Tort law concerns civil lawsuits that result outside of contractual obligations and include accidents and intentional acts, like the faulty design of an automobile.  Tortious acts injure millions of Americans and generate costs in the United States of over $245.7 billion each year.
      Currently, a portion of all revenues received on goods sold throughout the country funds the expected cost of litigation and damages resulting from torts; we refer to this revenue as a “tort premium.” The tort premium paid on an item is essentially an insurance premium to cover the expected cost that a manufactuer faces in a tort claim for that product.  We would expect that the premium should be realtively less in a jurisdiction where plaintiffs face a higher burden to successfully bring suit vis-à-vis jurisdictions with comparatively easier burdens.

     One particularly interesting case study is the West Virginian Supreme Court opinion in Blankenship v. General Motors Corp (1970). In the case, a passenger sustained injuries while traveling in a manufacturer's car.  The plaintiff alleged that her injuries were enhanced by a design defect in the vehicle.  The issue before the court was whether or not a lawsuit filed against a seller of a motor vehicle is valid if the suit merely alleged that the injuries resulted from a collision and were enhanced by a design defect in the vehicle.  The court answered in the affirmative, explicitly adopting what is referred to as the “crashworthiness doctrine”.  Futhermore, the court held that in any crashworthiness case where there is a split of authority on any issue, as for example plaintiff's burden of proof, that it would adopt the rule most liberal to plaintiff, making West Virginia an “easy to sue” jurisdiction.  In economic terms, this lessened the standard required to bring suit. 

General Motors (“GM”) argued that adopting the plaintiff’s version of the case would invite juries to second-guess the safety standards promulgated by the National Highway Traffic Safety Administration and find designs approved by federal regulators to be defective.  The West Virginia Supreme Court rejected GM's position, holding instead that GM collects a product liability premium every time it sells a car anywhere in the world.

      Although the Court recognized that it was alone is powerless to improve the nation’s tort system, the justices noted “this Court would be both foolish and irresponsible if we held that while West Virginians must pay the premiums, [and held that] West Virginians can't collect the insurance after they're injured.”

     So, how can we reconcile that fact that tort premiums are constant across many jurisdictions when the expected value of filing a tort claim against a manufacturer may differ in these jurisdictions due to differing ease of suit, claim size allowance, etc?

     Jordan A. Dresnick and Randi J. Spector delve into macroeconomic pricing theory and insurance theory in a highly accessible, concise manner. Their interesting exploration of the intersection between legal and economic theory is exclusively available for download at the Yale Economic Review.  Just click on the link below for a full PDF version!