Insurance

A major economic issues is the role of insurance as a factor in legal development. In some legal systems, judges have known clearly which if the litigants before them is insured. In other countries, such as England, this has only happened since the 1970s. But judges typically show general knowledge about the insurance market in key cases. For example, the leading French case on traffic liability, Jand’heur in 1930, had explicit arguments on insurance.

When lawyers refer to the existence of insurance, it is offered as an argument why it is not unfair to impose a liability that would otherwise be just. They are not suggesting that the law should be re-interpreted to put liability on someone who happens to be insured.

It would not be true to say that the law simply followed the pattern of insurance. It is clear that judicial decisions in particular cases have affected the premiums charged for particular activities, especially in medical liability. Indeed, in some areas, such as railways, insurance companies were slow to develop policies, so that judicial decisions and legislative interventions created the need for insurance policies, rather than reflecting what had already been determined by the market. All the same, it is clear that insurance often determines what is litigated. Many cases are really actions between insurance companies (more explicitly so in some European countries than in England). Insurance companies choose the cases to be fought, the principles on which they are fought and take advantage of the outcome to determine future insurance activity. To that extent, insurance has a marked impact on the development of the law.

Two insurance devices are important in the way the law works: subrogation and claims on personal liability insurance.

Subrogation

Subrogation is effectively the transfer of one person (A)’s right to sue a defendant, C, to another person, B. This very often happens under insurance contracts. Thus, for instance, A’s car is hit by C’s car in a situation where C is at fault and A is not. Both cars are (compulsorily) insured. A’s insurance company (B) pays out compensation to A, but in return he becomes entitled to sue C in A’s place. B may choose to use this or not, but if B does sue, he would do so under the name of A.

Because a court case would be argued by lawyers, whether it was A or B who was really behind the action, the court might never know who is the real person making the claim. When a lawyer for B argues “A has suffered great loss and it would be unfair to fail to compensate him” might be used, the fact that B is an insurance company may remove some of the punch to them. Subrogation claims get more and more complex where there is re-insurance, and multiple parties.

Personal liability insurance

The law has a general principle that a person may not benefit from his own wrong. This is describes as a rule of public policy, because the public would think it wrong that, for instance, where X murders Y in order to obtain money under the will that Y made in X’s favour, X should still get that money.

Insurance can complicate this matter in tort cases. Many people have a clause in their household or car insurance that the insurer will pay if the person insured is sued for a tort they have committed as occupier of a house or driver of a car. Although the law will not force the insurer to pay where the person insured has deliberately killed another person, it will allow the person insured to claim in other cases. Take, for example, a lesser crime causing death, such as an causing death by dangerous driving. The law has made an exception in these so-called motor manslaughter cases. Causing a death by breaching rules of the road does not trigger the public policy rule, and the victim is assured of compensation. Without the insurance, the person insured could not hope to come up with enough money to pay all the judgment. Thus the focus is on whether the victim should receive compensation, rather than whether the person insured should gain a benefit from a wrongful act that he has committed.