ASIA MAY BE FLIRTING WITH LITIGIOUS CULTUREPosted On: Dec. 21, 1997 12:00 AM CST
SINGAPORE -- Asian companies, especially those expanding globally, must be prepared for more liability lawsuits, including for products and actions by directors and officers, insurance specialists say.
Speakers told the First AIDA Asia Pacific Insurance Law Conference in Singapore Nov. 9-11 that Asian risk managers and corporate buyers are finding they might need more corporate coverages, including D&O, fidelity and product liability. However, one speaker said the Japanese culture would prevent a flood of product liability suits.
Masato Ata, deputy manager-liability insurance section, non-marine underwriting department of Tokyo-based Mitsui Marine & Fire Insurance Co., Ltd., said product liability claims are increasing in Japan. Between 1994 and 1995, the number of product liability claims reported to his company increased by 49.1% to 1,753, he said.
In the past, Japanese consumers were reluctant to sue corporations because they wanted to avoid public confrontation and settle disputes through non-public negotiation, he said.
But Japan's Products Liability Law, which took effect July 1, 1995, but was passed more than a year earlier (BI, July 18, 1994), "increased the probability of more product-related lawsuits in the future," Mr. Ata said.
He noted that until the law came into effect, introducing strict liability, a plaintiff in Japan had to prove negligence. Proving negligence "had been a daunting task for consumers because, in most cases, they usually do not have information or knowledge pertinent to prove a manufacturer's negligence in producing goods, as such information is hidden in the corporate archive beyond their reach," Mr. Ata said.
The law broadens the definition of manufacturers, which means more industries are open to claims. Mr. Ata said premium volume for product liability coverage almost doubled to 40.4 billion yen ($307 million) after the law was passed.
So far, under the law, six cases have been filed, but none has been settled. Despite the small amount of each claim, the suits show a trend toward litigation.
A man is seeking 910,000 yen ($6,900) in damages after he allegedly cut his finger on the edge of the pull ring on a container.
A plaintiff is suing a bacon manufacturer for 950,000 yen ($7,220) after he ate dried bacon and allegedly suffered an acute stomach ache.
A plaintiff who was not injured alleges he was sold a defective snow-melting machine and is seeking 51 million yen ($387,600) from the manufacturer.
A plaintiff whose daughter died of food poisoning is seeking 78 million yen ($592,700) in an action against Sakai city's administration, which allegedly provided a contaminated school meal that also made other students ill.
Another plaintiff is seeking 33 million yen ($250,770) in damages from a sea urchin importer and an intermediary after eating an "infected sea urchin" and becoming ill.
Relatives of a woman killed by a falling elevator in a multilevel garage are seeking 18.5 million yen ($140,582) in a suit against the garage manufacturer.
Although no claims have been resolved in court since the new law came into effect, industry-based alternative dispute resolution organizations have been established and have settled many claims, Mr. Ata noted.
Five industry bodies, the Electronics, Automobile, Gas & Kerosene Devices, Beverage Products and Consumer Products Product Liability Centers, each had dealt with more than 1,000 claims in fiscal 1995, he said. Most were settled out of court.
Mr. Ata predicted that a legal procedure revision expediting court cases involving claims of less than 300,000 yen ($2,280) would prompt more claims. Under a revision of Japan's Code of Civil Procedures that takes effect Jan. 1, judgments on small claims would be made on the first day of trial after each side presented evidence.
Japanese insurers, anticipating increased claims, might seek higher deductibles, "redefine their underwriting guidelines" and be "less aggressive" in selling policies to corporations with high exposures, Mr. Ata predicted.
But he also predicted "there will be no explosive increase of the product liability suits in Japan, due to Japanese cultural mindset and the legal system."
Another threat to Asian corporations is the increasing risk of claims against directors and officers, Aruno R. Salvi, general manager/principal of Singapore-based Reliance National Asia Re Pte. Ltd., told the conference.
Ms. Salvi said Asian directors and officers no longer are immune from risk as they increasingly become part of the global market and consumers become more litigious.
More Asian companies are expanding globally and raising capital on international markets, and "it is no longer possible to ignore the Australian or American litigation scene as something far-fetched and of no impact on Asian directors," Ms. Salvi said.
Once an overseas company trades on a U.S. stock exchange, it must comply with U.S. securities legislation and is subject to litigation in the United States, which means Asian directors could be sued in U.S. courts, even if their companies don't have offices there, she noted.
Asian corporations increasingly are setting up offshore branches or subsidiaries, so directors now operate where new potential legal risks exist.
Ms. Salvi said Asian companies listed on domestic or overseas stock exchanges now face onerous disclosure requirements.
For example, under Singapore law, directors must confirm their businesses are satisfactorily maintained, have no undisclosed circumstances affecting company values, no undisclosed contingent liabilities and that current asset book values can be realized.
"Directors can be caught for misleading statements, errors or omissions, and several cases have already surfaced in Asia," Ms. Salvi said.
Corporatization and privatization have changed the role of directors and officers who previously had statutory protection. Management styles have to change, and more accountability and transparency of transactions is required, she said.
Asian company directors also increasingly face claims for environmental damages, Ms. Salvi said.
The Year 2000 computer "millennium bug" also poses a problem to Asian companies, and directors cannot claim ignorance of its potential impact as a defense if they are sued.
"While D&O is one answer, risk management should be an integral part of good management," she said.
Ir M. Iqbal, technical and marketing director of Indonesian insurer PT Asuransi Bintang, agrees that Asian companies have to address risk management, not only to reduce liability risks but to minimize exposure to fraud.
The fidelity insurance market is underdeveloped, particularly in Indonesia, but the risk is high, and claims are increasing, he told the conference.
Risk managers can minimize exposures by careful staff selection and implementing and enforcing strict procedures and controls for handling financial transactions. For example, they can require two or more signatures before money is transferred or checks drawn, he said.
Managers also can implement financial audit programs and maintain good staff relations so the motivation to commit fraud or embezzlement is eliminated, Mr. Iqbal said.