This paper is an effort to understand the source of the crisis in insurance that has recently disrupted product and service markets in the United States. From press accounts, the crisis seemed to peak in the early months of 1986, when reports became common of extraordinary changes in commercial casualty insurance markets. Insurers had increased premiums drastically for an unusual set of products, such as vaccines, 1 general aircraft, 2 and sports equipment,' and for an equally diverse set of services, such as obstetrics, 4 ski lifts, 5 and commercial trucking. 8 In still other cases-intrauterine devices, 7 wine tasting,' and day care, 9-insurers had refused to offer coverage at any premium, forcing these products and services to be withdrawn from the market. The crisis extended beyond commercial enterprises. Municipalities and other governmental entities faced similarly extreme premium increases or the unavailability of market insurance coverage altogether. Some cities closed jails and suspended police patrols until insurance coverage was obt John M.
This article addresses the comparative advantage of the government to the private property/casualty insurance industry for the provision of insurance coverage for catastrophic losses. That the government can play an important role as an insurer of societal losses has been a central public policy principle since at least the New Deal. In addition, our government typically automatically provides forms of specific relief following unusually severe or unexpected disasters, which itself can be viewed as a form of ex post insurance. This article argues that, for systemic reasons, the government is much less effective than the private property/casualty insurance market in providing coverage of losses generally, but especially of losses in contexts of catastrophes.
Consumer product warranties are our most common of written contracts, but little is known about what determines their content or how they relate to the reliability and the durability of goods. Since the first appearance of standardized warranties early in this century, two theories have been proposed to explain their role in sales transactions. The first emphasizes the absence of bargaining over warranty provisions. It views warranties as devices of manufacturers to exploit consumers by unilaterally limiting legal obligations. The second and more recent theory focuses on the difficulty consumers face at the time of purchase in estimating the risk of product defects. This theory regards express warranties as messages signaling the mechanical attributes of goods. Both theories have influenced substantially judicial and legislative responses to product warranties. The view of the warranty as an exploitative device has provided crucial support to the policy of enterprise liability and the replacement of contract principles with tort principles in product defect cases.' In addition, the exploitation theory is the intellectual basis for the modern judicial treatment of consumer warranty issues, in particular for the expansive interpretation of warranties implied by law, for the elimination of the requirement of privity of contract, and for the restrict Professor of Law, Yale University. I wish to thank Lawrence Kanter and Jacqueline Schmitt of the Federal Trade Commission for providing copies of the warranties examined in this article and for helpful advice; Bruce A
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