Offsetting Risks

Abstract

Under prevailing tort law, an injurer who is required to choose between Course of Action A, which creates a risk of 500 (e.g., probability of .1 for harm of 5000), and Course of Action B, which creates a risk of 400 (e.g., probability of .1 for harm of 4000), and negligently opts for the former will be held liable for the harm of 5000 that materializes in its entirety. This full liability forces the injurer to pay damages that are five times higher than necessary for making him internalize the risk of 100 that is actually created by his negligent choice. The argument advanced by this Article is that tort law should recognize the Offsetting Risks Principle ("ORP"), under which the risks decreased by the wrongdoing should be taken into account by the courts as a mitigating liability factor, with a consequent reduction in liability. The injurer in our example would, thus, be liable for only 1000, which is 20% of the harm that actually materialized. This outcome is not only different from the outcome arrived at under prevailing tort law, but also diverges from that mandated by a probabilistic recovery principle. Under the latter principle, if, in our example, the risks of both Actions A and B relate to the same victim, the injurer should be liable for 4600.

The failure of tort law to cause injurers to internalize the actual risks created by their negligence in cases illustrated by the example emanates from the law's disregard for the positive externalities generated by wrongdoings. Specifically, in our example, the injurer's negligent choice creates two opposite effects: one is negative (increasing risks by 500), and the other is positive (decreasing risks by 400). Since the law imposes liability for the negative effects when harm materializes but ignores the positive effects, the result is that the injurer bears liability for risks that far exceed the actual risks he or she negligently created.

The ORP is suitable mainly for those cases in which the injurer is required to balance amongst various conflicting interests of his potential victim, but efficiency considerations mandate its application also in cases when the injurer is required to balance the interests of the victim against interests relating to third parties or to society as a whole. The specific focus of the Article is the ORP's potential application in medical malpractice cases. Adopting the ORP in such cases and reducing liability in accordance with offsetting risks would result in a huge, desirable, decrease in the damages awarded in medical malpractice suits. Doctors would then pay for no more than the social harm actually generated by their negligence; defensive medicine would be reduced, and over-investment in precaution discouraged. Furthermore, the main beneficiaries would be patients, who would pay less for medical services and receive improved service in return, while the apparent problem of under-compensation for patients could, and should, be solved outside the framework of tort law. Finally, the diminished damages awards would save huge amounts of money in contingent fees currently being pocketed by attorneys.

Keywords: causation, causal link, offsetting benefits, medical malpractice, negligence, damages, positve externalities, over deterrence