Liability Exposure1 Chapter Outline 14.1Some Background on the Law 14.2Overview of Tort Liability Rules and Procedures Basic Tort Liability Rules No Liability Liability for Negligence Strict Liability Absolute Liability Damages Compensatory Damages General Damages Punitive Damages Joint and Several Liability

Liability Exposure2 Chapter Outline 14.3Liability from Negligence Elements of Negligence Legal Duty Breach of Duty Proximate Cause Injury to Plaintiff Defenses to Negligence Assumption of Risk Contributory and Comparative Negligence 14.4Economic Objectives of the Tort Liability System Optimal Safety (Loss Control) Optimal Compensation to Victims

Liability Exposure3 Chapter Outline 14.5Why Have a Tort System – A Closer Look The Role of Information Case 1: Full Information Implies Optimal Safety Case 2: Uninformed People and No Liability Implies too Little Safety Case 3: Uninformed People and Full Liability Implies Optimal Safety Case 4: Uninformed People and Less than Full Liability Implies too Little Safety Case 5: Uninformed People and More than Full Liability Implies too Much Safety Transaction Costs and Assignment of Legal Rights Optimal Loss Control Does the Liability Rule Matter? Assignment of Liability and the Distribution of Wealth The Zero Transaction Costs Assumption Summary

Liability Exposure4 Chapter Outline 14.6Limited Wealth and Limited Liability Situations in Which People Can Escape Liability Compulsory Liability Insurance and the Judgment Proof Problem 14.7Tort Liability and Safety Regulation 14.8Proposals for Tort Reform Modifying Incentives to Bring Suits Reducing Damages Limiting the Application of Joint & Several Liability 14.9Summary Appendix: Valuing Loss Of Life and Cost-Benefit Analysis of Safety Regulation

Liability Exposure5 Categories of the Law Sources of Law: – Branches of Law: – Contract Tort (focus of Chapter 14)

Liability Exposure6 Types of Liability Rules ____ Liability Liability for _____________ Strict Liability ____________ Liability ______________ and Survivorship Statutes ____________ Liability (Based on negligence, contract or statute)

Liability Exposure7Damages – Compensatory Damages __________damages lost wages medical expenses _________damages pain and suffering compensation loss of consortium _________Damages punishment egregious conduct

Liability Exposure8 Negligence Standard Burden of proof generally on plaintiff Conditions for negligence: – Defendant had _____ – ________of duty Did the defendant take all cost-justified precautions? – Breach was _______ cause of accident – Injury

Liability Exposure9 Defenses to Negligence Assumption of risk Contributory negligence Comparative negligence

Liability Exposure10 Judgment Proof Problem – What is it? People can escape payment of damages – Problems: – – Possible solution: Mandatory insurance

Liability Exposure11 Safety Regulation versus Tort Liability Tradeoffs: Who has information? – Economies of scale in gathering information? Judgment proof problem

Liability Exposure12 Tort “Reform” – Modify incentives to bring suits – – Reducing damages – caps on pain and suffering caps on punitive damages –Alter collateral source rule – Limit joint & several liability

Liability Exposure13 Valuing Life Use labor market information: – How much compensation do people demand for an increased risk of dying on the job – Infer value of life – Estimates generally range from $2m - $6m

Liability Exposure14 Government Safety Regulation – Estimated costs and benefits of safety regulation Cost per life saved RegulationPassedAgency(in millions of 1984 $) Unvented space heaters1980CPSC$0.10 Passive restraints/belts1984NHTSA$0.30 Crane suspended personnel platform1988OSHA$1.20 Grain dust1987OSHA$5.30 Uranium mill tailings (inactive)1983EPA$27.60 Asbestos1989EPA$104.2 Arsenic/low-arsenic copper1986EPA$ Formaldehyde1987OSHA$72,000.00