Elsevier

Food Policy

Volume 24, Issue 6, December 1999, Pages 637-651
Food Policy

Food safety and product liability

https://doi.org/10.1016/S0306-9192(99)00070-6 Get rights and content

Abstract

This paper focuses on the U.S. product liability system for food poisoning cases and makes six key points. First, current legal incentives to produce safer food are weak, though slightly stronger in outbreak situations and in markets where foodborne illness can be more easily traced to individual firms. Far less than 0.01% of cases are litigated and even fewer are paid compensation. Second, even if potential plaintiffs can overcome the high information and transaction costs necessary to file lawsuits, monetary compensation provides only weak incentives to pursue litigation. Firms paid compensation in 56% of the 294 cases examined in this study and the median compensation was only $2,000 before legal fees. Third, indirect incentives for firms may be important and deserve more research. For example, firms may be influenced by costly settlements and decisions against other firms in the same industry. Fourth, confidential settlements, health insurance, and product liability insurance distort legal incentives to produce safer food. Fifth, the ambiguity about whether microbial contamination is “natural” or an “adulterant” hinders the legal system from effectively dealing with food safety issues. Sixth, a brief comparison of the incentives from U.S. and English legal systems suggests that more research is needed to understand the strengths, weaknesses, and relative impact of each country's legal system on the incentives to produce safer food.

Introduction

Each year, there are an estimated 6.5–33 million foodborne illnesses in the United States and up to 9000 deaths (CAST, 1994). Seven of the more than forty identified foodborne pathogens (i.e. illness-causing bacteria, parasites, viruses, and fungi and their toxins) pose societal costs of $6.6–$37.1 billion annually to the US economy (Buzby and Roberts, 1997). These estimates raise questions about the strength of the incentives to produce safer food. The combination of product liability, governmental regulations, and market forces provide the current level of food safety.1 The primary focus of this paper is to assess whether the US product liability system provides strong or weak incentives to produce safer food.

The underlying economic premise of product liability is that people and firms have incentives to produce safer products if they must fully compensate people harmed by their products. This potential liability is one part of firms' anticipated costs of operation, and firms will take the optimal amount of food safety precautions when they attempt to minimize costs (Johnson et al., 1989). Doing everything physically possible to make food safe is not economically efficient. Instead, a firm will incur additional costs of food safety precautions up to the point where the marginal costs of implementing the precautions equal the marginal benefits. Benefits from taking food safety precautions are a function of expected litigation costs avoided and any increased market demand and high product prices that result from marketing and being able to sell a ‘safer’ product. These latter benefits depend on consumers' perceptions and willingness to pay for food safety risk reductions. The expected costs of being sued for a food poisoning incident involves the probability of paying damages (i.e. compensation), the amount of the potential litigation costs, and any negative impacts to the firm's reputation and sales (Caswell and Johnson, 1991).

Posner (1996) argues that economics has the greatest influence on American law through the assignment of damages, and that judges act as if they are trying to maximize economic efficiency. If this is the case, court decisions would provide incentives to produce safer products. But how strong are these incentives? Viscusi (1989) believes that tort liability causes an underproduction of health and safety in the United States because of high information and transaction costs. Key questions for food safety issues are how often do victims win? Do the victims' chances of winning vary by type of defendant (e.g. restaurants or foodstores)? How long does it take victims to obtain a final legal decision? Do legal incentives work better for high-risk foods or for well-identified markets? These questions are addressed here through an analysis of recent legal cases. As background, the three ‘causes of action’ (i.e. legal justifications) for food poisoning litigation are summarized.

It appears that product liability is used more extensively in the United States than in England. A brief comparison of the US and English systems suggests that the US legal system may actually provide stronger incentives to produce safer food than the English legal system, in terms of civil law. However, more research is needed to compare food safety regulations, criminal law and standards, and the role and form of enforcement between the two countries.

Section snippets

US law and food safety

Although food safety cases sometimes reach Federal courts, there is no uniform Federal product liability law in the United States. Product liability falls under state common law which varies between states and is based on previous court cases, evolving over time. States are not required to use Federal precedent (Rasco, 1998).

Cases that reach the Federal level have not provided a consistent interpretation of liability. In two landmark Federal cases, food contamination is treated differently. In

Awards and damages for US food safety cases

Plaintiffs in food product liability cases primarily include ill consumers and their families seeking compensation, but also include food companies suing suppliers or others earlier in the food production chain for damages including loss of reputation and goodwill. For example, following the 1993 US outbreak due to Jack in the Box hamburgers contaminated with E. coli O157:H7, Foodmaker Inc., the parent company, sued nine hamburger suppliers and will receive a $58.5 million settlement that will

Case example: Vibrio vulnificus in raw oysters

As a case example, this paper explored the US Gulf oyster industry, a market likely to have relatively high food safety legal incentives because of the relative ease of associating illness and death due to V. vulnificus (a naturally-occurring marine bacterium) with the consumption of raw Gulf oysters. The oyster industry is relatively unique; it is a small identifiable market selling an animal product commonly eaten raw. All raw oysters shipped for sale are first bagged and marked with a tag

Comparison of US and English legal systems

Civil litigation is used more extensively in the United States than in England. The US legal system encourages large claims because it allows lawyers to receive legal fees based on a pre-arranged percentage of the final amounts awarded (i.e. a contingent fee) (Todd, 1987). This provides lawyers with incentives to choose their cases selectively and to strive for high settlement awards.

