Document Type
Article
Publication Date
1-1994
Abstract
A tortfeasor who cannot fully pay for the harms that it causes is said to be "judgment proof." Commentators have long recognized that the existence of judgment-proof tortfeasors seriously undermines the deterrence and insurance goals of tort law. The deterrence goal is undermined because, irrespective of the liability rule, judgment-proof tortfeasors will not fully internalize the costs of the accidents they cause. The insurance goal will be undermined to the extent that the judgment-proof tortfeasor will not be able to compensate fully its victims and that first-party insurance markets do not provide an adequate response. Liability insurance can ameliorate these so-called judgment-proof problems in two ways: First, if liability insurance is "experience rated" or "feature rated," the presence of such insurance can induce tortfeasors to take appropriate steps to prevent accidents.5 Second, the presence of liability insurance increases the amount of assets available to compensate plaintiffs. This is because when a judgment-proof tortfeasor has purchased liability insurance, not only the tortfeasor's assets but also the assets of the insurance company can potentially be used to compensate tort victims. However, because virtually all liability insurance policies contain policy limits and because only some liability insurance policyholders have sufficient assets to cover tort judgments that exceed those policy limits, some liability insureds will nevertheless be judgment-proof.
Recommended Citation
Logue, Kyle D. "Solving the Judgment-Proof Problem." Tex. L. Rev. 72, no. 6 (1994): 1375-94. (Symposium on the Law of Bad Faith in Contract and Insurance)