Toro’s Alternative Dispute Resolution Program

Handling Product Liability Claims and Lawsuits

J. Lawrence McIntyreVice President, Secretary & General CounselThe Toro Company

Traditional Product Liability Claims Management

• In the 1970’s and 80’s : Defend, Litigate and manage lawyers and litigation.– Hired trial lawyers and experts– Gathered volumes of documents for discovery and

answered interrogatories – Prepared in-house people for depositions

(engineering, marketing, management). The plaintiff is entitled to depose virtually any employee

– Attended and testified at trials

Traditional Product Liability Claims Management, Cont.

The Outcome of litigation– Expense

• Drain on internal resources• Legal expense through trial can easily exceed $300,000.• Loss of control over our time, money, and documents.

– Risk• Win some/lose some

– A defense verdict in one case does not guarantee that the same type of accident/injury case will not result in a plaintiff’s verdict in different court with a different jury

• Punitive damages – An award of punitive damages can wipe out the net worth of a company

• Winning the case – but incurring extraordinary legal expenses, can be equally devastating to the

company’s bottom line – is that really a “win” for the company? • Uncertainty

– Juries are unpredictable and often mistrustful of large corporations and executives– Sympathy factor

The Alternative to Civil Litigation: Alternative Dispute Resolution

– ADR initially became a popular means of resolving disputes because of soaring litigation costs and other factors including:

• More litigious society; less personal accountability

• Savings

• Control of the outcome

• Civil litigation system broken in terms of producing equitable, efficient and economical results

– A “win” for the company:

When litigation risk is reduced or eliminated and litigation costs are controlled

Toro’s ADR Program

Unique 3 step program:

1. Prevention

2. Early intervention/accident investigation

3. Pre-Litigation Mediation

Step 1: PreventionProduct Liability group participates in all aspects of

product safety; including: 1. Product safety reviews (new product and

issues arising on field units)2. Operator safety instructions3. On-product warning creation4. Safety Watch program5. Safety Education programs6. Safety Standards creation & compliance

Step 2: Early Intervention/Accident

Investigation Process

Goal: Obtain the information we need in order to evaluate the claim without having to go through formal litigation procedures.

What we do: product specialists (non-lawyers) respond to product liability claims or lawsuits involving Toro product quickly:– conduct an on-site investigation accompanied by a Toro engineer – Inspect the equipment/preserve its condition and obtain historical

information about the equipment– Interview the injured person and witnesses; document the facts of the

accident– Photograph and document the site of the accident– Listen and treat the claimant as a dissatisfied customer who has had a

problem with Toro equipment, not an enemy

Step 2: Early Intervention/Accident Investigation

Process, Cont.

Evaluate the merits of the case based on the information we have gathered:– Severity of the injury

• How does the accident affect their day to day life

– The history of the product• Safety record, recalls• Similar accidents or complaints

– Liability factors including alteration, misuse, negligence, the law in the state, the favorableness of the jurisdiction

– General damages – The process does not ignore who’s at fault for the accident

and injury

Moving from Evaluation to Resolution

• Share our investigation and evaluation with the claimant and his/her attorney– Lower expectations– claims are resolved for $0– In June, 2006 we closed 17 cases, 13 with $0 payout

• Willingness to settle– reasonableness vs. the moon

• There are no blank checks• 67% settled or disposed of at this point in the process• If our product specialists do not resolve the case (the claimant’s

expectations may be too high), the case is referred to Mediation – Plaintiff may need a neutral mediator’s evaluation to become more

reasonable

Step 3: Mediation • Mechanics of a mediation

– Enter into a formal mediation agreement with all parties

– The parties meet over the course of two days and the plaintiff gives a sworn statement

– Both sides present their position with regard to the facts, law, issues and arguments. Toro is represented by National Mediation Counsel, and a local attorney in the jurisdiction

– Mediation is a less formal process but includes the exchange of information and preparation of mediation briefs. We come prepared to defend our product and lower the other side’s expectations.

Step 3: Mediation, Cont.

• Over 95% of the cases submitted to mediation are resolved

• If resolved, the terms of the agreement are confidential between the parties and cannot be published by the plaintiff

• If the case is not resolved at mediation the local attorney representing Toro assumes a vigorous defense of the case

Resolving claims using ADR results:

• Legal fees controlled• Over 1200 claims diverted to this program• Reduced average per claim handling expense from

$115,000 to $43,000 • Eliminated animosity with customers and unwanted

publicity from adverse verdicts• Position of greatest strength - we controlled the

outcome and we decided when to walk away; we controlled our time, our money, and our documents

Average Per-Claim Costs/Fees Comparison

1992-2006 Pre-1991

$0

$10,000

$20,000

$30,000

$40,000

$50,000 • Average Pre -1991 Costs/Fees = $47,252

• Average 1992-2006 Costs/Fees = $10,607

• 77% Reduction in Costs/Fees

Average Per-Claim Verdicts/Settlements Comparison

1992-2006 Pre-1991

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000• Average Pre-1991

Payouts = $68,368

• Average 1992-2006 Payouts = $32,232

• 53% reduction in amounts paid to resolve claims

Comparison of AverageTotal Cost to Close a File

Total 1992-2006Pre-1991

$115,620

$42,839

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Average Claim Lifespan Comparison

1992-2006

Pre-1991

0

5

10

15

20

25

MO

NT

HS

• Avg. Pre-1991 Claim Lifespan = 24 Months

• Avg. 1992-2006 Claim Lifespan = 9.8 Months

• 59% Reduction in lifespan of average claim

Thank You!