Require Legal Liability Insurance

The point of liability law is mainly to induce good behavior by having courts threaten to make related people pay cash later if a bad thing happens. The law tries to set who would pay how much to whom after what events in order to induce such people to take good care, so as to minimize the sum of the costs of bad things happening, care taken to avoid them, and the legal process itself.

One thing that limits the ability of law to make these choices well is the fact that most people have limited amounts of the kinds of assets that the legal system is willing to grab to settle a lawsuit. Like cash, stocks, and on. Some people are “judgement proof”, meaning they have none of these things. Most others have some assets, but substantially less than the law might want to make them pay in some situations.

Because most people have limited assets in this sense, those who bring lawsuits typically focus their attention on related parties with “deep pockets”, i.e., those who have far more assets. If such parties have any involvement at all in some bad event, lawsuits focus on blaming them and trying to make them pay.

This focus on deep pockets seems a clear failure of the system. Liability should instead be chosen based on the usual legal criteria of who could have most cheaply prevented the bad event, who could have reasonably foreseen the event in order to target their prevention efforts, and who did or did not take sufficient levels of care given such things.

If people had more assets that they could pay in the event they were held liable for a bad event, the law would have more options. It wouldn’t have to make them pay more, but it could do so if the situation seemed to warrant it.

One kind of solution is to allow the legal system to touch more kinds of assets. For example, in many ancient societies you could be sold into slavery to pay legal debts. Or your larger family clan might be held liable for your actions. While many places today have a homestead exemption that prevents some kinds of creditors from taking a primary home to cover debts, the law could have fewer such exceptions. However, many people feel uncomfortable with such approaches.

A different solution, one that should induce less of this discomfort, is to require people to buy general legal liability insurance. In many places today all drivers are required to buy insurance for auto accident liability up to stated amounts. The idea here is to just generalize that to all legal liability. We’d pick some minimum amount everyone should be ready to pay, say one million dollars. Then everyone would have to find an insurance company willing to cover them for that amount. If they were held liable by a court, they’d personally pay what they could out of their personal assets, and then the insurance firm would pay the rest.

Insurance firms would of course charge you different premiums, based on their estimates of how many assets you have and your likelihood of being held liable for bad events. To convince them you are a low risk, you could show them many things about yourself, and even let them continually monitor you in many ways.

Of course there is a cost to the insurance process, and there would remain some hidden info and actions which would produce some transfers between people who look alike to insurance firms, and make most people not quite as careful as they ideally would. But surely this should move care in the right direction, compared to a system where people get sued less because they don’t have enough money to pay.

Well yes, it is possible that the whole legal system is just making everyone pay too much across the board for all bad events. In which case making people able to pay more just makes things worse. But if we think this is the situation we should just cut back on the legal system, starting by making it harder to sue parties with deep pockets. Maybe we should limit all parties to a max liability of a few tens of thousands of dollars.

But if you don’t want to cut back on the liability of those with deep pockets, and if you accept that deep pocket folks aren’t actually as more responsible for bad events, surely not enough to explain how much more often they are sued, then you gotta think it would be good if other people could be held more liable than they are today.

So you should want to require general legal liability insurance. And then we’d all have to pay a bit more, but we’d all have fewer bad events. Which should be worth the trade, if the legal system is close to doing the right thing now with our limited abilities to pay.

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  • Avi Eisenberg

    Wouldn’t this reduce bad things happening from things insurance companies can tell you are doing, and increase bad things from things they can’t tell? If insurance companies can tell something is bad for liability, then why not fine that behavior directly? If the argument is that the private market does better in determining which behaviors are risk factors, why not use a prediction market on what will correlate with adverse events in the future?

    • There is a difference between what courts can see and what insurance firms of your choosing can see. You can choose to show things to insurance firms that you might choose to hide from a court.
      And I don’t see why there’d be an increase of bad events insurance firms can’t see.

      • Avi Eisenberg

        I agree with your first point. I wonder how much of that could be copied by having a prediction market where you could sell your personal information to people who will use it to bet.

        The increase of bad events that fall in the insurance’s blind spot is because we’ve eliminated the incentive to prevent them. I suppose there’s still an incentive in the form of increased premiums in the future, but that’s much less significant than an actual legal liability.

        Put differently: if you would be responsible for the full amount if you got into a car accident, wouldn’t you be a lot more careful? If a (civil) medical malpractice case threatened to ruin your career as opposed to being annoying, wouldn’t you err on the side of caution even more than you might do now?

        It’s these effects that I want to avoid by structuring this differently.

      • No we haven’t eliminated any incentives. The insurance firm only pays beyond what the person could pay; that person still pays as much as they can. No elimination of payment.

      • Avi Eisenberg

        If we’re forcing people to buy insurance, will we also ban them from buying insurance that covers even what they could afford (which has a much lower marginal cost, since they’re already paying and sharing a lot of information)? Or are we relying on companies understanding that eliminating these incentives would be bad, so not offering insurance for what’s coverable?

        Also, hiding assets is worth more: if you can hide it, but some good detective can find it, then now the other person will chase down the money, but if we make insurance liable for excess then the injured party has no incentive to find your money. I suppose the insurance company does have incentive, so this might cancel out.

      • anon

        Insurers will definitely want to limit moral hazard to the best of their ability. If you allowed private insurers to do the same things government can do right now (including punishing you after the fact!), there’s no reason why they would do any worse.

      • Avi Eisenberg

        They do worse in auto insurance (as per, but I don’t know how much that’s because complete auto insurance is required, instead of merely “above assets”.

      • Since the insurance firm is on the hook for any assets you hide, it is they who will have the strong incentive to look for hidden assets. And ex ante when you are picking an insurance firm, it will be in your interest to show all your assets to them, to reduce your premium.

        It is a separate choice whether to ban insurance that covers the assets you have. We already make choices there, and we could continue to make the same choices.

