Limitations to the Law of Negligence

Discuss the effectiveness of the limitations that the law of negligence has imposed concerning the internalization of the costs of accidents The internalizing of the external costs associated with the consequences of negligent acts is a difficult proposition for academics, the courts, and government authorities. From the primary perspective of motor vehicle accidents, this paper examines the uneven internalisation of external accident costs obtained through the use of various negligence law tools in contrast with broader economic principles. All references are to the English tort system unless noted.

The cost adjectives ‘internal’ and ‘external’ are imported into negligence law from the science of economics. The external costs of motor vehicle negligence are ones that affect society and which are not borne directly by the negligent party (Lindberg, 2004; p.1). The importance of these societal costs is underscored by the fact that over 20 million persons are injured or killed annually in motor vehicle accidents world wide, triggering cost consequences that reach as much as 2 percent of the Gross Domestic Product in some nations (Lindberg, 2001; p.400). A motor vehicle accident may precipitate environmental impacts, short term traffic congestion that affects the convenience of a potentially large number of other road users, a loss of productivity and labour, all of which occur in addition to property damage and personal injuries. The internal costs are the private costs that are the direct responsibility of the individual parties to the collision (Mattiacci, 2003; p.2). These are economic consequences that are personal to the vehicle users, whereas external costs have no impact upon a decision by the motor vehicle user to act in a particular fashion. To the economist, the external costs created by an act of negligence are a form of market failure, because there is a presumption of inefficiency in result. In economic terms, the desire to internalize these external accident costs is motivated by a need to correct a market imperfection and thus achieve a fair ‘price’ or outcome as a result of a negligent act.(Mattiacci, p.3) Motor vehicle operation in this context includes vehicle cost, fuel, maintenance, various forms of taxes, insurance premiums and the cost of time associated with vehicle operation. Both internal and external costs may also be understood by contrast with the various types of damages that may be awarded to a successful litigant in a conventional negligence action. This contrast is created by the intersection between economic theory and common law negligence principles, and it first achieved academic prominence through the work of Vickrey (1968), an economist, and the dissertations of legal commentators Calabresi (1970) and Stoljar (1973). These analyses may be regarded as seminal statements concerning the desired interplay between economics and the law of negligence.

Each work identified the fundamental weakness of the tort system regarding the treatment of the external costs of a motor vehicle accident from two perspectives – the award of payments on a fault basis only, and the extent of compensation available. It was apparent that the tort system offered no incentive to drive safely and reduce the external cost of accidents. (Vickrey, p.4) These three separate reviews are an effective platform from which to review the progression in the modern analyses of the internal / external costs continuum. Traditional tort law principles when viewed through the lens of modern economic analysis now can be said to contain three broad objects –to internalize costs as an incentive for all motor vehicle users to take reasonable precautions and thus reduce over all motor vehicle accident costs; proper allocation of risk; the reduction of the administrative costs of tort claims (a subject that is beyond the scope of this paper) Economists characterize the tort system as applied in motor vehicle accident actions as inefficient due to the quest in each case to determine the existence of fault, or other moral blameworthiness.

This legal pursuit ultimately creates a ‘reward’ for the wronged party; (Nitkin and Landeo, 2004; p.2) the economist seeking to internalize costs would endeavour to minimize the total amount of money spent on (a) the costs associated with the accident in question and (b) the costs required to avoid the accident. When the principles of negligence law and the economic principles of external cost are brought together in this fashion, the broader, long term public implications of careless motor vehicle operation are brought into a clearer focus. Internalization of external costs is a significant extension of the law from available private remedy to broader social tool. In negligence cases, the essential legal question is when and to what extent a loss occasioned by the negligence of another should be shifted from the putative victim to another person or class (Donoghue, 1932). Legal determinations rest primarily upon the finding of a fault, as opposed to cost allocation, or other cost – benefit analysis (Gilles, 2003; p.491). A secondary consideration is the notion of quantum; the ancient maxim that the law does not concern itself with trifles is a practical barrier to otherwise well founded claims. By example, thousands of motorists who are inconvenienced by a road accident attributable to an act of negligence are an example of a significant external cost of the accident to the economist; the compensation otherwise payable to these individuals cannot be efficiently determined through the tort system, and it is therefore excluded. In the traditional tort law approaches employed in a variety of Anglo-American jurisdictions, the external economic consequences of negligent vehicle operation is not a significant factor in the primary determination of fault. As an example, if a motor vehicle owner’s insurance rating and resultant insurance premiums were to increase as a result of an ‘at fault’ accident (or even where there was no apportionment of fault), such considerations have meaning only to the economist and not the jurist. The courts, in applying the distinct but related doctrines of reasonable forseeability (Murphy, 1991), avoidability and contributory negligence, in the assessment of the impugned driver action, will make an award to the successful party without consideration of the broader societal or external costs of the conduct.

