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SYDNEY, Australia-Australian companies are facing a rash of class-action lawsuits over claims of illness from contaminated food products, though it is not expected to harden product liability rates.
Class actions in general are becoming more frequent in Australia since the Trade Practices Act was amended five years ago. The amendments were introduced to give Australian plaintiffs a litigation option available in other developed countries.
Lawyers are divided, however, on whether there will be an explosion of class-action litigation. Some attorneys do not expect a large increase of this type of litigation, but others predict a rise in class actions as Australians recognize them as a more cost-effective way to sue companies and as plaintiffs attorneys become more familiar with the amendments.
In the past five years, 30 product liability class actions have been filed, the majority of which have been settled before a final court determination.
Many cases have centered on tainted food products, though a case that attracted attention earlier this year involved chemical manufacturer ICI Australia Operations Pty. Ltd.
A group of cattle farmers sued ICI, alleging an ICI pesticide tainted herds. The chemical manufacturer was found guilty of negligence (BI, July 7).
Despite the increase in class actions, rates for product liability coverage are unlikely to increase across the board, said Les Burke, risk manager for Melbourne, Australia-based Foster's Brewing Group Ltd.
Rates will not increase until excess capacity in the liability market is absorbed, added Mr. Burke, who is also a director of the Assn. of Risk & Insurance Managers of Australasia.
In light of the litigation, however, Brian Crews, president of ARIMA and insurance officer for Sydney-based Unilever Australia Ltd., said companies must ensure they have sound claims procedures and strong risk management programs in place to minimize their liability exposure.
Said Mr. Burke: "Manufacturers try very hard to ensure delivery of quality products to customers. Companies know their responsibilities, but there will be more drive for companies to deliver better-quality, safer products."
Several Australian food manufacturers or food outlets are facing class-action claims related to tainted products.
In the highest-profile case, Kraft Foods Ltd. and General Foods Pty. Ltd., both Melbourne-based subsidiaries of U.S. food manufacturer Kraft General Foods Inc., currently are negotiating a settlement of a class-action suit filed over tainted peanut butter products. The companies were sued last year after about 550 Australian consumers became ill after eating salmonella-tainted peanut butter (BI, Sept. 2, 1996).
The claimants sought damages for lost wages, medical expenses and pain and suffering. The Kraft subsidiaries also incurred the costs of recalling 10 brands of peanut butter, among other products.
Kraft Foods and General Foods are covered by liability policies issued by Sydney-based Zurich Australian Insurance Pty. Ltd.
The insurer is helping negotiate the settlement package with the claimants' lawyers, Melbourne-based law firm Slater & Gordon. A settlement is expected later this year.
Federal Court Judge Raymond Northrop approved a proposed settlement June 19, and the claimants had until Aug. 19 to opt to participate in the class if they wished to receive compensation under the deal.
Nick Styant-Browne, a partner at Slater & Gordon, said at least 2,200 people had filed claims by mid-August.
Kraft and General Foods face claims of between $1,000 Australian and $10,000 Australian ($739 to $7,390) per person, Mr. Styant-Browne said.
"In addition, Kraft will have to pay successful claimants' court costs and legal costs of the class action," he added.
Under the proposed settlement, claimants need only provide a sworn affidavit that they ate the contaminated peanut products and suffered illness or injury, said Mr. Styant-Browne. They are not required to have seen a doctor, though their settlement amount would be lower than claimants who received medical attention, he said.
Overall, the claims could total "several million dollars," he said.
According to Mr. Styant-Browne, the companies are considering bringing their own lawsuit against the peanut growers' cooperative that allegedly supplied the tainted nuts.
Kraft Foods, General Foods and Zurich would not comment on the settlement or the possibility of separate legal action.
In addition to the Kraft action, several other class actions are in progress or are expected to be filed over contaminated food.
In federal court in Sydney, a class action is pending against the Great Lakes Council, a municipal authority in New South Wales, and oyster growers and wholesalers from Wallis Lake.
The claimants contracted Hepatitis A between Nov. 1, 1996, and March 13, 1997, as a result of eating contaminated oysters.
Brisbane-based Creedon Lawyers is representing 15 Queensland claimants, while Slater & Gordon is representing claimants in New South Wales and Victoria. The total number of claimants has not been determined, though it is expected to be in the hundreds.
Mark Creedon, a partner with Creedon Lawyers, contends the Great Lakes Council negligently discharged untreated waste into the lake, knowing it would pollute the waters and oyster beds.
The claimants also charge that oyster farmers failed to take a duty of care to ensure their products remained safe for consumption, he said.