      • Avi Eisenberg

        “We already make choices there, and we could continue to make the same choices.”

        The difference, as I said above, is that since you’ll already be sharing info with insurance, and they’re covering you for some large amount, to have them cover you for a slightly larger amount won’t be that much more expensive, compared to the cost of simply taking out suh a policy now. Your proposal would make complete insurance more affordable, and so presumably more prevalent.

      • Yes this would lower the cost of additional insurance, if that is legally allowed. Doesn’t seem like a bad thing to me.

      • Avi Eisenberg

        It’s a bad thing insofar as it leads to more recklessness that isn’t visible to insurance, as above. I wonder how auto liability insurance (or medical malpractice, or other forms of mandatory insurance) have affected accident rates.

      • Avi Eisenberg

        A quick search turns up, which says that auto insurance laws do increase traffic fatalities, as I expected. The question is whether that would be true if we only mandated supplementary insurance, but that had the side effect of making full insurance more widespread. Has that been tried in any industry, and if so, what was the effect?

      • JW Ogden

        Those might be short run effects only because the insurers push hard for safer vehicles.

  • Robert Koslover

    I think it would be a great idea, but only in a free market. At the present time, in the USA, the primary effect of such a plan would instead be to hand over more power, along with all the accompanying ability to abuse that power, to the Government. In its wisdom (ahem), the Government would not simply “require” all people to buy such insurance, and then quietly get out of the way. Instead, the Government would create yet another monstrosity analogous to Obamacare, which generally provides, to quote the always-savvy Instapundit (Glenn Reynolds), “more opportunities for graft.” And our besieged public really doesn’t need more of that! Your proposal may be the right idea, but it comes at a very unfortunate time in our nation’s history. At least for now, please do not further encourage the Government to impose any more “must buy” rules upon the citizenry. Thank you.

    • This proposal already is rather like ObamaCare. (Or RomneyCare, if it’s implemented at the state level.) The essence of each is to require people to obtain private insurance.

      As with ObamaCare, one would think that the insurance companies would be the big winners. And here I thought economists are against rent seeking.

  • TheBrett

    I wonder whether this would improve access to attorneys for civil court cases. It might be worth it to the insurance company bonding you to ensure your access to an attorney to pursue claims (as long as they get their cut) and defend against them. Of course, the cost would come into play – they’d be more likely to simply pay a claim of $1000 or less if not doing so would require expensive legal proceedings.

  • alexander stanislaw

    Now that is a very interesting idea. Sorry if I didn’t notice you mention it, but all businesses are already required to have general liability insurance in the US – and I assume that business + transportation make up most liability (I have no idea how to check whether that is true). I think this is a good idea for all of the reasons you say.

    Personal liability insurance does exist and malpractice insurance is essential in many professions, so I wonder why personal liability insurance isn’t used much. Maybe this risk of liability outside of your profession or driving isn’t enough to justify the additional expense.

    • If you are allowed to be judgement proof, that can be cheaper for you overall than paying premiums to insure you liability payments. But bad for society, I argue.

      • So it would improve society if every indigent person who walks into an ER is made actually vulnerable to damages claims by the hospital, which already inflates its charges? (Just an example.)

  • I’m certainly against it. One counter-balance to the power of the wealthy is the judgment proofness of the poor.

    • anon

      How valuable is this counter-balance? And are you sure that this is socially the most efficient way of providing that amount of value to the poor?

      • chaosmosis

        It’s likely not very efficient, but I’d prefer to delay getting rid of inefficiencies like this until larger skews in favor of the wealthy are dealt with.

      • It seems to me private insurance is itself grossly inefficient as a way of distributing risk. (The costliness of American medical care in administrative costs due to private insurance seems born out by medical costs in the U.S. compared to countries who don’t use the private insurance mechanism.)

  • Stefan Krieger

    So how do you enforce this on low income households? Say somebody has $10K income and a bad record that means this liability insurance costs say $2K or $10K or more per year? Federal subsidies? An affordable liability insurance act? Seems like a regressive head tax. Seems possible, but only as a public service (i.e. a tax financed public liability fund).

    • If making people pay for the harm they cause others is a regressive tax, then we’ve been giving them a subsidy all along. Could make that formal and explicit via cash if we wanted in this system.

      • IMASBA

        “If making people pay for the harm they cause others […]”

        You do realize most cases would just be poor saps being extorted into a settlement when they’re not guilty of harm at all or only to some petty extent that we all are by simply being human, don’t you? The current trend where the law leaves less and less room for things to be considered accidents, or ridiculously petty claims, would accelerate and it would become impossible to measure how accurate the system is because so much would get settled before a guilty or not guilty verdict can be reached.

        The overall net productivity loss would be gigantic, why not just resolve things the civil law way, like the majoirty of developed nations?

      • What’s the civil law way?

      • IMASBA

        While legal liability does exist in civil law it’s far more difficult and less rewarding to “sue for damages” and in many instances it’s downright impossible. Although other common law jurisdictions are also less worse than the US.

        A doctor accused of malpractice can be fined, or lose his license or go to jail, etc… but it’s rare to pay damages directly to the victim (though the presence of universal healthcare does play a role in this).

        Sueing your ex-lover for breaking off an engagement (which is aparently a thing in the US and UK) will get you an amazed look from the judge followed by the words “are you f*ing serious?”, followed by dismissal of the case.

        It’s not perfect and sometimes does let a-holes off the hook but I’d take it any given day over the American liability system.

      • But introducing this system into America without other substantial changes would probably tilt the class struggle in the same general direction as Robin’s proposal. (For the same reason: decreasing the vulnerability of deep pockets.)

      • IMASBA

        Maybe*, so yes, other changes would be required too. but something will have to give at some point before half of America’s economy is people sueing each other over petty things.

