Experience from Early Tort Reforms: Comparative Negligence Since 1974
Insurance consumers in states that have adopted comparative negligence pay more for automobile liability insurance than do consumers in states that retain contributory negligence. Through the use of a transformed generalized least squares regression model, allowance is made for: no-fault, population density, state-specific price-level, and automobile safety/fatality differences. States with pure comparative have much higher costs than do states with modified comparative negligence; states with modified comparative have higher costs than those with contributory negligence.
The influence of alternative liability rules on the cost of insurance is of public concern. In recent years many states have changed from contributory negligence to either pure or modified comparative negligence. This article examines the cost of automobile insurance under three liability rules. The authors conclude that states with either type of comparative negligence have higher automobile insurance costs.
Contributory negligence provides that in order to be awarded damages, plaintiffs must be free of fault, however slight, in causing those damages. As recently as 1970, 38 states had contributory negligence rules. Only five states retain a contributory negligence tandard. Table 1 lists the states, their changes, and the years those changes were effective.
Under a system of pure comparative negligence, a contributorily negligent plaintiff "may recover even though his negligence was greater than [the] defendant's but his damage award will be reduced in proportion to the amount of negligence attributable to him" [Schwartz, (1986)]. Modified comparative negligence is a compromise between the pure comparative and contributory standards. In practice there is no uniform meaning for modified comparative negligence. Nebraska and South Dakota allow recovery only to negligent plaintiffs who negligence is slight in comparison to the defendant's negligence (known as the "Slight/Gross Rule"). Other states have a "49 Percent Rule" where a plaintiff's contributory negligence will not bar recovery if his or her negligence is less than the defendant's.
Still other states do not bar recovery if the plaintiff is as much as half responsible; (the "50 Percent Rule"). In this study observations are classified as contributory; modified comparative, including slight/gross, 49 percent, and 50 percent; and pure comparative negligence.
Morale Hazard and Liability Rules
Research concerning the efficiency of alternative liability rules has been done by Calabresi (1970), Danzon (1987), and others. Their focus is minimization of the social costs of accidents including: costs of prevention; compensation of injured parties; cost of the legal system; and economic inefficiency from uninsured risk (Danzon, 1987). Choices available to society range from a system where losses are borne by the victim (prudently the victim should buy first-party insurance) to a system of strict liability (also known as absolute liability) where liability without fault is imposed. (1) Between these extremes lies the negligence rule (with contributory negligence) and the comparative negligence rule.
Shavell (1982) examined the interplay of morale hazard with liability rules and the presence of insurance. Clearly insurance reduces safety and accident reduction incentives. Thus, it is possible contributory negligence would have a different effect on loss frequency than would comparative negligence. However, as Shavell points out, it is possible "the availability of liability insurance does not have an undesirable effect on the working of liability rules." This is so even if the presence of liability insurance changes the incentives created by liability rules, because counter incentives encouraging loss control are created by the terms and pricing mechanisms commonly employed in liability insurance (such as experience rating). …