Edw Elgar Research Handbook in the Law & Economics of Insurance (2015)
30 Pages Posted: 29 Jan 2015
Date Written: January 18, 2015
This chapter asks whether THE THEORY OF INSURANCE SUPPORTS AWARDING PAIN AND SUFFERING DAMAGES IN TORTS. The answer is an unequivocal “Yes.” Many commentators have argued that individuals do not (and should not) demand insurance for losses that do not lower their marginal utility of wealth. From this perspective, tort laws that provide victims with compensation for pain and suffering harms effectively force them to purchase insurance that they don’t value. This chapter disputes this logic on several levels. First, it suggests that so-called “pure non-monetary losses” are exceedingly rare in practice, and are difficult to define even in theory. Moreover, non-monetary losses are likely to be correlated with monetary losses, and this correlation generates a demand for insurance covering both types of losses under the traditional model used by law and economics scholars. Coverage of non-monetary losses can also be demanded under many plausible alternatives to expected utility theory. The chapter also takes issue with the empirical evidence that some have interpreted as suggesting a lack of demand for coverage of non-monetary losses. Finally, the chapter suggest that future advances in neuroscience may make it possible to accurately measure mental states associated with pain and suffering, obviating the need for the subjective testimony that introduces so much noise into the assessment of these damages.
Suggested Citation: Suggested Citation
Avraham, Ronen, Does the Theory of Insurance Support Awarding Pain and Suffering Damages in Torts? (January 18, 2015). Edw Elgar Research Handbook in the Law & Economics of Insurance (2015). Available at SSRN: https://ssrn.com/abstract=2555690