        * I’m not completely convinced though: the non-rich get smaller liability claims (well, not always: there was the case of a middle class housewife having to pay a million in damages for downloading music) but also have less to give. They also get forced into settlements more often because lawyer fees are not income-dependent.

      • Yeah, as I reflect on this, I’m not sure either. I’m influenced by the fact that the rich (except for rich lawyers) are for tort reform. But that’s not decisive.

      • Ronfar

        The suing your ex-lover thing was a relic from the days where women didn’t work outside the home, their husband owned all the property, and being a virgin was highly prized on the marriage market. So if someone promised to marry you, had sex with you before marriage, and then canceled the engagement, they did you a *financial* harm that you could sue to recover.

      • IMASBA

        Except it still happens from time to time…

      • Ronfar

        Sometimes old laws don’t get taken off the books. There was one case in England in 1818, Ashford v Thornton where someone successfully asserted his right to trial by battle in response to a private prosecution. Parliament acted rather quickly after that one, finally abolishing trial by battle in all cases…

      • I wonder if what he’s talking about isn’t palimony, a recent development. It’s not clear to me what cause of action is being sued under in the causes that IMASBA mentions. The tort of alienation of affections will no longer withstand demurrer in most jurisdictions.

        Palimony is in contract. It’s kind of a “social issue.” I don’t know (and kind of doubt) whether Europe, some parts more subject to feminist influence than America, avoid it.

        [Generally (or at least ideally) a frivolous suit in America will be quickly dismissed by demurrer, and the plaintiff will pay the defendant’s legal fees in sanctions.]

      • IMASBA

        The suits I was talking about weren’t about some ancient law on a woman’s “honor”, they were about “emotional damages” and reclamation of wedding expenses (of women who went bridezilla). They are part of a dangerous set of cases that usually center around emotional damages. Unfortunately the floodgates in Europe are beginning to crack with the introduction of new tort laws, so I guess we’re headed to a claim culture as well… Oh well, at least it’ll create jobs for lawyers…

      • IMASBA

        “[…] then we’ve been giving them a subsidy all along. Could make that formal and explicit via cash if we wanted in this system.”

        Problem is these people form a large segment of the population, while the government does not control the average or even maximum liability amount, so the subsidy will simply create an increase in prices (higher liability claims and thus higher insurance premiums), then more subsidies are needed, leading to further price increases, etc… Exactly like the home mortgage deduction or financial aid to students.

        These subsidies can only work if the government gets a say in the prices and/or if the subsidies go only to a small portion of the people involved in the market.

      • Alia D.

        reflecting on my own circle of friends, who already like doing crazy dangerous stuff, I foresee many glorious parties were they do extra crazy and extra dangerous stuff with each other in the happy assurance that it anything goes badly they’ll get a nice windfall from each other’s government paid insurers.

      • The main question isn’t whether we should characterize it as regressive, or the consequences of so characterizing it; Stefan Krieger’s important question (and mine) is: how do you enforce this on low income individuals? The point (not mine and probably not his) isn’t primarily that the “tax” itself is unfair, but that jailing people for failing to pay the tax is the only answer to the original question regarding enforcement on the poor.

        [Of course, this is a claim, based on my inability to see a practicable alternative to incarceration. I can be refuted by providing an alternative means of enforcement. (That Robin avoided Stefan’s first question isn’t encouraging, but we’ll see.)]

    • $10K income and a bad record

      Yes – ObamaCare prohibits discrimination for prior existing conditions. (The one provision everyone seems to like.) But you can’t very well have this for general liability insurance!

  • Unless we made other changes, this would make more contingency lawsuits more viable than today – they’ll ask for the same awards from the same deep-pockets but also include a broad swath of additional mandatory-insurance vaguely culpable folks. Perhaps “somebody has to pay” juries will spread out the damages and so *slightly* decrease the cost of liability insurance for those who currently need it. Likely these other changes would come soon.

  • anon

    One nice thing about this arrangement is that it could effectively privatize a lot of of criminal law, assuming that damages awards are set appropriately to begin with (meaning very high maximum amounts, even including fines/punitive damages for hard-to-detect events). When you sign up for insurance, you would also choose what criminal rules you want to be under. You could choose no criminal liability at all, but then nobody would be willing to insure you for civil damages! (unless you also agreed to reside in a secure facility for the duration of your contract, perhaps). Or you could choose very harsh ex-post punishments, and then your insurance premiums would be rather cheap, since this means a high level of deterrence.

    • This might help make people more accepting of such further changes, but by itself this doesn’t create those further changes.

    • IMASBA

      “One nice thing about this arrangement is that it could effectively privatize a lot of of criminal law […]”

      When criminal prosecution becomes privatized you can’t have liabilities for false claims (well I guess you could, but then very few criminals would ever get sued). This may create a situation where sueing a random person (or a random black male, etc…) may yield a positive expected profit (for example through settlements) and that opens the floodgates for the mother of all spurious claims increases.

      • anon

        You could offset liability on false claims with punitive damages on true claims – assuming that courts are good at assessing validity, on average – and adjust those to get the right amount of prosecution. But yes, there may also be a residual role for costly punishment as an alternative to monetary payments, since this eliminates perverse incentives.

      • IMASBA

        Punitive damages would mostly be punishment for getting caught instead of for committing a crime, it’s akin to chopping off a hand for stealing a candy bar when your law enforcement sucks at catching candy bar thieves. The biggest problem, though, is settlements where the court doesn’t even get a chance to determine the validity of the claim.

      • anon

        All punishments are punishments for getting caught. If you don’t like that, the best strategy is to own up to what you did before they can catch you. Then you’ll just have to pay for the candy, or perhaps endure a comparable punishment.

      • I think you’re missing his point. Using punitive damages in the way suggested is like increasing the level of punishment to compensate for the low probability of detection. This heightens the disparities between those who are caught and those who commit the same crimes but aren’t. If you don’t think this is an evil, then consider his example, where it’s taken to extremes: say, beheadings for minor theft because the authorities are very bad at detecting thievery.

