Insurance Law Commons^™

Risk-Risk Tradeoffs For Mass Shootings And International Terrorism, W. Kip Viscusi, Rachel Dalafave

Vanderbilt Law School Faculty Publications

This article elicits information about risk perceptions and risk–risk tradeoffs for mass shootings and international terrorist attacks. These prominent public risks are similar in many respects in that both involve traumatic injuries. One might expect that the risk–risk tradeoff rate would be 1.0 unless other attributes of these risks are pertinent. Estimates based on an original survey structured to test rates of tradeoff between deaths from these risks indicate that respondents consistently place a premium on reducing mass shooting risks, as compared to risks of international terrorism. The average premium is relatively stable even after accounting for the effect of …

Employment Practices Liability Insurance And Ex Post Moral Hazard, Joni Hersch, Erin E. Meyers

Vanderbilt Law School Faculty Publications

Many businesses purchase Employment Practices Liability Insurance (EPLI), a form of insurance that protects them from claims of discrimination, harassment, retaliation, and wrongful termination. But critics of EPLI argue that allowing insurance coverage for employment liability detracts from employment law's goal of deterrence and from notions of justice. We assess the validity of these criticisms by examining the nature of employment law claims and by reviewing characteristics of the current EPLI market. We find that past critiques miss the mark in diagnosing EPLI's major problem.

The EPLI market, for the most part, functions in a way that poses little to …

Reducing Medical Malpractice Loss Reserve Volatility Through Tort Reform, W. Kip Viscusi, Patricia H. Born, Evan M. Eastman

Vanderbilt Law School Faculty Publications

This study examines how tort reform affects uncertainty in insurance markets by testing whether noneconomic damage caps influence reserving volatility for medical malpractice insurers. Using a panel of insurers from 1986 to 2009, we estimate the determinants of loss reserve error volatility and focus on how this volatility is influenced by the percent of premiums an insurer writes that are subject to noneconomic damage caps. We find empirical evidence that tort reform reduces reserve volatility over the subsequent 3- and 5-year periods, consistent with tort reform improving insurers’ loss forecasting ability. Our findings address outcomes of tort reform that are …

Identifying The Legitimate Role Of The Value Of A Statistical Life In Legal Contexts, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

This article is based on my keynote address at the American Academy of Economic and Financial Experts conference in which I examined some of the implications for legal contexts of my book, Pricing Lives: Guideposts for a Safer Society. The value of a statistical life (VSL) provides an economic measure of the efficient cost-risk tradeoff rate for mortality risk decisions. Consequently, the VSL is well suited to serving as a measure of the benefits of mortality risk reduction for government regulatory policies and for corporate risk decisions. The tort liability counterpart of this function is using the VSL to assess …

Sharing The Costs Of Artificial Intelligence: Universal No-Fault Social Insurance For Personal Injuries, Jin Yoshikawa

Vanderbilt Journal of Entertainment & Technology Law

The twenty-first century is the artificial intelligence (AI) century. In the past few years, AI has become a familiar fixture of everyday life thanks to services like YouTube, Spotify, Netflix, and Alexa. Stocktraders, doctors, insurance brokers, real estate agents, recruiters, artists,and even lawyers now rely on predictive tools powered by AI to perform their highly skilled--even creative--tasks. In the following decades, AI will continue to transform more fields and deliver astonishing advancements in convenience, comfort, safety, and security. At the same time, however, AI will bring about new challenges. AI will offend, disrupt, crash, breach, incite, injure, and even kill …

The Income Elasticity Of Global Values Of A Statistical Life: Stated Preference Evidence, W. Kip Viscusi, Clayton J. Masterman