The English Court of Appeal decision in Stovin (1994; pp.467 – 470) is an excellent encapsulation of the analysis of the consequences of a breach of duty, where the compensation awarded to remedy the breach is re-affirmed in traditional tort terms. The reasonable person / forseeability doctrines today remain limited tools with which to achieve any significant internalisation of motor vehicle accident costs.(Stovin, 1994; p.467 -470) By contrast, the economist endeavors to assess the consequence of road negligence in terms of the overall quantifiable damage, without reference to any determination of individual culpability or absence of acceptable behavior. The economist assumes that there exists a relationship between driver actions and economic consequence – to create the most efficient allocation of resources, the party must be forced through economic levers to make the most efficient choices (Stoljar, 1980). Monetary incentives and disincentives are therefore the preferred economic motivator to act safely and prudently, to achieve the motor vehicle user equivalent of efficiency for the economist.(Lindberg, 2001; p. 405) There are a range of external costs that constitute the entire economic consequences of a motor vehicle collision that are either imperfectly captured or incapable of inclusion in the calculation of a damage award from a motor vehicle accident claim. Examples of such costs include the ‘rental cost’ of highways, including consequent congestion, delay, and inconvenience to other users of the affected roadway; insurance coverages that are inadequate for the harm caused; accident costs borne by the National Health Service or other private health care providers (Health Act, 2006). Many commentators , including Stoljar (1973, pp. 233-240) and Mattiacci (2003; p.3), have stressed the ineffectiveness of legal reforms in negligence law as a means of influencing behaviors and thus converting external societal impacts into internal costs. Financial incentives and economic benefits will more readily stimulate a motor vehicle user to select alternate courses of action that are safer and tend to reduce external costs. Specific examples of limitations and approaches Technological advances in driver safety, known generally as Intelligent Transport Systems (ITS) are vehicle management programs that combine Global Positioning System technology, integrated on board digital maps, and vehicle monitoring to make road usage more efficient and contribute to the reduction of motor vehicle accidents.(Lindberg, 2004; p.3) Tort systems in a number of jurisdictions have been altered to permit the introduction of shared liability (no fault) systems.

There is little evidence to suggest that accident rates and related external costs decline in these jurisdictions. Statutory changes such as the allocation of hospital care costs among constituents of the health care system are not internalisation of such costs. (Compensation Act, 2006) Government imposed fuel surcharges and road tolls (both distance related charges and congestion tolls) create a disincentive to drive, either generally or at certain peak periods. As a result, the motor vehicle accident rate tends to decline where such measures are implemented. (Lindberg, 2004; p.2) The related outcomes of road congestion, environmental impacts due to motor vehicle accidents, and vehicle wear were also correspondingly reduced. All of these consequences are examples of quantifiable internalisation of otherwise external costs. The most important externality that is considered in conventional motor vehicle negligence cases is vehicle speed. It is a well established principle of automobile driver behavior that higher speeds generally lead to higher risks of motor vehicle accidents.

The higher risk in turn leads to a risk of greater adverse consequences for the parties involved in such collisions. (Lindberg, 2004; p.3) Anti-speeding devices or other vehicle modifications have been tested in relation to whether their use modifies driver behaviour and influences a resultant internalized accidents cost. Where the user is given a financial incentive to use the equipment (generally by insurance premium reduction), accident rates and consequent external costs are eliminated. Conversely, the imposition of speed limits and road traffic enforcement create monetary disincentives to speed, by way of fines and resultant insurance premium increases. (Lindberg, 2004) The final factor to be considered in the internalisation of accident costs may be human nature itself; people tend to find behaviour the most acceptable when it contributes most to their self-esteem. (Levitt, 2005; p. 90) Bibliography Birks, Peter (1999) ‘Equity, Conscience, and Unjust Enrichment’ Melbourne University Law Review, 1-18 Calabresi, Guido (1970) ‘The Cost of Accidents: A Legal and Economic Analysis’ (New Haven, CT: Yale University) Gilles, Stephen G., (2003) “The Emergence of Cost / Benefit Balancing in English Negligence Law’ Chicago-Kent Law Review 77, 489-522 Goerke, Lazlo (2001) ‘Accident Law: An Excessive Standard may be Efficient” https://www.cesifo-gr.IDL/cesifo_wp625.pdf (Date accessed 7/10/06) Gosnell, Chris (2000) ‘English Courts: The Restoration of a Common Law of Pure Economic Loss’ University of Toronto Law Journal, 2, 1- 8 Keating, Gregory C. (2006) “Strict liability and the Mitigation of Moral Luck’ University of Southern California Law School / Legal Studies Paper No. 06-17 Levitt, Steven D. and Stephen J. Dubner Freakonomics (New York: Harper Collins) Lindberg, G. (2001), Traffic Insurance and Accident Externality Charges, Journal of Transport Economics and Policy, Vol. 35, Part 3, pp 399-416. Lindberg, Gunnar et al (2004) ITS Revolution and Voluntary Reduction of Speeding https://users.du.se/~jen/Seminarieuppsatser/Safety_JEN_20oct.pdf#search=’internalisation of accident costs’ (Date accessed 8/10/06) Mattiaca, Giuseppe D. (2003) ‘Towards a Positive Economic Theory of Negative Liability’https://jiju.gmu.edu.departments/law/facultypapers/docs/03-29.pdf (Date accessed 7/10/06) Nikitin, Maxim and Claudia Landeo Split-Award Tort Reform, Firm’s Level of Care, and Litigation Outcomes https://econpapers.repec.org/paper/ecmlatm04/4.htm (Date accessed 8/10/06) Priest, George L. (1991) ‘The Modern Expansion of Tort Liability: Its Sources, its Effects, and its Reform’ Journal of Economic Perspectives, 5, 3 31-50 Shavell, S. (1987) Economic Analysis of Accident Law. (Cambridge, MA: Harvard University Press) Stoljar, S.J. (1973) ‘Accidents, costs and legal responsibility’, Modern Law Review, 36, 233-240 Stoljar, S. J. (1980) ‘Moral and Legal Reasoning’ (Totowa, NJ: Barnes and Noble) Vickery, William (1968) ‘Automobile Accidents, Tort Law, Externalities and Insurance: An Economists Critique’, Law and Contemporary Problems, 33, 468-87 Table of Statutes (United Kingdom) Compensation Act, 2006 Health Act, 2006 Road Traffic Act, 1988 Table of Cases Donoghue v. Stevenson [1932] A.C. 562 (H.L.) Murphy v. Brentwood District Council [1991] 1 A.C. 398 (H.L.) Stovin v. Wise et al [1994] 3 All ER 467

Cite this page