        [In the vernacular, the punishment doesn’t fit the crime.]

      • IMASBA

        @ Stephen Diamond

        Yes, that’s exactly what I meant.

      • anon

        We disapprove of beheadings for reasons that have nothing to do with how severe the punishment is. But say that you could, for example, risk losing all your assets for stealing some candy. You’d be facing a very small chance of very bad consequences. But it’s not clear that this is unreasonable punishment; people willingly face comparable risks all the time, such as when traveling in a car.

      • We expect justice of the state. We don’t expect it of nature.


    “… it is possible that the whole legal system is just making everyone pay too much across the board for all bad events. In which case making people able to pay more just makes things worse.”

    I think this is exactly what would happen. It may even become a directly taxpayer-funded racket if the government would help poor households with their liability insurance premiums, all the while having negligible influence on actual security.

    The whole liability system is a blight on justice. If someone has really done something wrong then throw them in jail or make them do community service, something that does not directly benefit the plaintiff. Such sentences take away perverse incentives on the side of the plaintiffs, punish rich and poor more equally and are of finite duration and severity. Hell, I think most people would rather be flogged than having to pay a completely randomly established amount of “damages” that forces them into a life of poverty until the day they die.

    Thank the gods I live in a civil law jurisdiction where I don’t have a randomized sword of Damocles hanging above my head!

    • Then you’d want to limit how much even deep pockets can be required to pay, so that everyone in effect has shallow pockets, right?

      • IMASBA

        Yes I would, at least when we’re talking about natural persons. I’d limit it to zero for everyone (unless the original “crime” was of a material nature in the first place and directly harmed the plaintiff: if I stole $1 million from you then of course part of my sentence should be to repay you that $1 million, or as much of it as I am able), if it was up to me.

        I know you’re testing me to see if I would reveal some hypocrisy when you frame it as a problem for rich people, but I think this liabilities extortion system is wrong even if rich people are the primary victims. There are ways to punish people in ways that do not create perverse incentives for the plaintiff, so why bother with liabilities in the first place? From a utilitarian point of view it also just doesn’t make sense to have an extensive liabilities system.

      • You would replace civil litigation with criminal punishment? A step backward, I would say. I’d rather have an anxious society than a fearful one. There’s far more potential for abuse in the criminal court than in civil. [And prosecutors in general are far more contemptible as people than are defense or plaintiff lawyers.]

      • IMASBA

        A lot of the cases would be dealt with by regulatory boards. Others could remain civil cases with criminal punishments*, or simply civil punishments other than damages paid to the plaintiff. Some would become criminal cases, I don think that’s a bad thing: for one it doesn’t require a victim to pay legal bills (they simply report the crime and the state handles it from there) and increases the probability of systemic change to prevent the crime in the future, it’s also already being done in plenty of democracies. Your negative perception of prosecutors may be due to the combination of elected prosecutors with jury trials, which is an international exception.

        * criminal punishments certainly aren’t automatically more severe than civil punishments: compare community service with a $1 million liability claim, or compare a $1 million fine (or court-ordered donation to a charity) with a $1 million liability claim.

      • A lot of the cases would be dealt with by regulatory boards.

        That’s encouraging. 😉

        I think Americans are satisfied with the jury system, although not with lawyers and judges. They (myself included) are not impressed with regulatory boards making decisions about punishing individuals. It may be recognized as a necessary evil for the sake of efficiency, but hardly anyone thinks the regulatory agencies are just. For example, the medical and legal boards are detested alike by doctors and lawyers and by the public supposedly served. [Or so it seems. I haven’t seen surveys.]

      • IMASBA

        Well, you asked me what I would do and how it’s done in civil law countries (most of the time). Whether the American voter wants things that way is an entirely different matter. Although they can’t have it both ways: they have to either put up with an out of control liability claim system, or enact the reforms I listed.

      • I don’t think any but an exceedingly small fraction of Americans are personally worried about their liability – outside of certain high-risk occupations such as medicine and law. Corporations tend to be very worried about liability; it’s one of the main reasons that they reform their practices. (If the law allowed suits against judges for overt material bias, we’d have, I think, a considerably fairer legal system. – )

        The threat of being sued isn’t a major source of anxiety among Americans by such a long shot that I have to wonder if Europeans are differently constituted. Are you all prone to fear remote possibilities more than are Americans?

        [The threat of being incarcerated, by the way, is a major, often constant, fear among U.S. blacks.]

        [I also think the empirical development of the American/British legal system may result in better laws. Adversaliality promotes intellectual progress, even the progress of the law. But that’s a long digression – and, moreover, I could be suspected of being self-serving.]

    • anon

      When plaintiffs have perverse incentives, switching from damages awards to fines and perhaps even costly punishments (throw ’em in jail!) is certainly a sensible strategy. But one could think of others, such as punishing a plaintiff who loses his case. We already do this for frivolous lawsuits, and could do the same for especially hard-to-prove claims.

      • IMASBA

        We could, and sometimes that’s an acceptable solution, but this has the added effect of also scaring off legitimate plaintiffs.

  • I think this is pretty obviously a bad idea, and I agree with the conclusion that you say is implied by this, namely that we should make lawsuits harder to make in general, including against rich people.

  • Selenae

    This seems like it would do just the opposite of what you intend. By shifting liability to an insurance company, it would make people LESS careful. Instead of risking being sued for all their assets, they are only risking higher premiums.

    Your goal is to force payment out of the people who currently pay nothing. The cost is redistributed from tangentially-involved “deep pockets” to all pockets whether involved or not. Instead of the injured party(‘s medical insurer) seizing the at-fault person’s house, more people cannot afford a house because of their insurance premiums.

