The Interactive Relationship Between Tort Compensation And Liability Insurance

This article is on the shifting and spreading of the loss. However, this article concentrates on the interactive relationship between tort compensation and liability insurance, and seeks the methods to optimize the interactive relationship.Nowadays, a comprehensive compensation system is being established in many countries to transfer and spread the loss in the context of the risk society. Because of the liability insurance depending on the tort liability and the tort compensation depending on the loss spreading function of the liability insurance, the two instruments act as the binary stars and shape the features, functions and values of each other.On one hand, tort compensation influences the liability insurance. The uncertainty of law, especially the uncertainty of tort law combines with the long tail effect of liability insurance to force the insurance companies to make predicting errors while foreseeing the risks they face. Therefore, the company will probably make the decision concerning the pricing of the policy, the arranegment of the capital and the development of the insurance marketing in the atmosphere of ambiguity, which will drive the liability insurance experience the underwrite cycle oscillating between soft markets and hard markets.On the other hand, the liability insurance conversely influences the tort compensation. With the prevalence of the liability insurance, it has been a shadow element of the tort compensation. The judges even consider the existence of the liability insurance to determine the scope of the obligation and the number of the damages. And with the intervention of the insurance company, the company has more power on the application of the tort law rules and controls the settlement procedure. What’s more, the insurance industry relies on the financial strength to lobby the government and struggles for the legislation and policies favorable to the industry.From the mutual influence of the two instruments, we can find the interaction of them is gradually developing a mutually interactive mechanism. The two instruments deriving from the tort liability have developed a bidirectional, cooperative mutualism relationship.Although the two compensation instruments seeking the solidarity and social welfare, the prevalence of liability insurance in the tort compensation probably corrodes the functions of the tort system:compensation and deterrence. Additionally, it stimulates the moral risk and unfaithful actions during the insurance claims settlement. To cure this problem, we should comprehensively use the market means, administrative means and legal means to develop the good faith awareness among the parties.China is one of the emerging economies in the global liability insurance market. In the context of the gradual improvement of the environment, liability insurance market in China is facing tremendous opportunities for development. Meanwhile, liability insurance is becoming an important legal system and playing an important role in supporting the system of tort compensation system. We should identify and fulfill our responsibility and obligation during the transition process of risk view and insurance concept from the corrective justice to distributive justice, from moral obligation to public policy and from individual responsibility to collective risk distribution, to further improve the loss shifting and spreading system.