日 本 経 済 政 策 学 会 中 部 部 会 OnLine ワーキングペーパー. No 007 掲 載 決 定 日 :2014 年 12 月 23 日

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1 日 本 経 済 政 策 学 会 中 部 部 会 OnLine ワーキングペーパー No 007 掲 載 決 定 日 :2014 年 12 月 23 日 Efficiency of Automobile Insurance with Secial Provision for Legal Fee: A View from Law an Economics Daisuke IKUTA Juge (Kobe District Court) < 日 本 経 済 政 策 学 会 中 部 部 会 OnLineワーキングペーパー: 推 薦 理 由 > かつて 件 数 が 劇 的 に 減 少 した 交 通 事 故 関 係 の 訴 訟 が 再 び 急 激 な 増 加 に 転 じた このペーパーは 弁 護 士 を 利 用 できる 保 険 が 自 動 車 保 険 に 広 く 組 み 込 まれたこ とがその 原 因 ではないかという 観 点 から 分 析 を 加 えたものであり 損 害 賠 償 制 度 の 役 割 弁 護 士 の 役 割 保 険 会 社 の 機 能 などに 関 する 論 点 を 法 と 経 済 学 の 観 点 ら 浮 かび 上 がらせている 多 様 な 議 論 の 出 発 点 を 明 らかにしたという 点 で 経 済 政 策 学 会 中 部 部 会 のワーキング ペーパーとして 公 開 することが 適 切 である 1

2 Efficiency of Automobile Insurance with Secial Provision for Legal Fee: A View from Law an Economics Daisuke IKUTA Juge Kobe District Court Abstract In Jaan, automobile insurance with secial rovision for legal fee (ILF) has been sreaing raily from aroximately 7,400 contracts sol for the first time in 2000 to slightly less than 19 million contracts sol in At the same time, traffic-accient lawsuits, esecially ealing with small amages, have increase significantly while the number of the accients have ecrease. This aer clarifies the relationshi between the exlosion of this tye of automobile insurance an the observable increase of lawsuits with the framework of law an economics in orer to analyse the imact on the social efficiency. In a simle economic moel, with suosing that the tort resonsibilities harly encourage rivers to make efforts to revent the accients, which is a natural assumtion, filing lawsuits is harly economically efficient ue to the aministrative costs of settling isutes. On the other han, the victims ten to file lawsuits as long as their execte gain from the lawsuits excees their aministrative costs, which means filing the lawsuits in every case with ILF. In aition, ILF will encourage the victims to waste attorney s fee since they o not have to care about it, which usually raises the efenant s an the government s aministrative costs as well. As far as behaviour in courts are concerne, ILF is likely to encourage the victims to avance to trial without comromising strength, which also eteriorates the efficiency. If the information about the accients is share between two sies, they ossibly inten to comromise before trial, although the lack of trust between the insure an the attorneys who are chosen by the insurer may isturb it. In conclusion, imosing the aministrative costs on the laintiffs, confirming categorical stanars for jugment an encouraging insurance for victims shoul be consiere in orer to reuce the istortion. Key wors: law an economics, secial rovision for legal fee, aministrative cost JEL Classification: D01, D62, D81, H23, K13, K41 2

3 Efficiency of Automobile Insurance with Secial Provision for Legal Fee: A View from Law an Economics 1. Introuction As motorisation eeene, the number of lawsuits about traffic accients 1 soare in Jaan after Worl War II. For efficient settlement of these lawsuits, the secial eartment for trafficaccient lawsuits was launche in Tokyo District Court in 1962 an mae a stanar for calculating amage, which ramatically ecrease the number of the lawsuits 2. However, the number of the lawsuits starte to increase again in the 1980s an has been increasing until now 3, while the number of the accients has been ecreasing since On the other han, automobile insurance with secial rovision for legal fee (ILF) 4 starte to be sol in 2000 an has been sreaing raily in Jaan. As a result, there is growing concern among Jaanese lawyers about the relation between ILF an the huge increase in the number of lawsuits. ILF is sai to reuce the victims' exeniture an revents them from giving u the aroriate comensation, 5 while some negative imact on economic efficiency has been ointe out. Unfortunately there have been few stuies which analyse the imact of ILF on the efficiency. This aer tries a theoretical analysis of the economic imact of ILF with the framework of law an economics. This analysis mainly focuses on the economic efficiency of the society. I will firstly escribe the current situation of traffic-accient lawsuits an ILF with Data, followe by showing the theoretical framework with referring to the receing stuies. Finally, I will show some imlication about the economic imact of ILF on the Jaanese juicial system of traffic accients. 2. What is ILF? Accoring to the insurance clause of the leaer in Jaanese insurance inustry 6, ILF suorts the exeniture for legal fee (fee for the attorney, the costs of a lawsuit an the costs of a comromise) when the insure are harme by traffic accients an inten to claim the comensation to the injurer. It requires the rior aroval of the insurer to the exeniture. The number of lawsuits which are sue with using ILF is not certain because juges cannot istinguish lawsuits with ILF from the others. It is generally sai that the roortion of the lawsuits with ILF is not very high because the insurer commit to an attorney at their own exense when the insure confess their own negligence. Some insurance comanies avertise 1 In this aer, only civil roceure in which the victim claims comensation to the injurer is taken u. 2 Watanabe (2012). 3 Hanrei Times (2000) an Hanrei Times (2011). 4 The imact of this tye of insurance on the society is concerne since few eole have their regular attorneys an have general insurance for legal fee in Jaan. 5 In Jaan, liability insurance is orinary for rivers. 6. Tokyo Marine Nichio (2013). 3

