Tort Reform and the Role of Government in Private Insurance Markets

PUBLIC concern over liability rules in recent years has been triggered by disruption in liability insurance markets. The medical malpractice and product liability "crises" of the mid-seventies were marked by insurance premium increases of several hundred percent in a single year and complete withdrawal of commercial carriers from some areas. Although insurance is now generally available, high premium rates for some product lines remain controversial.' A related and growing concern is the inadequacy of existing insurance and self-insurance reserves to cover product liability claims for occupational disease. These disruptions have led to two types of statutory response. The first, which works on the tort system directly, includes changes in underlying liability rules, redefining damages, the standard of care, and the statute of limitations. The second operates on insurance markets, through rate regulation and various subsidy mechanisms. This paper evaluates these two forms of intervention, noting that the tort system may be viewed as a system of compulsory insurance,2 with terms of coverage determined largely by the private choices that generate court decisions. Statutory tort reform may be viewed as a collective choice to override the private choices reflected in the evolution of common law.