. 16
( 18)


small proportion of the employer™s total wage bill, on the one hand,95 or its total

92 In 1995 London Transport set up its own ˜captive™ insurance company to handle its liability insur-
ance. The reason given for this move was frustration at the high premium rates and tough policy
terms set by its commercial insurers. LT believed that insu¬cient account was being taken of safety
improvements achieved in its operations.
93 There are about 300,000 in total.
94 For more detail see P.S. Atiyah, ˜Accident Prevention and Variable Premium Rates for Work-
Related Accidents™ (1975) 4 Industrial LJ 1 and 89.
95 According to one estimate, employers™ liability insurance premiums in the UK represent only
0.23% of the total wages/salary bill: Health and Safety Executive, Changing Business Behaviour:
Would Bearing the True Cost of Health and Safety Performance Make a Di¬erence?, Contract
Research Report 436/2002. The authors of this report suggest that the ¬gure would need to
438 Chapter 17

insurance costs (and especially ¬re insurance costs), on the other. It would not be
uncommon for an insurer to refrain from imposing a risk-justi¬ed addition to an
employer™s liability insurance premium because (e.g.) of the insurer™s desire
to retain the ¬re insurance account. Fourthly, premium variation is virtually
unknown in relation to clerical and o¬ce sta¬, whose risks of injury are very small
compared with those of manual or manufacturing workers; but there are, never-
theless, many thousands of accidents among such employees every year.96
On the whole, it seems unlikely that experience rating of employers has a
signi¬cant e¬ect in reducing or minimizing accident costs.97 On the other hand, it
may have some bene¬cial e¬ect, and provided the costs of doing so did not out-
weigh the bene¬ts,98 there might be a case for introducing an element of experience
rating into the funding of the IIS, at least for ¬rms employing more than
500 workers.99 The case for introducing feature rating into the funding of the IIS is
a di¬erent one. Accident rates in di¬erent industries vary widely. For example, the
rate of reported fatal accidents per 100,000 workers in 2002“3 was 4 in the con-
struction industry, but only 0.3 in the services sector; and the rate of reported
injuries resulting in an absence from work of more than 3 days (including ˜major
injuries™) was 1,166 per 100,000 employees in construction but only 487 in the ser-
vices sector.100 Seventeen industries with an average fatal injury rate of more than
2 per 100,000 employees in the 6 years up to 1991“2 accounted for two-thirds
of reported fatalities but less than one-sixth of employment.101 The case for

increase at least ¬vefold to motivate employers to improve health and safety. They also suggest
that discounts for good health and safety performance would need to be at last 25% of basic
premium to be motivational.
96 T.G. Ison, ˜The Signi¬cance of Experience Rating™ (1986) 24 Osgoode Hall LJ 723, makes several
other arguments against experience rating in the industrial context: (a) it encourages employers
to suppress claims rather than to improve safety; (b) it is unlikely to encourage additional safety
measures because the cost of claims is only a proportion of the total cost of accidents to employ-
ers; and (c) it is of no relevance to cases of disease with long latency periods. Indeed, both experi-
ence and feature rating are impossible if the symptoms of a disease do not appear until years after
the insured events that caused them (Stapleton, Disease and the Compensation Debate, 130“3).
97 For a similarly negative conclusion in relation to experience rating of individual medical prac-
titioners see M.M. Mello and T.A. Brennan, ˜Deterrence of Medical Errors: Theory and Evidence
for Malpractice Reform™ (2002) 80 Texas LR 1595, 1616“18. In Britain, NHS doctors do not pay
medical indemnity insurance premiums (16.1) and so the issue does not arise. The authors argue
that for e¬ective deterrence, doctors need to be aggregated into larger responsible entities (such
as hospitals) that can in¬‚uence safety. This is the e¬ect of the British system under which the cost
of liability is sheeted home to NHS trusts. The ABI admitted to the Robens Committee that
˜broadly speaking, the system of employers™ liability insurance is not (designed to be) a major
incentive to the adoption of safe working practices™: Robens Committee Report, vol. 2, 55. For a
contrary conclusion see H. Kötz and H.-B. Sch¤fer,˜Economic Incentives to Accident Prevention:
An Empirical Study of the German Sugar Industry™ (1993) 13 International R. of Law and
Economics 19.
98 This is a very important proviso.
99 But this might be thought undesirable because it would redistribute costs away from large busi-
nesses and on to small businesses.
100 Health and Safety Statistics Highlights 2002/03, supplementary tables 10 and 12.
101 Health and Safety Commission Annual Report 1991/2, 86. According to the Health and Safety
Statistics 1997/8 the top ten riskiest occupations have injury rates which are more than twice the
overall rate and together represented 30% of all reportable injuries in 1996“7.
The functions of compensation systems 439

a di¬erential rating system which recognizes such variations depends partly on
arguments of fairness and partly on the idea that only if industries bear all the costs
of the accidents they cause will the level of accidents be reduced to the economi-
cally optimal level. It is to this latter type of argument that the following sections
are devoted.

17.8 General deterrence
17.8.1 The basic idea
General deterrence102 is a theory about who should bear the costs103 of ˜accidents™.
It is not a theory about who should be paid compensation; indeed, by itself it does
not even require that compensation be paid to anyone. General deterrence is based
on economic theory about how competitive markets work. A competitive market
is a mechanism by which people can express their preferences about what goods
and services they want and can give expression to their views about the prices they
are prepared to pay for them. In conditions of ˜perfect competition™ consumers
are faced with a choice between competing goods and services about which they
have full information, and there are no constraints to the free exercise of choice as
between the various competing goods and services.104 Perfectly competitive
markets produce what economists call the ˜optimal allocation of resources™ which
means that society™s resources are used in the most e¬cient way possible to produce
the maximum wealth attainable given the resources available. One precondition of
the optimal allocation of resources is that prices of goods and services that are
exchanged in the market accurately re¬‚ect the costs of producing them. If the price
of a commodity is too low because it does not accurately re¬‚ect the costs of pro-
duction, demand for the commodity will be too high and resources will be used in
producing it which, if it were properly priced, might be used to produce something
else which people wanted more. According to economic theory, in a perfectly com-
petitive market prices will accurately re¬‚ect production costs.
One of the costs of producing a commodity is the cost of raw materials.
Another is the cost of harm, injury or damage caused by the commodity or the
process of producing it. Both need to be re¬‚ected in the price if the use of res-
ources is to be optimized. Suppose, for example, that two ¬rms are producing
almost identical products, but that ¬rm A uses more expensive raw materials than
¬rm B, with no corresponding gain in the utility or appeal of the product. The

102 What follows is largely an attempt to explain the views of Guido Calabresi as expounded, most
accessibly, in The Costs of Accidents (New Haven, Conn., 1970), with the addition of some criti-
cal comments. There is an enormous literature on this topic, but a few of the more straightfor-
ward contributions are R. Bowles, Law and Economy (Oxford, 1982), ch. 7; A.M. Polinsky, An
Introduction to Law and Economics, 2nd edn (Boston, 1989), chs. 6 and 7; R.A Posner, Economic
Analysis of Law, 6th edn (New York, 2003), ch. 6.
103 Including injury costs and administrative costs.
104 Or, in other words, there are no ˜transaction costs™, which means that the only cost of purchas-
ing a good or service is the price of the good or service itself.
440 Chapter 17

result is that ¬rm A™s product will be more expensive than ¬rm B™s, and ¬rm B™s
will be bought in preference to ¬rm A™s. Hence, the unnecessary use of a more
expensive raw material will be brought to an end. Now suppose that both ¬rms
use the same raw material but a di¬erent process of manufacture; and that A™s
process is apt to cause a certain number of injuries to workers which B™s process
does not. Again, it is desirable that the price of A™s product should re¬‚ect the cost
of the injuries to workers, but it will only do this if the cost is shifted from the
workers to A, perhaps in the form of higher wages for workers at risk of injury.
If this does not happen, A, who is using a method of manufacture which is more
costly (in that it causes injuries), will be able to sell its product at the same price
as B. A will, therefore, be able to compete with B on equal terms instead of being
squeezed out by competition (thus reducing the incidence of injuries to workers).
Suppose, further, that A™s process is also quicker than B™s and therefore, in this
respect, cheaper. If the cost of the injuries it causes is not re¬‚ected in the price of
A™s products, A may be able to sell its product at a lower price than B™s. It will then
be B who is squeezed out by competition, with a consequential misallocation of
The same basic idea can be applied to the use of goods and services as opposed
to their production. Take driving, for example. Other things being equal, the more
it costs to drive, the less people will do it. Amongst the costs of driving are the costs
of road accidents. According to the theory of general deterrence, if the costs of
driving accidents are not included in the ˜price™ of driving, then driving will, rela-
tive to other transport activities, such as taking a bus or a train, be too cheap and
will be engaged in at a higher than optimal level.
One aspect of the optimal allocation of resources is the minimization of resource-
wasting events. Accidents consume resources that could be used in other ways. In
conditions of perfect competition, therefore, accidents and accident costs are mini-
mized by the operation of market forces. The level of accidents in conditions of
perfect competition (the ˜optimal level of accidents™) is the level reached when the
costs of reducing the level of accidents any further would exceed the savings in acci-
dent costs105 that the further reduction would produce.
To summarize so far, in conditions of perfect competition, resources are allo-
cated to their most productive use; the prices of goods and services accurately
re¬‚ect their production costs, including their accident costs; activities are engaged
in at the optimal level; and accidents are reduced to the optimal level.
However, in the real world, conditions of perfect competition do not exist. This
means that if we want to produce the e¬ects that a perfectly competitive market
would, the real market cannot be left alone to do it. Governments therefore inter-
vene in the operation of markets to correct imperfections in the hope, thereby, of
generating the e¬ects of a perfectly competitive market. One way of doing this is by

