Liability Insurance as Tort Regulation: Six Ways that Liability Insurance Shapes Tort Law in Action

Leaving aside difficult to interpret doctrinal developments, such as the abrogation of traditional immunities, liability insurance has at least the following six impacts on tort law in action. First, for claims against all but the wealthiest individuals and organizations, liability insurance is a de facto element of tort liability. Second, liability insurance limits are a de facto cap on tort damages. Third, tort claims are shaped to match the available liability insurance, with the result that liability insurance policy exclusions become de facto limits on tort liability. Fourth, liability insurance makes lawsuits against ordinary individuals and small organizations into repeat player lawsuits on the defense side, making tort law in action less focused on the fault of individual defendants and more focused on managing aggregate costs. Fifth, liability insurance personnel transform complex tort rules into simple rules of thumb, also with the result that tort law in action is less concerned with the fault of individual defendants than tort law on the books. Sixth, negotiations over the boundaries of liability insurance coverage (which appears nowhere in tort law on the books) drive tort law in action.