    Meanwhile the poorest people would pay the highest premiums. (by buying a plan that covers all liability versus a plan with a high deductible). Maybe I’m underestimating the correlation between wealth and likeliness of causing an adverse incident. But the high-risk activities (driving, being a doctor) already require insurance.

  • But if you don’t want to cut back on the liability of those with deep pockets, and if you accept that deep pocket folks aren’t actually as more responsible for bad events, surely not enough to explain how much more often they are sued, then you gotta think it would be good if other people could be held more liable than they are today.

    Your premise, then, is that liability should be proportionate to responsibility? (I mean, one might not want to cut down on the liability of deep pockets for redistributist rather than fairness considerations.)

    But doesn’t everyone accept that tort law serves numerous purposes?

  • What happens when some poor folks get their insurance premiums raised – due to their bad liability history – beyond what they can possibly pay?

    [What’s the penalty for failing to buy the required insurance?]

  • JW Ogden

    You could require this for corporation in place of the corporate income tax.

    It might result in cheaper liability insurance because the costs of selling it might go down.

    It is more sensible that the PPACA health insurance mandate because not having health insurance presumably is mostly harmful to you.

    It might be more effective than gun control.

    You could add loser pays to the legal system to make this work better.

  • Ronfar

    In general, you can’t buy insurance against intentional torts – the kind where you get sued for *deliberately* harming someone, instead of accidentally doing so…

    • Insurance against intentional torts is generally unlawful. But this is a matter of public policy. (Perhaps an expression of excessive moralism.) Permitting insurance against intentional torts would be a minor change compared to compelling everyone to purchase liability insurance.

  • Maximum Liberty

    One of the reasons for the search for deep pockets is because modern litigation is much like gambling. I’ll analogize to rolling multiple dice.

    In the ordinary personal injury case, much of the damages are knowable in advance: medical expenses, lost wages, and property damage fall into this category. Each of those is a six-sided die, but they each have three 3’s and three 4’s, because they are knowable within a narrow range.

    Some damage types are not knowable, but (in my experience as a lawyer) are anchored to something: this includes impairment — payment of the lost arm in an amputation case, for example. This is your normal six-sided die. You roll it and could be anything from a 1 to a 6. Back injuries are the hard on here, because most of them should be a 1 on a die where quadriplegia is a 6.

    And then there’s emotional distress. In my experience as a lawyer, this is not related to any objective facts about the injury sustained. Instead it is more related to how much the jury likes the the plaintiff and dislikes the defendant. The fact that it is not anchored to any objective facts makes it a real wild roll. It is tow six-sided dice with numbers from 0 to 5, but you multiply them!

    In the cases that populate our courts, it is emotional distress that is the hugely variable component. And the possibility of a high verdict on emotional distress is actually enhanced by the defendant being remote and unlikable: the faceless corporation is the plaintiff’s lawyer’s ideal.

    So, rather than insuring everyone or putting some quantitative cap on damages, I think a better reform would be to abolish emotional distress damages as such. (Yes, if the event causes you to see a psychiatrist or be committed to a mental hospital, you would recover your medical bills for that.) Eliminating emotional distress damages would make it much easier for people to handle their own claims without a lawyer and without going to court, because they would be much less variable and subjective in nature. Without emotional distress damages in the picture, people could more readily afford to pay a judgment, so fewer would need the liability insurance that Robin floats.

    Finally, I believe that a properly run academic study would find that the amount of money awarded for emotional distress is arbitrary in the sense that ti is tied to things that jurors are not supposed to take into consideration, such as how much they like the plaintiff and dislike the defendant. For example, one could create a short video of multiple different people giving exactly the same evidence about their emotional distress. Have one group of people rank them on physical attractiveness; have the other award damages for their emotional distress. I bet that they correlate. Do the same for the defendant’s expert on the plaintiff’s mental state. I bet you get an inverse correlation.

    • Would you eliminate the intentional tort called the deliberate infliction of emotional distress?

      [When I took torts in law school, I concluded that subjectivity (unanchored determinations) entered the legal system with comparative negligence: degrees of proximate causation are unanchored in anything objective.

  • Rafal Smigrodzki

    A requirement for everybody to have legal liability insurance would have some negative effects that other commenters pointed out but let me instead mention one very useful feature which may not have been mentioned in the discussion: Assuming an efficient insurance market, this requirement would produce much more precise prices for criminal and destructive behavior than possible under existing laws.

    The legal liability insurance market would generate individual prices which would reflect the predicted likelihood of criminally harming others. Persons highly likely to inflict harm would receive only very expensive offers. If their ability to earn money was low, they might not be able to afford them. Communities might then decide to expel the legally uninsured, just as the owner of roads in the US denies uninsured drivers the privilege of using them.

    Such banishment would not be the capricious decision of a magistrate but rather it would be the outcome of a market pricing procedure. You could offset your destructiveness by being more productive, earning more money and thus still being able to buy even expensive insurance. Non-contributors, unable to earn, and unable to pay even low rates, would be banished even if they were relatively harmless. Of course, persons of a charitable disposition might offer to pay the pauper’s insurance, in effect accepting a patron-ward relationship with him or her. This would put a price on compassion as well.

    Of course, this is unlikely to pass. It is too rational for common use.

    • IMASBA

      It would not predict the likelihood of committing of harming others, it would predict the amount of liability claims a person has to pay in the future, mostly for civil cases. This still depends on the “capricious decision of a magistrate”, because they determine the liability rates.

      Why bother with the “banishment” euphemism? It would be a death penalty in practice (that’s if communities can reliably keep these people out, otherwise banishment will become a self-fulfilling prophecy of banished people surviving in the only way they can: through crime).

      • Rafal Smigrodzki

        But yes, the insurance rate would reflect the likelihood of being found guilty of committing crimes or of incurring civil liability, which obviously depends on the person’s likelihood of harming others, criminally or tortiously. Can you seriously deny the connection?

