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WASHINGTON-A "discussion draft" of proposed product liability reform legislation is backed by the White House but is receiving a tepid welcome from many product liability reform advocates.

The draft is the result of months of negotiations between the White House and Sen. John D. Rockefeller IV, D-W.Va., a longtime product liability reform advocate. It does not include several key provisions contained in legislation approved by Congress last year but vetoed by President Clinton (BI, May 6, 1996). President Clinton said in his veto message, however, that he would support "reasonable" product liability reform legislation.

"The White House is working very closely with Sen. Rockefeller, who has developed a proposal that we think could be the basis for a bipartisan bill," an administration spokesman said Friday morning.

The spokesman said the White House wants: no provision on several liability for non-economic damages; caps on punitive damages only for tiny businesses; national standards for punitives that don't include a requirement that actual malice be proved; and an 18-year statute of repose that covers only durable goods in the workplace where the injury is covered by workers comp.

"This is not a starting line for negotiations. This is our bottom line. We're waiting to hear whether the Republican leadership can support this," the spokesman said.

Among the missing provisions are limitations on joint liability for non-economic damages in product liability cases and a uniform formula for determining punitive damage awards in such cases. Instead, the proposal grants punitive damage relief only to small businesses.

Under the draft, only businesses with 25 or fewer employees and annual revenues of $5 million or less would be protected by a punitive damage cap of the lesser of two times compensatory damages or $250,000.

The proposal would require, however, that a claimant establish "by clear and convincing evidence that the harm that is subject to the action was the result of conduct carried out by the defendant with a conscious, flagrant indifference to the rights and safety of others" before a punitive damage award can be made.

Like previous proposals, the draft includes a statute of repose for durable workplace goods-in this case 18 years-as well as proposed limitations on the liability of product sellers and a defense for manufacturers whose products were deliberately misused.

One new section would provide an ambiguous subrogation right for workers compensation insurers against manufacturers to recover "any claimant's benefits relating to harm that is the subject of a product liability action" under certain circumstances.

Another new section would allow courts to impose fines of up to $50,000 on parties that refuse pretrial settlements that are subsequently lowered or rejected in trial.

The draft also spells out that product liability suits involving tobacco or breast implants would not be covered by the proposed legislation.

No business group had embraced the proposal by the end of last week, and consumers already had rejected it.

"On first look, it appears that the new reform proposal contains reform concepts that RIMS has previously endorsed, like a higher evidentiary standard for punitive damage awards. Unfortunately, we were disappointed that several other of RIMS reform recommendations-like elimination of joint liability for non-economic damages-were not included," said Paul Brown, director of government affairs for the Risk & Insurance Management Society Inc. in New York.

"In addition, the bill includes a workers compensation subrogation provision that RIMS has argued should not be included in a product liability reform measure. Our government affairs committee is currently reviewing and evaluating the proposal," said Mr. Brown.

Victor Schwartz, counsel to the Arlington, Va.-based Product Liability Coordinating Committee, which supports comprehensive reform, called the draft "a complex document," which the PLCC is still reviewing. He emphasized that the PLCC has not endorsed the measure.

"People are going to look at this very carefully," he said. He noted that while the proposal contains many provisions that were in the bill vetoed last year, Sen. Rockefeller has "put forth what is purportedly a new bill." He said the proposal contains many small and subtle changes in wording.

Mary Beth Reilly, manager-Senate legislative affairs for the National Federation of Independent Business in Washington, said: "We are disappointed. Overall, we're really keeping our powder dry. It's our understanding that negotiating is still continuing. Until we see a final product, we're going to abstain from critiquing."

"There were portions in the bill that would have significantly benefited our members that were taken out-for example, the portion eliminating joint liability for non-economic damages," she said, adding that the NFIB was also concerned about the subrogation provision.

Not surprisingly, that concern was shared by insurance groups, which were trying to determine exactly what the provision would mean for their members.

"We're still looking at it. We are unhappy that the workers comp section is back in there," said Melissa Shelk, assistant vp of the American Insurance Assn. in Washington.

"Workers comp is a no-fault system. This introduces fault into that system," she said.

"We're taking a very close look at the subrogation provision to see how it would affect our member companies and their customers," said Ken Schloman, federal affairs counsel for the Alliance of American Insurers in Washington.

Nevertheless, "we're pleased that a draft is out there that might provide a good jump start for this legislation and might get it moving again," said Mr. Schloman.

"We would have liked to have seen some provisions dealing with joint and several liability. I think we would have liked to have seen a more comprehensive provision on punitive damages, but this constitutes a good starting point for continuing the discussions," he added.

Not surprisingly, consumer activists do not view the proposal in the same light.

"The bill contains nothing for consumers," said Joanne Doro-show, a staff attorney with Public Citizen in Washington.

Regarding the punitive damage cap for small businesses, Ms. Doroshow noted that "many businesses with fewer than 25 employees produce products that threaten the public's health and safety," including such items as fireworks and handguns