An Exploration of Civil Tort Law Litigation: The Secrecy of Insurance in Accidents

As a young boy who often romanticized the law, whether it was through family history or as an inveterate John Grisham reader, it was the power of the truth to come to the surface in trial that inspired my passion to become a litigator. But as I have moved past the age of blissful ignorance and into one where the intricacies of the law are becoming apparent, I often ask myself if the courtroom is the summit of transparency and truth I first imagined. In civil tort law, for example, a plaintiff is barred from mentioning liability insurance of the defendant. In fact, the mention of insurance at all can often lead to a mistrial, where the evidence of liability insurance is supposedly irrelevant to the basic issues of the case and could be found to have a prejudicial effect on the jury. This barring of evidence in trial may be seen to incite the jury to rule in a socially inefficient way. To others it allows our adversarial system in the United States to work in its most natural state.

It is not hard to foresee a situation where a jury has been informed of a large sum of money available through insurance for a plaintiff in an accident. Furthermore, this plaintiff represented by a competent attorney has then made the jury feel sympathetic to his or her injuries sustained. When finally, upon the deliberations of the jury, one juror says, “Everyone, for heaven’s sake, the defendant has insurance, regardless of whether or not he was right or wrong, let’s just give the plaintiff the policy.” I have essentially described the worst nightmare of any defense attorney in tort litigation. The situation described, being the underlying motivation for the exclusionary rule, is centered around a jury that is out of line with their duty. 

Robert Cooter in Law and Economics[1] describes the duty of a jury as, “starting without prior evidence, the jury should revise their beliefs exclusively in light of the evidence admitted during trial… one of the parties has the burden of producing evidence to prove its position in the dispute. In common law countries, the plaintiff must prove the case by a preponderance of evidence[2] in a civil dispute.” Cooter goes on to say the jury must make judgments described as “constrained rational choice under uncertainty”. Essentially, each piece of evidence is meant to bring the plaintiff closer or further to a preponderance of evidence. Admittedly, the fact of the defendant’s insurance being present does not change the facts of the accident (i.e. the defendant swerved, causing the accident), but it can incite moral hazard in a situation, where upon illumination may push a jury towards a preponderance of evidence. Although, many say it is unreasonable to suspect a person to not have liability insurance, so the moral hazard goes without saying, and should be considered an irrelevant piece of evidence. 

All points thus far are valid, but let me explain where my fear begins to set in. Imagine a hypothetical, where a defendant is very poor and vehemently perceived as such by his or her counsel, and at the time of the accident was working for and insured by a large company with a large policy. Further, let’s imagine a very conservative jury. The jury must then, at the conclusion of trial, decide on how to rule against the defendant, and if the preponderance of evidence has been satisfied in a tort claim seeking compensation, they must decide the award to the plaintiff for damages. According to the wealth effect, or essentially the idea the first $10,000 of income is worth more than the second $10,000, the jury may view this award to the plaintiff as digging too deep in the defendant’s pocket of low earnings, because the limits of the insurance policy are ambiguous and the chances they are affecting the poor man’s life forever are high, where he may value each dollar of his modest income being used to compensate the plaintiff with more utility than a wealthier person. Therefore, they may be motivated to award less than the socially efficient amount to the plaintiff, even though a large and sufficient insurance policy exists that is hidden.

Through research and a bit of soul searching, where admittedly, I am one for transparency, one may be able to see the validity in not allowing insurance to be mentioned, and in some circumstances how it may be to the advantage of a skilled plaintiff attorney. Amos Tversky and Daniel Khaneman put it best in their behavioral economic paper titledJudgement Under Uncertainty: Heuristics and Biases[3], where they define anchoring as our tendency to anchor our thoughts on a reference point. For example, if someone were shown the number ten and then asked to guess a probability of an event, people had a tendency to assign a lower probability than if they were shown the number sixty before estimating the same probability. It may be beneficial for the plaintiff’s attorney to not let a low insurance policy of the defense be mentioned. Being unaware of the insurance, and furthermore, the limits of liability would allow the plaintiff attorney to recommend much higher numbers for the jury to anchor on where it will then be more difficult for the defense to convince the jury to award damages below policy limits, making the prospect of trial more frivolous for defense. 

Additionally, we must look at the judicial system fundamentally with its large caseload. The goal of the courts is not to sift through unnecessary evidence, but rather the trial is designed so the trier of fact is best able to decide if the plaintiff has met his or her standard of proof. To do so, each piece of evidence must contribute to the trier of fact’s ability to decide the probability of the plaintiff’s claim being correct[4]. The duty of a litigator is to take the jury through each piece of evidence, while the defense attempts to derail the effort. Doing so the plaintiff hopes to put dollar amounts behind each piece of evidence relating to the injuries sustained, lost wages, and/or pain and suffering. If they do so clearly and correctly, the jury will, in theory, award the plaintiff deservingly. Harping back to my romantic view of the law, it is not duty of the plaintiff to point fingers at insurance in front of the jury in the hopes of acquiring a higher settlement, but rather it is the duty of the plaintiff to make it clear enough to the jury as to implore them to be given what they rightly deserve through our adversarial system.

[1] Cooter, Robert, et al. (2012). Law & Economics 6th ed. Chap. 11, I.1. 437.

[2] In “preponderance of evidence” if the posterior probability exceeds 50 percent, the plaintiff has proved case by preponderance of evidence and deserves to win. 

[3] Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1131.

[4] Talley, Eric T. (2013). Law, economics, and the burden(s) of proof. Research Handbook on the Economics of Torts. Edward Elgar Publishing. 308.