Private Law Theory

ABSTRACT
There is a well-known conflict of interest between liability insurers and policyholders with respect to the decision to settle or litigate a claim. This short note provides a simple graphical explanation for the problem and grounds it in the way the structure of the parties’ payouts drives their attitudes towards risk. An optional appendix links the insights to the elementary mechanics of financial options.

Siegelman, Peter, A Primer on the Economics of Conflicts of Interest in in Liability Insurance (September 24, 2023), Connecticut Insurance Law Journal, 2024.