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OF EVIDENCE RULE 411 Jared S. Livingston1a
TABLE OF CONTENTS I. II. III. Introduction ........................................................................................................2 The History and Policy of Rule 411 ..................................................................4 Moral Hazard: More Than a Mere Guess ..........................................................9 a. Moral Hazard: What is It?............................................................................9 b. Empirical Evidence of Moral Hazard ........................................................12 c. Why Moral Hazard Has Not Been Considered ..........................................14 The Relevance of Moral Hazard ......................................................................16 a. Moral Hazard Passes Relevance’s Low Hurdle .........................................16 b. Applying Moral Hazard .............................................................................18 c. Why Moral Hazard Produces Loss ............................................................20 d. The Kinds of Losses Created and the Liability of Those Losses ...............21 e. Incentives as Relevant Evidence in Other Situations ................................24 Considering the Probative Value of the Moral Hazard Inference ....................27 a. Irresponsibility is a Market-Specific Criticism ..........................................30 b. The Mystery of Uninsured Motorists .........................................................31 c. Need for Further Investigation ...................................................................34 Reconsidering the Prejudicial Effect of Evidence of Insurance ......................36 a. Imagined and Exaggerated Prejudice.........................................................37 b. Even if There Was Prejudice, It is Curable................................................39 Conclusion .......................................................................................................43
J.D. Case Western Reserve University School of Law, 2011. Mr. Livingston is now an associate with the Law Offices of Stuart Berger, PLLC in Houston, Texas.
ABSTRACT This note explores whether moral hazard—a behavioral phenomenon that explains an insured’s behavior—may justify another look at the blanket exclusion of Federal Rules of Evidence Rule 411. Not only does moral hazard implicate the relevance of evidence of insurance in a negligence action, but it may also reveal that the evidence is not as prejudicial as many scholars and courts had originally supposed. As a result, Rule 411 could be over-exclusive in its application, excluding not only a wholly irrelevant part of insurance evidence--the wealth or ability-to-pay implication—but also the part of insurance evidence that implies an insured’s possible subjection to moral hazard. This note discusses how the moral hazard part of insurance evidence is relevant, and how this evidence yields sufficient probative value to overcome any potential prejudice.
INTRODUCTION A car’s brakes fail, by no fault of the driver, sending the car and its driver careening
down a hill, at the bottom of which stands a house and an adjacent pond. Impact is imminent, and the driver, whether heading for the pond or the house, will likely suffer an equal amount of damage to her car regardless of the direction she steers. Seconds away from impact, the driver knows, if only in the deep recesses of her mind, that her vehicle is covered by liability insurance. With an insurance policy that covers liability for property damage, but not for damage that water causes the car, the driver makes an almost instinctual decision and veers towards the house— away from the pond—crashing through it, and hitting the homeowner who happens to be inside. The homeowner sues the driver for battery, for which cause of action the homeowner-plaintiff must demonstrate the driver’s intention of trucking through the home. To do so, the plaintiff seeks to introduce evidence of the defendant driver’s insurance policy. Maintaining that the automobile manufacturer was to blame and that there was no intention to aim for the house, the defendant objects to the introduction of evidence on the grounds that it is inadmissible.1
FED. R. EVID. 411. According to Federal Rules of Evidence 411, evidence of insurance is inadmissible on the issue of negligence or wrongdoing.
Aside from being a daunting torts exam question, this glance into the driver’s behavior is an illustration of what economists call moral hazard: a phenomenon positing that people change their behavior when they do not bear the full costs of their actions.2 Here, because the driver’s policy insures against property and personal injury liability, the driver would not have to pay the full compensatory amount of expenses in the case of an accident. Because the driver thus does not bear the full costs of such a decision, the driver may even subconsciously adjust her behavior so that she prefers behavior that happens to make personal injury more likely and uncovered damages less likely. Although this hypothetical is just that—hypothetical—and is unlikely to occur, it illustrates how under current evidentiary rules, what is relevant to an economist may not be relevant in the courtroom. In other words, moral hazard as an explanation for behavior of insured individuals would unsuccessfully penetrate the suppressive wall that the Federal Rules of Evidence have erected around evidence of insurance on the issue of negligence or wrongdoing.3 This is because Rule 411 excludes evidence of insurance from the standard probativenessprejudice balancing prescribed by the federal rules,4 and any judge would likely be obliged to exclude the evidence of the driver’s insurance policy, regardless of its explanatory power.5 This note raises the point that considering evidence of insurance within a moral hazard framework may justify another look at the blanket exclusion of Rule 411. Not only does moral hazard implicate the relevance of evidence of insurance in a negligence action—and may do so
DONALD E. CAMPBELL, INCENTIVES: MOTIVATION AND THE ECONOMICS OF INFORMATION 100 (Cambridge University Press 1995). 3 FED. R. EVID. 411. 4 FED. R. EVID. 403. 5 FED. R. EVID. 411 leaves no discretion to courts to decide the admissibility of evidence of insurance on the issue of negligence or wrongdoing: “evidence . . . is not admissible . . .”
even in situations aside from far-fetched hypotheticals6—but it may also reveal that the evidence is not as prejudicial as many scholars and courts had originally supposed. As a result, Rule 411 could be over-exclusive in its application, excluding not only a wholly irrelevant part of insurance evidence—the wealth or ability-to-pay implication—but also part of insurance evidence that implies an insured’s possible subjection to moral hazard. This note discusses how the moral hazard part of insurance evidence is relevant, and how this evidence yields sufficient probative value to overcome any potential prejudice. Section II of this note explores this history and policy behind Rule 411. Section III lays the foundation for considering moral hazard, including its history, application and empirical evidence of moral hazard. Section IV contains the main contention of this note, explaining how moral hazard considerations can undermine the policies upon which Rule 411 is based. Section V considers the probative value of a moral hazard inference, diverting attention to a possibly competing inference that comes from what a factfinder might infer about the character of an insured or uninsured individual. With the
probative value of the moral hazard inference observed, Section VI turns to a reexamination of any prejudicial effect that might result from the introduction of evidence of insurance, before this note concludes with Section VII. II. THE HISTORY AND POLICY OF RULE 411 Included in the preliminary draft of the Federal Rules of Evidence proposed in 1969,7 Rule 411 codified the common law8 exclusion of evidence of the existence or non-existence of liability insurance when the proponent offers such evidence to show that a person was negligent
While driving is an insured activity that may be easiest to imagine, this note also explores how evidence of insurance could be relevant for defendants with other types of insurance, such as health insurance, or for defendants with an absence of insurance. 7 Preliminary Draft of Proposed Rules of Evidence for the United States District Courts and Magistrates, 46 F.R.D. 161, 242 at Rule 4-11 (1969). 8 Alan Calnan, The Insurance Exclusionary Rule Revisited: Are Reports of its Demise Exaggerated?, 52 Ohio St. L.J. 1177, 1177 (1991); see also e.g., Barsema v. Susong, 156 Ariz. 309, 312-13, 751 P.2d 969, 972-73 (Ariz. 1988) (reciting a history of state cases that contributed to the development of Rule 411).
Trehern. 270 (3d Cir. 1946) (rejecting a court’s responsibility to declare a mistrial after insurance had been mentioned and instead permitted the introduction of insurance to show witness bias).. supra note 8. Slough. 495 F. 351 F. Complete Auto Transit. McCoy v.. Wayne Broyles Engineering Corp.or that she otherwise did some wrong. 11 Courts began to back off the strict prohibition of the word “insurance” as they realized the word would sometimes voluntarily. 30 F. later. Borandi.M.2d 202 (5th Cir. have refused to exclude evidence of 9 See e. 1936) (holding that evidence that a company carried liability insurance was admissible to demonstrate agency).”14 A minority of courts. 1967). And while the rule as presently codified calls for strict exclusion of evidence of insurance on negligence issues. 589 P. 82 F. Heuss v. and therefore applies Rule 403 to determine whether evidence of insurance was proper before the jury). 1979) (where the court recognizes that the question of insurance can also be “proper and dignified” before a jury. the precedent began with even stricter restraints. See e.D. See e.g.2d 342 (6th Cir. as a ground for a new trial. the more general exceptions codified in Rule 411 slowly developed. 14 Id. 5 . Relevancy Unraveled. 446. Rev. 675. Phillips Petroleum Co. v.M. 39. 12 Calnan. v. Vigil.Supp. Inc. as critics have piled on an “avalanche of authoritative criticism”13 that questions the need for maintaining a rule based on an “archaic legal principle.C. moreover. as proponents maintain that the rule still serves some benevolent purpose. availing themselves a “great deal of discretion”15 with respect to the exclusionary rule. 12 The insistence with which courts have applied this rule. but yet unmarred is courts’ rejection of evidence of liability insurance offered on the issue of fault. 13 M. have to some degree echoed the critics. however.2d 265. where even the mere mention of the word “insurance”9 —a kind of bete noire—was “something to be avoided by witnesses and the court at the peril of withdrawal of a juror or. 5 U.”10 Eventually. unexpectedly or incidentally be introduced. Kan. 711 (1957).2d 478 (5th Cir. has not been without condemnation. 1974). Tex. 1965) (allowing plaintiff’s counsel to illicit testimony regarding the bias of the witness). at 713. courts began to grind down the rule’s exclusionary teeth as certain exceptions to the blanket exclusionary rule developed.2d 1037. Rockwell Standard Corp.. Ingalls Shipbuilding Corp. Universal Carloading & Distributing Co. 155 F.g. Coble v. L.11 The exclusions may have chipped away at the overarching exclusionary rule of old. 1939) (where the court ordered a new trial after the mere mention that the defendant carried insurance was imparted to the jury) 10 Corbett v.. These courts.. 40 (N. Eventually.g. 15 Mac Tyres. 375 F. 92 N. Inc. 1039 (N. v. 448. at 1178.2d 1207 (6th Cir.