105 These include not only costs to the accident victim but also e.g. lost production and use of man-
agement time borne by producers as a result of accidents.
The functions of compensation systems 441

law; and this is where the theory of general deterrence comes in. According to that
theory, if accident costs are allocated106 in the way they would be in conditions of
perfect competition, the optimal level of accidents will be reached. For this reason,
general deterrence theorists say that the law should allocate the costs of an accident
(that is, should impose liability for injury, death, disease and so on caused by the
accident) to the party able in the future to avoid accidents of that type most cheaply.
In this way, the optimal level of accidents will be reached because the person who
bears the accidents™ costs will take steps to avoid accidents of that type in the future
to the point where any further accident-avoidance measures would cost more than
the costs of the accidents they would prevent.
Alternatively, even if such accident prevention measures are not taken, the imp-
osition of liability will cause the costs of accidents to be re¬‚ected in the prices of
the relevant commodities or activities with the result that equivalent but safer com-
modities and activities will be preferred by consumers to less safe ones. In this way,
the scale on which various activities are engaged in and various commodities pro-
duced will be optimized.
It should be noted that the notion of the optimal level of accidents allows that
in a perfectly competitive world some accidents might be tolerated because the cost
of preventing them would exceed the costs they in¬‚ict on the victims. In reality, too,
some accidents cannot be prevented because we lack the knowledge or ability to do
so or because we are unable to foresee them. The theory of general deterrence says
that the costs of such accidents ought to be re¬‚ected in the prices of activities and
commodities because only if this is done will consumers be able to choose ratio-
nally between alternatives on the basis of their relative safety.
To summarize brie¬‚y so far, whereas the common law of tort basically says that
accident costs should be borne by the person who caused the accident, the theory
of general deterrence says that they should be borne by the person who can most
cheaply avoid accidents of that type in the future.
What is the possible scope for applying this notion of general deterrence in fash-
ioning the law relating to compensation for personal injury, disease and so on?
There are at least three conditions that must be satis¬ed if the idea of general deter-
rence is to provide guidance in individual cases as to how injury costs ought to be
allocated. First, it must be possible to identify the party to which particular injuries
or losses ought to be allocated; secondly, it is necessary to quantify the injury
costs;107 and, thirdly, the party to whom accident costs are allocated must, to some
extent at least, be sensitive to increased costs. We will consider the second of these
conditions ¬rst.

106 Whether by a liability rule externalizing them from the victim or a no-liability rule (e.g. a con-
tributory negligence rule) internalizing them (wholly or partly) to the victim.
107 Costs in this context are costs to society as a whole (˜social costs™), not costs to the persons whom
tort law allows to recover damages (˜private costs™). In any particular case, social costs may be
greater or less than private costs, in which case tort law will only partially achieve the goal of
correct cost allocation.
442 Chapter 17

17.8.2 Ascertaining the costs of an accident
Accident costs can be usefully divided into primary costs, such as loss of income,
loss of faculty, medical expenses and so on; and secondary costs, that is the admin-
istrative costs of allocating the accident costs to the party who ought to bear
them.108 General deterrence is concerned with both types of cost: the main aim is
to allocate primary accident costs to the cheapest cost avoider, but also to minimize
the sum total of the two types of cost. So there may come a point where the cost of
identifying the cheapest primary accident cost avoider may be so high that it would
be better to place those costs on a party less good at avoiding them, because the
additional costs which the cheapest primary cost avoider could prevent would be
less than the additional secondary cost involved in identifying that person.
So far as primary costs are concerned, for economic purposes costs are ˜net costs™.
The net costs of an ˜accident™ are the costs minus any bene¬ts accruing from the
accident-causing activity. It may be possible to identify and calculate economic
costs and bene¬ts relatively easily; but an activity may cause non-economic losses,
which need to be assessed, and non-economic gains, which must be set o¬ against
the losses. For instance, an activity may create noise or smoke which is a source of
irritation, rather than damage; it may destroy a beautiful view which thousands
have admired daily; or it may maim and injure, causing pain and su¬ering. Is it pos-
sible to place an economic valuation on such gains and losses? This question has
proved a source of extensive controversy among economists, as it has among
lawyers. We have already discussed the legal aspects of the assessment of damages
for ˜pain and su¬ering™ and we referred brie¬‚y to the approach of economists in that
context.109 On the whole, economists have tended to be more interested in the
di¬culties of valuing lives than in the problem of valuing disabilities, whereas with
lawyers it has usually been the other way round. There is no need to explore this
question at length because at the end of the day there is almost universal agreement
that for purposes of cost-bene¬t analysis, economists must either ignore non-
economic losses or place some fairly arbitrary conventional valuation upon them,
because the cost of ˜accurate™ valuation of non-economic losses itself outweighs any
bene¬t (in terms of deterrence) which would accrue from the exercise. As Calabresi
says,˜resource allocation even in theory is an exercise in doing the best possible and
not achieving perfection™.110

17.8.3 Allocation of costs to activities
As we have seen, the basic general deterrence idea is that primary net accident costs
should be allocated to the cheapest cost avoider. But we have also seen that if the
108 But this is not the way Calabresi uses these terms. For him, general deterrence is an approach to
˜primary accident cost avoidance™; compensating accident victims is a means to ˜secondary acci-
dent cost avoidance™; and minimizing administrative costs is a means to ˜tertiary accident cost
109 6.5.
110 ˜The Decision for Accidents: An Approach to Non-Fault Allocation™ (1965) 78 Harvard LR 713,
724 n. 17.
The functions of compensation systems 443

cost of doing this is too great, it may be better to allocate the costs to a party who
may not be the most e¬cient in avoiding accident costs, so as to minimize the sum
of accident avoidance costs and costs of allocation of primary accident costs. The
¬rst step may be to rule out parties who clearly could not satisfy the description of
˜cheapest cost avoider™. So, for example, the costs of accidents involving citizens
should not be allocated to the State (e.g. in the form of an entitlement of injury
victims to receive social security bene¬ts in respect of their injuries) because it is
highly unlikely that a party not involved in the accident would ever be the cheap-
est avoider of costs of that type of accident.
In the language of general deterrence, to allocate a cost to the wrong party is to
˜externalize™ it from the party who should bear it onto another party. Externalization
of costs is to be avoided because it results in under-deterrence of accident costs.
Another example of externalization would be the placing of the costs of road acci-
dents on all ˜drivers™ equally when it was clear that young male drivers as a group
caused proportionately more road accidents than the whole class of drivers as a
group. This example shows that the principles of general deterrence are relevant
even when the party to whom the costs of an accident are allocated is insured, pro-
vided the cost of insurance is related to the risk that the insured will generate acci-
dent costs.111 It also shows that the process of categorization for insurance purposes
and the process of allocating risks for general deterrence purposes are not dissimilar.
For example, general deterrence theorists do not want to deter motoring but only to
deter motor accidents; so the aim is to identify that class of drivers whose conduct
is most closely related to motor accidents.
But having ruled out parties who are obviously not the cheapest cost avoider, it
may be more di¬cult to choose from between the remaining parties the one who
is the cheapest cost avoider. Calabresi gives some guidelines for performing this
task. The ¬rst is that costs should be allocated to the party best able to assess the rel-
evant risks of injury and the probable injury costs, on the basis that this party is in
a better position to take injury-reduction steps, or to shift the costs to another party
better able to take cheap avoidance action, than the party who is less well able even
to assess the risks and costs. For example, a consumer who cannot assess the risks
presented by various competing products will not be in a good position to choose
safer products in preference to less safe products and in this way give the manufac-
turer of the less safe products an incentive to take steps to improve their safety. On
the other hand, a consumer is in a better position than a manufacturer to assess
risks arising from the consumer™s peculiar personal characteristics, which may be
unknown to the manufacturer.
If it is not possible to identify either the cheapest cost avoider or the cheapest
cost assessor, a second guideline suggested by Calabresi is to allocate injury costs to
the party who can most cheaply insure against the risk of their occurrence.
111 G.T. Schwartz, ˜The Ethics and the Economics of Tort Liability Insurance™ (1990) 75 Cornell LR
313, 336“59. We have already noted di¬culties in making insurance accurately re¬‚ect risk:
444 Chapter 17

If the loss is placed on the party for whom insurance is less available or more expen-
sive, a false cost “ the excess cost of his insuring “ will in e¬ect be made part of the price
of the goods.112

Furthermore, if, for example, injury costs resulting from defective products are
placed on consumers even though manufacturers are cheaper insurers, the losses
may end up being borne, for instance, by the State in the form of social security
payments. But according to general deterrence criteria, the State is a totally
inappropriate loss bearer.
There is, however, a further complication, which must now be introduced. The
fact that accident costs are allocated to a particular party does not mean that that
party will ultimately bear them. Take a simple illustration: if the costs of injury
caused by defective products are imposed on manufacturers in the ¬rst instance,
they may be shifted by manufacturers to consumers in the form of increased
prices. Economic theory says that in conditions of perfect competition it does not
matter on whom accident costs are initially imposed, because the operation of
market forces will reallocate those costs to the cheapest cost avoider because a
perfect market produces an optimal allocation of resources. In the real world,
however, although parties may have the ability to shift costs from themselves to
another, accident costs may not end up on the cheapest cost avoider as they
would, by de¬nition, in a perfect market. Even if accident costs are placed by law
on one party because that party is thought to be the cheapest cost avoider, the
cheapest risk-assessor or the cheapest insurer, that party may be able to transfer
them to another party who is a less good cost avoider (etc.) than the party on
whom the costs were originally imposed. This process Calabresi calls ˜external-
ization by transfer™. Since externalization is, by de¬nition, undesirable, the deci-
sion as to who should bear accidents costs in the ¬rst place must be made taking
into account the ability of that person to transfer costs to another less suitable cost
Conversely, however, in a situation where it is di¬cult to identify the cheapest
cost avoider, the next best thing to do may be to place accident costs on what
Calabresi calls the ˜best briber™, by which he means the party who is best able to
identify the cheapest cost avoider and can, at least cost, transfer the costs to that
person. Parties vary in their ability to transfer costs: for example, a monopoly
manufacturer of goods with no substitutes would be able to transfer the costs of
accidents resulting from the use of its goods easily and cheaply by increasing the
price of its goods without taking any measures to make them safer. On the other
hand, a pedestrian injured by a driver on the road will ¬nd it di¬cult to transfer
the accident costs to the driver (which might be desirable in deterrence terms), and
may ¬nd it much easier to transfer them to the State by claiming social security
bene¬ts (which would, in deterrence terms, be a bad thing).

