Boccara, Steve --- "Medical Malpractice" [2009] ELECD 298; in Faure, Michael (ed), "Tort Law and Economics" (Edward Elgar Publishing, 2009)

Book Title: Tort Law and Economics

Editor(s): Faure, Michael

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847206596

Section: Chapter 12

Section Title: Medical Malpractice

Author(s): Boccara, Steve

Number of pages: 34

Extract:

13 Tort law and liability insurance
Gerhard Wagner


13.1 Introduction
Insurance is a form of risk transfer, allowing the party initially bearing risk
to shift it to another party more willing or able to bear it. Parties who are
in the business of taking on risk initially borne by others are insurers, those
who are relieved of such a burden are the insured. In return for the trans-
fer of risk, insurers demand a price, namely the premium due under the
insurance contract. Where the risk in question is harm to the body, health
or property of the insured herself, the contract is for first-party insurance.
Here, the person injured and the person insured are identical. Third-party
insurance is a contract that covers potential harm suffered by others than
the insured, that is, third parties. The third-party loss is not insured against
out of benevolence or other altruistic motives but because the insured party
may be liable in damages towards a third party. Expressed in the language
of tort law, third-party insurance covers claims of victims against injurers
who are liable in damages.1

13.2 The economic rationale of insurance

13.2.1 The demand for insurance

13.2.1.1 Risk aversion From the insured's perspective, insurance is `an
exchange of money now for money payable contingent on the occurrence
of certain events' (Arrow, 1971, p. 134). Insurance owes its existence to
risk-aversion and the declining marginal utility of wealth. If ...