THE FORD PINTO CASE:
THE VALUATION OF LIFE AS IT APPLIES
TO THE NEGLIGENCE-EFFICIENCY ARGUMENT
Christopher LeggettLaw & Valuation
Spring, 1999The cases involving the explosion of Ford Pinto's due to a defective fuel system design led to the debate of many issues, most centering around the use by Ford of a cost-benefit analysis and the ethics surrounding its decision not to upgrade the fuel system based on this analysis.ISSUEShould a risk/benefit analysis be used in situations where a defect in design or manufacturing could lead to death or seriously bodily harm, such as in the Ford Pinto situation?RULEThere are arguments both for and against such an analysis. It is an economically efficient method which has been accepted by courts for numerous years, however, juries may not always agree, so companies should take this into account.ANALYSISAlthough Ford had access to a new design which would decrease the possibility of the Ford Pinto from exploding, the company chose not to implement the design, which would have cost $11 per car, even though it had done an analysis showing that the new design would result in 180 less deaths. The company defended itself on the grounds that it used the accepted risk/benefit analysis to determine if the monetary costs of making the change were greater than the societal benefit. Based on the numbers Ford used, the cost would have been $137 million versus the $49.5 million price tag put on the deaths, injuries, and car damages, and thus Ford felt justified not implementing the design change. This risk/benefit analysis was created out of the development of product liability, culminating at Judge Learned Hand's BPL formula, where if the expected harm exceeded the cost to take the precaution, then the company must take the precaution, whereas if the cost was liable, then it did not have to. However, the BPL formula focuses on a specific accident, while the risk/benefit analysis requires an examination of the costs, risks, and benefits through use of the product as a whole. Based on this analysis, Ford legally chose not to make the design changes which would have made the Pinto safer. However, just because it was legal doesn't necessarily mean that it was ethical. It is difficult to understand how a price can be put on saving a human life.There are several reasons why such a strictly economic theory should not be used. First, it seems unethical to determine that people should be allowed to die or be seriously injured because it would cost too much to prevent it. Second, the analysis does not take into all the consequences, such as the negative publicity that Ford received and the judgments and settlements resulting from the lawsuits. Also, some things just can't be measured in terms of dollars, and that includes human life. However, there are arguments in favor of the risk/benefit analysis. First, it is well developed through existing case law. Second, it encourages companies to take precautions against creating risks that result in large accident costs. Next, it can be argued that all things must have some common measure. Finally, it provides a bright line which companies can follow.
I. IntroductionIn May of 1968, the Ford Motor Company, based upon a recommendation by then vice-president Lee Iacocca, decided to introduce a subcompact car and produce it domestically. In an effort to gain a large market share, the automobile was designed and developed on an accelerated schedule. During the first few years sales of the Pinto were excellent, but there was trouble on the horizon.A. Grimshaw v. Ford Motor Company1In May 1972, Lily Gray was traveling with thirteen year old Richard Grimshaw in a 1972 Pinto when their car was struck by another car traveling approximately thirty miles per hour. The impact ignited a fire in the Pinto which killed Lily Gray and left Richard Grimshaw with devastating injuries. A judgment was rendered against Ford and the jury awarded the Gray family $560,000 and Matthew Grimshaw $2.5 million in compensatory damages. The surprise came when the jury awarded $125 million in punitive damages as well. This was subsequently reduced to $3.5 million.2B. The Criminal Case3Six month following the controversial Grirnshaw verdict, Ford was involved in yet another controversial case involving the Pinto. The automobile's fuel system design contributed (whether or not it was the sole cause is arguable) to the death of three women on August 10, 1918 when their car was hit by another vehicle traveling at a relatively low speed by a man driving with open beer bottles, marijuana, caffeine pills and capsules of "speed."4 The fact that Ford had chosen earlier not to upgrade the fuel system design became an issue of public debate as a result of this case. The debate was heightened because the prosecutor of Elkart County, Indiana chose to prosecute Ford for reckless homicide and criminal recklessness.Some felt the issues raised in the Ford Pinto cases were an example of the "deep pocket" company disregarding consumer safety in pursuit of the almighty dollar. Others feel they are an example of runaway media coverage blowing a story out of proportion.5 Regardless of opinion, the Ford Pinto case is a tangled web of many complex legal and ethical issues.To determine if the proper result was achieved in this case, one has to evaluate and weigh these many issues. The central issue in deciding whether Ford should be liable for electing not to redesign a defective product in order to maximize its bottom line, one must analyze the so-called "cost/benefit" analysis Ford used to defend this decision. Within the scope of this paper, this cost/benefit issue (and associated sub-issues) will be the focus of discussion. Other issues, such as the ethics involved in Ford's decision, the choice of prosecuting Ford criminally, whistle-blowing, the assignment of punitive damages and the Court of Appeals decision reducing the damages are all important issues of this case that will not be the focus herein.
II. FactsA. Incident FactsOn August 10, 1978, three teenage girls stopped to refuel the 1973 Ford Pinto sedan they were driving. After filling up, the driver loosely reapplied the gas cap which subsequently fell off as they headed down U. S. Highway 33. Trying to retrieve the cap, the girls stopped in the right lane of the highway shoulder since there was no space on the highway for cars to safely pull off the roadway. Shortly thereafter, a van weighing over 400 pounds and modified with a rigid plank for a front bumper was traveling at fifty five miles an hour and stuck the stopped Pinto. The two passengers died at the scene when the car burst into flames. The driver was ejected and died shortly thereafter in the hospital. Inspecting the van shortly after the accident, the police found open beer bottles, marijuana and caffeine pills inside.6The subsequent proceedings were rather surprising. Based on the facts of the case, it seemed that any one of a number of parties could be liable in a civil action or prosecuted criminally. The obvious target seemed to be the driver of the van. It seems he could have been prosecuted for criminal homicide or the families of the victims could have pursued a civil action, in light of the fact the driver possessed several controlled substances at the time of the accident.
