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Liability, Litigation and Insurance

Liability is related to responsibility, if a person is prepared to take full and absolute responsibility for their actions they operate unlimited liability, if they cause a loss, injury or damage (even unwittingly) they are responsible for recompense to the injured party if they are deemed to be at fault. People can (and do) reduce their liability by taking out various insurance policies, this limited liability removes responsibility for various events, but in the process creates more legislation and hence more statutes.

The reason this results in more statutes is that Insurance companies are in business, and need to maximise their profits, they want to maximise their premiums and minimise claims, in case you had not realised, they don’t like paying out. Insurance is very big business and the insurance industry has very powerful lobbying power. They lobby parliament to get new legislation (statutes) introduced. Speed limits are not really about saving lives (speed alone only accounts for about 5% of road deaths) it’s about reducing insurance claims. Likewise wearing of seatbelts, overall claim amounts have reduced because of seat-belt rules, a reduction in fatalities is debatable and actually unprovable. Likewise introduction of legislation regarding using mobile phones whilst driving, drink driving and others. This does not imply that all of these are wrong, quite the contrary, driving whilst talking on a phone or texting, or whilst under the influence of drugs is clearly a danger, it’s just not done for the reasons we think, or are told.

Under common law, if everyone has unlimited liability it can be very difficult to establish blame, hence statutes simplify the process, statues in and of themselves are not a bad thing. When cars first took the streets there were no rules about how fast you could drive, who had priority and where, which side of the road you should drive, no road signs, no traffic lights, no roundabouts, no pedestrian crossings, no drink drive limits, so potential anarchy. If you were found guilty by a jury under common law with unlimited liability it could be very expensive indeed. So some bright spark had the idea of offering insurance to car drivers, to limit their liability in the case of accidents, very quickly this person would have realised that a set of rules was required or they would be quickly out of business. Now we have in excess of 2,000 statutes relating to roads. The government quickly realised they could make money from these statutes by charging fines for breaking these rules. From that they compelled everyone to register their vehicle with the authorities (DVLA) and then other charges could then be added, such as road tax, fuel duty, MOT, tax on car insurance. They required everyone to pass a test and obtain a driving license, which is granted as a privilege, which if you break enough statutes and rack up a certain number of points will be taken away for a certain amount of time. Under common law we are entitled to travel the land in a conveyance, because we choose to operate in limited liability we have subjected ourselves to obtaining a driving license, giving our vehicle ownership to the state and subjecting ourselves to over 2,000 driving related statutes. We can, as mentioned earlier choose to operate a vehicle under common law, with unlimited liability (excepting national insurance) and be totally responsible for the upkeep and safe operation of the vehicle. We would be wise to follow the Highway Code, because under common law we could still be found guilty, common law has a lot to do with common sense.

For every type of insurance, the insurers will be looking to reduce their exposure to claim, not always through statutes, but by hiding exclusions in small print (which most people don’t read), or such things as “act of god”, or not paying out because the wrong type of lock was not fitted to your doors or windows. Everyone should look at all of their insurance policies and ask themselves if they would not be better off taking a risk, it’s all about risk aversion. Extended warranties on electrical goods are not statistically worth having, each item has what is called a MTBF (Mean Time Between Failure) which gives the average time before the item is statistically expected to fail, which is typically something like five years. Under statutory rights you get a one year warranty, so extending that for two or three years statistically does not make economic sense, which does not mean you may not be unlucky. If the MTBF was one year, then it would make sense, but then the premiums would be very high, taking the risk and buying a replacement if it fails may be cheaper.

With the advent of limited liability and insurance came the concept of litigation, also known as the blame culture. This operates from the viewpoint that if something happens, then someone is to blame, therefore money is to be had. There have been some truly ridiculous examples, such as a woman successfully suing Tesco’s for a noisy child spoiling her shopping experience, it was HER child. This is just plain and simple wrong; in this instance Tesco should have been awarded any damages for the woman failing to control her child. That would have stopped that particular madness in its tracks, not that Tesco are innocent, but that’s a different story.

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