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Full-Text Articles in Insurance Law
Third Party Moral Hazard And The Problem Of Insurance Externalities, Gideon Parchomovsky, Peter Siegelman
Third Party Moral Hazard And The Problem Of Insurance Externalities, Gideon Parchomovsky, Peter Siegelman
All Faculty Scholarship
Insurance can lead to loss or claim-creation not just by insureds themselves, but also by uninsured third parties. These externalities—which we term “third party moral hazard”—arise because insurance creates opportunities both to extract rents and to recover for otherwise unrecoverable losses. Using examples from health, automobile, kidnap, and liability insurance, we demonstrate that the phenomenon is widespread and important, and that the downsides of insurance are greater than previously believed. We explain the economic, social and psychological reasons for this phenomenon, and propose policy responses. Contract-based methods that are traditionally used to control first-party moral hazard can be welfare-reducing in …
The Paradox Of Insurance, Gideon Parchomovsky, Peter Siegelman
The Paradox Of Insurance, Gideon Parchomovsky, Peter Siegelman
All Faculty Scholarship
In this Article, we uncover a paradoxical phenomenon that has hitherto largely escaped the attention of legal scholars and economists, yet it has far-reaching implications for insurance law: loss-creation by uninsured parties caused by the presence of insurance. Contrary to the conventional wisdom, we show that insurance can create significant negative externalities by inducing third parties to engage in antisocial, illegal and unethical activities in order to extract money from insureds or insurers. Moreover, as the amount and scope of insurance grows, so does its distortionary effect on third parties. We term this phenomenon the paradox of insurance. The risk …
Trial And Settlement: A Study Of High-Low Agreements, J. J. Prescott, Kathryn E. Spier, Albert Yoon
Trial And Settlement: A Study Of High-Low Agreements, J. J. Prescott, Kathryn E. Spier, Albert Yoon
Articles
This article presents the first systematic theoretical and empirical study of highlow agreements in civil litigation. A high-low agreement is a private contract that, if signed by litigants before trial, constrains any plaintiff’s recovery to a specified range. In our theoretical model, trial is both costly and risky. When litigants have divergent subjective beliefs and are mutually optimistic about their trial prospects, cases may fail to settle. In these cases, high-low agreements can be in litigants’ mutual interest because they limit the risk of outlier awards while still allowing mutually beneficial speculation. Using claims data from a national insurance company, …
Liability Cure-All For Insidious Disease Claims, Susan Frankewich
Liability Cure-All For Insidious Disease Claims, Susan Frankewich
Pepperdine Law Review
Recent decisions handed down in various circuits have created virtual chaos in predicting the liability and damage amounts of insidious disease claims. At least three substantially divergent theories have been adopted to impute liability to the manufacturers of the disease catalysts. Additionally, a new trust fund concept has been used on a limited basis to reconcile differences in court decisions. The trust fund approach is relatively flexible and simple to apply in apportioning damages for insidious disease claims. The author examines and analyzes these three liability theories. In conclusion, the adoption of the trust fund concept is recommended.
Concurrent Causation In Insurance Contracts, William Conant Brewer Jr.
Concurrent Causation In Insurance Contracts, William Conant Brewer Jr.
Michigan Law Review
A great deal of work and thought has been devoted to concurrent causation problems in the field of torts. Less attention has been paid to the insurance cases, and no serious effort has been made to formulate the separate rules applicable to them. It is the thesis of this article that concurrent causation problems which arise under an insurance contract must be handled somewhat differently from those which arise in connection with tort litigation, and that the tendency to borrow rules of law from the larger tort field and apply them to the smaller volume of insurance cases can only …