        And no, the rate would not be a decision of a magistrate. Judges and juries determine the amount of damages paid in any particular case but an insurance rate estimates the expected damages for a class of insured persons. The insurer aggregates information about multiple legal cases and the insurance market aggregates information from multiple insurers, providing a price with much less volatility than what you find the individual legal cases. The market mobilizes the wisdom of crowds that is absent from the decisions of magistrates.

        And no, banishment is not death penalty. Obviously. And why should banishing a person render him unable to support himself through non-criminal activity?

      • IMASBA

        “Can you seriously deny the connection?”

        I did not deny the connection. I said that the connection was with the likelihood of doing something that invokes a successful liability claim times the expected size of the liability claim. The latter part would change when judgies and juries or legislators change things.

        Banishment would mean either dying in the wilderness (because once you’re banished from one community why would another community let you in? Of course you’d be unwanted in the wilderness too but there will be less law enforcement there) or joining a mad max-esque gang terrorizing the space between communities to survive (which will also lead to a premature death). This will be exacerbated by the fact that poor people won’t be able to use bankruptcy to start anew anymore (that will be reserved for rich people trying to dodge taxes), but I guess that fits the modern protestant idea of intrinsic “bad people” and instrinsic “good people” (and you’re still considered “good” if you have the money to buy off your sins) that underpins modern law a lot more than psychological research or common sense (especially in the US).

      • Rafal Smigrodzki

        You wrote about the insurance premium: “It would not predict the likelihood of committing of harming others”. Sounds like denying a connection.

        What is unacceptable to one community may be perfectly OK to another. Shop around. If you find yourself completely unacceptable to every single community in the whole world, maybe you *are* a bad person. Remember, if your heart is bleeding for the bad guys in your community, you can offer to pay their insurance premiums. Why don’t you show how much of a “good person” you are, and pay up?

        As it is, having honestly earned money proves you are a contributing member of the society, or else nobody would pay you a dime. It is then right and proper and common sense that you should be able to buy off your sins. This is after all what we are talking about: The thread is about legal insurance for wrongdoing, isn’t it?

      • IMASBA

        “You wrote about the insurance premium: “It would not predict the likelihood of committing of harming others”. Sounds like denying a connection.”

        You can get a red flag by being likely to cause little harm but in a way that incurs a high expected liability claim, or the expected incurred claim could even be low but the premium still too high for your level of income. You can also get a green flag while you are likely to cause a lot of damage but in a way that incurs a low expected liability claim, or with a high expected incurred claim but which won’t hurt you because you can afford the higher premium.

        “What is unacceptable to one community may be perfectly OK to another.”

        Communities won’t know why exactly you got a red flag, that’s because you won’t even know yourself, all you’ll know is that you can’t afford the premium. Whether that’s because you were judged to be a libability risk for alimony (possibly considered unfair in your new community) or for becoming a child molester is anyone’s guess (even the insurer won’t know exactly because the algorithm used most likely won’t be able to tell). Communities will play it safe and eve the most open-minded communities won’t offer enough room for all the banished people who could threaten the community’s competitiveness (and therefore the community’s existence: when they’re forced to sell land to another community they can’t maintain their own rules anymore).

        “If you find yourself completely unacceptable to every single community in the whole world, maybe you *are* a bad person.”

        What if a community would want to take you but has no room, what if they’re playing it safe because they don’t know WHY you got a red flag somewhere else? What if you are young and stupid now but could be made a much smaller liability by the passage of time or with a small investment (which will benefit society as a whole but no particular investor)? there will be a lot of people in the latter group, there already are a lot and their numbers will only swell (basically anyone who’s from a low income environment or in danger of becoming unemployed) if they know there’s no use in trying to achieve anything because a pre-emptive red flag will end it all for you anyway?

        “Remember, if your heart is bleeding for the bad guys in your community, you can offer to pay their insurance premiums. Why don’t you show how much of a “good person” you are, and pay up?”

        What if I don’t have the money to pay for all of these people’s insurance premiums (likely if the income distribution would be anything like it is today, or worse)? Plus, like I showed a red flag does not map one-on-one to “badness”: jack the Ripper could avoid banishment if he was rich enough while an unemployed person couldn’t even afford the premium that protects him against liability claims for jaywalking and would thus get banished. But even if you were “bad”, does that immediately mean you should die in the wilderness? Should there be a death penalty for theft (and only for poor people)?

        I can tell you that maybe China is the right “community” for you. China is working on a national “social credit” score system, supposed to be operational in 2020. It will be a joint venture between the government, insurance companies, retailers, financial institutions, etc… This sort of does what you suggested, although there won’t be banishment you will face problems in daily life (finding employment, access to social services/subsidies, dating sites). The score will depend on things like credit scores, statistical analysis of the public’s behavior, how much money you send to your parents, criminal record, whether you buy more diapers than video games (actual example that they put out), like the system you suggested the score won’t show you what things got you a high score or a low score. So like in your suggested system you won’t even know what exactly you can do to get a higher score and since you’d be immediately distrusted and therefore kind of stuck with a low score you might as well go all in and join an organized crime syndicate. It is hope, however irrational, for at least the possibility of getting higher up, that keeps a lot of people on good behavior. But of course brimstone-and-fire lawmakers with sheltered, privileged lives would not understand such things.

      • Rafal Smigrodzki

        I feel that your comments are now of little relevance to the point I made originally, that legal liability insurance provides more precise pricing of both crime and compassion than achieved under a system without it.

        You expect that legal insurance against monetary liabilities would protect Jack the Ripper? You mention a Chinese government social control scheme as relevant to a market in legal insurance? You think that legal insurance would limit transfer of information between communities? Really?

        I notice you seem to believe that the price of compassion would be too high to pay. Well, compassion is sometimes costly and legal insurance would help uncover its true price. Nowadays hypocrites smugly strut their “compassion” while letting others bear the costs. If hypocrites had to pay up or shut up, honest folks who put their money where their mouth is would get the respect they deserve.