A second potential party open to a civil suit was the Indiana Highway department. It was their design which left no safe stopping place along Highway 33 where cars could pull over for emergencies. In fact, the road was so dangerous that the Elkart County Citizens' Safety Committee had previously written a letter to the department asking that the road design be modified to provide safe stopping place for emergencies.7 It is also conceivable, the driver of the Pinto could have been found negligent for stopping a car in the middle of the highway.The first surprise of the resulting litigation carne when Indiana state prosecutor filed suit against Ford Motor Company for criminal recklessness and reckless homicide.8 The famous and highly publicized legal battle was underway. Some have argued the prosecution acted unethically from day one, gathering and hiding evidence from the defendant and concealing information about the condition of the van driver.9 Whether true or not, the following litigation caused damage that would take Ford years to recover from.B. Questionable DesignThe controversy surrounding the Ford Pinto concerned the placement of the automobile's fuel tank. It was located behind the rear axle, instead of above it. This was initially done in an effort to create more trunk space. The problem with this design, which later became evident, was that it made the Pinto more vulnerable to a rear-end collision. This vulnerability was enhanced by other features of the car. The gas tank and the rear axle were separated by only nine inches. There were also bolts that were positioned in a manner that threatened the gas tank. Finally, the fuel filler pipe design resulted in a higher probability that it would to disconnect from the tank in the event of an accident than usual, causing gas spillage that could lead to dangerous fires. Because of these numerous design flaws, the Pinto became the center of public debate.These design problems were first brought to the public's attention in an August 1977 article in Mother Jones magazine. This article condemned the Ford Motor Company and the author was later given a Pulitzer Prize.10 This article originated the public debate over the risk/benefit analysis used by the Ford Motor Company in their determination as to whether or, not the design of the Pinto fuel tank be altered to reduce the risk of fire as the result of a collision.The crux of the public debate about The Ford Motor Company was the decision not to make improvements to the gas tank of the Pinto after completion of the risk/benefit analysis. Internal Ford documents revealed Ford had developed the technology to make improvements to the design of the Pinto that would dramatically decrease the chance of a Pinto "igniting" after a rear-end collision.11This technology would have greatly reduced the chances of burn injuries and deaths after a collision. Ford estimated the cost to make this production adjustment to the Pinto would have been $11 per vehicle.12 Most people found it reprehensible that Ford determined that the $11 cost per automobile was too high and opted not to make the production change to the Pinto model.C. Risk/Benefit AnalysisIn determining whether or not to make the production change, the Ford Motor Company defended itself by contending that it used a risk/benefit analysis. Ford stated that its reason for using a risk/benefit analysis was that the National Highway Traffic Safety Administration (NHTSA) required them to do so.13 The risk/benefit approach excuses a defendant if the monetary costs of making a production change are greater than the "societal benefit" of that change. This analysis follows the same line of reasoning as the negligence standard developed by Judge Learned Hand in United States vs. Carroll Towing in 1947 (to be discussed later). The philosophy behind risk/benefit analysis promotes the goal of allocative efficiency. The problem that arose in the Ford Pinto and many other similar cases highlights the human and emotional circumstances behind the numbers which are not factored in the risk/benefit analysis.The Ford Motor Company contended that by strictly following the typical approach to risk,/benefit analysis, they were justified in not making the production change to the Pinto model. Assuming the numbers employed in their analysis were correct, Ford seemed to be justified. The estimated cost for the production change was $11 per vehicle. This $11 per unit cost applied to 11 million cars and 1.5 million trucks results in an overall cost of $137 million.The controversial numbers were those Ford used for the "benefit" half of the equation. It was estimated that making the change would result in a total of 180 less burn deaths, 180 less serious burn injuries, and 2,100 less burned vehicles. These estimates were multiplied by the unit cost figured by the National Highway Traffic Safety Administration. These figures were $200,000 per death, $67,000 per injury, and $700 per vehicle equating to the total "societal benefit" is $49.5 million. Since the benefit of $49.5 million was much less than the cost of $137 million, Ford felt justified in its decision not to alter the product design. The risk,/benefit results indicate that it is acceptable for 180 people to die and 180 people to burn if it costs $11 per vehicle to prevent such casualty rates. On a case by case basis, the argument seems unjustifiable, but looking at the bigger picture complicates the issue and strengthens the risk/benefit analysis logic.
III. History and Development of Product LiabilityA. IntroductionWhen defendants were found liable for only intentional harms, these harms fell under the category of absolute liability. Over time, courts added liability to some accidental harms. In order for a court to determine there was no liability in a conflict, it had to be ascertained whether or not the accident was "truly unavoidable."14 Technological advances created societal harms that were never before contemplated by courts. The truly unavoidable standard became a grayer area that was undefined and unreliable. Eventually, as industry rapidly advanced further, it became impossible and unreasonable to describe any accident as unavoidable.15 Still, courts seemed unwilling to shift to the theory of absolute liability, as it seemed to strict. However, with the courts finding fewer and fewer harms "unavoidable", another level had to be found between unavoidable accidents and strict liability.16B. The Ordinary Care StandardIn the mid 1800s, courts began the evolution of moving away from what they once considered an important decision--whether a harm was a result of an action "on trespass" or a harm as a result of an action "on the case."17 The first landmark decision moving away from this distinction and thinking was Brown v. Kendall18 in 1850. In the decision, Chief Justice Shaw acknowledged moving away from this traditional distinction and to consideration of whether a harm was "willful, intentional, or careless."19 Not only did this decision move away from the strict "all or nothing" standard, it established the fluctuating standard of "ordinary care." Judge Shaw explained the use of this new standard:"In using this term, ordinary care, it may be proper to state that what constitutes ordinary care will vary with the circumstances of cases. In general, it means that kind and degree of care, which prudent and cautious men would use, such as required by the exigency of the case, and such as is necessary to guard against probable danger."20In essence Judge Shaw had created a "moving" standard of negligence that varied from situation to situation depending on the extent of care used, rather than the inflexible extremes discussed above. This new standard was not just a flat decision of whether an actor used due care in a situation, but whether the actor should have recognized the danger before taking the risk. Courts also required a defendant's actions be related to the harm incurred. In Crain v. Petrie,21 the court stated that "damages must appear to be the legal and natural consequences arising from the tort.22 Courts also considered whether the defendant should have taken some kind of preventive measure in advance that could have foreseeable prevented the harm.23
These many factors the court considered boiled down into one main question: Was the accident truly avoidable or the fault of the defendant?24 The Brown court stated,
As technology progressed, courts began to find less and less accidents "unavoidable." In Huntress v. Boston & Main R.R.,27 the court found the defendant negligent even though it took all necessary precautions. When a pedestrian was killed walking across the railroad tracks and the locomotive engineer had used all possible precautions in conducting the train, the defendant was still found to be negligent. The court stated that the railroad company should have foreseen the plaintiff's poor appreciation of the risk and that whether more precautions were necessary was a question for the jury.28 As the power of design and invention advanced, so did the courts' perception of the power to prevent accidents.29 It seemed the courts had almost moved to the extreme of absolute liability."If, then, in doing this act, using due care and all proper precautions necessary to the exigency of the case, to avoid the hurt to others, in raising his stick..., he accidentally hit the plaintiff in his eye and wounded him, this was the result of the pure accident, or was involuntary, and unavoidable, and therefore the action would not lie.25This thinking was followed in similar cases and decisions of the time.26 As stated above, this thinking moved the court from cut-and-dried ideas of negligence to ones that fluctuated and had to be examined on a case by case basis. If an accident seemed to be unavoidable and part of every day life there would be no action for recovery.
