The glaring gap in tort theory is its failure to take adequate account of liability insurance. Much of tort theory fails to recognize the active and central role that liability insurance plays in tort law and litigation, or mentions liability insurance only briefly. Liability insurance is treated as exogenous to tort law itself—as if it were merely a contingent source of outside financing, like a bank that passively guarantees a loan. It is no exaggeration to say that liability insurance played a defining and (in our view) salutary role in creating modern tort liability. Modern tort liability would not look at all as it does today if liability insurance had not existed and influenced tort law’s development in the ways that it did.
This Article calls upon tort scholars of all theoretical and methodological stripes to address the significance of liability insurance by incorporating consideration of liability insurance into their work. We first lay the groundwork for understanding liability insurance’s significance by describing the role that liability insurance plays in the life cycle of a tort claim, sketching the contemporary incidence of liability insurance and commercial self-insurance. We then provide a novel contribution to the tort law literature by identifying a collection of important judicial opinions that have made express reference to the availability (or unavailability) of liability insurance in precedent-setting, liability-expanding, and liability-limiting tort cases. We further identify the ways that liability insurance historically has influenced, and continues to influence, the shape and scope of tort law. We specifically identify a number of significant tort law doctrines and practices, such as the thin-skull rule, that we argue would never have persisted in the absence of liability insurance. Given this evidence, we argue that it is liability insurers who—paradoxically—have fueled the continuing expansion of American tort liability that began more than a century ago.
We then examine modern tort theory, much of which fails to take adequate account of liability insurance. We explain how to begin filling the gap in tort theory that results from omitting consideration of or inadequately considering liability insurance, showing how liability insurance can appropriately figure in both deontic and consequentialist theories of tort liability. Only by greater recognition and candid acknowledgment of the role that liability insurance plays in tort cases can tort theory provide an accurate picture of the field that it seeks to describe.
Finally, we offer lessons for the courts, calling not only for more open acknowledgment of the significance of liability insurance in judicial opinions but also for a radical change in trial practice by proposing that judges explicitly consider record evidence (including the availability of liability insurance) on the insurability of the risk at issue in tort cases.