Almost 90% of all US companies will at some point be defendants in a product liability case, and many will face

Discussion

The key findings of this analysis are that: (1) product liability provides weak incentives to US firms to produce safer food, (2) even if potential plaintiffs can overcome the high information and transaction costs necessary to pursue food poisoning lawsuits, the expected monetary compensation provides only weak incentives to pursue litigation, (3) indirect incentives for firms, such as examples of costly settlements and decisions against other firms in the same food industry, may be important

Acknowledgments

Buzby is an agricultural economist and Frenzen is a demographer at the Economic Research Service (ERS). The views expressed in this article are the authors' and do not necessarily represent the views of ERS. The author wishes to thank J. Allshouse, E. Dahl, D. Dressel, J. Esselman, E. Golan, D. Isenbergh, F. Kuchler, P. Machare, B. Rasco, T. Roberts, D. Rosenbaum, R. Sharp, M. Taylor, and D. Zorn and many others for their assistance.

References (27)

  • E.C. Todd

    Legal liability and its economic impact on the food industry

    Journal of Food Protection

    (1987)
  • W.K. Viscusi

    Pain and suffering in product tort liability cases: systematic compensation or capricious awards?

    International Review of Law and Economics

    (1988)
  • Altekruse, S., 1998. Centers for Disease Control and Prevention, personal communication,...
  • American Public Health Association et al., v. Earl Butz, Secretary of Department of Agriculture, et al., 1974. 511 Fed...
  • Anderson, D.W., Lindrooth, R.C., Murray, B.C., Teague, J.L., 1996. Cost of restrictions on Gulf oyster harvesting for...
  • R. Applebaum

    Introduction

  • P.S. Atiyah

    Tort law and the alternatives: some anglo-American comparisons

    Duke Law Journal

    (1987)
  • J.R. Bradgate et al.

    Food law in the United Kingdom

    Food and Drug Cosmetic Law Journal

    (1991)
  • J.C. Buzby et al.

    ERS updates U.S. foodborne disease costs with costs of Guillain-Barré syndrome

    Food Review, U.S. Dept. of Agr., Econ. Res. Serv.

    (1997)
  • J.A. Caswell et al.

    Interaction of private and public food quality control systems in global markets

  • J.A. Caswell et al.

    Firm strategic response to food safety and nutrition regulation

  • CAST, Council for Agricultural Science and Technology, 1994. Foodborne pathogens: risks and consequences. Task Force...
  • J.M. Draper

    Liability for Injury or Death Allegedly caused by Spoilage, Contamination, or other Deleterious Condition of Food or Food Product

    (1994)
  • Cited by (53)

    • Compulsory liability insurance and excess cash holdings: Evidence from China

      2024, International Review of Financial Analysis
    • Can compulsory liability insurance reduce agency costs? Evidence from China

      2023, Research in International Business and Finance
    • Determinants of the competitive advantage of dairy supply chains: Evidence from the Chinese dairy industry

      2019, International Journal of Production Economics
      Citation Excerpt :

      The competitive advantage of the dairy supply chain can be enhanced with the prompt implementation of regulations and the transparency of production behaviors that are enforced in compliance with regulation standards (Bailey and Garforth, 2014; Beulens et al., 2005). However, the literature on the impact of government regulation and policy on dairy quality assurance remains unclear (Caswell, 1988; Buzby and Frenzen, 1999; Starbird, 2000; Henson and Readron, 2005; Schlippenbach and Teichmann, 2012). The lesson from the adulterated milk incident in China motivates the investigation of the effect of government regulations on dairy quality assurance in the domestic dairy industry.

    • Modeling shellfish harvest policies for food safety: Wild oyster harvest restrictions to prevent foodborne Vibrio vulnificus

      2019, Food Policy
      Citation Excerpt :

      Our methodology and results also have global implications, as increases in global sea surface temperatures are already expanding the range of V. vulnificus into high latitude areas (Baker-Austin et al., 2013), and policy changes like those enacted in Florida may become necessary in other parts of the world. Our proposed methodology is also novel and different from previous studies on the economics of food safety, which have mainly focused on issues of product liability associated with FBD (Buzby and Frenzen, 1999), preferences for risky foods (Petrolia, 2016), multi-criteria evaluation of food safety interventions (Mazzocchi et al., 2013), interactions between food producers and food safety inspectors (Buckley, 2015), willingness to pay for prevention of FBD (Roberts, 2007; Hammitt and Haninger (2007); Sharma et al., 2012), and evaluation of food safety interventions at different points in the supply chain (Fraser and Souza-Monteiro 2009). Similarly, by incorporating and explicitly modeling changes in fishing behavior, our approach differs from previous studies that evaluate losses from shellfish harvest area closures (Evans et al., 2016).

    • Sensing technologies for precision specialty crop production

      2010, Computers and Electronics in Agriculture
      Citation Excerpt :

      The advantages, disadvantages and the best potential use of the presented sensor technologies are shown in Table 4. Recent outbreaks of food borne diseases like E. coli and Salmonella in fresh produce (spinach, green onions, and tomatoes) have reduced consumers’ confidence in the safety of the specialty crops supply system (Buzby and Frenzen, 1999). In addition, the globalization of the world economy and free trade in agricultural products has promoted the flow of food products across national and regional borders, which enhances the possibility of wide spread of food borne diseases.

    View all citing articles on Scopus
    View full text