Economists have attempted to quantify, non-quantifiable items using varying methods with varying success.68 Since individuals have unique tastes and values they are willing to pay different amounts for products and resources. This valuation system often receives high criticism. People's willingness to pay for something can also vary widely depending upon other circumstances. Based on these reasons, attempts to quantify something such as a human life can be very difficult and is the most debated aspect of the Ford Pinto case.With this evolution, the courts were faced with a new problem. Should defendants be found liable in almost every situation because of new technological 'advancements? This created a new theory of negligence, one of balancing risks and benefits. In the early 1900s the courts evolved from just determining if an accident were unavoidable (as most at this point were considered to be) to what the costs were to avoid this accident in some fashion. The first attempt to consider this question and create a new standard was in a 1919 case, Adams v. Bullock.30In Adams, a young boy was playing with a rod when it struck the defendant's trolley wires that had been strung under a railroad bridge where the boy was walking. The court reversed a judgment for the plaintiff, claiming that the company had taken all reasonable precautions to avoid the accident. Judge Cardozo's opinion made use of the traditional analysis and verbiage of the avoidable/unavoidable analysis. However, he discussed the "duty to adopt all reasonable precautions.31Furthermore, Judge Cardozo stated that the defendant had acted with the area of normal provision.32C. The Introduction of the Balancing ApproachAlthough Judge Cardozo concluded that the accident was not foreseeable and therefore unavoidable, the Adams case laid the groundwork for a "balancing" approach to negligence. The balancing approach assumes that if an accident has a very low probability, and there is a cost associated with preventing it, a defendant is not liable if he does not take precautionary measures. By stating that absent a "gift of prophecy the defendant could not have predicted the point upon the route where such an accident would occur," Judge Cardozo indicated that giving every possibility the ultimate amount of protection would be too costly compared to the risk of injury.33 He further stated that guards everywhere would have prevented the injury but this would prove to be much too costly, and "guards here and there are of little value.34 This decision was the harbinger of the balancing standard and cost/benefit analysis; a weighing of the risk of harm and the overall costs of avoiding it.At the turn of the century, courts began focusing on this "balancing" method to determine liability. Costs, risks, and probability began to make their way into decisions. Courts began to compare degrees of risks and costs of harms with the benefits of activities on society. The trend moved toward placing the burden on society in instances where the benefit outweighed the risk or the risk was less than the cost to avoid it.35 In cases such as this, the ``risk initiator" was assigned no liability. This balancing act seemed to be a tolerable middle ground between the old negligence liability standard and the extreme standard of absolute liability.With courts struggling to define the middle ground during this time of technological advancement, they faced the same questions legal systems faced in similar times such as the industrial revolution and the growth of railroads. As the advancements created new products and the profits that went with them, courts had to decide what levels of risk society could tolerate and who should bear the costs when harms actually occurred.36D. The "BPL" FormulaWith the evolution of the negligence standard incorporating risks and costs, courts sought a middle ground that would not leave defendants open for unreasonable liability suits but which also would not leave victims uncompensated when damages had occurred. In the 1947 decision of United States v. Carroll Towing Co.,37 Judge Learned Hand boiled the theory of negligence down to an algebraic equation. In Carroll Towing, a barge named the "Anna C" was tied up to a pier along with a flotilla of other barges. A tug, the "Carroll," owned by the Carroll Towing Company attempted to move from one barge in the same area to another. During this time, the "Anna C" broke away from the pier and floated down the river where it collided with a tanker and sank. Since there was no bargee on board the "Anna C," no one informed the "Carroll" that the "Anna C" was leaking. Because of this, the "Anna C" sank and its cargo was lost. Under admiralty law, if the defendants could prove that plaintiff's negligence contributed to the loss, they would be excused from paying a portion of the damage.38 The defendant's argument was based on the fact that since there was no bargee present, the plaintiff was also liable. However, there was no general rule as to whether the presence of a bargee would make the owner of the barge liable for lost cargo and injuries to other boats.Judge Hand attempted to quantify a criteria to determine when leaving a barge unattended was negligence and when it was not. He decided that this would be determined by a weighing of the factors discussed above. Judge Hand transformed the "balancing act" utilized in prior decisions. In his opinion, he wrote:Under the theory that Judge Hand developed in Carroll, a party is found negligent and liable for the damages resulting from his actions if B<PL. "B," the burden of adequate precautions, is the accident avoidance cost. "P" is the probability the defendant's actions will result in an accident. "L" is the cost of that accident if it did occur. "PL" is the risk of the activity, the expected liability of the discounted accident cost.40 The negligence standard had been formalized into algebraic terms. If the expected harm exceeded the cost to take precaution, the defendant was obligated to take the precaution, and if they did not, would be held liable. If the cost was larger than the expected harm, the defendant was not expected to take the precaution. If there was an accident, he was not found liable. Based on the facts of Carroll Towing, the defendant was found liable. Judge Hand felt the expected harm (the probability of the accident, multiplied by the cost of the accident) was greater than the justification for a one and a half day absence of a bargee.41"Since there are occasions when every vessel will break from her moorings, and since, if she does, she becomes a menace to those about her; the owner's duty, as in other similar situations, to provide against resulting injuries is a function of three variables: (1) The probability that she will break away; (2) the gravity of the resulting injury, if she does; (3) the burden of adequate precautions. Possibly it serves to bring this notion into relief to state it.in algebraic terms: if the probability be called P; the injury, and the burden, B; liability depends upon whether B is less than L multiplied by P."39
E. Risk/Utility Analysis
Risk/utility analysis then developed out of the same balancing reasoning, applied to determine liability in the area of product design. In these types of cases, courts must determine whether a manufacturer should be held liable if goods are "imperfect" as a result of production or distribution. In past cases, courts had difficulty in this area. In Greenman v. Yuba Power Products, Inc.,42 a 1963 case, the court stated that the defendant was not able to see the possibility for injury until after the injury occurred and by traditional negligence standards should be found not liable.43 This type of conclusion troubled the courts, since the burden on the plaintiff seemed almost insurmountable.