112 Calabresi, The Costs of Accidents, 164.
The functions of compensation systems 445

This process of post-allocation transfer113 can be easily illustrated by the case of
Sturges v. Bridgman114 in which a doctor sued his neighbour, a confectioner, in nuis-
ance, complaining that the noise and vibration made by the confectioner™s machin-
ery made it impossible for him to use a consulting room, which he had built at the
bottom of his garden. The court held that the doctor was entitled to an injunction
to restrain the confectioner from using his machinery so as to prevent the doctor™s
use of the consulting room. The award of the injunction would not have prevented
the confectioner negotiating with the doctor to be able to continue with his busi-
ness, although it did give the doctor a very strong bargaining counter in any such
negotiations. Suppose the net value to the confectioner of the use of his machinery
was £50,000 a year, while the net value to the doctor of the use of his consulting
room was £20,000 a year; it would plainly have been in the interest of both parties
(although not necessarily of the wider community) for the confectioner to pay the
doctor anything between £20,000 and £50,000 a year to release him from the
injunction. If this had happened, it would have shown that the court had allocated
the costs of the nuisance to the wrong party, but also that the parties were able to
correct the misallocation by negotiating a transfer.
This sort of post-allocation bargaining may be very di¬cult in certain types of
case. Suppose the costs of certain sorts of road accidents are wrongly placed on
drivers when they should be placed on cyclists who could easily avoid accidents of
that type by wearing luminous items. It would, in practice, be very di¬cult for the
costs of this type of accident to be shifted by drivers back onto cyclists. Where desir-
able post-allocation bargaining is unlikely to take place, it is very important for
accident costs to be correctly allocated in the ¬rst instance; and where externaliza-
tion by transfer is likely to occur, the relevant question is whether the transferee
(rather than the transferor) is a better cost avoider than the other party on whom
the costs could initially be placed.
It should be clear from this discussion that it may be di¬cult to identify with any
con¬dence the person on whom accident costs should be placed according to the
principles of general deterrence. The problem is likely to be particularly acute in the
case of diseases (as opposed to traumatic injuries) because we know so little about
how a great many diseases are caused.115 On the other hand, we can see that the
application of general deterrence ideas may produce surprising results, quite
di¬erent from those which an application of the rules of tort law would produce.
Suppose that property of people who live near a factory, which produces explosive
chemicals, is damaged as the result of an explosion in the factory. At ¬rst sight it
might seem sound from a deterrence point of view to impose the explosion costs
on the factory owner. But if it turned out that the result of placing the accident costs
on the factory owner would be the closure of the factory with the loss of many jobs,

113 The most famous discussion is by R.H. Coase, ˜The Problem of Social Cost™ (1960) 3 J. of Law
and Economics 1.
114 (1879) 11 Ch D 852.
115 Stapleton, Disease and the Compensation Debate, 124, 127.
446 Chapter 17

the better solution might be to leave the costs on the neighbours and so encourage
them to insure against such costs or to move house to a safer place. Another illus-
tration may be found in the case of Miller v. Jackson116 where home-owners com-
plained of the playing of cricket on adjoining land as a result of which the
occasional ball landed in their garden. Apparently Mrs Miller was a very sensitive
person who was greatly disturbed by the risk of being hit. In such circumstances, it
would probably be better in an economic sense for the home-owners to be refused
a remedy, and thus encouraged to sell the house and move elsewhere, than to be
awarded damages or an injunction in respect of the cricket playing.

17.8.4 Responsiveness to price mechanism
Even if we have decided on general deterrence grounds that a particular activity
should bear particular accident costs, we may not be able, for some reason or other,
to make that activity bear the costs. Take the case of lung cancer, which is sig-
ni¬cantly attributable to the activity of smoking. Smoking is not a good candidate
for general deterrence measures because the only way of preventing smoking-
related diseases is to stop smoking; and the level of smoking would not be sub-
stantially a¬ected by increased costs (as is demonstrated every time the taxes on
cigarettes and tobacco are raised), unless the increase was so great that it would be
politically unacceptable. Or take the example of road accidents: some accidents are
preventable at reasonable cost; and as for the rest, increasing the cost of motoring,
or some types of motoring, could have some e¬ect on the amount of motoring. On
the other hand, increasing the ˜cost™ of pedestrianism (especially if this increase
merely takes the form of refusing damages to injured pedestrians) might encour-
age pedestrians to be more careful, but is less likely to reduce the amount of
Activities that are most likely to be amenable to control through the price mech-
anism are those which, in economists™ jargon, have a high elasticity of demand.
Elasticity of demand for a commodity or activity depends partly on how many
sources of supply there are and partly on whether there are any substitutes for it.
Increasing the cost (and so the price) of a commodity produced by a monopoly and
for which there is no alternative is less likely to a¬ect demand for the commodity
than increasing the cost of a commodity marketed by several producers and which
can be given up for some (near) equivalent. Many drugs, for example, have low elas-
ticity of demand so that increasing their price may have little impact on consump-
tion. For this reason, government control of the availability of a dangerous drug
may be the only way of reducing consumption and hence of reducing the incidence
of adverse side-e¬ects.
In trying to identify activities with a high elasticity of demand, the way activities
is described is of great signi¬cance. For example, it may well be that motoring as a
whole has a low elasticity of demand, so that the total amount of motoring does

116 [1977] QB 966.
The functions of compensation systems 447

not respond appreciably to increases in the cost of motoring “ as is demonstrated
by the fact that little change follows from the regular increases in petrol prices. But
we could perhaps break motoring down into categories which would be responsive
to price variations. Within the activity of motoring we could distinguish between
driving di¬erent types of vehicle “ old vehicles and new ones, vehicles of di¬erent
colours or power; between driving at night and in the day; in the town and in the
country; and so on. If more of the costs of road accidents were placed on some of
these sub-categories of driving and less on others, we might ¬nd an appreciable
reduction in the number and costs of road accidents as people switched from more
dangerous types of motoring to safer ones.
Elasticity of demand is not the only factor relevant to the amenability of com-
modities or activities to general deterrence techniques. For instance, disease-
causing products and activities are likely to be less amenable to such techniques
than products and activities which cause traumatic injuries because, for example,
diseases often take a long time to develop, by which time the person responsible for
the activity which caused the disease may no longer be engaged in the activity.117
Sensitivity to the imposition of accident costs is undoubtedly weakened by insur-
ance against the risk of incurring such costs, even if the premiums for such insur-
ance are risk-related, simply because insurance reduces the impact of accident costs
on the individual by spreading them over time and amongst a large group of people.
It may be, too, that di¬erent types of party vary in their sensitivity to the imposition
of accident costs. A well-run company will, for instance, be aware of the value of
taking safety measures which are less costly than the damage they prevent. By con-
trast, the ordinary motorist, for example, who pays for some road accident costs
through insurance premiums, makes a payment once a year and then tries to forget
about it until the following year. Such a person probably does not even calculate the
cost of motoring in the same way that a company would calculate its costs.
The motorist is apt to look at the marginal cost of motoring in deciding how
much to drive, and in practice this cost will probably be perceived as little more
than the cost of petrol, all other costs (including insurance costs) being perceived
as overheads. So increasing the cost of insurance might not have much e¬ect on the
amount of motoring done. By contrast, corporations are more likely to take
account of the average rather than the marginal cost of their activities in deciding
what to do. Since the average cost would be increased by increasing insurance pre-
miums, the amount of commercial driving might be more a¬ected by such a move
than the amount of private driving. However, even this conclusion may be open to
doubt if motoring is an activity with low elasticity of demand. One group of
researchers concluded that in the case of auto accidents, ˜there are no adequate
grounds for believing that the proper cost allocation would either reduce accidents
or change the total amount of driving appreciably™.118

117 Stapleton, Disease and the Compensation Debate, 126“8.
118 Conard, Automobile Accident Costs and Payments, 127.
448 Chapter 17

17.8.5 Applying general deterrence criteria in practice
These, then, are the criteria recommended by general deterrence theory for decid-
ing who should pay the costs of accidents, injuries, diseases and so on. But it must
be said that they may be very di¬cult to apply in practice. For example, very little
is known about the causes of many diseases and illnesses, and the less that is known
about causation of a disease, the more di¬cult it will be to identify the party which
could most cheaply prevent the disease. Or take the case of road accidents. It is
probably the case that some types of road accidents would be most cheaply pre-
vented by drivers, some by other road users, others by car manufacturers and yet
others by road designers. However, it may be extremely di¬cult to decide what
proportion of the costs of road accidents should be imposed on each of these
groups in order to give them the correct incentives to take accident-avoiding
action. Nor will such incentives be e¬ective unless the various groups involved
properly understand the accident risks their conduct entails. Moreover, each of
these groups may be able to externalize some or all of the accident costs imposed
on them. For example, drivers™ liability insurance may be imperfectly related to
risk; pedestrians and cyclists may claim social security bene¬ts rather than suing
drivers; road authorities may fund accident costs by taxation and not take
avoidance action; and car manufacturers in an imperfectly competitive market
may be able to pass costs on to car-buyers without improving car safety. Taking
proper account of such opportunities for externalization might be very di¬cult