M. “There can be no rational excuse [for admitting evidence of insurance on the issue of negligence].S. at 800. 155 F. Evid. 604 P.) citing JON R. denied. 685. 22 Charter v. 377. 375 F. as “evidence which is not relevant is not admissible. 6 . (1975) 25 In Brown v. 589 P. Opponents of insurance as evidence contend that evidence of the existence or non-existence of liability insurance has no business in the courtroom18 as it has no “relevancy”19 or even any “connection whatsoever”20 to the issue of liability. at 711. 24 23 Fed. 93 N. at 448. EVID.2d 585 (N. 20 Ingalls Shipbuilding.M. 21 FED. 411 advisory committee notes. 248 (8th Cir. an inference of non-fault from the lack of coverage—is “tenuous”21 at best with only “questionable probative value. Thygesen. 551 F. much more than outweighed by the probability that the real issues will be obscured.M. & Proc.2d at 204. 62 F. 23 Slough.”26 The belief is that “knowledge of [insurance’s] existence 16 Grammer v. EVID. The claim continues: an inference of fault drawn from the presence of insurance coverage—and. Kohlhaas Tank and Equipment Co.insurance because of reasons ranging from belief that the rule rests on “fictitious”16 beliefs about the effects of such evidence. 1933). 856 (1977). however. Judge Learned Hand claims.” FED. 1943). 434 U. 402. Prac. 1977). 143 P.2d 798 (2d Cir. R.. 17 Mac Tyres. except the flimsy one that a man is more likely to be careless if insured. Walter. The second underlying rationale for the exclusionary rule is as follows: the probative value from such a “flimsy”25 proposal—that an insured individual would immediately abandon all care upon obtaining insurance—is allegedly “much more than outweighed by the probability that the real issues will be obscured. 1979) citing Olguin v. 691.2d at 1039. 92 N. to a simple reliance on Rule 403 to balance the evidence’s effects. critics may be overlooking the possibility of a more subtle influence on insured individuals. similarly.M. 19 Corbett.2d 823.17 Courts and legislature rely. cert. That is at most the merest guess. App. THE NEW FEDERAL RULES OF EVIDENCE 38 2d ed.” Id.”22 By insisting that the relevance of insurance could only be derived from an irrational reveling in “self-destruction”23 and from courting “careless”24 conduct. supra note 13.2d 246. Chleborad. WALTZ. R. §5362 (1 st ed. 26 Id. 18 These opponents would contend that it has no business in the courtroom because of its irrelevance. 829 (N. on two fundamental reasons for the persistent exclusion of evidence of insurance.M.2d at 268. 47 N.
”27 Because of the “prejudicial and inflammatory effect”28 allegedly inherent in evidence of insurance. 31 Id. 15 Neb.g.would overthrow the requirement of fault as the foundation for negligence liability. Securities Arbitration and Insurance: When Worlds Collide. 18. Dec. 1981 WL 5867. L. 14310).2d 775. The Present Rule as to Disclosure of Insurance in Personal Injury Cases.”29 Much of this criticism. 329 (1936-7). 1965). 782 (3rd Cir. NO. But even those30 who acknowledge that jurors may already be aware of the prevalence of liability insurance and the high probability that parties are insured still fear that mentioning insurance would “invade”31 the jury’s determination of liability. 1965) Ogle v. at *3 (Ohio App. 62 F. 7 . Clint A. 1686 PLI/Corp. Van Schaik. C. Beghtol. 35 Kiernan v.2d 775. and also to stingy juries that might go easy on an 27 28 Kieman v. Bassett Furniture Industries. at *3 (Ohio App. WD-81-16. 6 Dist. WD-81-16.. Corrie. 329 (1936-7). The Present Rule as to Disclosure of Insurance in Personal Injury Cases. Inc. NO. 2008) (PLI Order No.”34 This fear extends to both generous juries that would award “extravagant verdicts”35 because a defendant has insurance. Van Schaik. is fallibly founded on the unrealistic belief that introducing insurance in the courtroom will blow the jury away by opening to them a brand new and previously unseen world. Bassett Furniture Industries. 439.2d at 800. 328. 15 Neb. Aug.”32 Exaggerating the possibility that insurance would cause jurors to lose focus of the real issues to instead decide verdicts on an “extraneous ground such as wealth”33 or insurance ultimately leads some writers to fear that “justice as administered by our courts [would be] impotent and might result finally in the entire destruction of our present judicial system..A. Bull. Inc. 1981). 347 F. the foundation for liability would accordingly shift away from considerations of duty and toward a knowledge that “recovery will be paid by an insurance company. Bull. 30 See e. making it even harder for jurors to base their decision “on the real issues. 1981). 34 Maxwell V. 29 Ogle v. 1981 WL 5867. 18. (Practicing Law Inst. 33 Maxwell V. 328. 6. 6 Dist.A. however. Dec. at 454 32 Brown. Beghtol. L. 781 (3rd Cir. 347 F. C.
581 A. its supporters validated their argument with empirical studies. that the defendant did have insurance. As later studies as those cited in Section VI of this note would reveal. See e.39 Of the study’s variables. Broeder. L.41 The researchers thus concluded that “juries tend to award less when they know that an individual defendant is not insured. 744 (1959). L. Bybel. 39 Dale W. ceteris peribis.insurance-less defendant. 744 (1959). Com. 399 Pa. 38 Dale W. the jury awarded the lowest amount of damages on average. Rev. however. 41 Id. 38 Neb. Rule 411 continues to exclude evidence of insurance. 8 . 38 Neb. 1990). 149. 42 Id. researchers recorded a mock trial based on an actual personal injury trial and played the recordings to experimental juries.2d 1380. 36 The fear that showing a defendant has no insurance would be prejudicial is similar to the fear that showing a defendant is impoverished would have the same effect.”42 By these two policy reasons—relevance and prejudice—has evidence of insurance been barricaded from introduction into the courtroom on the issue of negligence or wrongdoing. the earlier studies’ findings would not stand the test of time. The University of Chicago Jury Project. Broeder described this study in The University of Chicago Jury Project. on average. while the jurors that heard testimony of insurance and the subsequent “fuss” regarding such testimony awarded. 40 Id.g.38 for example.to mid-twentieth century and uncovered empirical evidence supporting the hypothesis of prejudice. or that the defendant had insurance.36 And so with the present judicial system at stake. … that where they know defendant is insured and a fuss is made over it the verdict will be higher than when no such fuss is made.Super. researchers changed what the jury heard with respect to the defendant’s liability insurance: the jury either heard testimony that the defendant had no insurance. v. Rev. and.. In a study performed at the University of Chicago. after which the jury heard defense counsel’s objection and the court’s instruction to disregard the insurance evidence. 37 Studies like the University of Chicago study were conducted in the early.40 The results indicated that if a jury heard that a defendant had no insurance. 1388 (Pa.Super. as perhaps widespread knowledge of the presence of insurance increased with time. At least earlier37 in the development of the rule. 164. the highest amount of damages.
2d 169 (2d Cir. 47 Joseph. lodging and food costs for the duration of this employee’s trip. 45 Hyman Joseph. the employee freely shifts her behavior to reflect the liberty of life on the company’s dime. Because the company is compensating the employee consumption.”47 In other 43 44 Brown. 313. Scholars pin moral hazard to a more specific definition. The Measurement of Moral Hazard. And if it does have the explanatory power this note contends it has. Judge Hand developed the economics-based landmark theory for negligence in U. v.S. III.. Lapping up the life of liberal spending. this otherwise thrifty traveler eats more and eats better. 46 Gary T. calling it generally a phenomenon that “lowers costs”45 or otherwise “releases an insured from cost constraints”46 so that the insured consequently changes her behavior by “increasing the usage of [insured] services. and finds her way into more luxurious lodging.”43 The question addressed in this section is how this theory could be anything more than just that—a mere guess about the relevance of insurance. Rev. 257. 159 F. 1947).2d at 800. The Ethics and the Economics of Tort Liability Insurance. supra note 45 at 257. that an individual would change their behavior because of the presence of insurance represented no more than only the “merest guess. Carroll Towing Co. 39 J. This is moral hazard. 9 . 257 (1972). she has temporarily moved beyond the constraints of her own wallet and adopted the more expansive budget of her employer. Unconstrained. Moral Hazard: What is it? Consider a typical penny-pinching person who leaves on a business trip during which the company agrees to pay travel. 75 Cornell L. Risk & Ins. why would an economics-savvy44 Judge Hand have failed even to mention an economically-based theory about the effects of insurance? A. 62 F. Schwartz.Much of whether moral hazard considerations are able to conceptually hurdle these barricades turns on what moral hazard even means. MORAL HAZARD: MORE THAN A MERE GUESS To Judge Hand. 338 (1990).
10 . Rev.” Jon D. 535 (1968). 531.”48 In the example above. 58 Am. but still rare cases in which conscious choice is the sole cause of loss.50 But what critics and insurers seem to misunderstand alike is that moral hazard is not necessarily a conscious choice to abandon all care. a company paying for its employee’s business-related expenses is not a typical “insured service. such as arson or suicide.”51 It is simply rational for any utilitymaximizing-but-cost-constrained individual to take advantage of the removal of costs that open opportunities to increase consumption and thus utility. Hanson & Kyle D. the insured is spending money that would not otherwise be spent. DICKERSON. by shifting behavior to more costly choices.” but it is not too hard to imagine a similar situation where insurance results in similar shifts of behavior. Pauly. Econ.words. The First-Party Insurance Externality: An Economic Justification for Enterprise Liability. The Economics of Moral Hazard: Comment. 531. HEALTH INSURANCE 463. 76 Cornell L. citing O. other scholars have also identified moral hazard as “the intangible loss-producing propensities of the individual assured.”49 True. Insurance companies—justifiably disfavoring these propensities because they are those to whom the costs of the “produced losses” are shifted—have similarly confused this concept with an intentional change of behavior that amounts to “malingering” or even “fraud. 49 Mark V. Rev. 51 Pauly. Consequently. The incentive to change behavior stems from the removal of cost constraints. what many have found hard to believe is that an insured individual has the propensity to produce losses without making conscious and calculated choices to recklessly abandon all care. Rev. The Economics of Moral Hazard: Comment. 1963 (emphasis added). 535 (1968). Logue. Econ. 138. ed. FN45 (1990). that insureds sometimes engage in because they are insured. 50 “Moral hazard also includes more deliberate acts. rev. but rather is a response to incentives that merely represents “rational economic behavior. there are those obvious. Cost constraints can keep people honest—by having full responsibility and accountability in bearing 48 Mark V.D. The hypothetical driver in the introduction section that avoided uncovered water damage to smash instead through a house might be an illustration. Pauly. In contrast. supra note 49 at 535. 129. 58 Am.
