Revisiting the Noninsurable Costs of Accidents

Abstract:     
This Article offers a fresh perspective on the longstanding debate over the insurability of punitive damages. Prepared for a symposium on Calabresi's The Costs of Accidents: A Generation of Impact on Law and Scholarship, the Article takes as its starting point Calabresi's insight that the line separating insurable costs from noninsurable penalties should be grounded upon the distinction between accidental and intentional misconduct. The Article asks: Should punitive damages be insurable in a Calabresian world? In order to answer this question, the Article chronicles the insurability debate itself, from its origins in the 1960s up to the present. Close study of the divergent legislative, judicial, and insurance industry approaches reveals two competing insurance coverage dividing lines: one separates compensatory and punitive damages, relying heavily upon public policy considerations as set forth by legislatures and courts; the second forges a line between accidental and intentional conduct, resting primarily upon moral hazard economic principles followed by insurance companies.

The Article argues that the traditional contours of the public-policy driven debate, which focuses on the nature of the damages - i.e., compensatory or punitive - should give way to the market-driven intentionality line, which focuses on the nature of the underlying conduct. A switch to the Calabresian/insurance industry line respects the changing and expanding multifaceted roles of punitive damages. Since the insurability debate arose in the 1960s in the context of drunken driving cases, punitive damages have entered the more complex realms of products liability, mass torts, employment discrimination, and other civil rights violations - disputes that implicate common law and statutory punitive damages serving a range of not only penal, but also remedial or compensatory purposes.

Finally, the Article acknowledges the difficulties posed by the accidental-intentional line drawing, as exemplified in drunken driving cases, and identifies statutory multiple damages as a future challenge for the insurability debate.

Keywords: insurance, punitive damages, Calabresi, tort reform

JEL Classifications: K13, K41

Accepted Paper Series