17.8.6 General deterrence and existing systems
In this section we shall inquire how far the various methods of compensation for
which the law at present provides embody or give e¬ect to general deterrence
principles. But ¬rst we should repeat that general deterrence is not primarily
concerned with compensation but with deterrence, whereas the prime concern of
the systems we have surveyed is compensation. We must bear in mind the possi-
bility that compensation and deterrence may not be compatible goals in all situ-
ations. The tort system
First, let us consider the tort system. Because the tort system links liability to pay
compensation with responsibility for causing accidents, it may, to some extent,
further the goals of general deterrence. Application of the tort concepts of fault
and causation may often lead to the imposition of liability to pay compensation
on the cheapest cost avoider or cost assessor, or on the cheapest insurer or the best
The idea that damage is compensatable only if it falls within the ˜risk™ that a par-
ticular rule is designed to guard against (5.3.2) is explicable in general deterrence
terms. For instance, by saying that an unlicensed driver is not liable for an accident
merely by virtue of being unlicensed, the law is in e¬ect refusing to treat that
The functions of compensation systems 449

accident as a cost of the activity of ˜unlicensed driving™.119 Some of the rules relat-
ing to remoteness of damage (5.3.3) are also explicable in general deterrence terms.
If the consequence of a negligent act is altogether too freakish or unforeseeable the
law exonerates the negligent party from liability; the general deterrence explanation
of this is that the negligent party is unlikely to be the cheapest avoider of unfore-
seeable or freakish injuries. For example, suppose that a negligent motorist collides
with the car in front and damages some exceptionally valuable paintings in its boot.
It is possible that in such a case the courts would hold the loss unforeseeable and
therefore refuse to hold the negligent motorist liable for the damage to the paint-
ings. Hence, the owner of the paintings (or, more probably, an insurer) would have
to bear the cost. This would probably be a sound result from the point of view of
general deterrence because the owner of the paintings would most likely be able to
protect the paintings from such damage more easily (by arranging safer trans-
portation) than the driver.
Some argue that certain fundamental principles of tort law give e¬ect to the eco-
nomic notion of optimal resource allocation which underlies general deterrence.
The negligence formula, as propounded, for example, in the famous Learned Hand
calculus,120 may be seen as based on the economic principle that liability for injury
should be imposed where the cost of avoiding injury is lower than the sum of
primary accident costs multiplied by the probability that the accident would occur,
but not where the avoidance cost is higher than this latter sum. The doctrine of con-
tributory negligence may also be seen as based on general deterrence ideas: if the
injured persons could have avoided the accident more cheaply than the injurer, then
the injured person should be required to bear some or all of the accident costs as an
incentive to take accident-avoiding action in the future. There has been controversy
about the extent to which the detailed rules of the law of negligence and contribu-
tory negligence can be said to promote optimal allocation of resources,121 and there
has also been controversy about whether strict liability may in some circumstances
be more e¬cient in the economic sense than fault liability.122 But in a broad sort of
way, it does not seem necessary to dissent from the idea that there is some connec-
tion between the basic principles of tort law and general deterrence ideas.
However, the general deterrence potential of tort law is limited.123 First, because
most tort compensation is paid for via liability insurance, the deterrent e¬ect of tort

119 But there is some evidence of a correlation between unlicensed driving by older drivers and
su¬ering injury while driving: S. Blows et al., ˜Risky Driving Habits and Motor Vehicle Driver
Injury™ (2005) 37 Accident Analysis and Prevention 619. More strongly, Department for Transport
research estimates that unlicensed drivers are between 2.7 and 8.9 times more likely than ˜all
drivers™ to be involved in an accident: Road Safety Research Report No. 48, Research into
Unlicensed Driving: Final Report (2003).
120 2.4.2.
121 See e.g. G.T. Schwartz,˜Contributory and Comparative Negligence: A Reappraisal™ (1978) 87 Yale
LJ 697.
122 Stapleton, Disease and the Compensation Debate, 122“3.
123 G.T. Schwartz, ˜Reality in Economic Analysis of Tort Law: Does Tort Law Really Deter?™ (1994)
42 UCLALR 377.
450 Chapter 17

liability is inevitably weakened. Indeed, this is simply an illustration of a more
general point: insurance spreads accident costs over time and over groups of people
so that even if it is properly risk-related (with the result that it does not externalize
accident costs), it can have the psychological e¬ect of reducing incentives to avoid
insured events. Insurers refer to this e¬ect by the term ˜moral hazard™. Loss spread-
ing furthers compensatory goals by making it much more likely that compensation
payments will be forthcoming; but it tends to be inimical to the furtherance of
deterrence goals because it weakens to deterrence incentives felt by any particular
individual insured party.
Secondly, application of the legal concept of ˜causation™ is much more likely to
lead to the imposition of accident costs on some parties than on others, regardless
of their relative ability to avoid costs cheaply. For example, we have seen that road
accidents are much more likely to be attributed by tort law to the actions of drivers
than to the actions of car or road designers, regardless of whether any particular
type of accident could be more cheaply avoided by drivers, car designers or road
designers. Again, the costs of property damage caused by gas explosions are much
more likely to be imposed on gas suppliers regardless of whether the cheapest way
to avoid such damage is to make gas pipes more leak-resistant or to make property
more damage-resistant. To some extent, such problems are lessened by the fact that
tort law is de¬cient as a mechanism for compensating injury victims. Because, in
theory, tort law does not generally impose liability for accidents not caused by the
fault of someone other than the victim, and because in practice many accident
victims receive no tort compensation, everyone must take into account the fact that
they may su¬er personal injury or property damage in circumstances in which no
tort compensation will be available. Incentives to avoid loss can be provided as
much by not being relieved of accident costs as by having them imposed. Because
general deterrence is not a theory of compensation, it is concerned only with
ensuring that the right party is given accident-avoidance incentives, regardless of
whether this is done by shifting a loss or letting it lie where it fell.
So the ultimate theoretical issue is whether tort law distributes the costs of acci-
dents between victims and causers of accidents in the way general deterrence theory
would require. There is good ground for thinking that it does not.124 There are too
many cases in which an activity does contribute (in a statistical sense) to accident
causation, but in which the law™s concepts of fault and cause operate in such a way
that one ˜causer™ of an accident may be charged with too high a proportion of the
costs, and another ˜causer™ with too small a proportion. For example, a person who
parks a car in a street undoubtedly creates a risk both to the car and to others; this
risk is su¬ciently obvious to justify a higher comprehensive motor premium for
cars regularly garaged in a public road. But in the event of a collision between a
moving and parked vehicle, the entire fault, and hence cost of the accident, will

124 G. Calabresi, ˜Does the Fault System Optimally Control Primary Accident Costs?™ (1968) 33 Law
and Contemporary Problems 429.
The functions of compensation systems 451

nearly always be attributed to the driver of the moving vehicle. The result of this
may be that too high a proportion of the cost of such collisions is borne by the
third-party liability insurance and too little by ¬rst-party property insurance.
Consequently, there may be too much pressure on drivers to avoid such accidents
and too little pressure to arrange o¬-street parking; too much pressure to develop
cars that do less damage in collisions and too little pressure to develop cars that
better resist damage.
It should also be remembered that general deterrence aims at the minimization
of the sum of primary and secondary accident costs. The administrative costs of the
tort system are relatively very high, and it may be that such deterrence as the tort
system achieves is not worth the price paid for it. It may be that the compensatory
goals of the tort system could be achieved equally well by some other system (such
as ¬rst-party insurance with risk-related premiums) with little or no loss of deter-
rence but at a much lower administrative cost. Even from a general deterrence view-
point, the fact that such an alternative system was no better a deterrent than the tort
system would not matter if the cost of achieving that level of deterrence was less
under the alternative system (although some other system which achieved better
deterrence at similar cost would be even better from this perspective, regardless of
how well it achieved compensatory goals).
It must next be observed that the tort system does not, in fact, impose all the
costs of accidents on those whom it identi¬es as the proper parties to bear such
costs. For instance, despite the scheme for recoupment of NHS costs from tortfea-
sors (15.4.5), it is probably still the case that a signi¬cant proportion of the cost of
medical services required by tort victims is borne by the NHS, which is largely paid
for by taxpayers, thus relieving motorists as such of a ¬nancial burden which would
otherwise have to be paid for in tort damages, and hence in premiums. Similarly,
the cost of police activity following road accidents is not charged to accident
causers but to taxpayers. Many of the other costs of compensating accident victims
are borne by the social security system,125 sick-pay schemes and other forms of
compensation. Furthermore, the o¬-setting of certain collateral bene¬ts against
tort damages relieves tortfeasors of some of the social costs of their torts.
Finally, tort damages are intended to compensate for the private losses of injury
victims and their dependants; they do not take account of social loss. The social loss
involved in the death of a young unmarried adult, for instance, may be high, espe-
cially if the person has received advanced education at public expense; but tort
damages for the death of such a person will be very low. If no dependency can be
proved, the only damages recoverable will be a small amount in respect of losses
su¬ered by the victim between the date of the accident and the date of death
(assuming they are di¬erent), which clearly bears no relationship to the loss of
society™s investment in the individual or its expectation of gain from that person™s

125 Despite the scheme for recovery of social security bene¬ts from tortfeasors: 15.4.5.
452 Chapter 17 The social security system
Next, let us consider the social security system. It is apparent that in so far as the social
security system is ¬nanced out of general taxation it ¬‚ies in the face of the precepts
of general deterrence. So far as concerns those bene¬ts entitlement to which depends
on the payment of National Insurance contributions, there is no particular rela-
tionship between contributions paid and bene¬ts received. Nor are contributions
either feature-rated or experience-rated; but this is not surprising in the case of many
bene¬ts. It would be both impractical and politically unacceptable to make the chro-
nically sick pay premiums for incapacity bene¬ts according to risk, and there is no
reason to suppose that doing so would have any signi¬cant e¬ect on the incidence of
sickness even if we did. The cost of industrial injuries and diseases could be made to
fall more heavily on those industries which present greater risks by feature-rating
some element of employer™s National Insurance contributions. Doing this would
bring the IIS more into line with general deterrence principles (although it would still
not guarantee that the costs of industrial accidents were borne by the cheapest cost
avoider). Whether feature-rating would be worthwhile would, of course, depend
partly on how much it would cost and how e¬ective it turned out to be in reducing
the costs of industrial injuries. It is, perhaps, unlikely that it would be worthwhile
attempting to introduce experience-rating into the calculation of employer™s
National Insurance contributions, given the cost and complexity of doing so.
Furthermore, it would probably be unacceptable to introduce either feature-
rating or experience-rating into the calculation of employee™s National Insurance
contributions since the aim of the IIS is seen as being to provide basic bene¬ts to
all eligible claimants on the basis of need. The conduct of the claimant is, in certain
cases, relevant in the IIS, but on the whole, the system does not aim to give workers
incentives to avoid industrial injuries.
The cost of criminal injuries compensation awarded by the CICA is borne
entirely by the taxpayer, though even in this ¬eld there is scope, in theory, for the
operation of general deterrence. Criminals are most likely to be the cheapest
avoiders of the costs of crime. On the whole, it would be impractical, though desir-
able, to charge criminals with the injury costs of crime in the hope of reducing
crime; although criminal compensation orders (which are designed to compensate
victims, not to deter criminals) may have some deterrent e¬ect. Some deterrent
e¬ect might also be achieved by requiring employers of workers who, by reason of
their occupation, are under a higher than normal risk of being subjected to crim-
inal violence, to pay contributions towards criminal injuries compensation, given
that a signi¬cant proportion of applicants for criminal injury compensation are
engaged in high-risk occupations “ police o¬cers, post deliverers, wages clerks,
night watchmen and so on. First-party insurance
Finally, let us consider ¬rst-party insurance. There is some room for the operation
of general deterrence by the charging of risk-related premiums for various sorts of
The functions of compensation systems 453

loss insurance. For example, businesses that install ¬re sprinklers in commercial
buildings may pay lower premiums on that account; people in hazardous occupa-
tions may have to pay higher life insurance premiums, and so forth. In the case of
property damage insurance, there is probably considerable scope for risk-related
premiums, and this might be an e¬ective way of reducing insured losses. But
feature-rating and experience-rating are administratively more expensive than ¬‚at-
rating, and there comes a point where the gains to be achieved from more accurate
risk di¬erentiation in terms of claims and loss reduction are outweighed by the
costs of greater di¬erentiation. Furthermore, provided an insurer™s total income is
su¬cient to cover claims and administrative expenses and provide a pro¬t, the only
incentive the insurer has for reducing the level of losses and claims further is com-
petition “ so that its premiums can be lower than those of its competitors. Thus the
competitiveness of the insurance market is an important factor in determining the
degree to which premiums will be risk-related. Also, there may be other less costly
ways of reducing premiums; for example, by cutting administrative costs or
increasing investment income.