Wang et. In this assertion. who would. When that driver purchases insurance. al..52 The diminished incentive to exert care exists especially because exerting preventive care “is costly to the individual . accidents). customs. He bases this argument. as a result. habits.”53 Such a rational response could reveal itself not just in “careful and accurate hedonic calculations” to drive up an insurer’s costs. Jennifer L.56 title insurance57 and 52 53 Id.55 but also in areas such as health insurance. J. theft or other damage are incidents that impose costs on an uninsured motorist. for example. individuals have incentives to ensure their actions will not give rise to excessively costly consequences. page X. Kuniyoshi 11 .com/p/articles/mi_hb6645/is_3_75/ai_n31345110. on an assumption that there is no moral hazard in insurance.g. where he argues that because driving is automatic. while adding little to his welfare when losses due to carelessness or bad luck are covered by the insurance contract. . where to park. impulses.. that “driving is automatic” he also assumes that there is no decision-making in driving. supra note 2 at 100. etc. at least hypothetically exercise greater caution when choosing how to drive. fashions and hysteria.”54 which indicates that moral hazard can be buried in the subconscious—not the calculated and conscious—realm. Risk & Ins. 54 Neuroeconomics. however. the costs of those incidents—outside deductibles and premiums—are shifted to the insurer.g. But with the constraints’ removal. Economists have discussed possible moral hazard effects asserting influence in the frequently-observed automobile insurance market.the total costs of their actions. and the insured therefore has less incentive to exert the care it takes to avoid those cost-producing incidents (e. but also in a “complex of reflex actions. if this incentive is imbedded in each individual’s “complex of reflex actions” and “impulses” that the autonomy of driving already included moral hazard’s effects? 55 See e. accidents.. an individual’s incentives to avoid those costs also diminish. however. but see this. (2008). Moral hazard as a subconscious reaction could possibly thus present itself much more universally and in many more ways than legal scholars seem to have considered. Campbell. . drivers would not respond to the presence of insurance. http://findarticles. In the case of driving. break-ins. Isn’t it possible. An Empirical Analysis of the Effects of Increasing Deductibles on Moral Hazard.
. 60 John Charles Bradbury & Douglas Drinen. 62 Campbell. 2004-09). 58 See e. Empirical evidence. J.. 107-109 (MIT Press 1997). economists find individuals reacting to these shifting costs in many other circumstances where individuals are otherwise shielded from the costs of their actions. (July 2004).sewanee.edu/Plunk/dhpaper. Inspired by the importance to insurance companies and policy-makers alike. THE ECONOMICS OF CONTRACTS: A PRIMER.pdf. 57 See e. supra note 2 at 101.61 Another economist suggests that moral hazard effects can be as subtle and commonplace as the choice to put a house key under the front door mat. actually finding empirical proof is a wholly separate yet crucially important consideration.even crop insurance58 markets. Coble et al. 61 Id. supra note 45. available at http://ddrinen. Testing for Adverse Selection and Moral Hazard in Consumer Loan Markets. Wendy Marianna Edelberg. 73 J. An Expected-Indemnity Approach to the Measurement of Moral Hazard in Crop Insurance. Agric. Econ.59 One such principal-agent relationship60 susceptible to moral hazard is found in the world of sports.62 B.g. And moral hazard does not just stop with insurance markets: because moral hazard is a phenomenon that results when general “cost restraints” are shifted away from an individual. Bradbury and Drinen explain that pitchers in the major league baseball’s American League face greater incentives to hit batters because the costs of a retaliation possibility are shifted to a designated hitter—the individual that replaces a pitcher in the batting lineup.g. Empirical Evidence of Moral Hazard Identifying hypothetical circumstances in which moral hazard operates is one thing. or the decision to burn leaves in a driveway adjacent to the house. where one economist hypothesized that even major league baseball pitchers submit to a moral hazard influence.. 216 (1997).federalreserve. at 1. 59 BERNARD SALANIE. Testing for Asymmetric Information in the Automobile Insurance Market Under Rate Regulation.. for example. 335 (2006). at 2 FN1. Identifying Moral Hazard: A Natural Experiment in Major League Baseball. 12 .pdf. (FEDS Working Paper No. Joseph. 56 See e. Economists hypothesize that agents shielded from the supervisory glance of a principal may be subject to moral hazard. Keith H. confirmed that American League pitchers actually do respond to Saito.g. economists have sought to confirm the presence and scope of moral hazard with empirical analyses. 79 Am. available at http://www.gov/pubs/feds/2004/200409/200409pap. Risk & Ins.
adverse selection theory posits that—in the case of healthcare. 65 Scholars have notably aimed studies at disentangling moral hazard from adverse selection effects. One study skeptically concluded that moral hazard was present only to a “limited extent. al. While moral hazard proposes that an individual would consume more because of insurance. citing RICHARD A. POSNER. supra note 60 at 1. 87 Rev.. but the effects would be at odds with each other. Research. & Stat.org/papers/w12445. Econ. 13 . supra note 50 at 192. see Wang et. Asymmetric Information and Learning: Evidence from the Automobile Insurance Market. supra note 55.63 Empirical studies of the healthcare industry.65 The automobile insurance industry. 66 Moral hazard effects in the automobile insurance market would be most significant to civil litigation because “automobile accident cases constitute the most frequent type of negligence case.nber.. supra note 45 at 257. Adverse Selection and Health Expenditures: A Semiparametric Analysis (Nat’l Bureau of Econ. ECONOMIC ANALYSIS OF LAW 186-7 (3d ed. 198 (2005). 72 Wang et.”7071 Yet another study observed how drivers responded to deductibles that would increase with the occurrence of accidents. Separating the moral hazard effect from that of adverse selection further strengthens the case for the presence of moral hazard.” Hanson & Logue. moreover. See Patrick Bajari et al. Working Paper No. supra note 55. 69 Statistical significance indicates that a variable has some appreciable explanatory power in the dependent variable. 67 For a brief introduction to the myriad of empirical studies on the automobile insurance market. 197. 1986). Both adverse selection and moral hazard would theoretically influence an insured individual’s consumption choices. for example—it is the inherently unhealthy consumers that purchase more insurance and thus would already have the tendency to consume more.72 Comparing drivers with policies that increased deductibles after a claim—Type A drivers—with those who enjoyed the same deductible independent of the claims they made—Type C drivers—the study found that Type A 63 64 Bradbury & Drinen. have long confirmed that patients with insurance consumed more health services64 because of a moral hazard effect.decreased incentives associated with moral hazard to more frequently bean batters.67 Outcomes of the automobile insurance market studies have varied. 2006) available at http://www. 70 Using regression analysis.pdf. with the most significant market with regards to litigation. Joseph.66 has been the focus of many empirical studies.”68 while another study. 12445. al. supra note 55 at 335. conservatively concluded that a hypothesis of moral hazard in the automobile insurance market “cannot be rejected. 71 Alma Cohen. Moral Hazard. it is said a hypothesis cannot be rejected when analysis reveals a significant enough of a correlation between two variables such that the hypothesis could be true according to the regression model. 68 Saito. instead of consuming more simply because of insurance.. finding a significant69 correlation between insurance coverage and risk-taking.
& Proc. Maine Evidence. Instead. writers have taken a serious look at this phenomenon when considering insurance evidence. and thus “[provided] a stronger incentive for drivers to drive more carefully. Prac. §5362 (1 st ed. 167. Id. They concluded that increasing deductibles reduced the moral hazard effect. in other words. 73 From the changed claim-making behavior. 1976. driving negligently was becoming more and more expensive as the increased deductibles exposed them to a greater portion of the costs of their driving behavior. one may ask why scholars considering insurance as evidence have so hastily dismissed the theory as being “absurd.77 But if moral hazard theory asserts a position directly at odds with the underlying rationales of Rule 411.) citing Field & Murray. Perhaps one reason that can explain this 73 74 Id. critics of Rule 411 have focused more of their attention on explaining away any alleged prejudicial effect that would result from the introduction of insurance evidence.drivers who had filed a claim were less likely to file another claim than were those of Type C. and thus reinvented incentives for these drivers to drive more carefully to avoid the costs of accidents. consideration of moral hazard seems to be completely void from the insurance evidence literature.75 C. p. see Relevancy and its Limits in the Proposed Federal Rules of Evidence.” 74 For Type A drivers. 75 Id.”76 The fact is that few. why would critics of the rule not add this theory as yet another reason for which Rule 411 did not make sense? Indeed. Rev. 16 Wayne L. Why Moral Hazard Has Not Been Considered With documented evidence of moral hazard and the hypothesis that an insured individual may even subconsciously react to decreased incentives to exercise care. if any. 77 For a summary of main arguments lodged against Rule 411. Evid. 193 (1969). the authors inferred the presence of an underlying cause rooted in changes of driving behavior. 14 . 76 23 Fed.86.
531 (1968). Econ. UNCERTAINTY AND PROFIT. it was not until the 1960’s when Nobel-prize winning Kenneth Arrow. 79 Pierre-Andre Chiappori and Bernard Salanie provide several explanations for the empirical lag behind theory development. Rev. By the time moral hazard was making its way into prominence in economics literature. 80 Jennifer Wang et al.79 Now. briefly discuss the studies that have looked for asymmetric information and the varied results of those studies. 249. it would have received more attention as the legal rules developed. While the development and exploration of moral hazard can enlighten the view of the relevance of insurance evidence on the one hand. still lagging behind is unanimity regarding the extent of moral hazard effects. al. while headlining economists did not start developing moral hazard until the 1960’s. 53 Am. Testing for Asymmetric Information in Insurance Markets.80 This may explain why such a then-cutting-edge theory would not have been able to make its way into the insurance evidence literature. Indeed. The Economics of Moral Hazard: Further Comment. Rev.. 251 (1921). 58 Am. Econ. there was already well-settled legal precedent that disfavored evidence of insurance. Pauly. See FRANK H. supra note 55.. See Pierre-Andre Chiappori & Bernard Salanie.. Kenneth J. it is at least clear that the theory has now received the attention and scrutiny that can allow it to form a credible basis for arguing that the exclusionary rule should be reconsidered. the lack of adequate data sets. 56. and why courts would not likely have given much credence to a little-explored and even less-proven hypothesis to overthrow time-honored precedent.dearth stems from the timing of moral hazard’s development. But even after moral hazard was theoretically explored. However. Regardless of the reason for which moral hazard has yet to claim stake in the discussion on the admissibility of insurance. Econ. Rev. Kenneth J. other social changes since the crafting of the rule—such as the growing prevalence of liability insurance—may change 78 Moral hazard did have its beginnings earlier in the twentieth century. validation from empirical studies still lagged behind. RISK.g. courts have documented their disdain for insurance evidence since the early 1900’s.78 Perhaps if moral hazard had experienced the development it currently has. 108 J. 537 (1968). Pol. including. 56-57 (2000). Arrow. Mark V. See e. Econ. among other influential economists. 15 . being at least introduced as early as 1921. KNIGHT. The Economics of Moral Hazard: Comment. 58 Am. for example. after economists have performed many empirical analyses of moral hazard. began to explore modern applications and implications of moral hazard. Uncertainty and the Welfare Economics of Medical Care. See Wang et. 941 (1963). Arrow.
reconsideration of Rule 411 would reveal that the foundations of the prohibition of insurance evidence—irrelevance and prejudice— do not merit the same credence as they did when the rule was crafted. moral hazard should not have to have some substantial bearing on materials issues before a jury may consider it. may admittedly be slight. the effects of moral hazard. IV. 16 . Even if some tendency was slight.81 And even though this theory relies heavily on what some consider unsettled empirical evidence. The Federal Rules of Evidence make it clear that evidence having “any tendency” to make the existence of a material fact more or less probable is relevant. Having provided a background for both the exclusionary rule and the theory and evidence of moral hazard. Moral Hazard Passes Relevance’s Low Hurdle It is not expected. But according to the rules of evidence. Thus. R. because it thus becomes less likely that any prejudicial effect will outweigh the probative value. THE RELEVANCE OF MORAL HAZARD A. Especially considering its subtle effects. considered in detail infra. the fact that there have been credible. nor is it reasonable to expect that moral hazard could be a gamechanging consideration for any jury debating negligence or wrongdoing. the discussion will now turn to a more detailed treatment of how moral hazard would affect Rule 411’s foundational policies of relevance and prejudice. EVID. These rationales have long since been far from well-settled foundations for the exclusionary rule anyway. This is so especially if moral hazard provides additional probative value to evidence of insurance. moral hazard is not likely to make up a substantial part of an individual’s behavior equation. peer-reviewed empirical studies that document the existence of moral hazard in automobile insurance and other markets should at least be 81 FED. 401.prejudicial implications on the other hand. and hesitance among the courts is therefore understandable. it would be such a “tendency” under this rule nonetheless. so moral hazard may be able to settle the score. Therefore.
