Calabresi’s theory of tort liability (1961) as a risk distribution mechanism established insurance as an objective of tort liability. Calabresi’s risk-spreading concept of tort has provided the impetus for much of the subsequent development of tort liability, including risk-utility analysis and strict liability. Calabresi’s analysis remains a powerful basis for modern tort liability. However, punitive damages, noneconomic damages, shifts in liability rules over time, high transactions costs, correlated risks, catastrophic losses, and mass toxic torts pose challenges for the viability of tort liability as an insurance mechanism. Despite limitations of tort liability as insurance, tort compensation also serves a deterrence role. Tort liability retains a valuable insurance function in many situations and may be superior to alternative institutional mechanisms in fostering incentives.
Viscusi, W. Kip and Hersch, Joni, Assessing the Insurance Role of Tort Liability after Calabresi (December 5, 2012). Vanderbilt Law and Economics Research Paper No. 12-35.