Date: Tue, 29 Jul 2003 13:55:37 +1200

From: Allan Beever

Subject: Insurance et al

Some reflections on the ongoing debate. (Sorry this is so long)

If I learn that the parents of a student of mine will give $1000 to charity if she gets an A in her exam, should I take that into account when I mark it? Of course not. Why? Because in deciding what grade to give her, my job is to ask how good her exam is, not how to make an ideal world.

Now imagine that A says to B: "If you give me some money now, I will pay any damages award made against you in the future if you commit a tort against someone else". Then B goes and does something that might constitute a tort against someone else (C). Now, if C decides to sue B, I would have thought that the "real" question for any court was whether B had committed a tort against C. If C sues B in tort, and the court answers the claim in terms of whether it wants A to have to pay independently of an assessment of B's actions, then something seems to me to have gone rather wrong. A has agreed to pay if and only if B committed a tort against C. What does it matter that A will actually have to pay if B is found liable? That follows because A has agreed to indemnify B. It isn't the task of the court to evaluate the merits of the terms of the contract between A and B in deciding whether B should be liable to C. At least, so I think. Similarly, what does it matter that other members of the insurance pool will have additional costs imposed? That happens because they joined the insurance pool.

Incidentally, this shows that it is not a fiction for a court to order damages against the defendant when it knows that they will be paid by an insurer. The courts says that the defendant owes a certain obligation to the plaintiff. It just so happens that someone else has agreed to (effectively) discharge this obligation. It seems to me that the "fictional" nature of this evaporates once one asks oneself why the insurer has to pay.

This also introduces another interesting point. If the problem is with making A pay, why do courts not say that B is liable to C in tort but refuse to enforce the contract between A and B? This appears to make more sense on the insurance argument, as it holds that we may negative B's liability to C, even though insurance aside B should be liable to C, because we do not want A to pay. So, lets make B liable to C, but let A off the hook. Do we refuse to do this because insurance is irrelevant in contract? But if so, why is it relevant in tort? Why is it that, so it appears, only tort law requires these constant appeals to policy? Doesn't this tell us something about our current state of understanding of the law?

Note that, with respect to A's contract with B, there is no issue of implied terms here. And even if there was, how can it be right to imply a term in a contract because of social policy? What has social policy got to do with the issue of implied terms? Is it just that the court says "I am going to say that you contracted to do such and such (even though, per hypothesis, you didn't) because I think that we should live in such and such a society? Moreover, if social policy is relevant to implied terms, why don't we imply a term that A would not indemnify B in certain cases (ie when it is socially undesirable) and then we wouldn't have the problem in the first place?

Of course, this is all wrong if one thinks that it is the court's job to ignore the legal structure, or that there is no such thing as legal structure, and that the courts should simply tell us what sort of community we ought to live in. But, speaking for myself, I find this notion of judicial aristocracy repulsive, even when I agree with judges' political views.

"Judges routinely take into account the broader implications of decisions and rarely have any empirical evidence as to what those social consequences will be. 'Armchair empiricism' is therefore inevitably part of the judicial function."

How can this be anything but irrational? Why would a society agree to this? Why does the legislative and executive branches of government spend so much money on research, if the judicial arm acts like this? If this is really true, isn't it time we abolished law ­ or at least appellate courts of the relevant kind ­ and actually got some people in who knew what they were doing?

Finally, it is of course absolutely true that judges sometimes have taken insurance into account when deciding cases. But what follows from this? The question is whether they should do so. And, isn't it at least possible that the reason policy was not to the forefront in older cases was that it wasn't there at all? After all, it seems that the only evidence we have for saying that it was there in many (particularly older) cases is that we cannot understand how the result was reached without it. But that might say more about us than about the judges' motivations.

Some replies to Steve Hedley:

At 12:23 28/07/2003 -0400, Jason Neyers wrote:

How is ignoring something that is irrelevant "fictional"?

But as you know, Harold doesn't accept that it is irrelevant.

But Jason was replying to Harold's argument that it must be fiction to leave insurance out. Hence, Jason's argument was entirely correct. That is, one cannot argue that: insurance should be in because to leave it out would be fictional. Jason's point was that this argument fails because it simply assumes that insurance is relevant. Ie, the argument is circular.

To ignore insurance is to pretend that we live in a world very like ours but without insurance - a fiction. And it is a confusing fiction, as it is never explained whether we are to pretend that the idea of insurance never occurred to anyone, or that the problems that insurance solves never existed or were never perceived as problems, or what.

