Low Probability/High Consequence Events: Dilemmas of Damage Compensation

Abstract:     
This article was prepared for a Clifford Symposium which challenged paper writers to imagine how our system of tort compensation might look in the year 2020. This paper responds to an aspect of the general challenge: to imagine a tort recovery system which would deal adequately with rare and catastrophic events. To get a handle on this problem, the paper looks closely at how the legal system compensated damages attendant on four recent events that might be considered "rare and catastrophic" - Three Mile Island, 9/11, Hurricane Katrina and the Exxon Valdez oil spill. In no case did the system of compensation meet all the desiderata of a well-functioning tort compensation scheme, but the two no-fault schemes which provided the bulk of the compensation to those injured in the Three Mile Island and 9/11 disasters seem to have done better than the "ordinary" tort system which provided the bulk of the individual compensation for the damages caused by Hurricane Katrina and the Exxon Valdez oil spill. The 9/11 compensation scheme may, however, have been sui generis since it appears to have reflected both a national coming together after an attack on the homeland and Congressional efforts to protect the airline industry, and the Price-Anderson compensation scheme, which worked well in Three Mile Island, might have failed utterly had the disaster been on the scale of Chernobyl. Ultimately, the article concludes, no imaginable compensation scheme is likely to adequately handle a large, unique and unexpected catastrophe, but some improvements in current law and practice are possible and ad hoc political solutions, as with 9/11, may help in some cases.

Number of Pages in PDF File: 55

Keywords: 9/11, Exxon Valdez, Hurricane Katrina, Three Mile Island, World Trade Center, torts, extreme events

JEL Classification: A13

working papers series