Assessing the Insurance Role of Tort Liability after Calabresi

In his landmark 1961 article, Some Thoughts on Risk Distribution and the Law of Torts, Judge Calabresi provides a theoretical framework for analyzing tort liability as a risk-spreading device that functions in a manner similar to insurance. In our article, we examine the insurance objective of tort liability from the standpoint of modern tort law. Since Calabresi’s foundational article, there have been many changes in tort law as a consequence of the rise in mass toxic torts, design-defect cases, hazard-warnings cases, and punitive-damages awards. The changes in tort law over the past half century have altered the legal landscape in a manner that compromises the private-insurance analogy for tort liability. In many situations, tort liability does address the losses suffered by injured parties, but the tort analog to an insurance premium for this coverage is either absent or incomplete. Nonetheless, understanding how tort liability serves an insurance function is critical to assessing the role of modern tort liability. In this article, our objective is to examine the performance of tort liability, focusing particularly on its insurance role. We examine the situations in which tort liability is well suited to providing compensation and circumstances in which its role is more limited. In situations in which there are impediments to the successful role of tort liability, we examine whether these same impediments also hinder insurance markets. Despite impediments to achieving an outcome that provides both efficient incentives for safety and optimal levels of insurance, on balance tort liability performs a socially constructive role. Calabresi’s insight that the tort system serves a fundamental insurance function has proved to be a seminal contribution to the discipline of law and economics, which at the time of his article largely consisted of only one other