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Risk

Today's LA Times has an article on insurance written by Peter G. Gosselin.  George Wallace has an initial commentary on the article.  I will have some later today.  George makes an intriguing point

The purported thrust of the piece is that insurers have become increasingly sophisticated at identifying the particular risks posed by a particular insured, to the extent that there is a move away from "pooling" of heterogeneous risks -- so that large groups of not-necessarily similar insureds pay essentially the same premium, with lower risk insureds effectively subsidizing higher risk insureds -- and toward case-by-case pricing, in which those who individually face heightened and particularized perils are charged accordingly high premiums -- to which the LATimes piece implicitly adds: "Whether they can afford it or not."

This is definitely reporting with a point of view, which seems to be roughly that insurance should be priced more on the basis of ability to pay than on the basis of the risk that the insurer is agreeing to undertake.

emphasis added.

A Couple of Items

1.  Walter Olson now has competition in the form of the new "Underlaweryed" blog from Stephanie Mencimer called The Tortellini.  via Evan Schaeffer.   

2.  Why are the Connecticut trial lawyers trying to get the Connecticut insurance commissioner to lower the prices for Connecticut Medical Insurance Company?  This seems truly odd.  Let's see....  let's make premiums lower so that more doctors are covered?  The company is only rated B++ as it is.  Lowering the premiums would likely put it into a "junk" insurer category.  I bet no one who understands the ratings would want a B med mal carrier providing one's insurance.  To top it off, the company is a mutual which means that it is owned by the physician policyholders.  Kevin, MD suggests the lawyers are intervening because the lawyers do not want high premiums to be a reason for tort reform. via IJ.

It's the Old Tort Favorite: Sleep and Fall

“The risks are so obvious here that we fail to see ... what a warning could have advised in addition to the obvious.” Judgment reversed.

No more should be said.  But of course it was.  Twenty pages worth!  However, I don’t blame the judge as this was a perfect opportunity to show off.

via the VC.  See also Overlawyered.

There seems to be a debate over whether there is such a thing as a frivolous lawsuit (See Ted Frank’s comments.) Frivolous lawsuits are not like Bigfoot. This case is a perfect example of the species.

 

Wow--That's Quick

George Will describing an international  visitor’s quick read on our litigation environment…

WASHINGTON -- While her security contingent waits outside the Georgetown restaurant, Ayaan Hirsi Ali orders what the menu calls "raw steak tartare.'' Amused by the redundancy, she speculates that it is intended to immunize the restaurant against lawyers, should a customer be discommoded by that entree. She has been in America only two weeks. She is a quick study.

CSI: Cracker Barrel

Was the mouse really cooked in the soup?  Check it out here.

On a slightly related subject, I recently heard the risk manager at Wendy’s talk about the finger-in-the-chili incident.  He said Wendy’s was able to tell within an extremely short period of time that no workers at Wendy’s or their food suppliers were missing digits.

Torts

TortsProf is having a tortopalooza this week as numerous commentators are discussing what they think students should learn in torts.  In a very summary form, there is is an interesting discussion about the practicalities of tort litigation versus an Ivory Tower theory of torts.   Being RiskProf and not TortsProf, I have my own take on it especially after sitting through a very leagalistic class discussion where we examined Boomer v. Atlantic Cement Company (I can’t recall my kids names, but I can remember a case I read in law school 25 years ago!).  Boomer is a trespass case where the cement company was dumping cement particles on its neighbors.  The remedy turned out to be a payment for the continual trespass rather than shutting the company down.  There was a big discussion about why the company wasn’t shut down.  I learned who all the anti-capitalists were and there were large number who wanted to shut the company down.  I raised my hand and said something to the effect that this was a very economical decision in the sense that there was arguably profits generated from the cement company and we shouldn’t shut it down unless the costs of the company outweighed the benefits.  The professor ridiculed that answer and yelled something to the effect of “Is that what are you going to tell your client?”  I was shocked by the vehemence of the response and being a newbie 1L, I just kept my mouth shut.  That one class period made me decide I didn’t want to be a lawyer (and everyone is happier as a result).

I think torts should focus, in part, on the Ivory Tower aspect of the effect of liability law on the economy too.  In fact, I’d like there to be a discussion of liability systems and the objective of liability systems.  No one really talks about the optimal lability system and its role in minimizing the social cost of liability.  If we had such a discussion, we’d see that some things are properly left to the tort system, some to regulation, and some to the insurance system.  I could be wrong (and some of the commentators mention this), but I don’t see lawyers in training being exposed to this Ivory Tower look too often.  These discussions are in the literature but do not seem to be in the professional syllabus.

