Covering Accident Costs: Insurance, Liability, and Tort Reforms

Six: Some Prominent Examples of the Insurance Rationale in Practice

SIX Some Prominent Examples of the Insurance Rationale in Practice It would unduly lengthen this study to describe in detail all the legal developments that have been influenced by the insurance rationale. Thirty years ago the published judicial opinions using or discussing the insurance rationale still amounted to a relative handful. Today, they probably number in the hundreds, representing a diverse span of courts and jurisdictions. Nevertheless, it may be possible to convey some of the flavor of judicial use of the rationale, in particular, by examining a few leading examples of the insurance rationale in action. Justice Traynor's use of the rationale in Escola I have already discussed. In this chapter I briefly examine several other cases that illustrate the insurance rationale across a range of uses over several decades: President and Directors of Georgetown College v. Hughes, lone of the earlier cases eliminating charitable immunity; Rowland v. Christian, 2 which adopted a general standard for determining the existence of duties of care; Reyes v. Wyeth Laboratories,3 which extended the duty to warn of product dangers to pharmaceutical drugs administered in a nationwide vaccination program; Sindell v. Abbott Laboratories: which initiated the concept of market share liability; Beshada v. Johns-Manville Products Corp., 5 which imputed knowledge of unknowable dangers in cases involving product liability for failure to warn; and Anderson v. Owens-Corning Fiberglas Corp.,6 which returned to a negligence standard for product failure-to-warn cases in California. The first five decisions all represent expansive uses of the insurance rationale. The final case exemplifies a major retraction. Copyrighted Material 79 80 - CHAPTER SIX President and Directors of Georgetown College v. Hughes As noted above, it was common in the tort law of the early twentieth century for courts to treat charitable nonprofit organizations as immune from liability. The reasons for this view were discussed in the previous chapter. They all rest ultimately on a concern for the financial impact that liability might have on the charitable functions of the institution. The courts were concerned that a crippling tort judgment might seriously impair the organization 's ability to perform its charitable mission, and that fear of such liability (and the resulting financial drain on the institution) might deter potential donors from lending their financial support. This reasoning obviously presumed that a charitable institution would have to pay any tort judgment against it directly out of its assets or operating revenues. Otherwise, if there were other sources for compensation of tort victims that would permit the assets and operations of the charity to remain intact, there would be no need to fear that tort liability would have such an immediate deleterious impact on the organization's charitable functions . If, in particular, a charity could insure against liability, there would be no reason why it would be any less able than a profit-oriented corporation simply to treat liability as a cost of its charitable business and to spread that cost. This is essentially the counterargument against the traditional view that the District of Columbia Court of Appeals advanced in the Georgetown case. The case involved an action by a special duty nurse who was injured when she was struck in the back by a swinging door at Georgetown College 's hospital. She claimed that a student nurse who was hurrying to get an article that had been requested by her instructor negligently opened the door without checking to see if the corridor into which' it opened was clear. The plaintiff sought damages from the college on grounds of vicarious liability. On appeal , the only question before the court was whether the college was immune from such liability because it was a charitable corporation. The court unanimously agreed that the defendant should not be immune, although it split evenly on the question whether liability should be limited to "strangers" or should be extended to include all potential tort victims. Writing for the court, Judge Wiley Rutledge rejected the argument that tort liability would lead to "dissipation" of charitable assets, because "insurance is now available to guard against it and prudent management will provide the protection. It is highly doubtful that any substantial charity would be destroyed or donation deterred by the cost required to pay the premiums." Judge Rutledge stressed insurance's "prevalence and low cost" as "important Copyrighted Material Insurance Rationale in Practice - 8I considerations" in disputing fears of dissipation. "What is at stake...