” See e. it is not within the purpose of the rules of admissibility to shield the jury from evidence that the judge.Crim.Ct. March 22. 84 Some courts have admitted evidence though.App. Com. should be admissible because it is "the privilege of the jury to believe the unbelieveable if the jury so wishes.” Kehm v. finds hard to believe. and avoid wasting the time it would take them to consider evidence they would unlikely be “hoodwinked into believing” anyway. 627 (8th Cir. 17 . it would effectually eliminate the need of a jury altogether. 2007).enough to dismiss assertions that moral hazard is merely a “slight danger”82 that leads to only a tenuous83 connection between insurance and behavior. See also U. 85 “It is … the general policy of the Federal Rules to favor the admission of relevant evidence. 87 The Supreme Court of Kentucky has held that evidence.85 In seeming disregard for the liberally admissive policy.. “it is the privilege of the jury to believe the unbelievable if the jury so wishes. supra note 13 at 710. Procter & Gamble Mfg. if courts were to make findings on the basis of evidence’s believability. 1983) (emphasis added)."Mishler v.S.84 This is true especially because the Federal Rules of Evidence not only set the hurdle for relevance at a very low level. regardless of the fact that the court found it preposterous. it may have been “somewhat tenuous. absent an extremely strong showing that admission will lead to unfair prejudice. But even if the best that moral hazard could muster was a mere “tenuous” relationship between insurance and liability.M. Shaw. but also because the rules tend to favor admission. disbelievers would quickly dismiss the possibility that insurance could be relevant. Co. no matter how absurd the evidence may seem to the court. 1977). 556 S.S. R. A proper approach would then be to leave the issue of believability to the jury: 82 83 Slough. in the courts’ opinions. Armed Forces. v. supra note 13 at 710. 65 M. Harrow.86 The fallible argument that what some may consider preposterous evidence has no place being heard in a courtroom should not succeed because.W.” 87 After all. FED. this in and of itself would not be enough to defeat admissibility in court.2d 613.g. in her opinion. 411.S. 190 (U. They would prefer instead to invade the province of what they must presume is an incompetent factfinder. v. 680 (Ky. 86 Slough.. NMCCA 200600728. EVID. U.. 2007).. 724 F.2d 676. 2007 WL 1701709 at *6 (N.J. advisory committee notes. Indeed.
I carry insurance for that. FN4 (Colo. Brathwaite. 93 In Herschensohn v. FN45. but whether what they heard was believable: “The jury need not believe testimony found to be admissible. 18 . 638 P. EVID. See also Harrow. supra note 13 at 711. Dismissing such selfdestruction as behavior that “hardly seems rational. at 202. “You ought to be a little more careful about [driving].” the defendant quipped. 2007 WL 1701709.91 this evidence would likely be excluded under Rule 411. 1981). 90 The jury’s province is deciding the case is not to determine whether what they heard was admissible. 98 (1977). You may have an accident.” Shaw. 401. An insured homeowner who intentionally torches her home. for evidence with some element of untrustworthiness is customary grist for the jury mill. 80 N. 432 U. 91 FED. 89 The Supreme Court has given great deference to juries as factfinders: “We are content to rely upon the good sense and judgment of American juries.. “Don’t worry.H.92 or an insured driver who erroneously believes that he can drive more carelessly because he “[carries] insurance for that”93 provide clear examples of individuals who consciously surrender to moral hazard and embrace the opportunity to increase their own utility at the expense of insurance companies. it was insurance’s influence that dictated this driver’s decision to drive into the homeowner’s property. There are yet other blatantly obvious instances in which insurance would be an important consideration in determining liability but would nevertheless be ruled inadmissible. not to its admissibility or relevance. such as arson or suicide. R.whether the factfinder believes certain evidence—even “tenuous”88 evidence—to be true does not bear on the admissibility of that evidence. Juries are not so susceptible that they cannot measure intelligently the weight of identification testimony that has some questionable feature. 65 M. that insureds sometimes engage in because they are insured. consider again the driver mentioned at the introduction of this discussion.S. 92 “Moral hazard also includes more deliberate acts. 557. 705 (N. Thatcher. According to this hypothetical situation.” 94 Slough.” Manson v. responding to the statement. Weisman.” People v.” 94 writers have failed to grapple with the 88 Even tenuous evidence should “more properly go to the weight the [factfinder] gave a particular piece of evidence. Applying Moral Hazard With the standards of relevance in mind.H.90 B.J. but rather bears on the weight89 the factfinder gives it in decision-making. Though admittedly having some tendency to make the existence of that driver’s wrongdoing—the destruction of a home—more probable. You are liable to kill somebody.” Hanson & Logue. 1923). at *6.2d 760. 119 A. supra note 50 at 138.
“as a general matter. . in order for moral hazard to truly be relevant. and is guarded against by other legal and insurance policy safeguards95 in order to discourage these types of actions. supra note 48 at 535. But the individuals in these outstanding cases hardly represent a significant portion of insured litigants—so what about the typical insured individual in less clear-cut circumstances? And empirical evidence has shown how a typical insured individual would be prone to some moral hazard effect.” LEONARD E. 19 . and whether that gives rise to liability as a matter of law so as to determine whether from the existence of insurance a fact-finder could justifiably infer negligence. DICKERSON. these extreme examples may add but little fuel to the fire if moral hazard is to have any chance at a reconsideration of Rule 411. but did not give rise to liability. But whether those losses are of the kind that give rise to a legal cause of action or liability—i. .D. moral hazard is defined as a loss-producing phenomenon..97 Therefore. MURPHY. 401. EVID. insurance policies cover only fortuitous losses. As mentioned.e. 1963. rev.. R.consequences of such illustrations—instances that seem to glare in the face of Rule 411’s dismissal of any insurance as irrelevant. if the moral hazard of an insured individual produced losses. Admittedly so. negligence—would be rendered any more or less probable.. there are separate causes of action for intentional acts as well as criminal prosecution that would deter insureds from intentionally cashing in on insurance policies. PROPERTY INSURANCE LITIGATOR’S HANDBOOK 332 (2007). ET AL. this type of behavior may indeed be rare. 97 FED. After all. citing O. introduction of the presence of insurance would still be irrelevant because no “material fact”—i.96 It follows that with insurance comes a greater probability for loss. Therefore. whether those losses stem from negligence or other wrongdoing—does not follow from the definition of moral hazard alone. supra. it must be uncovered why moral hazard produces losses. 96 Pauly. but can that lead to liability? The following will answer these questions. ed. As far as insurance safeguards go. HEALTH INSURANCE 463. 95 As far as legal safeguards. It is a basic principle that insurance policies do not cover intentional acts. however.e.
Why Moral Hazard Produces Loss The question arises: “Why?” As already discussed here and by numerous scholars.g. 20 . supra note 2.. Empirical evidence supports this assertion. is a cost to an individual—individual utility diminishes when the expenditure of extra resources must be diverted to exercising care (especially for society’s sake) when that individual would rather and more efficiently spend those resources for the production of other goods that might more directly contribute to his own benefit or utility. more beneficial way like working to make money. Therefore. it should thus be easy to understand why insurance may result in a change of behavior. moral hazard in essence resembles having one’s cake and eating it too: insurance 98 99 Campbell. at 100. while reducing the probability of various kinds of losses.98 As a simple example. 100 Id. If this is true. If taking care reduces the probability of loss—the costs of which would otherwise have to be borne by the individual who caused the loss—but insurance shifts the costs of that loss away from the actor. Preventive care. Id.. it should follow that shifting the costs of the insured service (e.C. Wang et al. the extra time that one spends driving because she is unable to speed to more quickly reach her destination could be used by that driver in another. In light of the costs of taking precaution. then insurance presents a diminished “incentive to invest in preventive care”99—the responsibility for reparations would no longer be keeping the actor honest. supra note 55. an insured is less likely to engage in “costly” caretaking. absent unique or rare circumstances. As a result. Then what is the changed behavior that gives rise to the produced losses? Where does the propensity to produce losses originate? The answer is found in the effects of moral hazard. a driver is not likely to suddenly become adopt reckless tendencies because of insurance. found that drivers do actually respond to incentives—at least in the form of increased premiums and deductibles—to drive more carefully.100 which translates into more risky behavior the costs of which the insured does not have to bear. Jennifer Wang et al. accidents) back onto the insured would re-increase their incentive to take care.
have an incentive to order more expensively than if paying for his own meal. each party ends up bearing the cost of the collective over-ordering anyway. After all.102 And when multiple insured individuals follow a similar course of action—failing to invest in preventive care because of reduced directly-borne cost— everyone’s premium increases. the increased costs that the pool of policy-holders collectively bears are coming from somewhere. supra note 2. but not completely eliminate it). The Kinds of Losses Created and Whether Those Losses Give Rise to Liability But what kinds of “losses” does moral hazard create. See Hanson & Logue. but even these costs are not prohibitive of moral hazard. at 100. Jon D. supra note 50 at 138. when dining out with others who mutually agree. in advance. moral hazard creates a general loss of societal welfare when the money with which an insurer pays for the costs of a carelessness-created accident ultimately comes from the pool of insured individuals. at 100-01.. to split the check. 102 Campbell. nominal increase in the amount of insurance premium she pays without being laughed out of the courtroom or sanctioned. FN44. however. the loss that moral hazard purportedly produces comes from the reduction of activity that itself would otherwise reduce the probability of loss. it would follow that it would result in accidents or other costs that would not otherwise occur. The individualized losses inherent in these increased 101 Deductibles and premiums are costs that an insured would still have to pay for the benefit of having insurance. Hanson and Kyle D. 21 . 103 Id. However. Wang et al. is essentially nothing more than a composite loss comprised of the losses associated with increased accidents or injuries. In short. then. and should it give rise to liability? In an aggregate sense. “reflecting the substantial reduction in the community’s wealth.”103 But asserting liability against one who has caused a loss of society’s welfare by consuming more insurance hardly makes sense—a plaintiff can hardly claim that the defendant’s actions caused an indeterminate. if each party responds positively to this incentive. This type of aggregate loss. D.affords an opportunity to get the utility from the risk (or decrease in care) without paying the entire101 costs for it. Logue cite a simple example of how the costs of moral hazard can be spread across multiple parties by explaining that some people. If an insured neglects to take preventive steps. supra note 55 (explaining that several other studies have found that deductibles may help control moral hazard..
