1. Can the EU “REACH” the American Tort System? Presented to the SOCMA Corporate Excellence Conference May 16, 2008 Savannah, Georgia By:Dr. Karl J. Duff, Ph.D., J.D. Attorney at Law (Georgia and Illinois) Professional Liability Consultants, LLC Telephone: 770-345-3577 EMail: kduff@tempus-plc.com kduff@tempus-plc.com ©2008 Professional Liability Consultants, LLC / ALL RIGHTS RESERVED

2. A New EU Agency with a Mission … The European Chemical Agency is charged with implementing the REACH regulatory approach The European Chemical Agency is charged with implementing the REACH regulatory approach –This is NOT the same world view as bringing a chemical to market in the US; –REACH wants to create a regulatory world where it must be shown that the chemical in question is safe.

3. US Companies and REACH When US firms sell to consumers or intermediary firms in the EU, they will have to comply with EU rules and regs in order to compete for EU business. When US firms sell to consumers or intermediary firms in the EU, they will have to comply with EU rules and regs in order to compete for EU business. This isn’t news. This isn’t news. So what is the news? So what is the news?

4. The News is … US firms need to think about REACH, even in connection with operations here in the US. US firms need to think about REACH, even in connection with operations here in the US. What??!!! Why? What??!!! Why? –The answer lies in the machinations of the US legal system; –The US legal system, even absent Congressional or regulatory action, might impose REACH rules here.

5. Know Your Tort-Feasor … The American tort system is frequently the engine driving much of our civil litigation. The American tort system is frequently the engine driving much of our civil litigation. Generally, tort liability is fault (negligence) - based. Generally, tort liability is fault (negligence) - based. However, as the chemical industry knows all too well, we have a robust category of risks which arise without the need for fault: products liability. However, as the chemical industry knows all too well, we have a robust category of risks which arise without the need for fault: products liability.

6. So, which is it? Negligence or not? REACH could be used as a tool by judges in creative ways to change standards of liability and to create new levels of risk. REACH could be used as a tool by judges in creative ways to change standards of liability and to create new levels of risk. Here’s the bad news: Here’s the bad news: –It could be either; or –It could be both.

7. REACH and Standard Tort Approaches Negligence and fault are driven by the notion of a standard of care; Negligence and fault are driven by the notion of a standard of care; What this means is that the law requires a duty of reasonable care under the particular circumstances; What this means is that the law requires a duty of reasonable care under the particular circumstances; This idea adapts and evolves over time. This idea adapts and evolves over time. –Story of Court of Appeals Duff Case

8. Learning from Judge Cardozo … “Precedents drawn from the days of travel by stagecoach do not fit the conditions of travel today. The principle … does not change, but the things subject to the principles do change. They are whatever the needs of life in a developing civilization require them to be.” “Precedents drawn from the days of travel by stagecoach do not fit the conditions of travel today. The principle … does not change, but the things subject to the principles do change. They are whatever the needs of life in a developing civilization require them to be.” MacPherson v. Buick Motor Co. 217 N.Y. 382 (1916)

9. What does this mean? It means that Courts are free to adopt new rules as they see fit to face new developments, as I learned under live fire in the Court of Appeals. It means, too, that Courts can redefine what negligence means by looking to the “needs of a developing civilization.”

10. Courts can look to foreign jurisdictions … In October of 2003, then-Supreme Court Justice Sandra Day O’Connor gave a speech in Atlanta, Georgia where she predicted that: “[O]ver time we will rely increasingly, or take notice at least increasingly, of international and foreign courts in examining domestic issues." In October of 2003, then-Supreme Court Justice Sandra Day O’Connor gave a speech in Atlanta, Georgia where she predicted that: “[O]ver time we will rely increasingly, or take notice at least increasingly, of international and foreign courts in examining domestic issues."

11. What does the Supreme Court say today? In a recent (March, 2008) decision, three of the nine Justices appeared ready to go down the road posited by Justice O’Connor: Justices Breyer, Souter and Ginsberg. In a recent (March, 2008) decision, three of the nine Justices appeared ready to go down the road posited by Justice O’Connor: Justices Breyer, Souter and Ginsberg. –See: Medellin v. Texas U.S. Supreme Court Case No. 06-984, March 25, 2008, slip op.

