Social insurance and tort liability

Abstract

Social insurance as a compensatory mechanism seeks to distribute widely the losses occasioned by injury, sickness and disease common to everyone. Its remarkable growth in the post-war era has required that the structure of tort liability as a system of accident law undergo reform, with at the very least, appropriate readjustments’ in its joint goals of deterrence and compensation. In some extreme instances,2 social insurance has replaced tort liability when it appeared that the deterrence of tort liability had been seriously undermined by liability insurance and the compensation of individuals had been significantly lessened by substantial administrative costs. The replacement of tort liability with social insurance is seriously flawed, however, in that social insurance achieves its loss -spreading by forsaking whatever deterrence tort liability could impart. Calabresi has suggested that this relative imbalance of goals could be corrected with the use of tort fines in a social insurance system,3 a necessary modification that achieves the deterrence of tort liability, without sacrificing the extensive loss spreading of social insurance. This paper will consider the role of non-insurable tort fines in a social insurance system established to mitigate and distribute the losses of sickness and disability. In particular, the liability roles of negligence and strict liability will be compared4 to determine which rule can financially induce the agents employed under a social insurance system to achieve its objectives at the lowest cost. The comparison of these rules will consider the administrative costs of the judicial and social insurance systems, the risk-bearing of agents, and the distributional objectives established under social insurance and implemented through these liability rules. For expositional convenience, agents will not be allowed to insure against the tort fines levied by the judicial system, eliminating the need to consider the trade-off involved between the risk-spreading of insurance and the appropriate incentives.s Since the analysis involves a mathematical model, it is appropriate to outline and discuss initially the relationship between the objectives of a social insurance system