Vanderbilt Law School Faculty Publications

Countries throughout the world use estimates of the value of a statistical life (VSL) to monetize fatality risks in benefit-cost analyses. However, the vast majority of countries lack reliable revealed preference or stated preference estimates of the VSL. This article proposes that the best way to calculate a population-average VSL for countries with insufficient or unreliable data is to transfer a base VSL from the United States calculated using labor market estimates from Census of Fatal Occupational Injuries data, coupled with adjustments for differences in income between the United States and the country of interest. This approach requires estimation of …

Pricing Lives: International Guideposts For Safety, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

Government agencies throughout the world use the value of a statistical life (VSL) to monetise the mortality risk reduction benefits of government policies. The most reliable empirical estimates of the VSL using US labour market data are about US$10 million (year 2015 US dollars). Based on international estimates of the income elasticity of the VSL, one can transfer these values to other countries, leading to my VSL estimate for Australia of US$7.9 million, or A$10.0 million, which is over double the current Australia best-practices value. Transferring US VSL estimates to other nations after accounting for income differences will boost global …

Insurance Coverage Policies For Pharmacogenomic And Multi-Gene Testing For Cancer, Ellen Wright Clayton, Christine Y. Lu, Stephanie Loomer, Et Al.

Vanderbilt Law School Faculty Publications

Abstract: Insurance coverage policies are a major determinant of patient access to genomic tests. The objective of this study was to examine differences in coverage policies for guideline-recommended pharmacogenomic tests that inform cancer treatment. We analyzed coverage policies from eight Medicare contractors and 10 private payers for 23 biomarkers (e.g., HER2 and EGFR) and multi-gene tests. We extracted policy coverage and criteria, prior authorization requirements, and an evidence basis for coverage. We reviewed professional society guidelines and their recommendations for use of pharmacogenomic tests. Coverage for KRAS, EGFR, and BRAF tests were common across Medicare contractors and private payers, but …

Health Insurance Mandates, Mammography, And Breast Cancer Diagnoses, Christopher K. Carpenter, Marianne P. Bitler

Vanderbilt Law School Faculty Publications

We examine the effects of state health insurance mandates requiring coverage of screening mammograms. We find evidence that mammography mandates significantly increased mammography screenings by 4.5-25 percent. Effects are larger for women with less than a high school degree in states that ban deductibles, a policy similar to a provision of federal health reform that eliminates cost-sharing for preventive care. We also find that mandates increased detection of early stage in-situ precancers. Finally, we find a substantial proportion of the increased screenings were attributable to mandates that are not consistent with 2014 recommendations of the American Cancer Society.

Assessing The Insurance Role Of Tort Liability After Calabresi, W. Kip Viscusi, Joni Hersch

Vanderbilt Law School Faculty Publications

Calabresi’s theory of tort liability (1961) as a risk distribution mechanism established insurance as an objective of tort liability. Calabresi’s risk-spreading concept of tort has provided the impetus for much of the subsequent development of tort liability doctrine, including risk-utility analysis and strict liability. Calabresi’s analysis remains a powerful basis for modern tort liability. However, high transactions costs, correlated risks, catastrophic losses, mass toxic torts, shifts in liability rules over time, noneconomic damages, and punitive damages affect the functioning of tort liability as an insurance mechanism. Despite some limitations of tort liability as insurance, tort compensation serves both a compensatory …

The Benefits Of Mortality Risk Reduction: Happiness Surveys Vs. The Value Of A Statistical Life, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

A principal component of many benefit-cost analyses (BCAs) of health, safety, and environmental regulations is the valuation of the fatality risk effects of the underlying policy. Government agencies currently value these expected effects using estimates of the value of a statistical life (VSL), that is, the tradeoff rate between money and very small risks of death. This measure corresponds to BCA's theoretically appropriate benefits measure, which is society's willingness to pay for the risk reduction. Here, I will review the VSL approach, compare it to suggested alternatives that use happiness measures of well-being, and address some of the misunderstandings that …

What’S To Know? Puzzles In The Literature On The Value Of Statistical Life, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

