Law Commons^™

Insurance And Enterprise: Cyber Insurance For Ransomware, Tom Baker, Anja Shortland

All Faculty Scholarship

Selling insurance gives insurers an incentive to manage insured risks. The “insurance as governance” literature demonstrates that insurers often make insurance conditional on ex ante risk reduction or mitigation. But insurance governs in support of enterprise, not security for its own sake. Tight underwriting inhibits enterprise – not only for insured businesses but also the business of insurance. This paper highlights ex post loss reduction as a form of insurance-based governance. Drawing on interviews with industry insiders, we explore how insurers addressed the evolving problems of moral hazard, uncertainty, and correlated losses since the 1990s. We find that cyber insurance …

The Government Behind Insurance Governance: Lessons For Ransomware, Tom Baker, Anja Shortland

All Faculty Scholarship

The insurance as governance literature focuses on the ability of private enterprises to collectively regulate, pool, and distribute risks. This paper analyzes how governments support insurance markets to maintain insurability and limit risks to society. We propose a new conceptual framework grouping government interventions into three dimensions: regulation of risky activity, public investment in risk reduction, and co-insurance. We apply this framework to six case studies, describing insurance markets’ reliance on public support in more analytically precise terms. We analyze how mature insurance markets overcame insurability challenges akin to those currently presented by extortive cybercrime. Private governance struggled when markets …

How A Pandemic Plus Recession Foretell The Post-Job Based Horizon Of Health Insurance, Allison K. Hoffman

All Faculty Scholarship

For many years, the health insurance that people received through their jobs was considered the gold standard, so much so that it came to be called “Cadillac coverage.” Just as Cadillac has lost its sheen, so has job-based health insurance coverage in many cases. This decline predated the COVID-19 pandemic, yet it has been, and will continue to be, hastened by it. The changes to job-based coverage have prompted people to ask: what’s next? This Article suggests that the lessons from the pandemic could offer an opportunity fundamentally to rethink the way to pay for healthcare in the United States, …

What History Can Tell Us About The Future Of Insurance And Litigation After Covid-19, Kenneth S. Abraham, Tom Baker

All Faculty Scholarship

This Article, written for the annual Clifford Symposium on Tort Law and Social Policy, chronicles a series of developments in American history that profoundly influenced the course of insurance and insurance law, in order to predict the post-COVID-19 future of these fields. In each instance, there was a direct and decided cause-and-effect relationship between these developments and subsequent change in the world of insurance and insurance law. As important as the influence of COVID-19 is at present and probably will be in the future, in our view the COVID-19 pandemic will not be as significant an influence on insurance and …

Nonparty Interests In Contract Law, Omri Ben-Shahar, David A. Hoffman, Cathy Hwang

All Faculty Scholarship

Contract law has one overarching goal: to advance the legitimate interests of the contracting parties. For the most part, scholars, judges, and parties embrace this party primacy norm, recognizing only a few exceptions, such as mandatory rules that bar enforcement of agreements that harm others. This Article describes a distinct species of previously unnoticed contract law rules that advance nonparty interests, which it calls “nonparty defaults."

In doing so, this Article makes three contributions to the contract law literature. First, it identifies nonparty defaults as a judicial technique. It shows how courts deviate from the party primary norm with surprising …

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 …