Saturday, May 12, 2007


The last post introduced the subject of the economic analysis of law, often just called law and economics. The post then introduced the “calculus of negligence” as developed by Judge Learned Hand. The test is outlined below in this quote from the last post:

The calculus requires that financial liability should be imposed for a negligent tort only if the burden of preventing the injury does not exceed the magnitude of the injury multiplied by its likelihood of occurring. The rule, also sometimes referred to as the "Hand Test," is most notable for its economic approach to a legal rule; an approach that is the foundation of the law and economics school of legal thought. The Hand Formula finds negligence when the actor's burden (B) is less than the probability (p) of harm, multiplied by the degree of loss (L).

B < P × L

Simply put, the test says:

If (Burden < Cost of Injury x Probability of occurrence), then the accused will not have met the standard of care required.

If (Burden > Cost of injury x Probability of occurrence), then the accused may have met the standard of care.

In a nutshell, the “calculus of negligence” provides a framework for analyzing the economic efficiency of avoiding or incurring the cost of loss and injury. Is it cheaper to avoid a loss through preventive measures or accept the inevitability of loss and just compensate the loss? It is the stuff that economics and legal professorial careers are buried in.


The last post also included the obligatory humorous examples to illustrate the application of the “calculus of negligence. One situation was described where it was cheaper, or less of a burden, for the “accused” to avoid the loss by paying for preventive measures. The other situation described revealed that the cost, or burden, of preventing the loss was greater than the cost of the injury and the probability of injury.

So how do seat belts and motorcyclists’ skulls relate to the “calculus of negligence”?


Seat belts and shoulder belts are standard equipment in all motor vehicles. (Air bags are also installed in new vehicles, but let’s keep it simple.) Seat belts do add a cost to each vehicle, but since they come as standard equipment and the vehicle purchaser has no choice in their purchase, their cost to an economic actor is $0. So if we plug the cost of the seatbelt, the “Burden”, into the formula, we get:

Burden ($0) < Cost of injury * Probability of loss

This equation will not work for our seat belt example, however. We have to modify the equation to reflect a couple factors. First, seat belts usually act to reduce the cost (severity) of injury, but may not eliminate the injury entirely. Second, there are some collisions where even the proper use of the seat belt would not reduce the injury.


What we will need to measure is the loss that was caused by the failure to wear a seat belt. That will be the difference between the loss incurred by the person not wearing a seat belt, and the loss, if any, that would have occured if the person had been wearing a seat belt.

Bobby is cruising down Main Street. He has a green light up ahead at the next intersection. He proceeds through the intersection. Cindy, who is also approaching the intersection, must stop for the red light. But Cindy is talking to Jan on her cell phone and fails to see the red light. She runs the red light and Bobby’s car T-bones her car.

This example is fairly common. Bobby was driving the speed limit and was wearing his seat belt and shoulder restraint. His car was badly damaged, but he suffered no major injury because he was properly restrained.

Under the well-established rules of tort law, Cindy is negligent and is liable for Bobby’s losses.


Same facts as above, except that Bobby, little scofflaw that he is, is not wearing his seat belt or shoulder restraint. If he had been properly restrained, he would have suffered no physical injury. But since he became a blood and guts projectile at the time of the collision, he suffered injury. Bobby received a concussion, some cuts that required stitches, and a broken wrist.

He will miss a week of work, costing him $1,000 in lost wages. His medical bills totaled $5,000. So his total loss cost $6,000. And under the traditional tort rules, Cindy (or more likely her insurer), is responsible for the loss.


It is doubtful that Cindy has read the writings of Judge Learned Hand and his formulation of the “calculus of negligence”. But Marcia is a professor of Law and Economics at the University of Chicago. She comes to Cindy’s aid.

Marcia argues that since Bobby failed to wear his seat belt and shoulder restraint, a common, no-cost, and effective safety device that would have prevented his physical injuries, Cindy should not be liable for Bobby’s physical injuries and lost wages costing $6,000.

If we change the facts a little and posit that Bobby would have incurred $1,000 in injuries if he had been wearing a seat belt and $6,000 if he had not been wearing a seat belt, then he should be responsible for $5,000.


Greg has wanted a motorcycle since his Johnny Bravo days. At age 50, he got one. It is a one-ton lead and chrome Hogsome-Darlington motorcycle. He has everything a Hogsome rider “need”. Leather boots, jacket, chaps and leather gloves. With a swastika or two, he would look positively Gestapo. And, like most Hogsome riders, he eschews a helmet.