Common Sense is Prevailing

With the earlier Mississippi case upholding the storm surge exclusion we now have a Louisiana case that says if fifty percent of a loss is caused by a covered cause, the insurer is responsible only for fifty percent of the damages. Turk v. Louisiana Citizens Property Insurance Corp., 2006 WL 1635677 (W.D. La. June 7, 2006). (I only have lexis/nexis which does not have a copy of the case yet, so I can’t quote from it.)

via David Rossmiller who has more details.  See our previous lament here.

 

A New Med Mal Study

Alexander Tabarrok of (MR fame) and Amanda Agan have a new study on Medical Malpractice sponsored by the Manhattan Institute’s Center for Legal Policy.  Read the summary here.  Make sure you note footnote 9.  It is important that you do so.

I like the study and it has one of those “Dang, I wish I had thought of that” sections.  One of the big problems with med mal studies in the past is that there is generally only a weak link between premiums and awards.  There are a number of reasons why this might be so, but it would really be nice to show this once or twice if it is, in fact, true.  Tabarrok and Agan do a relatively simple statistical test called co-integration which examines how two series move together over time.  In a sense it shows the times series correlation between doctors damage pay outs and insurance premiums.  Many believe there is a relationship and Tabarrok and Agan find that there is indeed co-integration.

This research relates to something I have wanted to post about since Ted Frank and I wrote the AEI Liability Outlook critiquing the consumer advocate approach to med mal.  One of the more recent critiques they have come up with is that the problem is the fault of the insurance cycle. Note that the Tabarrok and Agan results does not depend on the existence of a cycle. The consumer advocates believe that the med mal crisis is caused by regulatory failure.  If the regulators would just keep prices from going up then we would not have this problem because it is this dang cycle that causes the problem.  A problem with this is also that the regulators would have to prohibit med mal carriers from reducing prices in the good times.  A have a hard time envisioning consumer ado vacates fighting price decreases.

Ted and I wrote that the cycle is not really a cycle. (Mr. Hunter then called us “flat-earthers” because everyone knows there is a cycle).  The whole notion of a cycle is really the wrong word to use here.  There are ups and downs in prices, but are they cyclical in the sense of a regular, predictable pattern that repeats over time?  I think the question is still open for a debate.  Thus, I am not a flat earther, but someone with an open mind on the issue. 

In a paper I wrote with a colleague in the early 1990’s I found that there was a co-integrating relationship over time between insurance “prices”, short term interest rates and GDP.  Interest rates and GDP are not something the insurance industry has control over and thus they have to react to changes in these variables. In fact, the relationship between the interest rates and the insurance rates was quite striking.   Decreases in interest rates generally cause insurance prices to rise (for example).  A question arises whether managers can immunize themselves to changes in the interest rate environment.  Maybe, by purchasing potentially expensive derivative contracts.  However, consumer advocates probably wouldn't want to allow these expenses to be considered part of the price of medical malpractice coverage either.  This interest rate/pricing relationship made me think that there wasn't’t really a cycle, but a relationship to the general economy that might influence pricing movements.

At the same time others started proposing theories of market behavior that did not depend on nice regular cycles.  Ralph Winter (1994) and Anne Gron (1994) separately proposed models of how insurance markets may behave which depend more on reactions to shocks.  Others such as Harrington and Cagle (1995) provide some additional empirical support for this non-cyclical behavior.  Thus, instead of a regular and predictable cycle, there is an unanticipated shock followed by a reaction and then a general return to equilibrium.   

Salute to Frivolous Lawsuit Night

The Altoona Curve a minor league baseball team is sponsoring—Salute to Frivolous Lawsuit Night

ALTOONA- Inspired by a Los Angeles Angels fan who filed a lawsuit against the club because he did not receive a red nylon tote bag as part of the major league club's Mother’s Day promotion last May, the Altoona Curve have announced that they will be holding Salute to Frivolous Lawsuit Night as part of their Sunday, July 2nd game at Blair County Ballpark.

The Curve’s salute to all ridiculous lawsuits ever filed will include the following:

A Pink Tote Bag Giveaway to the first 137 men in attendance ages 18 and over

The first 137 women 18 and over will receive lukewarm coffee so they will not burn themselves

The first 137 kids will be given a beach ball with a warning not to ingest it

Angels merchandise and novelty items given away throughout the game

Honoring some of history's "Most Frivolous Lawsuits" during the game

A grand prize drawing in which one fan will receive a “clue” and their own frivolous lawsuit.

via Dave Berry   See commentary at Overlawyered on what started this line of nonsense.

And I Bet You Thought Lawyers Fees were High

Walter Olson (at Point Of Law) notes this Fort Worth Star Telegram article on expert witness fees.  $6–$8 billion smackeroos per year is some darn good money.  What is interesting about the article is that it suggest that parties to a lawsuit are not price sensitive about their expert’s costs.  I guess the experts are not charging enough yet, so  I hereby volunteer to charge more than the competition!

also via Blog 702 and TortsProf Blog.