There were a number of reasons why this type of finding was unfair. First and foremost, companies' manufacturing operations are the party in control of the product from its inception. Manufacturing divisions have a chance to monitor design and distribution and therefore seems the logical party to be held liable if the design of its product leads to an injury. However, it seems illogical for the consumer to bear the burden of a harm it had absolutely no control over. Also, requiring manufacturers to be liable for their products makes them take more precautionary measures, the cost of which can be spread out in the price of its products to the consumers who make use of them.44 The problem was the same, however. Where is the middle ground between the earlier standard and absolute liability and how is it defined?
The first step in finding this middle ground in manufacturing liability cases was to remove requirements of warranty and privity of contract that manufacturers used to escape liability in the past.45 In Greenman, the court stated that removing the obstacles earlier set by warranty law put manufacturer's liability in the correct realm. This area was "not one governed by the law of contract warranties but by the law of strict liability in tort ... A manufacturer is strictly liable in tort when an article he places in the market... proves to have a defect that causes injury to a human being."46 The obvious question therefore was, what is a "defective product"?47
The definition provided by section 402A of the Second Restatement of Torts assigned strict liability to products with "a condition not contemplated by the ultimate consumer, which will be unreasonably dangerous to him ... Many products cannot possibly be made entirely safe for all consumption, and any food or drug necessarily involves some harm, if only from overcomsumption."48 Obviously, there was intended to be some leeway short of strict liability for manufacturers, but there was still no clear answer as to what was defective and what was not.49
Attempting to end the frustration and quantify "defective product," courts started to turn to a risk-utility balancing similar to Judge Learned Hand's "BPL Formula." This evolved into a balancing of the benefits of the product against the risks and the cost of avoidance. In Caterpillar Tractor Co. v. Beck,50 the court stated the jury could be instructed a product is defectively designed if "the plaintiff proves that the product's design proximately caused injury and the defendant fails to prove in the light of relevant factors, that on balance the benefits of the challenged design outweigh the risk of the danger inherit in .such design."51In Turner v. General Motors Corp,52 the court stated that "a defectively designed product is one that is unreasonably dangerous as designed, taking into consideration the utility of the product and the risk involved in its use."53
After long debate, the courts have settled upon this risk/benefit analysis. For a defendant to be found liable, its product must be determined to be defective. A defect can take three forms: a defect in design (as was alleged against the Ford Motor Company), a defect in manufacture, or a defect in warning. In Ford's case, if the design is found to be defective, the company would be held liable. The question remains, what makes a design defective?
While not stated neatly in algebraic terms, such as in the BPL analysis, this entails a balancing of utility and risks. This standard is not easily quantified and must be decided on a case-by-case basis by juries. They must decide in each instance whether the risks associated with the product are reasonable for society to absorb given the benefits of the product. Therefore, the duty of the jury is not to decide whether the conduct of the manufacturer is reasonable, but whether the product, after the full ramifications are revealed, is reasonable. The difference is that risk/utility analysis requires a determination of the costs, risks and benefits of society's use of the product as a whole, while the 13PL cost/benefit analysis entailed determining the costs and benefits of preventing the particular accident. In the end, the risk-utility's primary duty is to establish a threshold of acceptable risk that every good must equal or exceed, a threshold that can rise with changing social and commercial experience.54 This leads to a economically efficient use of resources and overall wealth maximization.
F. Ford's Risk/Benefit Analysis
The main controversy surrounding the Ford Pinto case was The Ford Motor Company's choices made during development to compromise safety for efficiency and profit maximization. More specifically, it was Ford's decision to use the cost/benefit analysis detailed in section 11 to make production decisions that translated into lost lives. During the initial production and testing phase, Ford set "limits for 2000" for the Pinto. That meant the car was not to exceed $2000 in cost or 2000 pounds in weight. This set tough limitations on the production team. After the basic design was complete, crash testing was begun. The results of crash testing revealed that when struck from the rear at speeds of 31 miles per hour or above, the Pinto's gas tank ruptured. The tank was positioned according to the industry standard at the time (between the rear bumper and the rear axle), but studs protruding from the rear axle would puncture the gas tank. Upon impact, the fuel filler neck would break, resulting in spilled gasoline. The Pinto basically turned into a death trap. Ford crash tested a total of eleven automobiles and eight resulted in potentially catastrophic situations. The only three that survived had their gas tanks modified prior to testing.55
Ford was not in violation of the law in any way and had to make the decision whether to incur a cost to fix the obvious problem internally. There were several options for fuel system redesign. The option most seriously considered would have cost the Ford Motor Company and additional $11 per vehicle.56 Under the strict $2000 budget restriction, even this nominal cost seemed large. In addition, Ford had earlier based an advertising campaign on safety which failed miserably. Therefore, there was a corporate belief, attributed to Lee Iacocca himself, of "safety doesn't sell."57
Ultimately, the Ford Motor Company rejected the product design change. This was based on the cost-benefit analysis performed by Ford (see Exhibit One). Using the NHTSA provided figure of $200,000 for the "cost to society" for each estimated fatality, and $11 for the production cost per vehicle, the analysis seemed straightforward. The projected costs to the company for design production change were $137 million compared to the project benefits of making the design change which were approximately $49.5 million. Using the standard cost/benefit analysis, the answer was obvious--no production changes were to be made.----------------------------------------------------------------------------------------------------------------------Exhibit One: Ford's Cost/Benefit AnalysisIV. The Negligence Efficiency ArgumentBenefits and Costs Relating to Fuel Leakage
Associated with the Static Rollover
Test Portion of FMVSS 208BenefitsSavings: 180 burn deaths, 180 serious burn injuries, 2100 burned vehiclesUnit Cost: $200,000 per death, $67,000 per injury, $700 per vehicleTotal Benefit: 180 x ($200,000) + 180 x ($67,000) + 2100 x ($700) = $49.5 MillionCostsSales: 11 million cars, 1.5 million light trucksUnit Cost: $11 per car, $11 per truckTotal Cost: 11,000,000 x ($11) + 1,500,000 x ($ I 1) = $137 MillionFrom Ford Motor Company internal memorandum: "Fatalities Associated with Crash-Induced Fuel Leakage and Fires." Source: Douglas Birsch and John H. Fielder, THE FORD PINTO CASE: A STUDY IN APPLIED ETHICS. BUSINESS, AND TECHNOLOGY. p. 28.1994.----------------------------------------------------------------------------------------------------------------------
A. Ford's Decision
The Ford Motor Company's use of the risk/benefit analysis was the central issue of the suits filed against the company. Many pieces of evidence, including a number of internal Ford documents indicate the risk/benefit analysis was the main reason for Ford's decision not to make design changes to increase vehicle safety. However, before discussion of the risk/benefit analysis it should be noted there were secondary concerns which supported Ford's decision not to upgrade the fuel system design: (1) As stated above, Ford had based an earlier advertising campaign around safety, which failed. The company realized this was not a primary factor in car sales; (2) the bad publicity involved with a recall would be too much negative publicity to overcome. If this unquantifiable factor were included in the cost/benefit analysis the difference may have been overwhelming. Even though it was not a factor included in the analysis, Ford wanted to avoid it at any cost; (3) At the time of the product design and crash tests, the law did not require them to redesign the fuel system; and, (4) It was customary in the automotive industry to place the gas tank and between the rear axle and bumper.
