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Chap012

VIEWS: 12 PAGES: 12

  • pg 1
									Tort Law

 Background on the law
 Basic tort liability rules
 Liability from negligence
 Economic objectives of the tort liability system




                        Ins301 Chp12             1
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?


                         Ins301 Chp12           2
Law Categories

  Sources of Law:
      Common law
      Statutes
  Branches of Law:
      Criminal
      Civil
           Contract
           Tort (focus of Chapter 12)



                          Ins301 Chp12   3
Basic Tort Liability Rules

  No Liability
  Liability for Negligence
  Strict Liability
  Absolute Liability




                      Ins301 Chp12   4
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


                              Ins301 Chp12        5
Joint and Several Liability

What does it mean?
     Multiple parties are liable
     One cannot pay, then the others are responsible for
      the entire damage




                         Ins301 Chp12                6
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



                               Ins301 Chp12                    7
Defenses to Negligence

 Assumption of risk

 Contributory negligence

 Comparative negligence




                       Ins301 Chp12   8
Economic Role of the Tort Liability
System

 Optimal safety (optimal loss control)
 Optimal compensation to victims




                      Ins301 Chp12        9
Optimal Loss Control Example

         Nielson Inc.
                          Expected           Marginal    Marginal
Prob       Safety         Loss to            Benefit     Cost to
of Loss    Expenditure    Consumers          Consumers   Consumers
0.07       $0             $700
0.06       $45            $600               $100        $45
0.05       $130           $500               $100        $85
0.04       $225           $400               $100        $95
0.03       $400           $300               $100        $175
0.02       $590           $200               $100        $190
0.01       $900           $100               $100        $310


                    Optimal safety expenditure =
                              Ins301 Chp12                      10
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


                              Ins301 Chp12                         11
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


                                  Ins301 Chp12     12

								
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