POSNER.105 Suppose that an accident and injury to a certain individual can be avoided by the actions of another driver. resulting in a robbery. the final loss would be borne by the insureds because it is they who must pay their own increased premiums and deductibles to compensate either their own loss or that of a third-party’s. excessive speeds or a tendency to run red lights that causes accidents with other vehicles. This could be in the form of the failure to preventively secure one’s insured property. This is because the insureds themselves actually bear the final losses. 105 22 . an individual has a duty to invest in precaution when the burden of doing so is less than the expected cost of the accident. would a jury not be justified in inferring that the fact of negligence or wrongdoing is more probable than without such an incentive? The connection between the change of circumstances because of insurance and the liability that could be attached to corresponding incentives can be made more apparent by considering Judge Learned Hand’s theory of negligence. ECONOMIC ANALYSIS OF LAW 167 (Aspen Publishers 2003). if D. for example. But these victims arguably do not actually bear these losses to the extent that these injuries are fully compensated through insurance or litigation. if an insured has an insurance-rooted incentive to increase their own utility by decreasing the amount of care they exercise. B = the burden of caution. B < P x L. Moreover. In Judge Hand’s equation of negligence. The fact that insureds—instead of the victims—are paying for the losses caused by their own rational. Bystanders may suffer a loss as the victim where an insured’s diminished incentive to exercise care translates into. were 104 RICHARD A. but still reprehensible responses to incentives should not overshadow the fact that injuries are occurring with increased frequency—certainly something that could give rise to liability. P = the probability of the loss and L = the magnitude of the loss. for example. but ultimately. D.104 expressed by: B < P x L.accidents or injuries are possibly borne by either bystanders or the insured herself. According to Judge Hand’s theory.
108 D will expend the $8 investment in precaution to avoid the legal damages of $10. legal error. It thus appears that the losses brought about by moral hazard not only originate in the diminished incentive to take care. for an individual savings of $2. A 106 The numbers and figures are for illustration purposes only. 107 Id. L. and accordingly chooses not to invest the now-more-expensive $8 precaution. 109 Posner. without legal liability. though it still requires an $8 investment. or an expected judgment cost of $10. for an expected cost (P x L) of $10. and the costs of the accident. “liability depends on whether B is less than L multiplied by P. courts assess reasonableness based on the total costs of the accident—not on D’s internalized costs—and. B < P x L. Posner. supra note 103 at 167-68. 110 For simplicity’s sake. If P remains .” Carroll Towing. supra note 103 at 167. 159 F. Although efficiency would require the investment of $8 to avoid spending $10. D will not do so. so D’s expected cost of the accident is now a meager $0. is . P. mental and other miscellaneous costs that may be associated with an automobile accident.000. D now considers that she must only pay the cost of the deductible at $500 in the case of an accident.000—D only considers the cost that she herself must bear. Further assume that driving the speed limit to avoid the accident requires an investment of $8.106 Assume the probability of the accident’s occurrence. by definition of the economic theory of negligence. While the costs of the accident remain the same—$10.110 In deciding liability.001. would be $10.2d at 171.109 D is thus apparently better off by investing in precaution.50.107 But because of the legal duty imposed when.000.to drive more slowly. however. 23 . and are adapted from an example Judge Posner uses in his textbook. but this incentive may also ultimately give rise to liability. 108 According to Judge Hand. as in this case. Would D shift behavior if she was subject to a moral hazard effect? Suppose now that D carries an insurance policy that insures losses of up to $50. this illustration ignores legal expenses.001. D has breached its duty of care and would be liable for negligence.000—clearly exceeding the liability he would otherwise face—with the payment of a $500 deductible.
and courts will consequently 111 FED. 24 . therefore. More importantly. courts and scholars blinded themselves with a focus on the wealth and payment implications of the introduction of insurance evidence. an indemnity agreement. may not be readily apparent to anyone who lacks understanding of moral hazard and its implications. would indeed be justified in inferring a higher—albeit slight—probability of negligence from the existence of insurance. The role of moral hazard is then to draw out insured individuals’ incentives as the relevant part of insurance and thereby push aside the implied money issues that. R. at its core. Indeed. Without considering moral hazard. therefore. However. it shifts financial responsibility for some cost from the indemnified individual to the one who indemnifies.jury. such an inference went relatively unnoticed through the history of considering Rule 411. and have consequently failed to notice the part of insurance that actually has a relevant bearing on the issue of liability: the underlying incentives. they would be able to at least see the relevant. So if courts were to consider insurance within the moral hazard context. courts have not excluded from courtroom consideration. incentives part of evidence of insurance. Consider.111 E. though. incentive-creating mechanisms that. may not have that much bearing anyway. for example. perhaps because of a lack of wealth implications. Indemnity agreements operate similar to insurance contracts because. they may also see how comparable this part of insurance is to the same parts of other cost-shifting. 401. there is no rule explicitly prohibiting the introduction of evidence of indemnity agreements. Incentives as Relevant Evidence in Cases Other Than Those Involving Insurance Drawing the inference of negligence from the existence of insurance. while possible. and would therefore be relevant on its face. EVID. as will be explored in Section VI.
115 The Haole court noted that a state’s indemnity agreement requiring permittees to indemnify the state for losses could actually diminish general safety because the state would have less incentive to avoid negligence. 1985) (introducing evidence of an indemnity agreement to show a relationship among parties). Rev. an indemnity agreement may create the risk for moral hazard. insurance creates for insureds. 351 F. Inc. a driver. A Law and Economics Look at Contracts Against Public Policy. indemnified individuals or 25 . Alaska Airlines. State. Ltd.. Brocklesby v. for example.3d at 391.g..3d 377 (Haw.2d 253 (9th Cir. Are the insurance-created incentives too much unlike117 those created by an indemnity agreement that courts refuse to see 112 See e. for example. Indeed. however. Korean Air Lines Co. Northwest Airlines.2d 315 (Ak. this discussion does concede some notable contextual differences. 119 Harv. 1989). is one among several other courts114 that has considered and based decisions at least partially on the incentives associated with indemnity agreements. State v. By responding an incentive to reduce care-taking. 114 See e. because of moral hazard.113 With no exclusionary rule in its way. Note. 113 See e.. freed from liability for certain actions. Despite the harmless consideration of such evidence. L. whereas an indemnified organization may not face the same deterrent effects from the possibility of endangerment. 140 P. 1445. 767 F.. 111 Hawai’I 144..g.112 Also similar to insurance. 776 P. at 158. U. courts openly considering the incentive implications of an indemnity agreement—which is what this note proposes for insurance—is a situation that is not so far-fetched.g. 1965). indemnified parties have incentives to be more aggressive in certain actions.2d 1288 (9th Cir.S. for example. 2006) 116 Id. Haole v.allow such for a variety of purposes. evidence of an indemnity agreement offered to show such an incentive has already overcome one of the biggest hurdles of admission. may subject themselves to a greater risk of personal harm or death. 115 Haole v. v.. 1463 (2006). Inc. the case nevertheless illustrates a court’s harmless consideration of the same incentives that. the state’s inactions do not endanger the state in the same way that an insured’s responses to her incentives would endanger the insured. State.116 While the ultimate issue of liability in Haole may not have turned on the incentives the indemnity agreement created for the state. While this may be true. and. In reference to a state’s indemnity agreement. the current controlling evidentiary rule would likely forbid any court from so venturing. 117 While the incentives underlying an indemnity agreement and an insurance contract may be similar. 140 P..
Montell N. If this has had any influence on the disparate treatment. 622 N. 1998). 2001).N. courts have at least yet to address such a concern. and in the presence of multiple employees. 28 F. Esensten. it is possible that the stigma remains. 118 Northwest Airlines. 1. like...123 Courts have perhaps treated incentives coming from insurance differently because insurance is also unique in its relationship to money and a party’s ability to organizations. See e. if the defendant-employer in a hypothetical wrongful termination suit offered evidence of the plaintiffemployee’s incentive to “under-invest time. the court held that evidence of a company’s licensing practices was relevant to show that company’s incentive to engage in the allegedly unlawful conduct. supra note 65. for example. 51 Ariz. Where would be the harm.2d 130.g. courts are consequently failing to consider the existence of a “plausible link” 122 between insurance and the type of incentives that other courts have not only considered but have also found to be relevant.W. Rule 411 yet maintains its suppressive effect over evidence of insurance. 120 According to contract theory. the risk of tarnishing one’s name after consistently being associated with accidents and injuries. it is unlikely that this difference is the cause of courts’ failures to look at insurance in the same way as they have indemnity agreements. 121 Though courts as Corbett.V. Regardless.2d at 257. especially because they have failed to consider any incentives associated with insurance in the first place.Y. Rev..2d at 265 have considered insurance evidence to be a “bête noire” of the past.g. 375 F. 132 (Minn. 351 F.App.how insurance could likewise “eliminate incentive” to avoid negligence and similarly result in “relaxed vigilance”?118 Considering incentives in situations other than indemnity agreements can also provide harmless perspective into motives and behavior. 122 The moral hazard effect as demonstrated in this discussion could provide the plausible link between the incentive and the result for which courts have looked in order to admit evidence of the incentive. for example. Perhaps the old stigma attached to the word “insurance” thus still remains. The court also held that the probative value of such evidence outweighed any prejudicial effect. 12 (2009). Gordon Smith & Brayden G. the principal has no way of identifying the culprit.121 Possibly hung up on such an ancient rule.D. Bajari et al. 119 D.. 26 . Id. and such evidence remains a type of “bête noire” after all. if responding to incentives to relax vigilance.Supp. Shea v. still face risks of harm that drivers may not face. See e. King..2d 833 (S. at 843. L. energy or assets”119 into his job that existed because the employee was shielded from the employer’s direct supervision?120 So even though evidence of the same incentives that insurance creates for insureds may very well be admissible under a different guise. agents in a principal-agent relationship are also susceptible to moral hazard because the agent’s behavior is not directly observable by the principal. 123 In Union Carbide v. Contracts as Organizations.