Notwithstanding the general acceptance of the value of statistical life (VSL) estimates for policy assessment purposes, several important unresolved issues remain. First, the results from revealed preference studies are systematically higher than those from stated preference studies, potentially limiting the usefulness of stated preference studies in generalizing the VSL estimates to different populations and kinds of risks. Second, extrapolating the results of meta-analyses to project the VSL for different population groups requires that such generalization be reflective of the underlying economic content of what average VSL estimates reflect. Third, government agencies within and across countries place differing emphasis on types …

Catastrophic Oil Spills And The Problem Of Insurance, Kenneth S. Abraham

Vanderbilt Law Review

The BP oil spill of 2010 focused considerable attention on the operating conduct of BP, on the potential liability of BP and other entities associated with the spill, and on the fund that BP established to provide compensation to victims of the spill. Much less attention has been paid, however, to the nature and scope of insurance covering losses caused by catastrophic environmental disasters such as oil spills. BP's establishment of the Gulf Coast Claims Facility, and the compensation that will be paid by that facility, will likely dampen awareness of the mismatches between the resulting losses and the insurance …

Litigating Bp's Contribution Claims In Publicly Subsidized Courts: Should Contracting Parties Pay Their Own Way?, Bruce L. Hay, Christopher Rendall-Jackson, David Rosenberg

Vanderbilt Law Review

In this Article, we focus on an important problem involving mass-accident cases that was highlighted by the Deepwater Horizon litigation: overuse of courts to enforce contribution claims. These claims seek to shift incurred or expected liability and damages between the business and governmental entities that participated in the activity that gave rise to the mass-accident risk. Participants in such ventures generally have the option to determine by contract beforehand whether to subject themselves to contribution claims and, if so, whether such claims will be resolved by a publicly funded court or by a privately funded process, such as arbitration. Because …

The Effects Of Tort Reform On Medical Malpractice Insurers’ Ultimate Losses, W. Kip Viscusi, Patricia Born, Tom Baker

Vanderbilt Law School Faculty Publications

Whereas the literature evaluating the effect of tort reforms has focused on the impact of reforms on insurers' reported incurred losses, this article examines the ultimate effects of reforms using the developed losses from a comprehensive sample of insurers writing medical malpractice insurance from 1984 to 2003. Noneconomic damages caps are particularly influential in reducing medical malpractice losses and increasing insurer profitability. The long-run effects of these reforms are greater than insurers' expected effects; for example, 5- and 7-year developed loss ratios are below the initially reported incurred loss ratios for those years following the enactment of noneconomic damages caps. …

The Montreal Convention: Can Passengers Finally Recover For Mental Injuries?, Mckay Cunningham

Vanderbilt Journal of Transnational Law

Since the 1920s, recovery for accidents suffered on international flights has been subject to the Warsaw Convention's limitation of "bodily injury." To address perceived inequities stemming from this limitation, some courts invoked a liberal interpretation of the phrase "bodily injury," and the resulting and fragmented judicial precedent threatened the treaty's goal of international uniformity. Although Warsaw's long-awaited replacement, the Montreal Convention, retains the "bodily injury" language, a close study of the treaty's history and, more importantly, the negotiations among the signatories' delegates suggests that the great majority of nations intended to broaden the allowable recovery beyond strict bodily injury and …

Law Triangle: Arbitrating International Reinsurance Disputes, J. L. Murphy

Vanderbilt Journal of Transnational Law

The McCarran-Ferguson Act was enacted to preserve the longstanding prerogative of the States to regulate the insurance industry. States have acted in accordance with this statute to declare arbitration agreements in insurance contracts invalid. However, the Senate has since ratified the New York Convention and appended implementing legislation to the Federal Arbitration Act that obligates domestic courts to recognize arbitration agreements in all international contracts. In an odd convergence of authority, a functional conflict arises between these three bodies of law: the federal law says that state law controls in this area, even over other federal law that might incidentally …

