Mandatory Residual Tort Liability Insurance and Compensation Reserves: A Solution to the Judgment-proof Problem

43 Pages Posted: 3 Sep 2024

Date Written: July 29, 2024

Abstract

I examine compensation reserves under mandatory residual tort liability insurance to solve the judgment-proof problem. This insurance policy covers only the remaining tort liability after compensation by using the entire assets of the company. Under this mandatory insurance scheme, companies raise funds through equity financing to build a compensation reserve that can cover even the maximum anticipated tort liability. Therefore, judgmentproofness is autonomously resolved; then, socially optimal situations can be achieved. These results are valid even under incomplete information if the companies raise funds from their existing shareholders, even though those shareholders only have the same information as outside investors.

Keywords: residual tort liability insurance, mandatory insurance, reserve for compensation

JEL Classification: K13

Suggested Citation

Seshimo, Hiroyuki, Mandatory Residual Tort Liability Insurance and Compensation Reserves: A Solution to the Judgment-proof Problem (July 29, 2024). Available at SSRN: https://ssrn.com/abstract=4908629 or http://dx.doi.org/10.2139/ssrn.4908629

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
10
Abstract Views
56
PlumX Metrics