17.8.7 An assessment of the value of the general-deterrence approach
An assessment of the value of the theory of general deterrence must take account
of its limitations. First, deterrence is only one of a number of objectives that we may
seek to achieve in relation to accidents and injuries. For example, no society toler-
ates any and every injury-causing activity even if those taking part are prepared to
pay the injury costs. Some activities are the subject of outright prohibition. Thus
we permit people to drive cars if they pay for the cost of accidents caused by their
fault, but we do not permit them to drive while drunk, even if they are prepared to
pay for the cost of accidents they cause while in that state. General deterrence may
be an acceptable response to some accidents but not to others. Again, for example,
although a prime aim of general deterrence is to avoid externalization of accident
costs, a society may be prepared to contemplate a degree of externalization in order
to achieve some income redistribution. This is, for example, exactly what we do at
present in the industrial injuries scheme by not relating National Insurance con-
tributions to risk. One result of this is that those who participate in low-risk indus-
tries (whether as consumers, workers or shareholders) in a sense subsidize those
who participate in high-risk industries.
Furthermore, a large part of our social life is not even organized along market
lines. Despite attempts in the last 25 years to inject competitive and market ele-
ments into its operation, much of the public sector does not operate according to
the classical theories of free enterprise by seeking to maximize pro¬ts, nor is it
always exposed to the harsh winds of competition: in the public sector, accident
prevention and the minimization of accident costs is just as likely to be achieved by
a sense of public responsibility and by humanitarianism as by market forces. Even
in the private sector, it is wrong to suppose that businesses pursue pro¬t maxi-
mization at all costs. Public opinion, as much as competition, restricts the level of
454 Chapter 17

pro¬ts which may be decently earned over a period of time: if pro¬ts seem exces-
sive, public demands for price reductions may in due course become irresistible,
quite apart from competition. Conversely, business people may also be su¬ciently
humanitarian to wish to reduce accident costs even at the expense of higher pro¬ts.
It is thus unrealistic to suppose that accident costs can always or often be best mini-
mized by use of the market mechanism.
Another way of making the same point is to observe that one of the assumptions
underlying general deterrence theory (and welfare economics, of which general
deterrence theory is an application) is that people know what is best for them.
In theory, general deterrence and the optimal allocation of resources to accident
prevention are achieved by the choices of consumers between di¬erently priced
goods and services available in the market. The theory must, therefore, assume that
these choices are sound if the resulting allocation of resources is to be regarded as
optimal. This does not mean that individual theorists believe that everyone knows
their own best interests and spends their money in such a way as to further those
interests. An economist may, for example, be in favour of imposing high taxes on
smoking so as to discourage purchase of cigarettes partly on the ground that people
who smoke are not acting in their own best interests. The point is that in taking
this view, the economist would be acknowledging that consumer preferences as
expressed in the market are not the only acceptable criterion for judging how
resources ought to be used. General deterrence theory gives no guidance as to when
criteria, other than the ones it recommends, should be adopted.
A second limitation arises from the fact that the concept of general deterrence is
in con¬‚ict with the concept of loss distribution. The latter notion, as we saw earlier,
suggests that losses should be spread over as wide a segment of the population as
possible. General deterrence, on the other hand, suggests that losses should be con-
centrated on the person who can best avoid or minimize them. The most extreme
form of general deterrence would be to place the entire cost of a loss on that person.
Clearly, the incentive to avoid or minimize a loss would then be much greater; but
equally clearly, this could lead to very serious consequences in the absence of lia-
bility insurance. It cannot even be assumed that the consequent gains in accident
prevention would outweigh the costs in terms of bankrupted tortfeasors.
This con¬‚ict between general deterrence and loss distribution can be reduced by
the use of risk-related insurance premium rates. But as we have seen, risk di¬er-
entiation costs money, and so the question arises of how to identify the optimum
degree of risk-di¬erentiation; for if extra risk-di¬erentiation costs too much, the
extra cost may outweigh any consequent gains in accident cost reduction.
Calabresi™s ingenious answer to this di¬culty is to say that this can be left to the
operation of the market.126 The point is that under the pressure of competition,
insurance companies will seek to set premiums lower than those of their competi-
tors. Inadequate risk di¬erentiation stands in the way of this goal because it gives

126 ˜The Decision for Accidents™, 733“4.
The functions of compensation systems 455

high-risk insureds inadequate incentives to avoid in¬‚icting insured losses; and it
also may lead low-risk insureds to seek insurance from another insurer who will
charge premiums which are better related to the risks they present. So in theory, at
least, insurers in a competitive market have an incentive to achieve the econom-
ically optimal level of risk di¬erentiation.
However, this answer is open to doubt.127 Although it might in fact be pro¬table
for an insurer to di¬erentiate further between risks, it may be reluctant to do so
because the additional administrative cost is certain to follow, while the additional
bene¬t from further di¬erentiation may be somewhat uncertain at the outset.
Moreover, the fact is that (outside the life insurance ¬eld) the role played by statis-
tical methodology (which is essential to accurate risk di¬erentiation) in premium-
¬xing is surprisingly small. The main reason for this is that insurers do not have
much reliable data concerning the e¬ect of individually signi¬cant factors on
di¬erent risks. Furthermore, the greater the level of risk di¬erentiation, the smaller
each risk group becomes and so the less statistically reliable. Premium-¬xing
depends much more on the insurer™s judgment and much less on statistical infor-
mation than is commonly thought. In practice, risk-related premiums are used
more in some areas than others: more in relation to ¬re insurance, for example,
than in relation to employers™ liability insurance.
Ironically, if insurance premiums were risk-related to the most e¬cient extent
possible, this would produce a di¬erent con¬‚ict between the purposes of general
deterrence and the purposes of loss distribution. This is because the further insur-
ance companies go in varying premium rates according to risk, the greater the
di¬erence will be between the premiums payable by the most serious and the least
serious risks. Losses are not well distributed if (e.g.) one person has to pay a
premium of £200 per annum and others pay only £20 or £30 towards the same loss.
The objective of distributing the cost of accidents widely, so that too heavy a burden
does not fall on any one person, would be jeopardized by high levels of risk
A third factor limiting the value of general deterrence theory is the assumption
of perfect competition on which it rests. In reality, of course, there are great diver-
gences from perfect competition in the operation of the market produced, for
example, by the fact that consumers lack full information about the operation of
the market and about the true costs of goods and services available in it; and by gov-
ernment taxes on, or subsidies to, various groups of producers and consumers.
Besides these distortions, those produced by misallocation, through tort law, of the
cost of injuries and even of diseases pale into insigni¬cance. We have, for instance,
commented on the misallocation that may result from the fact that employers™
National Insurance contributions are not risk-related and that employers™ liability
insurance premiums are not experience-rated. But the total of industrial injury

127 C.A. Kulp, ˜The Rate-Making Process in Property and Casualty Insurance “ Goals, Technics and
Limits™ (1950) 15 Law and Contemporary Problems 493, 494.
456 Chapter 17

insurance premiums and National Insurance contributions is a very small propor-
tion of the employer™s total wage bill, and an insigni¬cant ¬gure beside the
employer™s tax bill. Or consider the example of motoring. We have seen that the
rules of tort law certainly do not impose all of the costs of individual road accidents
on those responsible for them, as general deterrence would demand. Moreover,
damages may well be too low on the basis of the sorts of valuation methods used
by economists.128 On the other hand, it has been estimated that through compul-
sory third-party liability insurance premiums and taxes on fuel, motorists as a class
pay enough to cover the total social costs of road accidents plus at least a signi¬cant
proportion of other costs associated with motoring, such as pollution and conges-
tion.129 In this light, one might doubt that the ˜ine¬ciency™ of tort law is of any great
social signi¬cance.
The theory of general deterrence does not easily lend itself to empirical veri-
¬cation or refutation because no system in existence bases liability for accident
costs on general deterrence criteria. But in 1972 the American National Com-
mission on State Workmen™s Compensation Laws attempted to test the theory by
studying the industrial accident levels in States with very di¬erent levels of workers™
compensation bene¬ts. On the basis of economic theory, it might have been sup-
posed that in States where the bene¬ts and therefore the premiums were higher,
employers would take more care (and spend more money) to minimize accident
costs by keeping the accident levels as low as possible. However, no systematic rela-
tionship was discovered between accident levels and bene¬t levels. Even when com-
parisons were made between States with similar industrial backgrounds, there was
no observable correlation between accident levels and bene¬t levels. For example,
Virginia, Georgia and Alabama had similar bene¬t levels but widely di¬erent acci-
dent levels; while Pennsylvania and New Jersey had very similar accident levels but
vastly di¬erent bene¬t levels. The Commission concluded that the evidence sug-
gested that workers™ compensation insurance rates were not the strongest force
a¬ecting the frequency of accidents.
As we saw earlier, there is a certain amount of empirical evidence about the
e¬ects of tort liability on accident and injury levels. However, as we have also seen,
the tort system in many respects does not embody or give e¬ect to general deter-
rence principles; and so such evidence is not directly relevant to assessing the theory
of general deterrence. On the other hand, it does provide some clue to the deter-
rent e¬ectiveness of liability to pay the costs of accidents. Almost all writers who
have considered the matter have come to the conclusion that there is no reliable evi-
dence that liability to pay tort damages has any signi¬cant e¬ect on the level of acci-
dents or accident costs; although logically, of course, the absence of evidence does
not prove that liability to pay the costs of accidents has no substantial deterrent
128 6.5.1.
129 M.W. Jones-Lee, ˜The Value of Transport Safety™ (1990) 6 Oxford Review of Economic Policy
39, 50“2.
The functions of compensation systems 457

