Abstract
Three methods compete, both across and within different legal systems, for coordinating insurance or like benefits (social security, employer provided benefits, etc.) and Tort liability awards: Collateral Source Rule (cumulation), collateral benefits offset (deduction), and subrogation of insurer or provider. It is known in the economics literature that the optimal insurance contract contains subrogatory provisions (Shavell 1987, Sykes 2001). In the presence of a liability system, however, it has been overlooked that subrogation and its alternatives, however, make sense only in a world in which liability rules don’t operate perfectly. Under an imperfect strict liability regime, solely subrogation can induce optimal incentives for risk coverage. In addition, collateral offset reduces, compared to the other two alternative regimes, injurer’s incentives to take care. Under an uncertain negligence rule incorporating causation subrogation still outperforms the other regimes, and especially the benefits deduction rule. Finally, the paper also discusses in informal terms the apparently strong advantage in terms of administrative costs of the collateral offset over subrogation, and points out at several factors that might seriously undermine this opinion. The paper casts doubts upon the trend favoring the elimination of the Collateral Source Rule and adoption of deduction systems, which has already been shown empirically to reduce deterrence (Rubin and Shepherd 2007).
We are thankful to Benito Arruñada, Michael Faure, Carlos Ocaña, Anthony Ogus, Santos Pastor, Alicia Real, Göran Skogh, and participants at Seminars at Carlos III, Ghent, and Pompeu Fabra Universities, for helpful comments and suggestions, to the Spanish Ministry of Education and Science (F. Gomez: SEJ2004-05059/JUR SEJ2005-10041, J. Penalva: SEJ2005-03924) and the Generalitat de Catalunya (SGR2005-00470) for financial support, and to Mireia Artigot and Maria Camí for able research assistance.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Birds, J. (1988), Modern Insurance Law, London.
Blinder, A. S. and Friedman, D. D. (1977), Natural Resources, Uncertainty and General Equilibrium Systems. Essays in Memory of Rafael Lusky, New York.
Bruck, E., and Möller, H. (1980), Versicherungsvertragsgesetz, 8th ed., Berlin.
Calfee, J. E., and Craswell, R. (1984), Some Effects of Uncertainty in Compliance with Legal Standards, Virginia Law Review, 70, 965–974.
Craswell, R., and Calfee, J. E. (1986), Deterrence and Uncertain Legal Standards, Journal of Law, Economics and Organization, 2, 279–303.
Danzon, P. M. (1984), Tort Reform and the Role of Government in Private Insurance Markets, Journal of Legal Studies, 13, 517–532.
Danzon, P. M. (1986), The Frequency and Severity of Medical Malpractice Claims, Law and Contemporary Problems, 49, 57–72.
Diamond, P. (1977), Insurance Theoretic Aspects of Workers’ Compensation, in Blinder, A.S. and Friedman, Ph. (eds.), Natural resources, uncertainty and general equilibrium systems, New York, 67–90.
Epstein, R. A. (1977), Coordination of Workers’ Compensation Benefits with Tort Damage Awards, Forum, 13, 464–466.
Epstein, R. A. (1982), The Historical Origins and Economic Structure of Workers’ Compensation Law, Georgia Law Review, 16, 775–807.
Ganuza, J., and Gomez, F. (2008, forthcoming), Realistic Standards — Optimal Negligence with Limited Liability, Journal of Legal Studies, 37.
Geigel, R. (1990), Der Haftpflichtprozess, 20th ed., München.
Grady, M. (1983), A New Positive Economic Theory of Negligence, Yale Law Journal, 92, 799–829.
Grady, M. (1988), Why Are People Negligent? Technology, Nondurable Precautions, and the Medical Malpractice Explosion, Northwestern Law Review, 82, 293–334
Harper, F., James, F. and Gray, O. (1986), The Law of Torts, v.4, 2nd ed., Boston-Toronto.
Kahan, M. (1989), Causation and Incentives to Take Care Under the Negligence Rule, Journal of Legal Studies, 18, 427–447.
Keeton, R. and Widiss, A. (1988), Insurance Law, St. Paul, Minn.
Lange, H. (1990), Schadensersatz, 2nd ed., München.
Larenz, K. (1981), Lehrbuch des Schuldrecht, Vol. II.2., München.
Larson, K. (1982), Third Party Action Over Against Workers’ Compensation Employer, Duke Law Journal, 1989, 483–540.
Levmore, S. (1982), Self-assessed Valuation Systems for Tort and Other Law, Virginia Law Review 68, 771–824.
Lewis, R. (1999), Deducting Benefits from Damages for Personal Injury, Oxford.
Rubin, P. H., and Shepherd, J. M. (2007), Tort Reform and Accidental Deaths, Journal of Law & Economics, 50, 221–238.
Shavell, S. (1982), On Liability and Insurance, Bell Journal of Economics, 13, 120–132.
Shavell, S. (1986), The Judgement Proof Problem, International Review of Law and Economics 6, 45–58.
Shavell, S. (1987), Economic Analysis of Accident Law, Cambridge (Mass.).
Sykes, A. O. (2001), Subrogation and Insolvency, Journal of Legal Studies, 30, 383–399.
Viscusi, W. K. (1991), Reforming Products Liability, Cambridge (Mass.).
Weiler, P. C. (1989), Workers’ Compensation and Products Liability: The Interaction of a Tort and a Non-Tort Regime, Ohio State Law Journal, 50, 825–847.
Weiler, P. C. (1991), Medical Malpractice on Trial, Cambridge (Mass.).
Author information
Authors and Affiliations
Editor information
Rights and permissions
Copyright information
© 2008 Gabler | GWV Fachverlage GmbH, Wiesbaden
About this chapter
Cite this chapter
Gomez, F., Penalva, J. (2008). Insurance and Tort: Coordination Systems and Imperfect Liability Rules. In: Eger, T., Bigus, J., Ott, C., von Wangenheim, G. (eds) Internationalisierung des Rechts und seine ökonomische Analyse. Gabler. https://doi.org/10.1007/978-3-8350-5582-7_16
Download citation
DOI: https://doi.org/10.1007/978-3-8350-5582-7_16
Publisher Name: Gabler
Print ISBN: 978-3-8350-0877-9
Online ISBN: 978-3-8350-5582-7
eBook Packages: Business and Economics (German Language)