Twenty-First-Century Insurance and Loss Distribution in Tort Law
This paper locates tort liability within our larger system of compensation for injury and illness, and compares the tort system's functioning and scope with the other methods of loss distribution that are employed by the system. This review reveals the extent to which there is in fact a vast system of loss distribution, of which tort is only a small part. On the other hand, that system is by no means comprehensive; it contains important gaps. The central issue is whether these gaps should be filled by tort or by the other sources, and how that might be accomplished. The paper then turns to the relationship between tort and the rest of the loss distribution system. It analyzes the different possible relationships by identifying and exploring the loss distributional and other impacts of four possible variants of the collateral source rule. My conclusion is that none of these variants satisfactorily reconciles the tension between tort law's deterrence goal and its comparative ineffectiveness at loss distribution. Finally, the paper looks at the rarely-considered, distinct treatment accorded to life insurance and savings under existing rules, and then recommends a "full-subrogation" approach to tort law's treatment of collateral sources. In order to retain tort law's deterrence potential but enhance overall loss distribution, potential tort victims should be permitted to transfer their full causes of action to their first-party insurers, in return for broader coverage or lower premiums.