      • IMASBA

        I explained why I believe the system you proposed, which is itself far beyond the legal liability insurance Robin originally proposed, would lead to the dramatic outcomes I describe.

        I have no desire to throw millions worldwide under the bus just so I can point smugly to “hypocritical” people who preach compassion without paying for it (why do you assume those people are poor and/or tax cheaters and somehow not “honest folks”, why even care about such morality plays when another solution besides banishment might maximize happiness and lower costs?) The true cost of compassion is known to anyone who reads government budgets (and is quite affordable to a population as a whole, assuming we’re not talking about the poorest African countries), now the cost of a lack of compassion, that one is a bit harder…

      • Rafal Smigrodzki

        You did not describe the mechanisms leading from the establishment of a legal liability market to the outcomes you listed (Mad Max wilderness, widespread dying of the banished). You only stated that such outcomes would occur.

      • Unanimous

        Where would people be banished to? The ocean?

      • Rafal Smigrodzki

        In a market for residence there might be many approaches. Some communities might choose to offer assurances that in case of banishment the community would find a receiving community for the banished person to reside in. Others might just put them out on the border. Presumably, the communities populated by nice and reasonable people would do the former, and the rougher, more ruthless ones might do the latter. Some communities might even actively recruit the banished, and use effective surveillance and control techniques to help them become net-contributing residents. Charitably inclined folks may pay to establish communities where the banished would have a worthy, dignified existence without endangering others.

        A lot of problems turn out to be easily solvable when an evolutionary, non-violent, consensual process of continued generation and testing of ideas is let loose.

      • IMASBA

        “Some communities might choose to offer assurances that in case of banishment the community would find a receiving community for the banished person to reside in.”

        So they can’t do anything about murderers and rapists then?

        “Some communities might even actively recruit the banished, and use effective surveillance and control techniques to help them become net-contributing residents.”

        If these communities are able to remain competitive it means the other communities who leave people in the desert, etc… are apparently doing so purely out of moralistic ideology, not for the sake of efficiency or a broader sense of human welfare… Competitive recruiting communities would likely be the instruments of the inevitable collapse of any libertarian world (the growth of new power structures that eventually cannot resist the urge to form some kind of government, or who simply through their own success displace most other communities, or the growth of communities who do not agree with libertarianism in the first place) through their limitless armies of those who hold a grudge against their former communities. If recruiting and compassionate communities are not competitive then their territories will eventually be bought out by more ruthless communities and therefore those communities would cease to exist.

        Please don’t use phrases like “non-violent”. ANY system has violence in it, whether it’s the police busting you for tax cheating or a community throwing poor people out into the desert to die. You’re only ever going to get a system that minimizes suffering, but there will always be minorities who suffer in some way.

      • Rafal Smigrodzki

        You wrote: “So they can’t do anything about murderers and rapists then?”
        – I don’t understand the question.

        I don’t know what you mean by “competitive” communities in this context. Discussing warfare is off-topic here, we are not discussing the stability of an anarcho-capitalist world, we are merely discussing the predicted results of using legal liability insurance for pricing of crime, under assumptions of freedom of association.

        But, to try address your concern about the viability of communities that accept the banished, you may want to ponder the concept of comparative advantage here. A suburban community full of children and your women may be at a comparative disadvantage in playing host to thugs. A manufacturing plant or a large farm may have comparative advantage – thugs would be less likely to rape and kill bystanders, their crude capabilities would be more useful and having them isolated from victims would make surveillance and control cheaper. In a market there is a place for many types of players.

        I strongly disagree with your disavowal of non-violence. Non-violence is the standard way of behaving among reasonable people, and I will judge ideas and their outcomes in large part by their closeness to this standard.

    • Murphy

      Unless insurers are banned from factoring in many things then this would just screw poor people and reinforce poverty.

      Wrong race? -> congratulations. You just got higher premiums.

      Grow up in a bad neighbourhood where people are more likely to turn to crime but never commit any crimes yourself? -> congratulations. You just got higher premiums.

      Go to a bad school where people are more likely to turn to
      crime but never commit any crimes yourself? -> congratulations. You
      just got higher premiums.

      Work a low paying job where people on the same salary scale and job type are more likely to turn to crime at some point but never commit any crimes yourself? -> congratulations. You
      just got higher premiums.

      So roll on a few decades, you’ve worked hard and you’re generating equal wealth to someone from a nice neighborhood and a nice school but because of all those predictors you’re paying far far higher rates than he is.

      You end up raising your family in the crappy part of town and sending them to the crappy school while he lives in the nice part and sends his kids to the nice school and your kids get to repeat the cycle.

      This is a horrible, evil system.

      • Rafal Smigrodzki

        Do you think that race does not predict criminality, or credit risk, or that it does but everybody should ignore the connection? We know that Asians are least likely to default on loans but existing regulations prevent banks from giving them better rates, thus forcing them to pay more. Do you strongly feel that Asians should continue to pay for having the wrong skin color?

        You claim that insurers would be unable, over the course of decades, to differentiate between hard-working, honest folks and criminals, and would simply apply the same rate to all of them. This is a highly unlikely situation. There is a substantial profit to be made in correctly predicting insurance risks, and a free market in insurance assures only good predictors survive in the business.

        To the contrary, having a price on criminality, one that factors in all relevant information, would help the poor weed out the black sheep from their communities, and end the horrible, evil system we have now.

      • You [Murphy] claim that insurers would be unable, over the course of decades, to differentiate between hard-working, honest folks and criminals, and would simply apply the same rate to all of them.

        Reluctance to sacrifice decades of human welfare is hardly unreasonable.

      • Rafal Smigrodzki

        You can make initial predictions even before a person is conceived, from their parent’s DNA. More prediction is possible once the person’s own genetic material is available. Then you can use pre-school information, social media, school scores, work records – the job of predicting never ends, and its precision is likely to increase the longer you gather data.

