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Friday, July 15, 2011

Two by Geistfeld

Mark Geistfeld (NYU) has posted two pieces to SSRN.  First:  Tort Law and the Inherent Limitations of Monetary Exchange:  Property Rules, Liability Rules, and the Negligence Rule.  The abstract provides:

Legal scholars have extensively analyzed legal entitlements in terms of more fundamental component parts, most notably with the remedial structures entailed by property and liability rules. Contrary to the claim made by some scholars, I argue that the negligence entitlement is not fully constituted by property rules, liability rules, or any combination thereof. The entitlement that generates the negligence rule, though partially constituted by both property and liability rules, is best described as a behavioral rule that obligates duty-holders to exercise reasonable care. The breach of this primary duty creates a second-order duty to pay compensation for the proximately caused physical harms, but the payment of compensatory damages does not fully exhaust or satisfy the underlying entitlement. This component of the entitlement explains why duty-holders are subject to punitive damages and perhaps even criminal negligence liability if they choose to act unreasonably in exchange for the payment of compensatory damages. The entitlement takes this form due to the inherent inadequacy of the compensatory damages remedy, an inadequacy that is most pronounced in cases of wrongful death but applies more generally to many instances of physical harm. The article concludes by identifying the distinctive features of the negligence entitlement that must be accounted for by any normative theory seeking to adequately explain tort liability, a condition that is not satisfied by prominent interpretations of tort law, including leading accounts based on the fault principle, pluralism, allocative efficiency, and corrective justice. The underlying rationale for tort liability cannot be derived from a structural (non-normative) analysis of entitlements, but the entitlement structure of the negligence rule still has important implications for the normative theory of tort law.

Second:  Legal Ambiguity, Liability Insurance, and Tort Reform.  The abstract provides:

Legal ambiguity refers to an unknown outcome regarding the requirements of a legal rule or body of law, as applied to a set of known facts, for which the probability cannot be confidently or reliably defined and must be estimated by decision makers. The legal ambiguity generated by the tort system became significantly more pronounced over the course of the twentieth century, making the market for liability insurance increasingly volatile. Without reliable estimates of the relevant probabilities (the likelihood of a policyholder incurring tort liabilities and the amount thereof), insurers must use subjective estimates of risk that are prone to forecasting errors with the resultant swings in profits and losses. Legal ambiguity increases the cost of capital for insurers (and therefore premiums) and creates an expectations-driven pricing structure that is prone to cyclical volatility, including periods of substantial underwriting losses that disrupt the supply of liability insurance. Due to these market disruptions, liability insurers have supported tort reform measures that reduce the unpredictability of the liability costs covered by the insurance policy, making it easier for them to set premiums. The movement has been successful, and the vast majority of states by now have legislatively curbed tort liability, with common reforms involving damage caps and the elimination of joint and several liability. Although different in substance, the varied reforms share the trait of significantly reducing systemic legal ambiguity, which in turn makes it easier for liability insurers to forecast their expected liabilities. Tort reform has become biased towards reductions of ambiguity that enhance the predictability of liability insurance, regardless of whether the reforms address the problem of ambiguity in a fair or just manner. Each of these factors has become increasingly important over the course of the twentieth century, producing an evolutionary path for the tort system that is now shaped by the interplay between legal ambiguity, liability insurance, and legislative tort reform.

--CJR

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