It seems to me that this commits the fallacy Jason identified. Recall the example of marking exams. It does not follow from the fact that insurance is a good or bad making feature of a situation that judges should take insurance into account. That follows only if it is the judges' job to make the world as good a place as possible. Some might think that that is their job, but I would have thought that most do not. Of course, it might be part of the judge's job in deciding tort cases to take insurance into account. But, as insurance is not relevant to the relationship between the plaintiff and the defendant, that claim needs to be argued. If the question is: Did the defendant wrong the plaintiff? How is insurance relevant, or is that not the right question?

If insurance is relevant because it is a good or bad making feature of the situation under examination, then does it not follow that all such issues are relevant? For instance, would it be appropriate for a judge to refuse liability in a case involving a traffic accident on the grounds that the decision would discourage people from driving cars and hence would reduce traffic congestion so that people would get to work more quickly? Or because would reduce pollution? Or that it would make the country cleaner and greener? Or that it would mean that people would get back to nature? If you think that this would be inappropriate, is that just because you don't care about traffic congestion, etc, or it is because you think that these are inappropriate considerations for a judge to take into account when deciding a case in tort? If the latter, then how are we to distinguish between insurance and all these other concerns? If the former, then what sense can be make of notions such as the rule of law and the distinction (however brittle) between law and politics?

By the way, do you also think we should we discuss liability insurance as if tort did not exist, ;-)

Of course not, but that is because of the content of the contract between the insurer and the insured. Ie, tort is relevant because the insurer has agreed to pay the defendant's tort damages.

2) Andrew rightly points out that insurance has a greater role to play in contract law. I agree, not for the reasons he gives, but rather because the question of insurance is one of the background facts against which the parties have contracted.

... and in Tort, insurance is one of the background facts against which the tort happens. For example, the requirement that motorists take out liability insurance undoubtedly has a major impact on driving practices, and on what happens after a road accident.

But this is relevant (perhaps) to determining whether the D was negligent. What relevance does it have for the duty of care? This is an argument to suggest that courts should take into account the impact of insurance on driving practices in assessing the D's actions. Hence, it could be relevant to showing whether the defendant wronged the plaintiff. (This reflects Jason's point about contract also). But it could not be an argument to suggest that, though prima facie the defendant has (or has not) committed a tort against the plaintiff, the fact that an insurer will have to pay the damages is a reason to say that the defendant did not (or did) commit a tort.

Justice between the parties is eminently contestable, and how we deal with such disputes is surely a matter on which society is entitled to establish goals through the democratic process.

Which democratic process is that? The one in which judges get to decide (advised by us lawyers of course)? In New Zealand we (the real we, ie New Zealanders through our elected representatives) have decided to bar claims for personal injury in favour of a statutory compensation scheme. Would it be permissible for judges in England, Canada, Australia, etc to implement a similar bar? Note that the question is not whether it would be good as a matter of policy for the judges to do so, but whether they should even if it were the right policy. If the answer is no, then why is the answer no? How is the answer to that question consistent with the relevance of issues such as insurance?

3) Jennifer and Andrew seem glad that the judges are making their "policy assumptions explicit". ... Why is it easier to believe a mass conspiracy or a rash of intellectual failings, than to accept that most judges give their actual reasons for decision in their written reasons and that they have until fairly recently honestly believed that their function as a judge, combined with the actions' procedure and their institutional competences, required them to limit their inquiry to a defined set of relevant facts/issues? In legal theory terms, to do corrective justice rather than distributive justice.

We are all in the game of teasing out something the judges did not say expressly - otherwise, our jobs could be done by anyone with access to a law library, a photocopier and a pair of scissors.

It seems to me that this is too quick. The fact that we need to interpret what judges say and the fact that that is sometimes difficult does not show that "We are all in the game of teasing out something the judges did not say expressly". We may be trying to say what they expressly said more clearly, in more relevant ways in certain contexts, and so on. I suspect that Jason thinks, as do I, that we often neglect what judges have actually said in a case simply because we don't understand it at first glance. "Oh, that must have been about insurance..." A classic example of this sort of thing is John Fleming's reading of Winterbottom v Wright in The Law of Torts. Though I think Winterbottom is wrongly decided, it seems to me that Fleming's appeal to policy in explaining that result is entirely unnecessary. The judges' reasons are pretty clear.

If you wish to argue for the continued usefulness of the corrective/distributive distinction, you will have to do better than pretending that this is or was a judicial orthodoxy; as Stephen Waddams points out, the common law does not rise so high, or at least not in that philosophical direction.

The point of the distinction is that (we believe) it explains the law rather well. Who cares if it isn't judicial orthodoxy? Of course, we could be wrong about that, but we are unlikely to resolve that debate here and I don't imagine Jason thought that he had presented his best case for this claim in his previous email. It requires a book or more.

Allan

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