and insurance’s similarity to evidence of incentives that courts have long been admitting. Unlike evidence of a principal-agent relationship or an indemnity agreement. the long-asserted argument that evidence of insurance is irrelevant is not wellfounded simply because insurance—as a result of moral hazard—gives rise to losses which may give rise to liability. And although this may be a viable reason why insurance-created incentives would be treated differently. In sum. however.. 401 27 . the alleged prejudicial effect from the introduction of insurance evidence may. CONSIDERING THE PROBATIVE VALUE OF THE MORAL HAZARD INFERENCE While evidence of insurance and the incentives arising from the associated moral hazard could assist a factfinder in its determination of a material fact (e.124 exactly how 124 FED. the introduction of evidence of insurance allegedly carries with it a possible prejudicial effect because of the simultaneous introduction of deeper pockets. this discussion has demonstrated a strong case for reconsidering at least the relevance of insurance on the issue of negligence or wrongdoing. But before this discussion turns to considerations of the alleged prejudicial effect. as this discussion will unravel in Section VI.pay. negligence). V. this note first discusses competing inferences that may determine the likelihood that any prejudicial effect outweighs the probative value of insurance. Evidence of insurance thus has an arguably greater probative value than what has previously been considered. The Learned Hand theory of negligence confirms that an insured individual has a diminished incentive to exercise care and is therefore more likely to make choices that are considered in breach of a duty of care. whether the prejudicial effect of insurance—if there even is any—outweighs this increased probative value should also be reconsidered. Given the low standard of admissibility for relevant evidence. EVID. too.g. As a result. R. be a stale argument.
In fact. greater efficiency and an increase in social wealth. an uninsured defendant could likewise introduce evidence of the absence of insurance to demonstrate the incentive to take greater care that she would have had whenever the lawsuit-causing incident occurred. 237. That comparison is between insured and uninsured individuals. 1996. On the Genealogy of Moral Hazard. a lesser amount of insurance would equate to more caretaking in this context. intuition may give rise to further doubt. 11. Feb. Accordingly. Intuition might lead one to question moral hazard’s implications if making one crucial comparison. citing James K. consider the implications of the foregoing with respect to uninsured individuals: if an insured individual is subject to moral hazard and thus takes greater risk. an uninsured defendant introducing an absence of evidence may be “of extreme 125 Tom Baker. in the same way that a plaintiff could introduce evidence of the defendant’s insurance to show an incentive for greater risk-taking. Glassman. First of all.”125 or. Rev. 238 (1996). an uninsured individual. ST. the “lesson of moral hazard” itself indicates that “less is more. In fact. Shift to Welfare. would presumably take less risk as she must solely bear all costs associated with risk-taking. Drop Budget Fight. LOUIS POST-DISPATCH. not subject to the same moral hazard. It should therefore follow that an individual with the least amount insurance would exercise the most amount of care. and in general. While its similarity to issues that courts have already considered relevant should indicate at least some degree of probative value.probative moral hazard’s influence actually is on insured’s behavior may be questionable. 75 Tex. at B3. 28 . L.
Some of this proposition may also offend the reader’s common sense: it seems counterintuitive128 that the individual who would lack the foresight to protect against risk with insurance would actually be the more careful. infra. L. however. 159 (1954).importance” 126 to them. whereas the irresponsible are known to peregrinate without benefit of company protection. Indeed. supra note 13 at 710. Blindfolding the Jury. 129 Slough. 238 (1996). in Section V(A). While Green believed this was one major reason for which the rule against insurance should be reconsidered.”129 If evidence of insurance is introduced against a presumably “responsible” insured individual. the net probative value of the latter is more likely to be outweighed by the danger of unfair prejudice or waste of time. Baker’s article focuses on his disbelief of the “less is more” lesson of moral hazard and discusses not only the counterintution but also the counterfactual bases for such a claim. demonstrates that asserting that the purchase of insurance is determinative or even indicative of an insured’s character for responsibility may not have the “good reason” that some 126 Leon Green. 237. Rev. While the jury may assume the presence of insurance because it is so prevalent. insurance-buying individual is labeled as the reckless one. 29 . 157. The significance of this competition is that if the character inference offsets enough of the moral hazard inference. Green argued that an uninsured defendant’s opportunity to introduce their lack of insurance was indeed of extreme importance because the jury would otherwise assume she was insured and would be overly generous in their verdict award. L. “experience denotes that the most responsible and trustworthy drivers are insured. The subsequent discussion. 128 Tom Baker. the inference drawn from the insurance-created incentives to drive recklessly would therefore compete with a possible inference of responsibility reached by virtue of the fact that the individual is insured. Rev. because a jury may otherwise assume the presence of insurance if it was not discussed in the trial. this argument assumes—and it will be shown that this assumption is erroneous—that insurance has an appreciable impact on jury decisions. it is doubtful whether that would affect their decision. responsible individual.127 But assuming that the jury automatically awards more damages if no party mentions insurance is not the only problem with this reasoning. On the Genealogy of Moral Hazard. 75 Tex. 33 Tex. 127 The assumptions a jury makes about the presence of insurance is discussed. whereas the law-abiding.
Moral Hazard. And though it may be intuitive to posit that at least a motorist who ignores statutory requirements for insurance is less responsible than their insured counterpart. National Business Institute. 935 (1999).writers so hastily assume. insured farmers respond to moral hazard and take greater risks with respect to chemical use on their crops. 34 (2006). John B. But automobile insurance may be different. John K. 131 John Horowitz and Erik Lichtenberg provide empirical evidence that. Irresponsibility is a Market-Specific Criticism The foregoing discussion of moral hazard has demonstrated how insureds in many markets and circumstances may be subject to a moral hazard effect. Significant contextual differences in this analysis are that a farmer’s responsibility to her crops is socially much less important than a 130 See e.. Automobile Insurance Coverage Issues. and Chemical Use in Agriculture. Horowitz & Erik Lichtenberg. Allyn. would have revealed a myriad other factors that may explain the reasons for which uninsured are uninsured—not just that they are inherently irresponsible. 926.” and fails to consider any causal factors for such an assumption. 133 Among several explanations for why affordability may be a better indication of the likelihood of purchasing insurance. John Allyn blindly assumes “with good reason that the uninsured driver is not as safe a driver as his insured neighbor. The level of responsibility may be similarly independent of the presence of insurance when considering other markets. J. A.132 positing that the uninsured farmer is equally if not more prone to take risks because of an irresponsible nature is tenuous at best. like the healthcare market.g. 31636 NBI-CLE 1.130 and may therefore not be sufficiently apparent to a factfinder such that it would create substantial competition with a moral hazard inference. 75 Am. for example. Econ. where arguably the greatest determinant of the decision to insure is affordability. Insurance. compared to an uninsured farmer. 30 . 132 Id. of Ag. This is merely an assumption that he accepts without giving any mention to statistics or other empirical evidence which. the nation’s current healthcare debate stands as irrefutable evidence that lower-income individuals indeed may be less likely to have insurance. that a farmer insuring her crops would be more trustworthy and responsible than an uninsured colleague?131 While the empirically-supported moral hazard effects can explain why an insured farmer might take more risks than her uninsured colleague.133 not responsibility. Is it equally intuitive. if considered. this position may not hold with the same universality as that of moral hazard’s effects.
134 but also because a driver owes it to other drivers to provide compensation for a wrong they could possibly commit while driving. it may follow that this individual. 43 states and the District of Columbia follow some version of compulsory insurance. the presence or absence of insurance may only be telling of one’s character for care (and thus. thereby manifesting some degree of responsiveness to law. 31 . Factors Affecting the Relative Incidence of Uninsured Motorist Claims. Yu-Luen Ma & Joan T. as would an uninsured motorist. The same could not be said of other insurance markets. the question of competing inferences cannot be legitimately raised. would not justifiably give rise to 134 As of 2000. Instead. 282 (2000). 135 If an individual has a sense of social responsibility. where the competing character inference is justified) in situations where the choice to purchase insurance would also be influenced by some other factor that may also influence the care that one takes (e. Schmit. it would follow that they might have a similar degree of responsiveness to regulations when driving as well. while the other seven states have some sort of financial responsibility laws. if a certain type of insurance does not carry with it implications of such import as statutory obedience and social responsibility. So not only could driving without insurance still be considered irresponsible because it is in violation of most state regulations. Therefore. In other words. because of this sense of social responsibility. any inference regarding character should arise only in circumstances in which insurance is not only to protect one’s own self against the risk of loss. and thus.motorist’s responsibility to other motorists. and a farmer may not necessarily be in violation of law if she decides not to purchase insurance. 281. but is also to protect others or serve some other social cause as yielding to law—as in automobile insurance—for it is these factors that may have some implications on an insured’s character.. Situations such as a farmer choosing to purchase crop insurance because her farm is in tornado alley. 136 If an individual is responsive to mandatory insurance-purchasing regulations. 67 J.135 or a sense of the duty to obey laws136).g. or a low-income individual forgoing insurance because it is not affordable do not indicate anything about these individuals carefulness. Risk & Ins. would exercise care in order to violate social norms or to avoid invading others’ rights. it is according to the author’s common sense that this seems to follow. While this is an untested assertion. a sense of social responsibility.
32 . while the safest drivers purchase inexpensive policies that offer little coverage. Not only does empirical evidence of moral hazard suggest that an insured motorist would take more risks. 138 Cohen. supra note 71 at 197. Even here. The most prominent137 type of insurance market where there are these implications is the automobile insurance market. they would not completely forego 137 “Automobile insurance represents nearly 50 percent of property/liability insurance premium volume in the United States and similarly large percentages throughout the globe. Cohen finds evidence of adverse selection in the automobile insurance market. the inference about character may not be clearly drawn. the cited adverse selection studies consider only insured parties. though. and the context changes significantly when considering insured parties against uninsured parties. where low-deductible choices are correlated with more accidents and higher losses. the riskiest (and perhaps least responsible) drivers would purchase a policy that offers the most coverage. there is much empirical evidence that opposes this position. The Mystery of Uninsured Motorists Though an inference about responsibility seems to intuitively flow from the question of a motorist’s insurance status. competing inference about character—that even if a driver perceives that they are a careful driver (never mind the truism that most people think they are above-average drivers). From this follows the possibility that an uninsured individual has actually made the decision to go forego insurance because they perceive that it would be more costly to pay for insurance that would cover the cost of a rare accident (because they are careful) than to individually bear the full costs of that accident. but other empirical evidence confirms the existence of another pertinent effect called adverse selection.” Id. In fact.a competing character inference. lacks empirical evidence to support it. This is so because there still may be an intuitive.138 This adverse selection phenomenon posits that individuals will choose insurance coverage according to their own perceived risk-taking tendencies they have while driving—in other words. B. Although hypothetically possible.