Rational Discounting For Regulatory Analysis, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

This Article examines the economic basis for what is termed "rational discounting," which entails full recognition of policy effects over time and exponential discounting at a riskless rate of return. Policies often cannot be ranked unambiguously in terms of their present or future orientation. Both failure to discount and preferential intergenerational discounting generate inconsistencies and economic anomalies. Office of Management and Budget (OMB) discounting guidelines now stipulate more reasonable discount rates than earlier guidelines, but err in permitting open-ended preferential rates for intergenerational effects. This Article presents a methodology for monetizing the value of statistical life for people of different …

Insurers, Illusions Of Judgment & Litigation, Chris Guthrie, Jeffrey J. Rachlinski

Vanderbilt Law School Faculty Publications

Insurers play a critical role in the civil justice system. By providing liability insurance to parties who would otherwise be untenable as defendants, insurers make litigation possible. Once litigation materializes, insurers provide representation, pay legal fees, and often play a central role in resolving disputes through settlement or adjudication. In this paper, we explore empirically how these key litigation players make important decisions in the litigation process, like evaluating a case, deciding whether to settle, and if so, on what terms. We find that insurers, though not entirely immune to the effects of cognitive illusions that have been shown to …

The Commodification Of Insurance Defense Practice, Herbert M. Kritzer

Vanderbilt Law Review

In this paper, I present an analysis of insurance defense practice using the heuristic of a commodity.7 Essentially, I argue that many, perhaps even most, insurance companies have come to view the more routine work of insurance defense as something to be purchased in a marketplace where there are a large number of interchangeable providers.8 Loyalty between buyer and seller, to the extent that it had been an important element of the relationship, has faded. Today, insurance companies frequently shop for the best deal, which may include producing insurance defense services in-house rather than purchasing those services from an outside …

Natural Disaster Risks: An Introduction, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

An introduction to a special issue of the Journal of Risk and Uncertainty dealing with the implications of catastrophic events for research on risk and uncertainty. What are the consequences of natural disasters? How do individuals and firms respond to such disasters? How do insurers respond, and how should the government respond? Several of these papers will have a strong normative component as they will suggest what actions individuals, firms, and the government should take in anticipation of natural disasters.

The Catastrophic Effects Of Natural Disasters On Insurance Markets, W. Kip Viscusi, Patricia Born

Vanderbilt Law School Faculty Publications

Natural catastrophes often have catastrophic risks on insurance companies as well as on the insured. Using a very large dataset on homeowners insurance coverage by state, by firm, and by year for the 1984 to 2004 period, this paper documents the positive effect on losses and loss ratios of both unexpected catastrophes as well as large events that the authors term "blockbuster catastrophes." Insurers adapt to these catastrophic risks by raising insurance rates, leading to lower loss ratios after the catastrophic event. There is a widespread event of unexpected catastrophes and blockbuster catastrophes that reduces total premiums earned in the …

Taking One For The Team: Should Colleges Be Liable For Injuries Occurring During Student Participation In Club Sports?, Nick White

Vanderbilt Journal of Entertainment & Technology Law

Since the 1970s, colleges have not been liable for their adult students' actions or injuries, but courts have since delineated many exceptions to this rule. This Note will analyze the effect of college involvement in club sports as to whether it creates a duty for a college to protect its club athletes and those they might injure. This Note will also examine whether such a duty might exist in the future if the current trends in the law and college policy continue unchecked. Finally, this Note will address the effectiveness of the current defenses to liability and the effect of …

The Denominator Blindness Effect: Accident Frequencies And The Misjudgment Of Recklessness, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

People seriously misjudge accident risks because they routinely neglect relevant information about exposure. Such risk judgments affect both personal and public policy decisions, e.g., choice of a transport mode, but also play a vital role in legal determinations, such as assessments of recklessness. Experimental evidence for a sample of 422 jury-eligible adults indicates that people incorporate information on the number of accidents, which is the numerator of the risk frequency calculation. However, they appear blind to information on exposure, such as the scale of a firm's operations, which is the risk frequency denominator. Hence, the actual observed accident frequency of …