Gerry McDonaugh, acting general manager for the Great Lakes Council, rebutted the claimants' allegations, saying the council was not negligent and therefore not liable for the claimants' illnesses.
He said the council's defense is being handled by Sydney-based Naughton Smith & Co. Sydney-based broker Jardine Australian Insurance Brokers Pty. Ltd., which administers local government liability pools for councils in New South Wales, is also taking part in negotiations on behalf on the council.
In the federal court in Brisbane, two other class actions are pending against a hotel and a hospital on behalf of people who got sick after eating allegedly contaminated food.
Toowoomba law firm Shine Roche McGowan is representing claimants in both cases.
Last November, attendees at three separate functions at Brisbane's Carlton Crest Hotel, including people at a high school dance, contracted food poisoning.
Plaintiff attorney Judy Teitzel of Shine Roche McGowan said some of the 60 people attending a corporate function and some of the 148 people who attended the high school formal became ill and required hospitalization, as did people attending a Queensland Justice Department function. She said the hotel would not disclose the number of attendees at the Justice Department function. It was not clear what foods were to blame or the exact nature of the illnesses.
The hotel, part of an international chain, has denied liability but a spokesman for the Carlton Crest Hotel's lawyers would not comment on the case or insurance coverage.
The other class includes 27 patients and visitors who are suing Brisbane's Mater Hospital. They contracted salmonella after eating allegedly contaminated curried egg sandwiches at the hospital last December.
Ms. Teitzel said the case against the Carlton Crest Hotel is scheduled to be heard in the federal court in Brisbane in October.
Simon Morrison, an attorney with Shine Roche McGowan who represents the Mater Hospital claimants, said he has been negotiating with the hospital's insurer, Melbourne-based Catholic Church Insurances Ltd., to reach an out-of-court settlement before the suit is heard.
Ian Davidson, claims officer for Catholic Church Insurances, said the hospital denies it is liable for the illnesses, but an out-of-court settlement is likely "from a commercial point of view."
Mr. Morrison said the hospital could face individual claims of between $3,000 Australian and $15,000 Australian ($2,217 to $11,085) from the 27 claimants, depending on the severity of symptoms and whether claimants were still suffering ill effects from the tainted sandwiches.
"Those people with continuing symptoms would generally be looking at claiming $10,000 Australian to $15,000 Australian ($7,390 to $11,085) or more, depending how quickly their symptoms disappear," he said.
Some attorneys expect an increase in the number of class-action lawsuits over product liability in Australia.
Ms. Teitzel noted that, of the 30 product liability class actions initiated over the past five years, 12 were filed this year.
She predicted that the number of class actions in federal courts would increase as more people recognize that class actions provide "a cost-effective way to seek compensation."
She said the hospital and hotel actions offer strong evidence that class actions are "an effective vehicle" for plaintiffs with small claims individually. By grouping small claims together, a class of plaintiffs can spread the burden of high legal costs and win a substantial settlement.
"As more lawyers succeed in class actions, more will be prepared to use the legislation," she added.
But not all attorneys expect a dramatic jump in the number of product liability class actions.
"I think people have got overexcited about a handful of claims," said Slater & Gordon's Mr. Styant-Browne. "While there are claims in courts, the number is not going to be explosive."
In addition to the Kraft Foods action, Slater & Gordon represents 30 claimants who are suing Melbourne-based Lago Pty. Ltd., which makes processed meat products.
The claimants became ill with salmonella after eating allegedly contaminated corned beef and ham.
Lago's insurer, Sydney-based Royal & Sun Alliance Insurance Australia Holdings Ltd., declined to comment.
Mr. Styant-Browne said court action has been postponed while a settlement of the case is being negotiated.
Meanwhile, in Adelaide, South Australia, the state government's director of public prosecutions, Paul Rofe, has withdrawn manslaughter charges against the directors of a specialty meatpacking company whose contaminated meat products killed a 4-year-old child and injured more than 30 other people (BI, Oct. 16, 1995).
The company, Garibaldi Smallgoods Pty. Ltd., went into liquidation after a nationwide product recall and adverse publicity over the deaths.
In July, Mr. Rofe dropped manslaughter charges against former Garibaldi directors Luciano and Philip Marchi, in exchange for guilty pleas to a lesser offense of creating risk of harm. The pair pleaded guilty in an Adelaide court in late July, but penalties have not yet been imposed.
Garibaldi's insurer, Sydney-based QBE Insurance Group Ltd., agreed in 1995 to pay $10 million Australian ($7.39 million), the full limits of the company's policy, to food poisoning victims.