Although case law has shown that business custom is not an excuse to escape liability, custom combined with the risk/benefit analysis would lead to the same result.58 With these factors influencing the decision in the background, the primary factor was Ford's risk/benefit analysis of making the changes. The question is: Should a risk/benefit analysis be used in all circumstances, and was it the proper framework to use in this situation? If so, it seems that the correct decision was made. Examining this question after-the-fact, it certainly seems like a poor decision.
B. The Numbers
The Ford Motor Company's risk/benefit analysis indicated costs would be 2.5 times larger than the resulting benefits. It is apparent why Ford chose no to go ahead with the fuel tank adjustment. However, basing this decision on just the numbers with no consideration of any other factors falls short of a comprehensive analysis of the action. chose not to go ahead with the fuel tank adjustment. To do a complete job of analyzing Ford's decision, the variables inside the equation must be examined. On the cost side of the equation, the most questioned variable during the case was the cost per vehicle used by Ford. The manufacturer claimed making adequate changes to the fuel system would have cost $11 per vehicle. Some evidence indicated that these potential costs may have been much lower, maybe as low as $5 per vehicle.59 Even with this lower cost and all other factors remaining the same, the costs still would have exceeded the benefits, although the difference would have been much less substantial (see Exhibit 2). In fact, will all other variables remaining the same, the cost per vehicle would have had to be as low as $3.96 to make the benefits "break even" with the costs (see Exhibit 3). However, if the costs were around $5 per vehicle, the Ford Motor Company would not have had as strong a risk/benefit argument as with the $11 figure provided.The "benefit side" of the equation contains the most controversial number of the analysis--the value of a human life. Ford estimated no alterations to the gas tank design would result in 180 deaths, 180 burn victims and 2100 burned vehicles. In retrospect, these estimates are slightly low. It is hard to determine the exact number of victims because every victim did not file a claim, but these numbers were reasonable estimations at the time. Ford used $200,000 as the "cost" or "lost benefit" for each fatal burn injury, 567,000 for each burn injury and $700 for each burned vehicle. The number quantifying the price of a value life ($200,000) is what makes this problem so difficult. It is hard to decide what a life is worth, but most people feel the value of theirs is greater than $200,000. While this $200,000 figure was the most controversial of the equation, it was not determined by Ford. In 1972, the National Highway Traffic Safety Administration (NHTSA) provided the auto industry with the number $200,725 as the value to be utilized in risk/ benefit analysis such as was done by Ford (see Exhibit 4).60----------------------------------------------------------------------------------------------------------------------
Exhibit Two: Ford's Cost/Benefit Analysis at
$5.08 Per Fuel Tank Replacement
BenefitsSavings: 180 burn deaths, 180 serious burn injuries, 2100 burned vehiclesUnit Cost: $200,000 per death, $67,000 per injury, $700 per vehicleTotal Benefit: 180 x ($2,00,000) + 180 x ($67,000) + 2100 x ($700)= $49.5 MillionCostsSales: 11 million cars, 1.5 million light trucksUnit Cost: $5.08 per car, $5.08 per truckTotal Cost: 11,000,000 x ($5.08) + 1,500,000 x ($5.08) = $63.5 Million----------------------------------------------------------------------------------------------------------------------
Exhibit Three: The Break Even Point of the
Cost/Benefit AnalysisBenefitsSavings: 180 burn deaths, 180 serious burn injuries, 2100 burned vehiclesUnit Cost: $200,000 per death, $67,000 per injury, $700 per vehicleTotal Benefit: 180 x ($200,000) + 180 x ($67,000) + 2100 x ($700) = $49.5 Million
Sales:11 million cars, 1.5 million light trucksUnit Cost: $5.08 per car, $5.08 per truckTotal Cost: 11,000,000 x ($3.96) + 1,500,000 x ($3.96) = $49.5 MillionTherefore, if the cost to replace the fuel tank was $3.96 per vehicle, the costs and benefits would equal each other out (all other things remaining the same).----------------------------------------------------------------------------------------------------------------------Following the standard for negligence established by Judge Learned Hand in Carroll Towing, or the risk/utility standard established for manufacturer's liability, the decision was well founded. The costs to Ford to make this change, which would have been borne by the consumer, was 2.5 times higher (using the original numbers) than the benefit to society. Some negative publicity may have been expected, but certainly Ford did not anticipate being found criminally negligent. In fact, it would seem Ford had a strong argument against any liability whatsoever. The decision in the liability suit with the award of punitive damages was a surprise to the Ford Motor Company, much less the criminal prosecution. How could such a decision be rendered after Ford Motor Company had followed the standard set by the courts themselves? The answer lies in the fact that the "benefit" side of the equation included the benefit of saving lives, and putting a value on this variable is not as defensible as putting a value on the benefit of saving an inanimate object, such as a vehicle.----------------------------------------------------------------------------------------------------------------------
Exhibit Four: What is a Life Worth?