To begin with. at least pushes against any suggestion that social responsibility correlates with the amount of insurance one purchases—that one who buys more insurance is more responsible and trustworthy than one who buys less. With regard to reasons for which an individual might choose not to buy car insurance. These most careful and responsible drivers may instead still adversely select some coverage. uninsured motorists in any context have received little attention in the literature. Ma & Schmit. 33 . But even those who would suggest that uninsured motorists are less responsible behind the wheel would struggle to find empirical evidence that can support their position.insurance because it would be against the law. but with the least amount possible. that yielded results indicating that the prevalence of uninsured motorists increased as a state’s insurance regulatory scheme became less strict. Yu-Luen Ma and Joan Schmit performed an analysis. Id. 141 Ma and Schmit review previous studies that consider the effect of insurance prices on the decision to purchase insurance. though. they have found other significant variables that correlate with the rise of uninsured motorists. for example. making it more difficult draw an inference of a risk-taking character. The question still turns on implications of individuals who purchase no insurance altogether. This also indicates that if otherwise uninsured motorists respond to stricter regulations for acquiring insurance. This evidence. supra note 133 at 282-83 for a review of the literature relating to uninsured motorists. and possibly socially irresponsible. at 283.140 suggesting perhaps that those who would be uninsured have at least some sense of responsibility when it comes to obeying the law. they may also have some degree of responsiveness with respect to road and traffic regulations. supra note 133 at 288-93. Ma and Schmit’s study corroborated previous studies141 when finding empirical evidence that demonstrated that the number of uninsured motorists increased with the 139 140 See Ma & Schmit.139 And when writers have observed this group. perhaps a more compelling reason than a lack of social responsibility is the individual’s subjection to poverty.
Such is simply not rational.144 But even if the affordability of insurance thus appears to be a significant factor that could contribute to the decision to buy insurance. Such an inference from the existing evidence would not only be tenuous. Need for Further Investigation The point of this diversion has been to consider the possibility that any probative value from inferences about character from the presence or absence of insurance would reverse the probative value of moral hazard’s effects such that prejudice or waste of time considerations would outweigh any remaining probative value. this does not mean that an inference about character for care is ruled out.percent of people in the area living below the poverty level.. Jones. 145 The lack of empirical evidence could be for a number of reasons.com/magazines/west/2003/08/18/coverstory/31590. but must imply that an individual who chooses to pay rent and feed her family before paying the insurance bills has an innate propensity to drive more recklessly. and is cited in: Stephanie K. 45 Inquiry 365 (2008). 34 . most people will choose to pay their rent first. In this study. feed their kids second” while insurance descends to a “distant choice.145 The existing empirical studies. It could be. There could also be an endogeneity issue with some variable such as poverty. August 18. though. preferences and income help explain why some households do not buy health insurance.insurancejournal. for example.g.htm. 144 See e. “given choices and a limited amount of money. INSURANCE JOURNAL. C. The foregoing has demonstrated that the 142 143 Id. Indeed. that quantifying carefulness when driving is difficult in terms of the type of inference that might be associated with insurance. Uninsured Drivers Travel Under the Radar. What Do People Buy When They Don’t Buy Health Insurance and What Does that Say about Why They Are Uninsured?. This statement is made by Texas Insurance Commissioner Jose Montemayor. infra note 145. available at http://www.”143 Results from other markets confirm the same preference of impoverished individuals. at least fail to provide any reasonable basis on which proponents would found an argument that uninsured motorists are inherently less responsible. the lack of empirical evidence confirming a lack of social responsibility in uninsured motorists does not rule out the possibility that such a correlation exists. Helen Levy & Thomas DeLeire. This possibility is mentioned briefly. Levy and DeLeire use data from the Consumer Expenditure Survey to find that prices.142 Other insurance professionals agree that it is simply a “reality” that. 2003. at 288-93 (2000).
and squanders any wealth they do possess). moreover. this character inference seems too tenuous and unproven to say that it could overtake a significant amount of probative value from the moral hazard inference. or poor because they are irresponsible. 35 . whether one is irresponsible because they are poor. for example. while evidence of insurance offered on the issue of liability may have a limited probative value. The factfinder will not see this party behind the wheel. Even if the factfinder could infer an individual’s character for care from their insurance status. so any inference about this party and their character for driving may rely in large part on what the jury sees of this person in court.. In order to determine the independent significance of an irresponsible nature. an inability to obtain a job may be because of a lack of commitment to work instead of a lack of commitment to others). wellspoken individual who offered believable testimony. Would a jury be more likely to infer something about A’s character for driving care if A appeared in court as a clean-cut. and may only be one among many other empirically tested factors that explain an uninsured’s behavior. the inference would likely at least be influenced. but does not make much money. Though studies have not explicitly considered an inherent tendency for irresponsibility as a causal factor for remaining uninsured. This can be seen by observing an uninsured driver in two different contexts. There is thus a need for further empirical exploration before the character inference drawn from insured status could be conclusively ruled out as having explanatory power that would compete with moral hazard effects. or if A dragged herself into the courtroom unkempt and apathetic about the entire proceedings? Perhaps the jury may be prone to make an inference about character from the absence of insurance in either context. determining.character inference is limited in scope. it must be separated from the variable in which it is endogenous. for example. because of a lack of responsibility. the factfinder would also be less likely to independently draw such an inference. although this irresponsibility may not necessarily be of the same kind that would cause her to be irresponsible in consideration of others (i.e. and is therefore an infrequent driver. who chooses not to purchase insurance because A works hard at running a business from or near home. If the inference is so tenuous. Until then. that an individual is poor because of a general irresponsible nature (i.147 and how would the court separate the inferences based on their sources? In conclusion. there is a possibility that such a characteristic is independently significant or otherwise endogenous146 with respect to factors already considered. Consider uninsured motorist A. a character inference opposing a moral hazard inference may have only 146 It is possible. 147 If a jury were to infer anything about the character of a party based on insurance status. but a negative impression from demeanor or appearance could certainly make such an inference much easier. if not determined by a party’s demeanor and appearance. that individual is unable to secure a job. how much of that inference could possibly be drawn from the party’s demeanor and appearance.e.
marginal effects on the probative value. requiring that the danger of “unfair prejudice” “substantially outweigh”149 the probative value of proposed evidence before the court can even consider150 excluding on the grounds of prejudice.L. making admission of anything touching upon insurance increasingly difficult.”151 Courts have also demonstrated their unwillingness to employ typical Rule 403 standards when considering evidence of insurance that may not fall under an express exception. has essentially reversed the protection of Rule 403. 151 40 A.. 150 By stating that prejudicial evidence only “may” be excluded. v.S. 783 (D. 36 . 563 F. scholars were already questioning the 148 By the choice of certain terms in the rule. 1348-49 (9th Cir. Before much of a case was made in favor of the relevance of insurance.. represent how evidence of insurance can be used only when “highly probative of a material issue. The application of Rule 411.2d 1331. VI. and without more empirical evidence. Southern Bakeries Co. the next section will turn to whether or not any prejudicial effect would outweigh such in violation of Rule 403. 782. however. U.Supp. 152 Some courts. Vaughan v. the policy favoring admission of relevant evidence is further indicated.g. EVID. Fed. 1977). the legislature adopted a basic policy favoring admissibility of relevant evidence. 1965) (emphasis added).C. although before the codification of Rule 411. 541 at § 2[a] (emphasis added). 403 (emphasis added). should not impede the use of evidence of insurance to demonstrate moral hazard effects. See e. had held that after only a “reasonable showing of prejudice” could a court declare a mistrial because of the introduction of evidence of insurance. The explicit exceptions listed in Rule 411. thus giving courts discretion in determining whether evidence should be excluded on these grounds.g. See e. 247 F.R.S. R. Hearst. This undue bias against insurance evidence has not gone unnoticed.. RECONSIDERING THE PREJUDICIAL EFFECT OF EVIDENCE OF INSURANCE The Federal Rules clearly lay out an admission-friendly148 standard for considering the prejudicial effect of evidence. for example. 149 FED. Having established the probative value. where they would require only a “reasonable showing of prejudice”152 before evidence of insurance will be excluded.
L.2d 462.2d 1312. the argument against the likelihood of prejudice is even stronger. 465 (Tex. Admissibility of Insurance Policy Limits. 155 Barrington v.153 It would seem.. many scholars began to be unconvinced that evidence of insurance would even sway in the slightest a jury’s decision. 160 Id. at 201. See e. Duncan. just as the “passage of time” has “eroded much of the danger of prejudice. 667 P.”158 Less scoured studies have revealed results which tend to show that insurance and the frequency with which it is discussed is “unrelated”159 to damage awards. supra note 77 at 193. if it knows that the defendant is protected by insurance. Id. Pol’y & L. Pub. 510. then. 1943). 45 La. This discussion will now further explore this argument.160 Varying the severity of 153 154 See Relevancy and its Limits... and for a larger amount.157 the passage of time has eroded the significance of such early studies.W. 157 Broeder. Carman v. Hefter. 516. supra note 38 at 744.g.alleged prejudicial effect of insurance evidence. 597. 156 Courts have questioned whether the rule itself was not “rather archaic” because of a lack of prejudice. 1230 (1985). One recent study analyzed jury deliberations following the simulation of an automobile negligence trial that was based upon the facts of an actual case. 194. 136 Ariz. 159 Edith Greene et al. that if moral hazard is able to establish some positive probative value. 1983).”155 some have tested the archaic156 allegation to determine whether there is any prejudice against the defendant. 140 Tex. A. Imagined and Exaggerated Prejudice As early as the middle of the twentieth century. 1299.g. Indeed. 158 Susan A.. Rev. turning first to the position that the introduction of insurance does not yield any prejudice in the first place. 169 S. While early studies seemed to suggest that mentioning or instructing the jury regarding insurance resulted in skewed verdict amounts. See e. empirical evidence has demonstrated that the mentioning of insurance would not have any significant effect on the jury’s verdict. Row. 1316 (Ariz. 194 (2008). 37 . 601. Shouldn’t We Consider…? 14 Psychol. and then turns to consideration given an assumption of at least some prejudicial effect.154 Disbelieving that “a jury is more apt to render a judgment against a defendant.