17.8.8 Conclusions about general deterrence
Much of the literature on this subject is based on strong assumptions about the value
of markets and of individual choice. For example, it is often taken for granted in the
general-deterrence literature that there is only one ˜rational™ way of approaching the
problem of safety and accident prevention “ namely in terms of cost-bene¬t analy-
sis.130 It is assumed that the only rational course of action for an individual, an enter-
prise and a society is to spend as much, but only as much, on protecting health and
safety as the value of the lives thereby saved and the injuries prevented. While it is
important not to underestimate the value of these economic considerations, and of
the proper use of cost-bene¬t analysis in injury prevention measures, other consid-
erations may also be thought relevant. Decisions about how much to spend on pre-
venting particular types of injuries and diseases may be made on political or moral
grounds, or on grounds of public interest, which bear little relation to immediate
cost-bene¬t equations. For example, because people make greater demands on
health-care resources the older they become, it might make sense in purely ¬nancial
terms not to spend large amounts of money to prevent people dying prematurely
from smoking-related diseases, for example. But in moral terms, such an attitude to
human life would be totally unacceptable. Again, while insurance premiums related
to risk are clearly required by deterrence theory, they may not be introduced, for
reasons unrelated to considerations of accident and harm prevention.131
Another limitation of the general-deterrence approach arises from the fact that
because the cost of compensating for personal injury and death represents a very
small proportion of the total costs of economic activity, other factors “ such as rates
of taxation and of government support, and the cost of labour and materials “ are
likely to have much greater impact on levels of activity in particular sectors of the
economy than di¬erences in compensation costs as between di¬erent activities. For
instance, it is probably the case that forms of public transport “ trains and buses “
are, relatively, responsible for less personal injury and death than private motor
transport; but levels of public investment in the road system relative to government
investment in public transport more than counteract whatever safety advantage
public transport may have over the private car. If governments support relatively
unsafe activities, safer but unsupported activities may be unable to compete on the
basis of the safety advantage.
Another problem with giving practical e¬ect to the general-deterrence approach
is that it depends on detailed and accurate calculation of the relative costs and
bene¬ts of activities, which will often be impossible because of lack of relevant
It is worth noting, too, that the general-deterrence approach is much more
popular in the USA than in Britain; and this may be because it ¬ts in better with US

130 But for evidence that ˜ordinary Americans™ do not think in terms of ˜optimal deterrence™ see
C.R. Sunstein, D. Schkade and D. Kahneman, ˜Do People Want Optimal Deterrence?™ (2000) 29
J. of Legal Studies 237.
458 Chapter 17

than with British traditions and points of view. For instance, the common law of
products liability, backed by the constraints of liability insurance costs, in practice
plays a much more signi¬cant role in the USA than in the UK in regulating the
safety of products:132 in this country, administratively enforced statutory regulation
is the primary mechanism. In general, it is probably fair to say that, in Britain, tort
law functions, and is assessed, primarily as a compensation system, and only
secondarily as a tool of health and safety regulation. In the USA, by contrast, lawyers
and citizens alike put much more faith in tort litigation as a regulatory mechanism:
witness such modern morality plays as A Civil Action and Erin Brokowich. This
di¬erence perhaps re¬‚ects deeper di¬erences between the two societies.133
Considerations such as these perhaps cast doubt on the value of the general-
deterrence approach as a way of understanding and evaluating the role of tort law
in Britain. Although it would be wrong to overlook altogether the possibility that
in some contexts tort law might play some part in limiting or reducing accident
costs, the detailed application of general-deterrence ideas seems to depend too
much on inappropriate and impractical ˜¬ne tuning™. Thus, the idea that an elabor-
ate system, requiring the allocation of carefully calculated accident costs to par-
ticular activities, would be justi¬able or reasonably practicable, seems quite
problematic. But once it is conceded that as a general-deterrence device, tort law
can operate in only a rough-and-ready way, it is not easy to see why “ in the ¬eld of
personal injuries and disease “ its compensation and loss distribution functions
should not be transferred to a social security system paid for out of taxation, or a
¬rst-party insurance system, or a combination of the two, rather than to a liability
system funded by third-party liability insurance. Although such a change might
potentially externalize injury costs, this result could be avoided by designing any
alternative system in such a way as to take account of general deterrence. Thus the
Pearson Commission proposed that its road accident compensation scheme should
be ¬nanced by a special levy on the price of petrol. Similarly, ¬rst-party insurance
premiums could take into account the harm-causing potential of particular activ-
ities and the claims history of particular individuals and groups in the same way
that comprehensive motor insurance premiums currently do. There is no reason to
think that the sort of general-deterrence e¬ects that could be achieved in a non-tort
compensation system would be signi¬cantly less than those achieved by the tort
In summary, then, even if we accept that tort law™s general-deterrence potential
provides an argument in its favour, this argument does not seem strong enough, by
itself, to justify retention of the tort system, at least in relation to personal injury
and death, given its other serious weaknesses.

132 This is one reason why general product recalls are more common in the USA than in Britain.
133 See e.g. R.A. Kagan, Adversarial Legalism: The American Way of Law (Cambridge, Mass., 2001),
esp. ch. 7.
Part 6

The future

Accident compensation in the
twenty-¬rst century

18.1 Where we are now and how we got here
Serious dissatisfaction with the operation of the tort system, as a mechanism of
compensating for personal injury and death, ¬rst received widespread expression in
the late 1960s. Terence Ison™s book, The Forensic Lottery, was published in 1967, fol-
lowed by D.W. Elliot and H. Street™s Road Accidents in 1968, and the ¬rst edition of
this book in 1970. At about the same time, the famous Thalidomide a¬air was
coming to a head. In the late 1950s and early 1960s, a large number of children
around the world were born with disabilities of varying degrees of severity as a result
of their mothers™ having taken the drug Thalidomide during pregnancy. Tort actions
mounted against manufacturers of the drug came to the attention of the public in
1972 when The Sunday Times ran a series of articles in which one of the manufac-
turers, the Distillers Company, was heavily criticised for the way in which it was
defending the actions. As a result, the proprietors of The Sunday Times were prose-
cuted for contempt of court, and the case eventually found its way to the European
Court of Human Rights. By the early 1970s, then, there was a vigorous public debate
in the UK about the shortcomings of the tort system as a compensation mechanism.
Fuel was added to this debate by the enactment in New Zealand in 1972 of a general
accident compensation scheme. The genesis of this scheme was a crisis in the New
Zealand workers™ compensation scheme in the mid-1960s. A Royal Commission was
appointed under the chairmanship of Sir Owen Woodhouse, and in its 1967 report
it recommended the abolition of the tort system so far as it dealt with personal
injuries, and its replacement by a State-run compensation scheme covering all acci-
dents and some diseases.
It was against this background that in December 1972 the UK government
announced the establishment of the Royal Commission on Civil Liability and
Compensation for Personal Injury, to be chaired by Lord Pearson. Besides receiving
evidence and submissions from a large number of individuals and organizations, the
Commission conducted the ¬rst large-scale survey of the practical operation of
the tort system, the results of which have been referred to frequently in this book.
The picture painted by the Pearson Commission seems broadly to be as accurate
today as it was when it reported in 1978. The Report came as a disappointment to

462 Chapter 18

many. Instead of recommending a comprehensive compensation scheme, the
Commission made separate proposals for dealing with road accidents, product lia-
bility, medical injuries and so on. The only area for which it recommended a non-
tort compensation scheme was road accidents. In other contexts, the tort system was
to remain in place, although the Commission did suggest various reforms to the
rules about assessment of damages and about the relationship between tort com-
pensation and social security bene¬ts.
For the time, energy and money spent on the work of the Royal Commission, it
produced very little by way of reform of the tort system. The Congenital Disabilities
(Civil Liability) Act, which was a response to the doubt raised by the Thalidomide
litigation as to whether tort liability could arise in respect of injuries su¬ered in the
womb, was enacted in 1976; although the Commission did suggest some amend-
ments to it. The Commission recommended the introduction of strict product
liability, but the e¬ective catalyst for the scheme contained in Part I of the Consumer
Protection Act 1987 was a European Directive, not the Commission™s proposal.
Some of its recommendations regarding assessment of damages were enacted in the
Administration of Justice Act 1982, but that was about all. The Commission™s pro-
posal for a non-tort road-accident compensation scheme received no serious con-
sideration. In the late 1980s there was considerable pressure, mainly from doctors,
for a no-fault scheme for medical injuries, but (not surprisingly) it subsided with
the introduction of NHS indemnity.1 In 1991 the Lord Chancellor™s Department
made fresh proposals for a non-tort scheme covering minor road accident cases,2
but these were not pursued.
A number of factors contributed to this disappointing outcome. One was the
fragmentary nature of the Commission™s proposals. Also important was the change
of political climate precipitated by the election of the ¬rst Thatcher Conservative
government in 1979. For reformers who had lived in the post-War Welfare State,
the model of an alternative to the tort system was the social security system. In the
1980s, by contrast, further extension of the social security system became political
and economic anathema. Conservative ideology stressed the value of self-reliance
and deprecated the ˜nanny state™. The idea of dismantling the tort system not only
ran counter to the new economic orthodoxy. Tort law and the tort system, based as
they were on ethical principles of personal responsibility, also seemed to be in tune
with the moral underpinnings of Thatcherism. To replace the tort system with a
social security scheme would not only have required a vast increase in public expen-
diture, but would also have increased the individual™s dependence on the State, to
the bene¬t of those who ought to have been held accountable for their injury-
causing conduct. Conservatives opposed both of these moves.
Around the world, many jurisdictions have adopted non-tort compensation
schemes, especially to deal with road accidents. In Britain, pressure to replace the tort

