Workshop liability and insurance: evidence in liability and third-party insurance law

Abstract

Similarities and differences concerning the standard of proof in liability and third-party insurance: the challenge of uncertain causation. In complex situations with many variables, like environmental pollution, toxic substances or systemic risks, the proof of causation is difficult. The mechanisms by which diseases and harm are contracted, are not fully understood and knowledge is limited. Causation is then expressed in terms of probabilities. (Hoppenbrouwers, 2014) The issues encountered with proving causation are largely similar for both insurance decisions and court judgments. Insurers will not pay damages without proof that their customer, the injurer, is at the basis of the damage. Since the claimant cannot benefit directly from the payment from the insurance company, (the insurer indemnifies the defendant, his customer), the tortfeasor should have been held liable first. (Cane, 2013) Failing the establishment of the defendant as the origin of the harm or damage, compensation of the claimed is in standard tort refused. Proof of causation is a necessary element in liability. It restores the victim to the situation he would have been in without the wrongful act of the injurer. Liability has an economic impact through the transfer of indemnities, mostly financial means. On the other hand economic efficiency could be obtained by focussing on behaviour without requiring a causal link between an act/omission and the damage or harm. As most courts, insurance require proof of causation. Indeed, although insurance coverage is based on risk, the reimbursement only takes place when the covered risk materialised and the injurer, as the customer of the insurer, is a source of the damage. The same is valid for tort: it is not possible to take economic efficient or fair decisions without proof of causation. Deterrence will be lost. Proof of causation is necessary. This paper addresses the standard of proof when causation cannot be proved with certainty. Different methods are used, consciously or unconsciously, to counter the uncertainty surrounding causal links in complex situations. Concepts like belief probability, market share liability as it is mainly used in the USA, presumptions as based in the French “contrat sociale” in France and “reasonable attribution” in the Netherlands, are analysed on their efficiency and fairness to remediate uncertainty and/or the lack of proof of causation. Influenced by policy and norms, the concepts are part of the legal cause, as separate from the cause-in-fact. The question is what impact such approaches have on liability in relation to insurance decisions. Liability insurance does have its limits. (Faure & Peeters, 2010) Are these limits respected or crossed by using legal cause as a remedy for uncertainty? Litigation demonstrates that the standard of proof on causation is eroded in complex tort. Lowering the causal standard leads to questionable judgments when compared with the objectives of tort. Concrete cases confirm this observation: McTear (2005 2 S.C. 1), Sindell versus Abbott Laboratories (607 P.2d 924), Deepwater Horizon. Furthermore, such low standards of proof will finally make third party/liability insurance economically untenable. Could insurance companies divert this tendency through settlements? A potential answer can be found in the concepts of general and specific causation. General causation concerns the issue if the act was capable of causing damage similar to the damage done to the claimant. Statistical associations, used in situations with uncertain causation, cannot directly be transferred to individual situations. Courts (should) require proof of specific causation. Failing proof of specific factual causation the defendant cannot be held liable. Insurance on the other hand are economically driven and managed. Their viability is based on the calculation of the probability that a specific risk will materialise into damage. The premium is based on the probability calculation, administration and profit margins. What is important is that the probability is on group level, and thus reflects “general causation”. Settlements offer the possibility to agree upon a proportional compensation reflecting the uncertainty as concretised in the probability that the act caused the damage. This brings us to the question if general causation (as opposed to specific causation) is sufficient for insurance decisions? Anyhow the standard of proof of causation should not be lowered. Decreasing the requirements on such evidence leads to negative consequences on the repair of the damage done and on the economy. Consequently it will impact welfare. The conclusions are made concrete through an evaluation of the Deepwater Horizon disaster and its issues with causation. It is a good example of the economic impact of lowering the standard of causation. (Supreme Court of Texas, February 13, 2015. On 27 June 2015 not yet released for publication.) Methodology The analyses takes into account the impact of the doctrine of Law and Economics the doctrines of corrective and distributive justice on litigation. Court decisions have influence the business and decisions of third-party insurances. In the paper it is assumed that an insurer can distribute the insured risk sufficiently and effectively amongst the members of a significant large group. Insurers are presumed to work rational and focused on economic viability. The analysis is grounded in the utility theory. Last but not least, the selection of concrete cases is based on the results of a comparative research on causation in Common Law and Civil Law. (Hoppenbrouwers, 2014)