        It takes decades to optimize human welfare.

      • IMASBA

        You don’t understand Murphy’s point. The point is that “we” find it unfair when someone is punished for something they have absolutely no control over, stuff that they can’t even change with intensive therapy, medicines or education. Skin color is one of those things: an insurance company algorithm in the US will predict that men who work 40 hours a week for $30k per year will be more likely to be liable if they were born black than if they were born white (some kind of clustering algorithm would have to demarcate black from white of course, that’ll create a whole set of issues of its own). An individual black man would have to perform better, not the same but better, in society than an individual white man to get the same insurance premium, society typiclly finds this grossly unfair. It is mathematically impossible to get around this. The result is a self-fulfilling prophecy: less black men will meet the requirements for low insurance premiums so more black man will get into trouble, which will raise the premium for black men even more, and so on and meanwhile a growing number of black men won’t even try to achieve a lifestyle compatible with a low premium. In the end you end up with more people in trouble, and therefore higher societal costs than you would have under a less “efficient” screening system. Non-discrimination policies ARE a form of societal insurance against that situation, just like it’s sometimes cheaper to just give an addict his drugs in a controlled fashion than it is to jail/rehab him. You can’t talk seriously about economic efficiency and human welfare optimization without taking such effects into account.

      • Rafal Smigrodzki

        Banishing thugs could e.g. save your or somebody else’s daughter from being raped. You still think it’s wrong to banish thugs? Because they can’t help it? Consequentialism be damned?

        Again, if you feel that it is grossly unfair to know the truth, I am sure you could found your own insurance company that would offer racially based preferences to whoever you feel deserves them. Do not tell me about “non-discrimination” – it’s you who wants to discriminate based on race, not I. You are inventing stories where you invert the arrow of causality (premium->crime instead of crime->premium). This is a classical case of motivated cognition.

      • Murphy

        I’m saying that it’s possible for initial predictions to become self fulfilling.

        If you have a group who get charged a lot more on the basis that they’re believed more likely to commit crime then the increased prices they’re charged vs others in the population can create a self fulfilling prophecy by creating a situation where they’re more likely to turn to crime.

        30 years later the company looks at the initial predictions and says “yep, they were pretty accurate” even if those initial predictions in large part caused the outcome.

        Plus there’s the moral issues IMASBA points out.

      • Rafal Smigrodzki

        When trying to think about market interactions you need to remember about the diversity of participants. There is no united front presented by insurers to clients: It’s every company looking for its own benefit.

        If an insured population is intrinsically unlikely to turn to crime, the company that erroneously believes they *will* turn to crime will lose to a company that correctly predicts crime and correctly prices its policy offers. There will be no 30 year hindsight on the erroneous policy, because after 30 years the company that sells it will be long since bankrupt, or on board with correct predictions. This is the standard, generally most likely outcome in an even halfway efficient market.

        You accusation that I do not think but rather that I produce verbiage to justify some “pre-existing beliefs” you impute to me, is unjust. I am using bog-standard notions about markets and let them lead me to conclusions about likely outcomes; in other words, I start with methods and questions, and let them lead me to adjusting my beliefs, like a scientist should. Can you claim the same about yourself?

      • Samedi

        Rafal’s idea is intriguing and doesn’t deserve to be dismissed with hyperbole like “horrible and evil”. It’s not that different from the current car insurance system. No insurance, no right to drive. Live in a bad zip code but you are a good driver, you still get punished with higher rates.

        You are also overly focusing on one segment of society. That’s equivalent to reasoning by special case.

        I don’t know if Rafal’s system would work but it could solve two real current problems: 1) compensation for crime victims, and 2) the ability of a community to protect itself by preventing crime. With this type of insurance crime victims could be appropriately compensated, something which they most certainly are not now.

        Catching criminals after the fact is fine but preventing crime in the first place is much, much better. That is how security works in every other field. Banishing uninsurable people is a preventative measure. If they have such insurance but do commit a crime at least the victim will be compensated.

        Such a system should be part of general reform like de-criminilizing vice. Would some people suffer unfairly under such a system? Yes, but that is always the case. It’s not even a factor. The question is would the benefits for the communities that implement such a system outweigh the negatives.

  • Because most people have limited assets in this sense, those who bring lawsuits typically focus their attention on related parties with “deep pockets”, i.e., those who have far more assets. If such parties have any involvement at all in some bad event, lawsuits focus on blaming them and trying to make them pay.

    That’s one side of the equation, and not the dominant side, which is that “deep pockets” usually have a decisive advantage in a lawsuit where they’re seriously threatened. This is (of course) by virtue of their ability to hire the most high-status lawyers and as well as win a war of legal attrition. You may look to sue deep pockets, but you don’t make the decision lightly.

    Robin would load the dice still more in favor of “deep pockets.”

    • Unanimous

      Would the insurance company also take part in the legal case to defend itself against a payout? A million dollars doesn’t go far in court these days. The insurance would have to be for 10s of millions before insurance companies would start defending significantly.

  • It seems plausible that the cost of mounting an effective legal defense benefits from substantial economies of scale that can’t be realized by an insurer.

    In other words if a person and a deep pocketed corporation engage in the same bad behavior it is much easier to successfully sue the individual since the corporation has invested many hours in policies ensuring the kind of evidence that might help in lawsuits isn’t recorded/available and in carefully policies to take advantage of the law.

    If I say something with the same effect on my blog that fox news does on their site (and somehow they reach a similar audience) their defense against a libel suit will be much more effective and cost less than what my legal insurer could provide me. My defense would be highly customized, I probably have all sorts of emails that might be useful to the person sueing me that fox has a policy never to keep etc..

    Thus, it’s actually desirable to balance this effect with the greater attraction suing deep pockets brings.

  • Its shareholders and other stakeholders are Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

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