12. In fact, courts can look to regulatory requirements, not just laws … Judge Eldrige instructs us in another classic case that: Judge Eldrige instructs us in another classic case that: –“[L]egislative or administrative requirements that persons or businesses conduct their operations in a particular manner and adhere to specified standards have never been viewed as supplanting tort liability.”

13. Wait, there’s more … Judge Eldrige continues: Judge Eldrige continues: –“On the contrary, such statutory or regulatory requirements are deemed to furnish standards by which courts or juries determine along with other circumstances whether or not conduct is negligent.” Volkswagen of America, Inc. v. Young Volkswagen of America, Inc. v. Young 272 Md. 201 (1974)

14. How can this change the rules? First of all, the whole concept of REACH is different from our approach in the US. At present, we don’t conform to a “proof of the negative” approach. A Court could look to the EU and say that it was time for a change, and not doing the EU testing and proof of safety in the US amounted to negligence, since the standard of care has apparently changed.

15. But wait! I only have to do this in the EU … And that’s part of the crux of the problem: A firm complying with EU REACH would be asked why it chose to not do the work and testing here in the US … “Because I don’t have to” - might not be a good answer … especially when one of the questions preceding this one related to corporate concern for safety, persons and the environment.

16. What if the REACH data base indicated a problem? “A defendant who continued manufacturing a substance, or using it in its products or preparations, in ignorance of hazards set out in the [REACH] data base, would find it difficult to [assert certain defense arguments] or, indeed, defend a more traditional negligence claim.” “Effects of the EU’s New Chemicals Regime”, Andrew Austin, Esq., For the Defense, December, 2007

17. EU Data Base: A Trap for the Unwary? Austin, a senior associate at Freshfields, goes on to cogently argue: “[E]xistence of the database may make it more difficult for companies on either side of the Atlantic to defend chemicals-related product liability litigation.”

18. What do to? First: confer now with your counsel and technical advisors about whether you think this might be an issue, and what steps you may want to take to address it. First: confer now with your counsel and technical advisors about whether you think this might be an issue, and what steps you may want to take to address it. This initial effort should be informed by a careful reading of Mr. Austin’s analysis. This initial effort should be informed by a careful reading of Mr. Austin’s analysis. The decisions about which courses of action to follow could be crucial in later years if the US risk/liability paradigm changes by judicial fiat (even without Congressional or administrative action). The decisions about which courses of action to follow could be crucial in later years if the US risk/liability paradigm changes by judicial fiat (even without Congressional or administrative action).

19. Limitations 1. These materials are intended only to stimulate thought, dialogue and risk analysis on the part of SOCMA conference attendees, as well as the Counsel, Brokers and Risk Management personnel of such attendees (collectively: “SOCMA”). No representation or warranty is made or intended that following these suggestions will successfully address particular risks. These materials are not intended to be a comprehensive catalogue of risk issues. SOCMA must seek assistance from its own team of advisors, including locally-licensed Counsel, Brokers and Risk Management personnel on a case-by-case basis. 2. This document is not a legal opinion, nor is it intended to be legal advice. It is an attempt by the author to flag risk issues based upon the author’s experience for the consideration of SOCMA. No attorney-client relationship to non-AIG entities or personnel is made or intended, and any such relationship is hereby expressly disclaimed. 3. Opinions by the author or his firm are not in any event to be understood as the view or position of AIG Environmental or any AIG company. No opinion is intended or given as to whether a particular risk may be (or may not be) covered by a particular policy of insurance. Any non-AIG entity or person (third parties, including but not limited to SOCMA) in receipt of this document receive it “for information only”, not for reliance, and in every respect subject to the terms and provisions of these limitations.

20. Questions and Answers / Contact Information Dr. Karl J. Duff, Ph.D., J.D. Attorney at Law (Georgia and Illinois) Professional Liability Consultants, LLC 2205 Riverstone Blvd. – Suite 108 Canton, Georgia 30114 Telephone: 770-345-3577 Fax: 770-345-3573 EMail: KDUFF@TEMPUS-PLC.COM KDUFF@TEMPUS-PLC.COM