165 O’Connell et al. or the case would not even be in court. the study aimed to determine to what extent jurors would discuss evidence not introduced at trial (such as insurance) as well as the extent to which that affected damages amounts. for example. Id.166 And jurors may just as easily recognize that automobile 161 162 Id. settlement discussions and attorney’s fees) together accounted for only 3% of the variance in award size. Appendix C (1996). coverage was sufficiently prevalent such that courts recognized that jurors were sophisticated enough to presume the defendant had insurance. Mitchell v.161 Using regression analysis. Presently. at 211.162 Moreover. the results revealed a statistically insignificant relationship between the frequency with which insurance was discussed and the defendant’s insurance status with the award amount. 1316 (Ariz. 166 Carman v. 597..App. 160. at least with regard to automobile insurance.2d 1312. at 210.2d 548 (Miss.injuries and reprehensibility of the defendant’s conduct. especially164 because. it would be in defiance of common sense and an insult to a jury to argue that these reasonable members of society were not astute enough to be already aware of the presence of insurance. Hefter. 1983). 55 Md.. 38 . all 50 states have set certain minimum requirements for liability coverage. introducing evidence of insurance would not illicit the same surprised. 136 Ariz. 163 Id. 819 So. head-turning reaction that it may have before the prevalence of insurance. the study also discovered that forbidden topics (including insurance. The Comparative Costs of Allowing Consumer Choice for Auto Insurance in All Fifty States. jurors are already aware that insurance companies are involved in the litigation. 164 In Mitchell v. Glimm.165 But even before states began passing legislation requiring liability insurance. unlike in the 1950’s when the earlier study was performed. 667 P. meaning that these topics did not significantly affect the amount of damages. L.163 A possible explanation for the disparity between studies is the fact that. Rev. 2002). 601. Glimm. the court reasons that because of recent mandates regarding the requirement of mandatory insurance.
Experimental Psychol. the issue of agency—why cannot the same remedial measures that courts take in other instances work for instances in which insurance is offered to prove negligence? 167 But jurors may make assumptions about the presence of insurance in other situations. 836 A. unless viewing the situation in an unduly cynical169 lens. Russo. 87. 169 Schevling v.2d 1158 (Conn. as this discussion next endures. Johnson. B.A. there is strong reason to believe that introducing evidence of insurance will not weigh the defendant down with unfair prejudice. Even if There Was Prejudice. 59. 267 Conn.168 can deduce the presence of insurance. 168 Greene et al. R. or on some other statutorily permissible purpose. where the court posits that jurors probably assume that doctors carry medical malpractice insurance. Biased Interpretation of Evidence by Mock Jurors. one only sees the curability of any prejudice that may result from insurance evidence.insurance is not the only market where insurance is likely to be present. 411. But even if entertaining a cynic’s view. FED. 1953) reasoned.. 39 . Therefore. by virtue of the moral hazard inference. citing K. as in medical malpractice cases.Supp. 122 F.167 If jurors.E. supra note 158 at 198. Carlson & J. 2003). Conn. equipped with common sense and awareness that they bring into the courtroom. “Only undue cynicism will support the thesis that knowledge of the presence of an insurer’s interest will necessarily distort a juror’s judgment. the same prejudice—that a jury would hear about insurance and thus adjust its verdict accordingly—should apply whether the opponent offered insurance on the issue of liability. Rocco. Applied 91. 90 (D. 7 J. has probative value on the issue of negligence—just as it would on.” 170 The Rules of Evidence allow evidence of insurance to be introduced for other purposes such as bias or agency. say.. 91-103 (2001). EVID.170 But considering some assumed prejudicial effect in this circumstance begs the question: how does the mention of the presence of insurance create any more prejudice when offered on the issue of negligence than it does when offered on any permissible grounds? Because insurance evidence. See Vasquez v. the mere mentioning of it would do little marginal harm to the defendant. It is Curable Assuming that there was some prejudice against the insured party if her opponent introduced evidence of insurance against her.
in Cuccarese v. have suggested that instructing the jury on insurance would only remind the jurors of insurance—as if. 867 (2nd Cir. 1969) held that a judge’s instruction that “the jury should not consider defendant’s ability to pay a judgment in reaching its verdict may have made the situation worse by reminding the jury of the prior references to insurance. The question here remains how a limiting instruction could not also cure any prejudice stemming from a mention of insurance that implied a defendant may have been more likely to take risks? A limiting instruction could therefore be an effective tool to remind the jury—again.” 40 .2d 866. but to consider only the relevant part of insurance evidence. for example.. 405 F. But because insurance is now more prevalent than it has been in the past. jurors would get the most relevant facts about bias. or. 375 F. Soloman. by the end of the case. supra note 38 at 744. courts saw limiting instructions as a fitting means by which they could ensure that from evidence of insurance. if not instructed on the issue. courts devised a simple remedy to the protect parties from prejudice after parties introduced evidence of such evidence: courts could correct a mention of insurance by issuing jurors a limiting instruction on proper considerations of the evidence of insurance.2d at 270. the jurors would have forgotten a reference to something they more than likely would have already assumed. Broeder. whether insurance caused an individual to be more or less negligent. might even take the issue with them into 171 172 Corbett.173 however. it is more likely than ever that juries.171 Fixing such a potentially detrimental concern as prejudice with a solution that seems as simple as paternalistic hand-slapping suggests that prejudice may not be too terribly problematic anyway. 173 A Second Circuit court. Some studies172 and even courts. control or agency without any of the prejudicial affect. whether any existed or not.As courts backed away from their fright of the word “insurance” and began to realize the relevance of insurance for purposes outside of the issue of negligence. Nevertheless. if there is any need to do so—to disregard insurance with respect to awarding damages.
157 (1954).2d 866. L. Rev. L.” The court consequently found that the introduction of such evidence may well have been the source of substantial prejudice.178 And even though empirical evidence demonstrates how mentioning insurance will not affect verdicts or the amounts of such..179 Whether a 174 Discussion in the jury room of the fact of insurance is a hazard in every case where there is a sharp division of jury opinion. neglecting to instruct a jury with regards to proper use of insurance because of the fear that such will open to the jury a previously unknown realm175 “may invite. 782 (3rd Cir. 867 (2d Cir.177 Instruction may thus be a proper way of avoiding potential prejudice or a wayward jury.” 33 Tex. 1965). Greene et al. because insurance is not as prevalent in the relevant market. 347 F.. 347 F. jurors would not make the same assumptions about the involvement of an insurer. Leon Green.g. then. Therefore. the court acknowledged that jurors may well be familiar with the prevalence of automobile insurance. 782 (3rd Cir. 1969). Even though jurors may still make assumptions about insurance in cases involving 41 .”176 Scholars and courts alike have thus suggested that the more appropriate solution would be to dissolve the phantom in the courtroom by open talk of the previously taboo topic. 1965). supra note 158 at 194. and could even produce the specific guidance jurors need to handle evidence of insurance that they may otherwise misuse. this discussion concedes that the prejudice eroded only because of juror’s recognition that most drivers have insurance. 157 (1954). Kiernan v. Van Schaik. 175 Kiernan v. “Blindfolding the Jury. but would not likely “suppose that an eleven-year-old boy at a summer camp was covered by liability insurance for injuries caused to one of the camp’s counselors. though. supra note 158 at 195.the jury deliberation room.174 mistaking it for a relevant consideration. that nearly a century of legal precedent was based on a wholly erroneous presumption of prejudice. Soloman.2d 775. Leon Green. To give some credit to the historical argument. Van Schaik. for example.. It is not likely... rather than restrain. 405 F. 177 See e. There still may be lawsuits where. 179 Edith Greene’s study observed jurors’ reaction in the recreation of only an automobile negligence trial. it is unclear how much of this conclusion is explained by the fact that jurors presume the existence of insurance in the automobile market. Rev. “Blindfolding the Jury. speculation and paradoxically lead to the inconsistent and unpredictable verdicts and uncontrolled decision making that it was intended to curtail. 178 In Cuccarese v. 176 Greene et al.” 33 Tex.2d 775.
Though there may be some differences when considering different types of insurance. 42 . Rule 403 instead has installed sufficient safeguard against any danger of prejudice that insurance may pose. or to exclude the evidence of the basis of Rule 403. Among the relevant factors was the price elasticity of an individual’s demand for healthcare (meaning how responsive the quantity of healthcare the individual demands is to price changes).study of admission of insurance in cases dealing with types other than automobile insurance would reveal the same results is unclear. this does not. or that introduction of the evidence of insurance would result in incurable prejudice. courts have the ability to cure any prejudice arising from the mention of insurance for relevance purposes with a limiting instruction. After all. age. however. surpa note 45 at 257. imply that insurance would not be relevant. any introduction of evidence of insurance—whether on the issue of negligence. health. that moral hazard is a relevant consideration. Evidence of insurance has simply outgrown the prejudicial position it once had that warranted a special rule of its own. however. jurors may not make the same assumptions in trials dealing with less common markets of insurance such as kidnap or pet insurance.180 or that special circumstances surround the trial such that there is a danger of unfair prejudice that might substantially outweigh the relevance. equally common insurance markets like medical malpractice. the variables that affect the extent of moral hazard. type of illness and others. courts would still retain the ability to instruct the jury accordingly. In those cases. bias or agency—would still be subject to Rule 403. and while the probative value may admittedly be somewhat low. There is a possibility that some individuals are immune to moral hazard. Joseph. In the end. 180 Hyman Joseph explores. in the market of health insurance. It is contended. supposing that Rule 411 was modified or substantially limited in accordance with this discussion’s assertions. it outweighs an even lower possibility of prejudice. Moral hazard may not be able to explain the cause of all negligence acts that ever occur or that culminate in a lawsuit. life or home insurance.
unlike that which scholars had previously considered. While moral hazard has yet to surface in the literature as a possible justification for allowing evidence of insurance on the issue of negligence. though. for example. may be subtle and subconscious. This discussion has also explained how. Despite practical difficulties. Most important. Allowing the admission of insurance evidence. if not barred by an undue prejudice. because of this incentive and the responses thereto. moral hazard nevertheless implies the relevance of evidence of insurance and that the blanket exclusion under Rule 411 deserves another look. Successfully introducing sufficient evidence to imply what may seem to be a counterintuitive inference of negligence from insurance might require extraneous evidence or extensive expert testimony that could send the court on a detour. wasting both time and money of litigants. Though it is the contention of this note that evidence of insurance on the issue of negligence or wrongdoing should be admissible. CONCLUSION This discussion has explored the implications of considering moral hazard in the framework of the underlying policies of Rule 411. insured individuals face a diminished incentive to exercise care—the response to which. it may admittedly have limited practicality in a courtroom. is that the introduction of this evidence would be conducted under the scrutiny of Rule 403—the extensiveness of the evidence of insurance thus remains up to the discretion of the court.VII. evidence of insurance could justify an inference of negligence because an insured individual is more likely to be negligent or take extra risk when insured than they would otherwise be. Because of moral hazard. this discussion has demonstrated that it certainly warrants either judicial or legislative consideration. 43 . could be blocked by the “waste of time” or “confusion of the issues” standards under the same rule.
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