1 16.1.
2 Compensation for Road Accidents: A Consultation Paper (May 1991).
Accident compensation in the twenty-¬rst century 463

system is now all but non-existent. Indeed, the recent extension of the scheme for
recovering the costs of NHS care from payers of tort compensation (15.4.5) can be
seen as entrenching the tort system more ¬rmly than ever in the political economy
of provision for the disabled. This is certainly not because the defects of the tort
system have disappeared. It is as costly and ine¬cient as it was 40 years ago. What has
changed over the last 25 years are people™s ideas as to what should be done about it.
The Woolf reforms,3 introduced in 1999, were designed to address concerns about
the cost and ˜delays™ of litigation. They were, of course, general in their operation and
not targeted at the tort system; but they have produced perhaps their most dramatic
results in that context. The years immediately following the introduction of the new
procedural system also saw the coming-of-age of new arrangements for funding per-
sonal injury claims: conditional fees (introduced in 1995), abolition of legal aid for
personal injury claims (except medical negligence claims and a very few others), the
development of ATE insurance and introduction of the rule that the success fee and
ATE premium payable by a successful claimant were recoverable from the defen-
dant.4 There was also a signi¬cant increase in the cost of settling low-value personal
injury claims associated with aspects of the Woolf reforms designed to encourage
early settlement.
This new environment gave a boost to the activities of non-legally quali¬ed
claims handlers, and by 2005 calls5 for statutory regulation of their activities had
been accepted by government.6 The complexity of the conditional fee system,
coupled with the new liability for the success fee and ATE premium of a success-
ful claimant, provoked insurers to challenge the validity of individual CFAs in an
attempt to avoid costs liability. Such challenges were unsuccessful, but eventually
led to the radical simpli¬cation of the conditional fee regime. Concern about
rising costs also led to the negotiation and enactment of ¬xed legal fees for low-
value road accident claims, and ¬xed success fees for road accident and work acci-
dent claims. An insurance crisis, especially in relation to employers™ compulsory
liability insurance, has increased pressure on liability insurers to strengthen the
relationship between premiums and the risk presented by individual insureds;
but even assuming this can be done, it will not produce any short-term changes in
the distribution of the costs of the liability system. The upshot of the changes of the
past decade and the attendant turmoil seems to be that the tort system remains

3 Based on Access to Justice, Final Report (HMSO, 1996).
4 On all this see further 10.2.
5 Precipitated, inter alia, by aggressive marketing tactics and the collapse of the two largest claims
management companies in 2002 and 2003 respectively. For the o¬cial rationale for regulation see
Compensation Bill Final Regulatory Statement (2005), paras. 2.21“2.30.
6 Legislation to enable the establishment, by delegated legislation, of a regulatory regime “ the
Compensation Bill “ was introduced into Parliament in November 2005. See also DCA, Regulation
of Claims Management Services: Policy Statement and Model Rules for Authorised Persons (March
2006). It is possible that the regulator will be a private sector, non-pro¬t company called the
Claims Standards Council, members of which include claims managers, insurance companies and
law ¬rms. See Boleat Consulting, The Claims Standards Council (December 2005); Claims
Standards Council, Response to the Boleat Report (January 2006).
464 Chapter 18

¬rmly in place as a major source of compensation for victims of road accidents,
work accidents and, to a lesser extent, accidents in public places. Most other acci-
dents (with the exception of medical misadventure) and most diseases (with the
exception of adverse reactions to drugs and medical devices) remain, in practice,
outside the tort system. Much has changed in the past 40 years; but the situation
the Pearson Commission uncovered in the 1970s remains, in its essentials,
Although cases of medical negligence represent only about 1% of all personal
injury claims, they have a very high public pro¬le, partly because the most expen-
sive medical negligence claims are very expensive indeed; partly because the most
expensive medical negligence claims are made on behalf of children who su¬er
birth injuries; and partly because all the most expensive medical negligence claims
are paid out of public funds, and are handled by a single body, the NHS Litigation
Authority, which publishes regular reports of its activities and detailed statistics of
claims and payments. In 2003 the Chief Medical O¬cer published a major report
about the handling of medical negligence claims.7 The report rejected the option
of further reform of the tort system for various reasons, including: proving fault is
a ˜lottery™; the tort system is insu¬ciently integrated with the NHS complaints
system; it provides inadequate incentives for improved safety; it undermines the
relationship of trust between doctor and patient; and the only remedy it provides
is money.8 It proposed the establishment of an NHS Redress Scheme, which would
be in some way integrated with the NHS Complaints Scheme. Victims of medical
negligence would not be required to use the Scheme in preference to making a tort
claim,9 partly because it is anticipated that the Redress Scheme would only handle
claims up to a certain value;10 but a person who accepted a ˜package™ under the
Redress Scheme would be required to waive their right to make a tort claim. In
most cases, criteria for access to the Redress Scheme would be that there were
serious shortcomings in the standard of care provided; the harm in¬‚icted could
have been avoided; and adverse outcome was not the result of the natural pro-
gression of an illness. The extent to which the application of these criteria would
produce outcomes di¬erent from those arising from application of the concept of
fault used in tort law depends on their detailed elaboration. In cases involving chil-
dren damaged at birth, the access criteria would be that the birth took place under
NHS care and that the child su¬ered severe neurological impairment resulting

7 Making Amends (Department of Health).
8 See 8.2 for a discussion of why people make medical negligence claims.
9 Medical negligence claims would continue to be eligible for legal aid, but the availability of
the Redress Scheme would be taken into account in deciding whether legal aid should be granted.
10 In most cases, the maximum ¬nancial compensation available under the scheme would be
£30,000 plus the ˜notional cost of the episode of care or other amount as appropriate at the
discretion of the local NHS Trust™. Most medical negligence claims settle for less than this
amount. According to the Legal Services Commission, in 1999 the median medical negligence
claim was settled for £6,500: Response of the Legal Services Commission to Making Amends,
para. 3.9.
Accident compensation in the twenty-¬rst century 465

from or related to the birth. A claim would have to be made within 8 years of the
birth.11 The claimant would not have to prove that the harm was a result of negli-
gence; but the maximum ¬nancial compensation payable in such a case would be
up to £100,000 per annum for care, up to £50,000 for home adaptations and equip-
ment and £50,000 for non-pecuniary loss.
Leaving aside the departure from the fault principle in the scheme for disabled
children, the main di¬erences between the tort system and the proposed Redress
Scheme are that the latter would be more integrated with the NHS Complaints
system, and that long-term care for victims of medical negligence would be pro-
vided by the NHS. The suggested advantages of the ¬rst di¬erence is that treating
claims also as complaints will facilitate the provision of redress in the form of
explanations and apologies, and make it more likely that steps will be taken to
prevent similar events in the future. Concerning the second di¬erence, under
current law, in assessing long-term care costs, the basic measure is the cost of pro-
viding the care privately. The fact that the care is available from the NHS does not
prevent the claimant recovering the cost of procuring the care in the private sector.
This rule was criticized earlier, and its abolition in relation to claims against the NHS
was one of the Chief Medical O¬cer™s proposals. Under the Redress Scheme, the
basic idea is that the cost of care will be paid only if appropriate care is not available
from the NHS.
Legislation to enable the establishment (in delegated legislation) of an NHS
Redress Scheme “ the NHS Redress Bill “ was introduced into Parliament in
November 2005. What is the likely impact of the introduction of such a scheme on
the total compensation bill for medical negligence? Removal of the requirement to
prove fault in birth-injury cases can be expected to result in increased claiming; and
it is unclear whether the bene¬ts on o¬er will signi¬cantly reduce tort claims in such
cases. Moreover, the Legal Services Commission says that few medical negligence
claims worth less than £5,000 are made because such claims do not generally qualify
for legal aid, and CFAs are relatively rare in the medical negligence area. For these
reasons, the Commission anticipates that introduction of the Redress Scheme will
result in a large increase in small claims.12 Whether provision of long-term care
through the NHS and abolition of the right to recover damages for the cost of care
available through the NHS will lead to signi¬cant cost savings is hard to say. Relevant
in this regard is the fact that the most serious cases, in which long-term care costs are
likely to be highest, will not fall within the Redress Scheme. Finally, it is impossible
to predict how claim-handling costs under the Scheme will compare with those in
the tort system.
Another recommendation made by the Chief Medical O¬cer is for the wider use
of mediation in medical negligence claims made outside the Redress Scheme.
Increased recourse to mediation and other forms of ADR is a basic principle of the

11 This is a much shorter limit than under the tort system.
12 LSC, Response of the Legal Services Commission to Making Amends, paras. 1.2, 3.10“11.
466 Chapter 18

Woolf procedural reforms, but very little progress has been made in this direction.
The use of mediation in legally aided medical negligence cases is extremely limited
even though, according to the Legal Services Commission, it is bene¬cial in 83% of
cases in which it takes place.13
At the time of writing, the precise details of the NHS Redress Scheme are yet to
be settled: the NHS Redress Bill is only enabling legislation. In broad terms, the
aims of the Chief Medical O¬cer™s proposals are no doubt admirable. However,
schemes such as this, running in parallel with the tort system, inevitably increase
the complexity of arrangements to provide for the disabled and add a new element
of di¬erential treatment according to the cause of disability. Moreover, so long as
recourse to the tort system remains available, the alternative is only likely to
compete successfully with it if the bene¬ts available under the latter are obviously
superior to those on o¬er from the former. It is not clear at this stage whether this
can be said of the proposed Redress Scheme.
Although the Chief Medical O¬cer described the proposals as radical, we
might well question whether they are radical enough. Recall a few basic facts. As a
personal injury compensation mechanism, the tort system is extraordinarily
expensive both in absolute terms (85p to deliver £ 1 of tort compensation) and rel-
ative to the social security system (between 8p and 12p to deliver £ 1 of bene¬t).
Its bene¬ts in terms of accident and injury prevention are at best limited, and there
are good reasons to think that a signi¬cant proportion of injury victims who
would, according to the rules of tort law, be entitled to compensation receive
nothing from the tort system. This is true not only in relation to injuries caused by
traumatic accidents but even more in relation to illness and disease.14 The main
perceived bene¬t of the tort system is that it embodies and gives some e¬ect to a
set of principles of personal responsibility for the adverse consequences of indi-
viduals™ conduct and to the idea of ˜corrective justice™. The question we really need
to ask ourselves is whether this bene¬t is worth more than 70 pence in the pound.
No doubt some injury victims who receive compensation through the tort system
feel better than they would if they received the same amount from the State, for
instance. And no doubt the behaviour of some people is a¬ected for the good by
being a defendant to a tort claim or by seeing others undergoing that experience.
On the other hand, we know that many victims ¬nd that the process of making a
tort claim adds insult to injury; and the impact of liability insurance drastically
reduces the potential impact of the tort process on individual defendants. Anyway,
what we need to consider from a public policy point of view is not whether the tort
system has bene¬ts, but whether those bene¬ts are worth the costs of the system.
If you think they are not, then for you, the case for radical reform of the tort system
remains strong. The fact that radical reform is currently o¬ the political agenda
does not reduce, and perhaps even increases, the importance of a careful consid-