Societal Cost Components for Fatalities
1972 NHTSA Study
Component 1971 CostsFuture Productivity LossesDirect $132,000Indirect 41,300Medical CostsHospital 700Other 425Property Damage 1,500Insurance Administration 4,700Legal and Court 3,000Employer Losses 1,000Victim's Pain and Suffering 10,000Funeral 900Assets (Lost Consumption) 5,000Miscellaneous 200Total Per Fatality $200,725Source: Douglas Birsch and John H. Fielder, THE FORD PINTO CASE: A STUDY IN APPLIED ETHICS, BUSINESS. AND TECHNOLOGY, p. 26, 1994.
V. The Negligence-Efficiency Debate
The Ford Motor case has spurned the arguments for and against the use of risk/benefit analysis because of its foundation of economic efficiency. The Ford Motor Company case has spurred this argument. In 1972, Judge Richard Posner's article on the negligence-efficiency theory seemed to be the "starting point" for this argument and was both highly praised and highly criticized. The essence of this article is summarized in the following excerpt: "We lack a theory to explain the social function of the negligence concept ... This article attempts to formulate and test such a theory.... The essential clue, I believe, is provided by Judge Learned Hand's famous formulation of the negligence standard.... In a negligence case, Hand said, the judge (or jury) should attempt to measure three things: the magnitude of the loss if an accident occurs; the probability of the accident's occurring; and the burden of taking precautions that would avert it. If the product of the first two terms exceeds the burden of precautions, the failure to take those precautions is negligence. Hand was adumbrating, perhaps unwittingly, an economic meaning of negligence.... If the cost of safety measures.... exceeds the benefit in accident avoidance to be gained by incurring that cost, society would be better off, in economic terms, to forego accident prevention.... Furthermore, overall economic value or welfare would be diminished ... by incurring a higher accident-prevention cost to avoid a lower accident cost.''61
Thus, the economic efficiency of negligence argument was born. While many economists have agreed and praised this article, it has been equally criticized by those not taking the "economic point of view." I will first discuss some of the many arguments against this economic efficiency point of view in light of the Ford Pinto case. Following is a further elaboration of Posner's view and defense of his position.
B. Arguments Against Negligence-Efficiency
Taking an ethical approach to the Ford Pinto case makes accepting the risk/benefit analysis performed by the Ford Motor Company difficult. In making what seems to be the correct decision based on numbers, Ford is essence adopted a policy of allowing a certain number of people to die or be injured even though they could have prevented it. When taken on a case-by-case basis the decision seems to be a blatant disregard for human life. From a human rights perspective, Ford disregarded the injured individual's rights and therefore, in making the decision not to make adjustments to the fuel system, acted unethicallv.62
2. Act Utilitarianism
A second problem with strictly applying the risk/benefit framework is that it does not seem to take into account all of the consequences of Ford's decision. This position is considered the "act utilitarian' point of view. The act utilitarian approach evaluates each action separately and the consequences that arise from it.63 This analysis would include any "harms" or "benefits" incurred by any people involved in the case. In utilizing this approach, it seems there are many factors that the Ford Motor Company did not account for in its risk/benefit analysis. When taking the situation from this perspective, it seems like the harms of not changing the fuel system outweighed the benefits. Not included in the previous risk/benefit analysis was the millions of dollars in settlements in unreported cases that never saw the courtroom. It is almost a sure bet that the settlement numbers were more on a per-case basis than the average numbers used for lost life per accident. Also, the bad publicity and reputational damage suffered by Ford over the next few years for being the cause of these lawsuits is hard to quantify, but the harm was considerable.64 >From the utilitarian point of view, the harms and the benefits are far closer together than Ford determined in its analysis. In addition, if this was figured after-the-fact the harms far outweighed the benefits. This would be due to the cost of having to recall the 19711976 Pintos after the fact and the extreme bad publicity (much worse than could have been expected) that the Ford Motor Company suffered through for years after all litigation was settled.
3. Health and Safety Regulation Exception
Critics argue there are several other related, yet distinct reasons why the Ford Motor company, as well other companies finding themselves in similar positions, should be condemned for relying on a risk/benefit analysis to make decisions based on consumer safety. In the areas of safety and health regulation, there are instances where it may not be wise to undertake a certain decision even though the benefits do not outweigh the costs.65 This idea is imbedded somewhere between the utilitarian point of view and ethical point of view, discussed above. That is, the issue of whether the benefits outweigh the costs should not govern our moral judgment. There are some cases where a company must "do the right thing." While this may seem an argument based on emotion, there seem to be certain instances where these kind of considerations must be made. For instance, when governmental officials decide what level of pollution is allowable they take into effect certain vulnerable people--such as asthmatics or the elderly--and set the standard higher although the average citizen would not be affected by a lower one. This decision escapes the risk/benefit analysis. The higher standard is set so that the rights of the minority are not sacrificed for the needs of the majority. This kind of decision, much like automobile safety, are in the realm of specially valued things. For these, many will argue, risk/benefit analysis should not apply.66
4. Expressing Terms in Dollar Values
In order to perform a risk/benefit analysis, all costs and benefits must be expressed in some common measure. This measure is typically in dollars, as the Ford Motor Company used in its analysis. This can prove difficult for things that are not commonly bought and sold on the open market. This is mainly the case for environmental policy, such as permissible levels of air pollutants, as in the example above.67 The Ford Pinto case provides an extreme example. It questions how to value human life.
Through years of case law, the negligence and products liability standard has evolved. Many will argue that courts have "subconsciously" used cost/benefit analysis for many decades, especially with the old "reasonable man" standard. However, Judge Hand finally established this standard in Carroll Towing, explicit acknowledging the "BPL" formula. Judge Posner gave the standard a ringing endorsement in an article in 1972, defending it on economic efficiency grounds. Since that time it has been the source of hot debate.
While not absolutely perfect, the risk/benefit standard for negligence advances overall economic value and welfare, is economically efficient, and therefore is the correct standard to apply (or at least the best option). Criticism of the standard almost always occurs when looking at the standard on an individual case-by-case basis. Critics and laypeople have a difficulty valuing non-economic entities as is required by the formula. Approaching it in this manner, it seems insulting to place a monetary value on a life. This is where the efficiency standard ran into trouble in the Ford Pinto case. One must realize these "valuations" and determinations are part of everyday public policy. In determining safety and environmental standards, a choice must be made as to what level these areas should be regulated.
