November 2007 Vol. 106 No. 2 THE REVIEW

Offsetting Risks

Ariel Porat

Under prevailing tort law, an injurer who must choose between Course of Action A, which creates a risk of 500 (there is a probability of .1 that a harm of 5000 will result), and Course of Action B, which creates a risk of 400 (there is a probability of .1 that a harm of 4000 will result), and who negligently opts for the former will be held liable for the entire harm of 5000 that materializes. This full liability forces the injurer to pay damages that are five times higher than would be necessary to internalize the risk of 100 that his negligent choice actually creates. This Article argues that tort law should recognize the Offsetting Risks Principle, under which courts would take into account the risks decreased by the wrongdoing as a mitigating liability factor. The injurer in our example would thus be liable for only 1000, which is twenty percent of the harm that actually materialized. This outcome not only differs from the result under prevailing tort law but also diverges from that mandated by a probabilistic recovery principle. Under that principle, if, in our example, the risks of both Course of Actions A and B relate to the same victim, the injurer should be liable for 4600.

The failure of tort law to cause injurers to internalize the actual risks created by their negligence, as illustrated by the example above, emanates from the law’s disregard for the positive externalities generated by wrongdoings. In our example, the injurer’s negligent choice creates two opposite effects: one negative (increasing risks by 500) and one positive (decreasing risks by 400). Because the law imposes liability for the negative effects when harm materializes but ignores the positive effects, the result is that the injurer bears liability for risks that far exceed the actual risks he negligently created.

The Offsetting Risks Principle is suitable mainly for those cases in which the injurer must balance the various conflicting interests of his potential victim. It also applies to cases where the injurer must balance the interests of the victim against the interests of third parties or society as a whole. This Article focuses on the Offsetting Risks Principle’s potential application in medical malpractice cases. Adopting the Offsetting Risks Principle in such cases and reducing liability in accordance with offsetting risks would result in a huge—and desirable—decrease in the damages awarded in medical malpractice suits. Doctors would then pay for no more than the social harm actually generated by their negligence, practice less defensive medicine, and refrain from overinvesting in precaution. But patients are the main beneficiaries: they would pay less for medical services and receive improved care in return. The apparent problem of undercompensation for patients could, and should, be solved outside the framework of tort law, either by social insurance or by private insurance.

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