very much like to have around!
Priest contends that the problem is not only a theoretical problem. The insurance crisis of
the late 1980s, he argues, was a real-world example of the adverse selection unraveling theory he
developed. Liability insurance became difficult or impossible to purchase for a wide variety of
product sellers, ranging from vaccine manufacturers to sports equipment makers, and service
providers ranging from obstetrics care providers to commercial truckers. In markets like general
aviation airplanes, the unraveling of the market in new planes even made flying less safe than it
had been by leaving old, less safe planes up in the air longer. See George L. Priest, Can Absolute
Manufacturer Liability be Defended, 9 YALE J. REG. 237 (1992).
Others argue that the liability insurance price cycles are the result of interest rate swings,
which affect insurers’ bottom lines by eroding the returns the insurers can get by investing the
premiums in the interim period between when insureds make premium payments, on the one
hand, and policy obligations come due, on the other. See, e.g., Robert T. McGee, The Cycle in
Property / Casualty Insurance, FED. RES. BANK OF N.Y. Q. REV., Autumn 1986, at 22-30.
Either way, the problem of adverse selection is potentially a serious obstacle to achieving
systemic policy goals in products liability cases.
5. A Third Restatement Rollback? After three decades of experience with Prosser’s Second
Restatement, the American Law Institute reissued a Third Restatement dedicated exclusively to
products liability in 1998. The Restatement of the Law Third, Torts: Products Liability almost
completely overturned 402A. In its place, it adopted the three-part structure drawn from cases
like Barker for liability arising out of defective products sold by someone “engaged in the
business of selling or otherwise distributing products” when the defect causes harm to persons or
property. RESTATEMENT (THIRD): PRODS. LIAB. § 1 (1998). Consider the next case, which
illustrates the Third Restatement approach in action:
Wright v. Brooke Group, Ltd., 652 N.W.2d 159 (Iowa 2002)
TERNUS, J.
The United States District Court for the Northern District of Iowa has certified [a
question] to this court arising out of a personal injury action filed by a smoker against several
cigarette manufacturers. The certified question. . . address[es] the nature and extent of the
manufacturers’ liability under products liability, warranty and tort law. . . .
I. Factual and Procedural Background.
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