How Insurance Alters Behavior

A big concern in designing tort and insurance systems is how to spread risk while placing the brunt of the costs on the person primarily responsible for the conduct. If systems can deliver results along these lines, they are thought to reduce "moral hazard" and function somewhat efficiently.  But having insurance can sometimes increase risk, like when a claim of perhaps dubious merit is made because the other party has insurance.  Even if the sued party has its own assets, the presence of insurance often invites the attitude that the party will not fight as hard and may settle because the insurer is really paying.

I don’t know for sure, but Essex Ins. Co. v. Redd, 2006 WL 1307634 (W.D. Mo. May 8, 2006) bears some of the hallmarks of this kind of suit.  A woman went into a store to buy beer, and a security guard told her to move her car.  According to the woman, she didn’t know the person was a security guard and didn’t move her car.  She claimed that when she left the store, the guard followed her out and sexually assaulted her under the guise of searching her.  When the police came, they gave her a citation and the store refunded her money for the beer.  She sued, and the store’s insurer brought a declaratory action seeking a judgment that the alleged conduct was excluded by the assault and battery exclusion in the store’s Commercial General Liability policy.  You can guess the result — the court granted summary judgment for the insurer because the alleged damages arose out of the alleged initial assault.  No word on what happened next.

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Filed under Duty to Defend, Duty to Indemnify, Liability Policies

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