A Principled Approach to Insurance Law: The Economics of Insurance and the Current Restatement Project

Abstract

This paper applies the principles of the economics of insurance to the proposals emanating from the American Law Institute’s current project to develop a Restatement of the Law of Liability Insurance. The paper attempts to demonstrate that the proposals of the Reporters of this project — Professor Tom Baker of the University of Pennsylvania and Professor Kyle Logue of the University of Michigan — may benefit some policyholders in the short-run, but are likely to harm policyholders in general in the long run. These effects result from the Reporters’ neglect of the economic forces that define current liability insurance contracts.

Keywords: Insurance