Greg is cruising for chicks one afternoon when Sam the meat man pulls his sausage delivery van into the path of Greg’s motorcycle. Greg drops the bike and his perfect Johnny Bravo coiffed skull hits the pavement. He spends the next six-months in a rehabilitation hospital with a closed-head injury. For two months all he can do is hum the song “Keep On”, the song the kids performed as the Silver Platters on the "Pete Stern Amateur Hour" to earn money to pay for Mike and Carol's anniversary present.

Greg eventually regains his faculties, but he missed a year of work and incurred $200,000 in medical bills and $50,000 in lost wages.

Jan has turned her psychotic and paranoid personality into a lucrative career. She is now an accident reconstructionist for Pacific All Risk Insurance Company that insures Sam’s truck. PRIZE ALERT. Jan has been reading medical journals and actuarial tables. She knows that motorcyclists that do not wear helmets incur far more serious skull injuries in low speed accidents than helmeted riders. She also knows that helmet-less riders die far more frequently from cranial injuries than helmeted riders that crash under similar conditions.

Greg sues Sam claiming that Sam was negligent in pulling out in front of Greg’s motorcycle. A garden variety tort claim. But wait. Pacific All Risk Insurance Company PRIZE ALERT admits that their insured was negligent, but denies the amount of the injury that resulted from Greg’s failure to wear a helmet. The insurance company lawyers remember Judge Hand’s “calculus of negligence” formula from law school and insert’s Greg’s “fault” in not wearing a helmet in defense of the claim.


Jan calculates, based upon actuarial statistics and accident reports, that Greg would have suffered a loss of $5,000 if he had been wearing a helmet. So the Pacific All Risk Insurance Company PRIZE ALERT denies $245,000 of Greg’s $250,000 claim. Here is the calculation that supports their conclusion that a helmet-less rider should almost always be liable for their failure to wear a helmet:

Burden $200 (Average Cost of Motorcycle Helmet) < $50,000 (Average loss of helmeted rider * .1 probability of loss.

As one might imagine, Greg’s lawyers appeal the case and the Supreme Court of the State of Pacifica upholds the defense. The Supreme Court of Pacifica rules that motorcyclists that do not wear helmets cannot recover damages for injuries that would have been avoided if they had been wearing helmets. However, the court also rules that in cases where the motorcyclists would have died or suffered the same injury whether helmeted or not, the motorcyclist msy recover the full amount of damages.


To the Author’s knowledge, no state limit a motorist’s recovery where they do not wear a seat belt or limit the recovery of a helmet-less motorcyclist. However, a few states like Texas and Florida require that motorcyclists that chose to ride helmet-less purchase medical injury policies. With “freedom” comes responsibility, right?

In the Author’s opinion motorists that do not wear seat belts, and motorcyclists that refuse to wear the MOST EFFFECTIVE piece of safety equipment, the helmet, should be denied recovery as outlined in this post. BTW, the Author always wears a helmet and full race leathers when he rides. But his head and body are more valuable than helmet-less and gearless riders.


For the second time, the prize has gone unclaimed. The last prize question was:

In what year did the war of 1812 end?

The Author noted that there are two potentially correct answers. Here’s why. The War of 1812 officially ended on December 24, 1814 with the Treaty of Ghent. However, word of the treaty did not reach British and American Forces by early January of 1815 and the belligerents clashed in the Battle of New Orleans, immortalized in the Johnny Horton song. Additionally, an argument could be made that the war did not end until 1815 when the US Senate ratified the Treaty of Ghent.

This Prize question is alluded to in the body of the post. Recall that Jan worked for Pacific All Risk Insurance Co., the company that insured Sam the meat man and denied most of Greg’s claim.

The Pacific All Risk Insurance Co. is more famous for its role in a 1944 film noir classic. So in what film does the Pacific All Risk Insurance Company play a key role? Hint-the title of the film is an insurance industry term.

The winner can choose from a ticket and a soda at the Guild Cinema in Albuquerque, a plate of the best huevos rancheros in Albuquerque at the Central Avenue Village Inn, or a gift certificate for $10.00 at a restaurant of the winner’s choice (in any state). Email your responses to:



At 4:26 AM , Anonymous Anonymous said...

greg should have had fully comprehensive motorbike insurance which would have covered the medical costs while simultaneously allowing jan to follow a more enjoyable carreer path which doesn't involve picking up the pieces of shattered lives!


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