The Ford Motor Company was not wrong in applying this risk/benefit standard. While the numbers the company used in its analysis may be questioned, the decision to employ the framework which resulted in the decision not to redesign the fuel system shouldn't be. Ford ran into the; trouble of taking this framework and having to justify it on a individual case basis, as a result of the lawsuits. In addition, the Ford Motor Company was an attractive defendant to find liable. The jury's disgust with the deep-pocketed defendant and the troubling value of a life concept was evidenced by the ridiculous punitive damage award initially granted to the plaintiff Obviously, one cannot assume a jury will understand the economic efficiency of the risk/benefit analysis. Even if they do, who knows what they will decide anyway? This fact raises the question--If the Hand risk/benefit formula is truly used to decide negligence cases as Judge Posner claims, why isn't the jury instructed about it.89
In conclusion, this framework is economically efficient and the proper one to apply. However, companies beware. The result of the Ford Pinto case indicate there is a belief held by most of the public that it is wrong for a corporation to make decisions which may sacrifice the lives of its customers in order to reduce the company's cost or increase its profits.90 With this widespread attitude among those who make up juries, trial lawyers would not be wise; to defend cases on the economic analysis of why it was not efficient to redesign a faulty model. Instead, trial lawyers argue that the alternative design compromises the product's function or creates different risks in the product, but not that the costs of the alternative design outweigh the injury or death toll that may be avoided.91 These options did not seem plausible in Ford's case, which spelled trouble. Therefore, while it may be valid economic efficiency reasoning, the Ford Motor Company and others are forced to think twice before utilizing a risk/benefit analysis in their decision making process.
v. Ford Motor Co., 1 19 Cal.App.3d 757, 174 Cal. Rptr. 348 (1981).
2. In the resulting suits against Ford, the jury--after deliberating for eight hours-awarded the Gray family wrongful death damages of $560,000; Grimshaw was awarded over $2.5 million in compensatory damages and $125 million in punitive damages as well. The trial judge reduced the punitive damage award to $3.5 million as a condition for denying a new trial. Two years after the court of appeals affirmed these results in all respects, the state supreme court then denied a hearing. See Gary T. Schwartz, The Myth of the Ford Pinto Case, 43 Rutgers L. Rev. 1013, 1015 (1991).
3. State v. Ford Motor Co., Cause No. 11-431 (1980).
4. See Malcom E. Wheeler, Product Liability, Civil or Criminal -- The Pinto Litigation, ABA, Tort and Insurance Law Journal, 14, 1981.
5. See Douglas Birsch and John H. Fielder, THE FORD PINTO CASE: A STUDY IN APPLIED ETHIC'S, BUSINESS, AND TECHNOLOGY, 1994.
6. See Wheeler, supra note 4, at 15.
8. The prosecutor of Elkhart County, Indiana, chose to seek an indictment against Ford Motor Company for reckless homicide and criminal recklessness, claiming that the cause of the deaths was the design of the Pinto and Ford's failure to "remove the car from the highways" before August 10, 1978. See Wheeler, supra note 4, at 15.
9. The prosecutor obtained information against the van driver for possession of amphetamines. Rather than promptly proceeding to judgment and sentencing on that charge, he kept those charges hanging over the van driver's head until after March 1980, when the driver had testified against Ford and the trial of Ford had ended. Moreover, the pills reported as amphetamines in the official police report were later analyzed and determined to be caffeine pills:, but that information was concealed from Ford's lawyers until after the driver took the stand at trial, and the charge of possessing amphetamines was kept pending throughout the trial. See Wheeler, supra note 4, at 15.
10. Mark Dowie, Pinto Madness, Mother Jones 18 (Sept./Oct. 1977).
11. Goodyear had developed a bladder and demonstrated it to the automotive industry. On December 2, 1970, Ford Motor Company ran a rear-end crash test on a car with the rubber bladder in the gas tank. The tank ruptured, but no fuel leaked. On January 15, 1971, Ford again tested the bladder and it worked. Mark Dowie, Pinto Madness, Mother Jones, Sept./Oct. 1977, at 20.
12. The total purchase and installation cost of the bladder would have been $5.08 per car. Mark Dowie, Pinto Madness, Mother Jones, Sept./Oct. 1977, at 20.
13. Ford contended that its reason for making the cost/benefit analysis was that the National Highway Traffic Safety Administration required them to do so. Moreover, Ford said that the NHTSA supplied them with the $200,000 as the figure for the value of a lost life. Richard A. Posner, TORTS: CASES AND ECONOMIC ANALYSIS 725 (1983).
14. Barbara Ann White, Risk-Utility Analysis and the Learned Hand Formula: A Hand That Helps or a Hand That Hides?, 32 Ariz. L. Rev. 77, 81 (1990).
15. "A perfect locomotive engine, properly equipped and properly run, will not ordinarily throw out sufficient sparks to destroy adjoining property." Judson v. Giant Powder Co., 107 Cal. 549, 500, 40 P. 1021, 1023 (1985).
16. See White, supra note 12, at 82.
17. Id. at 88.
18. Brown v. Kendall., 60 Mass. (6 Cush.) 292 (1850).
19. Id. at 294-95 (emphasis added).
20. Id. at 296.
21. Crain v. Petrie, 6 Hill 522 (ICY. Sup. Ct. 1844).
22. Id. at 524.
23. See White, supra note 12, at 90.
24. The inquiry into defendant's knowledge and actions was framed in a way to determine if the harm was really the result of a convolution of events rather than defendant's conscious deeds. 1fd. at 90.
25. 60 Mass. (6 Cush.) 292, 297 (1850).
26. In Vincent v. Stinehour, 7 Vt. 62 (1835), the court stated, "If the horse, upon a sudden surprise, run away with his rider, and runs against a man and hurts him, this is not battery. Where a person , in doing an act which it is his duty to perform, hurts another, hs is not guilty of battery .... A soldier, in exercise, hurts his companion--no recovery can be had against him.... If the act which occasioned the injury to the plaintiff was wholly unavoidable, and no degree of blame can be imputed to the defendant, the conduct of the defendant was no unlawful."'
