1 Ins301 Chp12 Tort Law Background on the law Basic tort liability rules Liability from negligence Economic objectives of the tort liability system

2 Ins301 Chp12 Merck Case Vioxx users allege Merck Inc. because the painkiller cause heart damage, kidney failure and other ailments. Questions: Which law in charge of this lawsuits? What kind liability does Merck have? How do Vioxx users win the case? How can Merck defend itself?

3 Ins301 Chp12 Law Categories Sources of Law: Common law Statutes Branches of Law: Criminal Civil Contract Tort (focus of Chapter 12)

4 Ins301 Chp12 Basic Tort Liability Rules No Liability Liability for Negligence Strict Liability Absolute Liability

5 Ins301 Chp12 Types of Damages Compensatory Damages Special damages  lost wages  medical expenses General damages  pain and suffering compensation  loss of consortium Punitive Damages  punishment  egregious conduct

6 Ins301 Chp12 Joint and Several Liability What does it mean? Multiple parties are liable One cannot pay, then the others are responsible for the entire damage

7 Ins301 Chp12 Negligence Standard Burden of proof generally on plaintiff Conditions for negligence: Defendant had legal duty Breach of duty Did the defendant take all cost-justified precautions? Breach was proximate cause of accident Injury

8 Ins301 Chp12 Defenses to Negligence Assumption of risk Contributory negligence Comparative negligence

9 Ins301 Chp12 Economic Role of the Tort Liability System Optimal safety (optimal loss control) Optimal compensation to victims

10 Ins301 Chp12 Optimal Loss Control Example Nielson Inc. ExpectedMarginalMarginal Prob SafetyLoss to BenefitCost to of LossExpenditureConsumers ConsumersConsumers 0.07$0$ $45$600$100$ $130$500$100$ $225$400$100$ $400$300$100$ $590$200$100$ $900$100$100$310  Optimal safety expenditure =

11 Ins301 Chp12 Optimal Compensation to Victims Tort liability is analogous to insurance  Compensates for unexpected losses  Premium is embedded in the prices of goods and services Tort optimal compensation equals the amount of insurance coverage that people would have purchased prior to being involved in the accident if  they were fully informed about the risk  the terms of insurance reflected the costs (legal fees, moral hazard, and adverse selection) associated with insurance through the tort system

12 Ins301 Chp12 Judgment Proof Problem What is it? People can escape payment of damages  limited wealth  limited liability Problems:  May not take optimal level of care  Victims might not be compensated Possible solution: Mandatory insurance