The Value Of A Statistical Life: A Critical Review Of Market Estimates Throughout The World, W. Kip Viscusi, Joseph E. Aldy

Vanderbilt Law School Faculty Publications

A substantial literature over the past thirty years has evaluated tradeoffs between money and fatality risks. These values in turn serve as estimates of the value of a statistical life. This article reviews more than 60 studies of mortality risk premiums from ten countries and approximately 40 studies that present estimates of injury risk premiums. This critical review examines a variety of econometric issues, the role of unionization in risk premiums, and the effects of age on the value of a statistical life. Our meta-analysis indicates an income elasticity of the value of a statistical life from about 0.5 to …

Why Traditional Insurance Policies Are Not Enough: The Nature Of Potential E-Commerce Losses & Liabilities, Anna Lee

Vanderbilt Journal of Entertainment & Technology Law

There are two general categories of insurance policies: first-party policies and third-party/liability policies. First-party polices provide benefits directly to policyholders for losses suffered by the policyholders. For example, fire damage to the policyholder's plant or financial loss resulting from the interruption of the policyholder's business would be covered under the first-party insurance. Generally, these first-party losses are covered under policies such as "all risk," "named peril," "business interruption," or "expense to reduce loss" coverages. Among these various types of first-party policies, "all risk" insurance policies provide the broadest coverages.

Third-party or liability policies provide protection for claims against the policyholder …

The Value Of Life In Legal Contexts: Survey And Critique, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

Value of life issues traditionally pertain to insurance of the losses of accident victims, for which replacement of the economic loss is often an appropriate concept. Deterrence measures of the value of life focus on risk-money tradeoffs involving small changes in risk. Using market data for risky jobs and product risk contexts often yields substantial estimates of the value of life in the range of $3 million to $9 million. These estimates are useful in providing guidance for regulatory policy and assessments of liability. However, use of these values to determine compensation, known as hedonic damages, leads to excessive insurance.

The Governmental Composition Of The Insurance Costs Of Smoking, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

The estimated health risks from smoking have significant external financial consequences for society. Studies at the national level indicate that cigarettes are self-financing since external costs such as those due to illnesses are offset by cost savings associated with premature death, chiefly pension costs. This paper extends this analysis to all 50 states and considers the costs considered in the state attorneys general suits against the cigarette industry. Cigarettes are always self-financing from the standpoint of costs to each state. The extent of the cost savings is less than at the federal level. However, smokers' higher medical costs are outweighed …

Medical Malpractice Insurance In The Wake Of Liability Reform, W. Kip Viscusi, Patricia Born

Vanderbilt Law School Faculty Publications

This article examines the effect of the liability reforms on medical malpractice insurance over the 1984-91 period. This is the first study to use data by firm and by state for every firm writing medical malpractice insurance over that time period. The liability reforms increased insurance profitability (that is, decreased the loss ratios), where the main mechanism of influence was through decreasing losses. The quantile regression estimates imply that the greatest effects of liability reform are on the most unprofitable firms and that the effect is not uniform across the entire market. This pattern is consistent with the other principal …

The National Implications Of Liability Reforms For General Liability And Medical Malpractice Insurance, W. Kip Viscusi, Patricia Born

Vanderbilt Law School Faculty Publications

The stabilization of the insurance market may lead to lower prices for products and for medical care, but will also generally lead to lower values of tort awards as well. If the social objective was simply to reduce losses, then that objective could be achieved by abolishing tort liability altogether. Our societal concerns are clearly much broader. In the absence of a more detailed assessment of the desirability of the reforms and their effect on injured parties, it would be premature to conclude that reform efforts that were successful in enhancing insurance market profitability should be judged a success from …