Similarly, in Lehigh Bridge
v. Lehigh Coal & Navig. Co., 4 Rawle 8 (Pa. 1833), the court stated,
"The defendant had the ... right to erect the damn at the particular place
... and if chargeable with no want of attention to its probable effect,
is not answerable for consequences which it was impossible to foresee and
prevent. Where a loss happens exclusively from an act of Providence, it
will not be pretended that it out to be borne by him whose superstructure
was made the immediate instrument of it.
27. Huntress v. Boston & Main R. R., 66 N. H. 185, 34 A. 156 (1870).
28. Id. at 191-192, 34 A. at 157.
29. In Butcher v. Vaca Valley & Clear Lake R.R, 67 Cal. 518, 8 P. 174 (1885), the California Supreme Court decided that a presumption of negligence was raised by evidence that, theoretically, a railroad engine could be made that would not provide fire causing sparks. Therefore, the court found that the railroad engine's production of sparks was, in fact, prima facie proof of defendant's negligence. In Giraudi v. Electric Imp. Co., 107 Cal. 120, 40 P. 108 (1895), a restaurant employee went on the roof to repair a sign during a heavy thunderstorm. He inadvertently came in contact with a power line that he knew was there. The court upheld a jury verdict against the power company, stating that electricity was dangerous and that the defendant had to take the utmost standard of care.
30. Adams v. Bullock, 227 N.Y. 208, 125 N.E. 93 (1919).
31. Id. at 210, 125 N.E. at 93.
34. Id. at 211, 125 N.E. at 94.
35. See White, supra note 12, at 83.
36. Id. at 85.
37. United States v. Carroll Towing, 159 F.2d 169 (2d Cir. 1947).
38. David W. Barnes and Lynn A. Stout, CASES AND MATERIALS ON LAW AND ECONOMICS 93 (1992).
39. Id. at 94.
40. Id. at 95.
41. Carroll Towing Co., 159 F.2d 169 (2d Cir. 1947).
42. Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 377 P.2d 897, 27 Cal. Rptr. 697 (1963 ).
44. See White, supra note 12, at 106.
45. In MacPherson v. Buick Motor Company, 217 N.Y. 382, 111 N.E. 1050 (1916), Judge Cardozo removed the requirement of privity of contract that prevented the ultimate purchaser from suing the manufacturer in tort for harms arising out of the use of his product. Prior to this decision, the manufacturer was liable only to the immediate purchaser who was usually a middle man and not the ultimate user. The demise of the requirement of privity, however, did not alleviate the plaintiff's evidentiary problems of proving defendant's negligent behavior. Until the landmark decision of Greenman v. Yuba Power Products, Inc., 59 Cal..2d 57, 377 P.2d 897, 27 Cal. Rptr. 697 (1963), substantial legal loopholes enabled manufacturers to avoid liability for harms the courts clearly wanted to impose.
46. Greenman, 59 Cal.2d 57, 377 P.2d 897, 27 Cal. Rptr. 697 (1963).
47. The court stated, "A manufacturer is strictly in tort when an article he places on the market .... proves to have a. defect that causes injury to a human being." Id.
48. RESTATEMENT (SECOND) OF TORTS § 402A, comment g (1965).
49. See White, supra note 12, at 108.
50. Caterpillar Tractor Co. v. Beck, 593 P.2d 886 (Alaska 1979).
51. Id. at 886. (emphasis added).
52. Turner v. General Motors Corp., 584 SW.2d 844 (Tex. 1979).
53. Id. at 847 n.1. (emphasis added).
54. See White, supra note 12, at I 11.
55. Dennis A. Gioia, Pinto Fires and Personal Ethics: A Script Analysis of Missed Opportunities, JOURNAL OF BUSINESS ETHICS 11, 381 (1992).
56. One document that was not sent to Washington by Ford was a "Confidential" cost analysis Mother Jones was able to obtain, showing that crash fires could be largely prevented for considerably less than $11 a car ... The total purchase and installation cost of the bladder would have been $5.08. Dowie,Pinto Madness, MOTHER JONES 18 (Sept./Oct. 1977).
57. See Gioia, supra note 53, at 382.
58. See, e. g., The T.J. Hooper, 60 F.2d 737 (2d Cir. 1932): The court acknowledged that at the time of an accident, custom in the tug industry was not to carry radios to check weather reports.. Even though this was the case, it found a tug line liable: "But here there was no custom at all as to receiving sets; some had them, some did not; the most that can be urged is that they had not yet become general ... We hold the tugs (liable) because had they been properly equipped, they would have gotten the weather reports."
59. See Dowie, supra note 54.
61. Posner, A Theory of Negligence, 1 J. LEGAL STUD. 29, 29, 32-34 (1972).
62. See Birsch, supra note 3, at 159.
63. Id. at 160.
64. Id. at 161.
65. Id. at 129.
66. See Birsch, supra note 3, at 129.
68. Economists have tried to develop methods for imputing a person's "willingness to pay" for such things, their approach generally involving a search for bundled goods that care traded on markets and that vary as to whether they include a feature that is, by itself; not marketed. Thus, fresh air is not marketed, but houses in different parts of Los Angeles that are similar except for the degree of smog are. Id.
69. Id. at 133.
70. Frank J. Vandall, Judge Posner's Negligence Efficiency Theory: A Critique, 35 EMORY L.J. 383, 391 (1986).
71. Coleman, Efficiency, Utility, and Wealth Maximization, 8 HOFSTRA L. Rev. 509, 526 (1980).
72. See 2 F. HARPER & F. JAMES, THE LAW OF TORTS 743 (1956).
73. See Vandall, supra. note 68, at 199.
74. Rizzo, Law Amid flux: The Economics of Negligence and Strict Liability in Tort, 9 J. LEGAL STUD. 291, 299 (1980).
75. See Vandall, supra note 68, at 389.
76. Id. at 402.
77. A. POLINSKY, AN INTRODUCTION TO LAW AND ECONOMICS 12326, at 46-47 (1983)
78. See Vandall, supra note 68, at 405.
79. See generally William M. Landes & Richard A. Posner, The Economic Structure of Tort Law, 23 (1987).
80. Michael D. Green, Negligence = Economic Efficiency: Doubts, 75 Tex. L. Rev. 1605, 1607 (1997).
81. Id. at 1608.
84. Id. at 1609.
86. See Birsch, supra note 3, at 137.
87. Id. at 139.88. Id. at 138.
89. See Green, supra note 78, at 1631.
90. Id. at 1642.