A US liability reform bill should emerge this summer but its punitive damages cap is unlikely to be as "industry friendly'' as first hoped for, said an insurance executive.

The US Senate passed a product liability bill, the Fairness in Product Liability Act on May 10, while the house passed a broader liability bill earlier this year.

The House/Senate conference committee bill will probably include "higher caps'' on punitive damages, said Mr. Joseph Wiedemann, senior vice president, marketing, of Starr Excess Liability Insurance Company Ltd.

Both propose capping punitive damages at $250,000.

Under certain circumstances awards could be potentially higher.

The committee will now try to reconcile the two bills which then has to be passed by house and senate.

The resulting bill, even with a higher cap stands a very good chance of being vetoed, said Mr. Wiedemann.

President Bill Clinton has said he is opposed to any measure which would favour insurers and businesses over consumers.

It is too early to tell how much the Island's excess liability insurers will benefit from product liability reform but Mr. Wiedemann said the proposed change is a move in the right direction.

"It is possible it might impact us as far as not having to pay out as high awards as without the cap. The long and short of it is Starr, XL and ACE (excess liability insurers) provide cover for punitive damages.'' Though these companies have very high attachment points it is possible to get into the layers of cover they provide if there were multiple claimants, said ACE Ltd. executive vice president and general counsel Mr. Bradford Rich.

But the extent of just how much a cap on punitive damages will have on insurers is "speculative'' at this time, Mr. Wiedemann added.

"In our view it will probably be very helpful to insurers who face high frequency exposure,'' said Mr. Rich.

For ACE, the impact of a products liability cap is not likely to be noticeable because ACE writes low frequency/high severity risks. Clients will still have to buy the kind of cover that ACE provides, he said.

But ACE is watching the developments as its clients are American multinational companies, he said.

"The Senate and House bills are dramatic changes compared to the way it is now. The various laws that control punitive damages are all over the place.

Most of our insureds are multinationals and could find themselves in court in different states,'' said Mr. Rich.

"We support the move to make the situation more standardised because without standardisation, results are unpredictable,'' he said.

The Senate bill would set up a federal standard for all lawsuits involving unsafe products. It would cap punitive awards in such cases at $250,000 or double compensatory damages whichever is smaller.

The Senate bill would allow a judge to increase the punitive award for big and small businesses, if the judge decides additional punishment is warranted.

The house bill would cap all punitive damages at $250,000 or triple economic damages, whichever is greater as well as limiting pain and suffering awards in medical malpractice cases to $250,000.

Reform at the national level in the US it is considered a major victory for the insurance industry. It has taken more than a decade to reach this legislative level.

One industry executive, who spoke on condition of anonymity, said liability reform could mean people would need less insurance and could also affect the availability of cover.