Torts - Cases, Principles, and Institutions Fifth Edition, 2016a

Witt & Tani, TCPI 10. Damages
3. The incidence of workers’ compensation costs. Before the rise of mandatory workers’
compensation, evidence indicates that workers in jobs with a high likelihood of workplace injuries
received a “risk premium” of higher wages. Those premiums levelled out with the introduction of
mandatory workers’ compensation. Workers’ compensation essentially forces employers to pay
their workers in not just wages, but also insurance. Do workers get paid less in wages because
some of their compensation is in the form of insurance? Historical data indicates that workers
bore the brunt of the incidence of workers’ compensation costs through lower wages. Price V.
Fishback & Shawn Kantor, Did Workers Gain from the Passage of Workers’ Compensation
Laws? 110 Q.J. ECON. 713 (1995).
Workers’ compensation laws do not preempt lawsuits against third parties, such as the
tug-boat company that ferried O’Shea to work or the manufacturers of industrial equipment. If
both the employer and the third party are at fault, they would have been held jointly and severally
liable and thus shared the costs before the enactment of workers’ compensation. Under the
current regime, the third party often bears the entire cost because the claim against the employer is
pre-empted. Is this a positive development? On the one hand, these third parties may be held
liable out of proportion to their damages; on the other hand, not immunizing the employers
substantially undoes the quid pro quo of the workers’ compensation deal in which the employer
provides certain compensation regardless of fault in return for immunity from suit in tort.
4. The collateral source rule. If O’Shea had disability insurance, would that affect her tort
award? Most likely not. The “collateral source rule” provides that the damages award a plaintiff
receives shall not be affected by payments from third parties, such as insurers, to cover the cost of
those injuries. RESTATEMENT (SECOND) OF TORTS § 920A(2). This rule means that, in theory, a
plaintiff could receive compensation from her property insurance company for damages to her
house and receive compensation from the tortfeasor for those same damages. Note that while the
collateral source rule makes sense from a deterrence perspective, it is hard to understand if
compensation is our goal. In a deterrence framework, the fact of the plaintiff’s insurance is
irrelevant to the level at which the defendant should have to pay out in order to create optimal
deterrence. In a compensation framework, a plaintiff who has already been made whole by an
insurer will not need further compensation; at the very least, the high expenses of compensation
through tort are likely unjustified purely for compensation purposes.
Note that it is not always clear that the collateral source rule should be thought of as
providing for double payment. On the one hand, the plaintiff may be recovering twice for the
same damage, an apparent windfall. On the other hand, the plaintiff has been paying insurance
premiums for one payout, so the insurance payout is hardly a free windfall. Even if the collateral
source rule allows double payment, is it necessary to preserve the deterrence effects of torts? Or,
is it necessary to preserve an incentive to purchase insurance? Many states have passed
legislation restricting the collateral source rule in some form to restrict the potential double
payment to plaintiffs, most often in the context of medical insurance and malpractice claims.
David Schap & Andrew Feeley, The Collateral Source Rule: Statutory Reform and Special
Interests, 28 CATO J. 83, 89 (2008). Why should defendants get the benefit of a plaintiff’s
insurance arrangements? The case for the traditional collateral source rule is especially clear in
the context of private insurance, where the plaintiff has paid (often very high) premiums to be
protected. But even with respect to public insurance mechanisms, why should a defendant be able
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