13 Ibid., para. 5.7.
14 J. Stapleton, Disease and the Compensation Debate (Oxford, 1986).
Accident compensation in the twenty-¬rst century 467

eration of possible directions of development, if and when pressure for change
builds up again.
The main aim of this chapter is, therefore, to discuss options for radical reform
of the tort system of compensating for personal injuries. In the ¬rst part of the
chapter we will discuss a number of basic issues of principle and policy relevant to
reform of the law, and then we will discuss more speci¬cally some of the proposals
for reform which have been made in Britain and elsewhere, and some non-tort
compensation schemes which have actually been put into e¬ect.

18.2 Basic issues
18.2.1 Strict liability or no-fault?
Proposals involving abolition of the fault principle take two basic forms. Some
involve its replacement by strict liability, that is liability without proof of inten-
tion or negligence. The reform of product liability law enacted in Part I of the Con-
sumer Protection Act 1987 is a manifestation of the move towards strict liability. The
main impetus for this reform was the Thalidomide tragedy. The legal aftermath of
this a¬air demonstrated, amongst other things, the di¬culties of proving negligence
against manufacturers of drugs in respect of the testing of new products to ensure
safety, and of proving a causal link between the alleged negligence and the claimant™s
injuries. One of the main advantages claimed for strict liability over negligence lies
in the fact that the claimant need not prove fault in order to obtain compensation.
In practice, however, most strict liability proposals (including those enacted in Part I
of the Consumer Protection Act 1987) contain fault elements (such as retention of
the defence of contributory negligence and de¬nition of ˜defective product™ in terms
of a negligence-type test) which reduce their claim to be radical reform measures.15
Moreover, strict liability schemes do nothing about two of the major drawbacks
of the tort system “ the need to prove a causal link between act and injury and the
need to ¬nd a responsible defendant. In economic terms, strict liability is some-
times said to have the edge on negligence in respect of accident prevention because,
by imposing liability for injuries which were unavoidable given knowledge and
technology at the time of manufacture,16 it forces manufacturers to spend more on
research and development in the attempt to discover defects in products before they
are manufactured in quantity and marketed. The force of this argument depends
on the extent to which liability rules have a signi¬cant impact on manufacturers™
behaviour, and about this there is considerable dispute.
Reform proposals of the second type “ so-called ˜no-fault™ proposals “ eliminate
the need both to ¬nd a responsible defendant and to prove a causal link between a

15 In Australia, the Commonwealth Law Reform Commission did propose a very strict scheme of
products liability, but it was rejected on the advice of the Industry Commission, and legislation
along the lines of the 1987 Act was enacted in 1992: see F.A. Trindade and P. Cane, Law of Torts in
Australia, 3rd edn (Melbourne, 1999), ch. 15.
16 The 1987 Act does not impose such liability: 4.8.
468 Chapter 18

speci¬c act or omission and the victim™s injuries. No-fault schemes concentrate on
the injuries rather than on the way the injuries were caused. For example, a no-fault
road accident scheme will provide compensation for injuries su¬ered in a road
accident regardless of whether those injuries were caused by another road user or
by the injured person; and regardless of fault.17
However, in practice no-fault schemes do not eliminate all problems of pro-
ving causation because such schemes tend to be limited in scope rather than
comprehensive. For example, a person claiming no-fault road accident compensa-
tion would have to prove that the injuries arose ˜out of or in connection with the
use of a motor vehicle™, or something like that. A person claiming no-fault com-
pensation for drug-related injuries would have to prove that the injuries were the
result of the drug and not, for example, of ˜natural causes™; and this may not be easy
because many adverse drug reactions are indistinguishable from other illnesses.18
Moreover, the concept of ˜cause™ used in this context tends to be infected with
notions of fault: it is more like ˜legal cause™ than ˜factual cause™, and so its use dero-
gates from the aim of providing ˜no-fault™ compensation. The only way of elimin-
ating causal issues entirely is to base entitlement to compensation solely on the
need of the claimant for compensation. At present, not even the most extensive no-
fault scheme in operation (that in New Zealand) compensates entirely regardless of
cause.19 Under that scheme, two causal issues are particularly problematic: that of
proving that the injury was caused by an ˜accident™ (itself a di¬cult term to de¬ne);
and, in cases of medical misadventure, that of proving that the injury was the result
of medical misadventure and not of the condition being treated.20
There is no discernible principle according to which reform in some areas takes
the form of strict liability and in others, no-fault compensation. Legal tradition
probably plays a part in some countries;21 the in¬‚uence of strong pressure groups
was undoubtedly important in moulding the shape of product liability proposals;
and the political and economic environment is extremely important to no-fault
reforms, as the fate of the Pearson Commission proposals showed.

17 But there may be exceptions “ e.g. under the New Zealand scheme a person who su¬ers personal
injury in the course of committing an o¬ence for which the person is convicted and imprisoned may
be refused compensation: Injury Prevention, Rehabilitation and Compensation Act 2001, s. 122.
18 J. Stapleton,˜Compensating Victims of Disease™ (1985) 5 Oxford J. Legal Studies 248, 250“2, 255“7.
About 25% of unsuccessful claims made in the ¬rst 2 years of the Swedish no-fault drug injuries
scheme failed because of lack of proof of causal link: J. Fleming, ˜Drug Injury Compensation
Plans™ (1982) 30 American J. of Comparative Law 297, 303 n. 37. See also T.G. Ison, ˜Etiological
Classi¬cations in Compensation Systems™ (1985“6) 10 Adelaide LR 86.
19 This statement is slightly misleading because it ignores the general disability and income-support
elements of the social security system, under which entitlement to bene¬ts does not depend on
establishing that the disability giving rise to the need for bene¬ts had any particular cause. Here
we are dealing with schemes which are seen as reforms of the tort system, rather than as develop-
ments of the social security system.
20 See generally K. Oliphant, ˜De¬ning “Medical Misadventure”: Lessons from New Zealand™ [1996]
Medical LR 1.
21 As in the case of the drug injuries compensation scheme in Germany: Fleming, ˜Drug Injury
Compensation Plans™, 300.
Accident compensation in the twenty-¬rst century 469

18.2.2 Limited or comprehensive reform?
This book is about personal injuries. Physical disablement is only one type of mis-
fortune which people su¬er, and which generates needs for ¬nancial support; and
it is not necessarily the most important of such misfortunes. Unemployment, for
example, is an important source of ¬nancial dislocation and need. Some would
argue that the basic problem which the State ought to seek to relieve is poverty and
¬nancial need, and that to the extent that disabled people su¬er, as a result of their
disabilities, from low income, they should be treated in the same way as other poor
people. The disabled may well have additional needs generated by their physical
condition, and these should be separately met. But so far as provision of income is
concerned, the disabled should not be singled out for special treatment.
The course of action required by this line of argument might be to leave all
victims of personal injuries to rely on the social security system in the same way as
others in need. Unfortunately, this apparently simple solution would not really
work because the social security system itself is far from perfect in the way that it
deals with the disabled; and, perhaps more importantly, the social security system
does not dispense bene¬ts solely on the basis of ¬nancial need. Not only do
di¬erent groups of the disabled receive di¬erent treatment in respect of exactly the
same needs, but also di¬erent sources of need, such as disablement and unem-
ployment, are treated di¬erently. The social security system does not provide a
minimum income and uniform provision for those with special physical needs.
Before this proposal could be seriously considered, the social security system itself
would have to be overhauled. Since this is a matter totally beyond the scope of this
book, the rest of the discussion will concentrate purely on reform of the law con-
cerning provision for the physically disabled in general, and victims of personal
injury (including disease) in particular.
Perhaps the most radical type of reform of the law concerning compensation
for personal injuries involves abolishing the tort system entirely and incorporating
no-fault compensation for victims of personal injuries into the social security
system. According to the most thoroughgoing version of this approach, all those who
su¬er disabilities (of whatever nature) for which society accepts responsibility should
receive ¬nancial and other support from the State according to the same criteria of
need, regardless of the source or nature of the disabilities.22 This position, however,
only expresses an ideal. As the writer of a study of disability income systems in
Britain concluded more than 20 years ago:˜reasonably equal treatment of people with
equal needs is not a notable feature of the present arrangements whether inside or
outside the State schemes™ (of compensation).23 Again, the New Zealand Acci-
dent Compensation Scheme, which is often held up as a model for reform of the law
of compensation for personal injuries, is very far from the ideal. It covers personal

22 For a discussion of some possible approaches see Stapleton, Disease and the Compensation Debate,
23 J.C. Brown, Disability Income, vol. 2 (London, 1984), 342.
470 Chapter 18

injury by accident, ˜medical misadventure™,24 occupational diseases25 and criminal
injuries,26 but not other sources of personal injury;27 and it treats the victims of
personal injury more generously than other social security claimants.28 Many juris-
dictions have no-fault compensation schemes for road and industrial accidents (and,
often, some occupational diseases), which provide better bene¬ts for claimants than
general social welfare provisions. Various jurisdictions have limited compensation
schemes for the victims of violent crimes, vaccination damage, medical experiments,


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