4 that ILF is for the cases in which the insure are not negligent 7. However, at least in the clause, the usage of ILF is necessary if the insure inten to sue a lawsuit without their own exense Data 3.1. ILF Exansion in Jaan In Jaan, ILF was sol for the first time in 2000, followe by the marke srea. As figure 1 eicts, the number of ILF sol has been soaring ramatically from aroximately 7,400 in 2000 to slightly less than 19 million in At the same time, the number of the usage of ILF has also been increase to over 13,000 in Figure 1: Tren of the Number of ILF Sol an Its Usage in Jaan Note: The number of insurance for legal fee sol only inclues those of the insurance comanies which have an agreement of the cooeration with JFBA. A art of the number is estimate. The number of usage of insurance for legal fee inclues cases in which the insure chose the attorney themselves. Source: Sureme Court (2013a) 7 This will inclue the cases in which the insure argue that they are not negligent, which occuy the large roortion of the lawsuits. 8. In the general insurance clause, the insurer can cooerate or suort the insure to negotiate with the other about confirming the comensation the insure have to ay. This activities o not inclue negotiations when the insure inten to claim the comensation to the other, when the insure o not agree or cooerate with the activity an when the comensation is lower than the euctible. There has been a oubt whether this tye of activity violates the Lawyers Law or not, while the agreement between Jaan Feeration of Bar Associations (JFBA) Traffic Accient Consultation Centre an The General Insurance Association of Jaan about the ermitte activities of the insurer was mae in 1973 (for boily amage) an 1982 (for object amage) (Hoken Mainichi Shimbun, 2005). 9. Sureme Court (2013a). These numbers o not inclue those of the insurance comanies which o not have an agreement of the cooeration with JFBA, incluing the leaer. 4

5 3.2. Increasing Traffic-accient Lawsuits in District Courts Traffic-accient lawsuits, esecially involving small claims, have also increase significantly. As figure 2 eicts, the number of traffic-accient lawsuits which were settle in istrict courts has increase from aroximately 7,000 (37.3% of which involve less than 5 million yen claim) in 2004 to over 10,000 (43.2% of which involve less than 5 million yen claim) in On the other han, the number of traffic accients has ecrease from aroximately 930,000 in 2000 to aroximately 660,000 in 2012 as figure 3 eicts. Figure 2: The Number of Traffic-accient Lawsuits Settle in District Courts Note: The numbers in 2004 are annual averages calculate from the numbers from Aril to December. Source: Sureme Court (2005), Sureme Court (2007), Sureme Court (2009), Sureme Court (2011) an Sureme Court (2013b). 10 Sureme Court (2005) an Sureme Court (2013b). 11 In Jaan, the extent of aftereffect is usually evaluate by meical octors of comulsory liability insurance manage by the government rior to the lawsuit. The evaluation will be maintaine in the lawsuit unless it is aarently unreasonable or there are some eviences which are not consiere in the evaluation rocess. Nevertheless, the laintiffs who oose this evaluation have been increasing recently which is one factor behin the increasing number of lawsuits. 5

6 Figure 3: Tren of Traffic Accients in Jaan Note: The accients causing injury which woul take less than 8 ays to heal an less than 20,000 yen roerty amage are not inclue until The accients which i not cause injury are inclue until The accients in Okinawa are not inclue until Source: Ministry of Internal Affairs an Communications (2013) 3.3. Increasing Cases Which Involve Attorneys in Summary Courts Recently, traffic-accient lawsuits in which one arty or both arties commit to attorneys have been increasing significantly in summary courts as figure 4 eicts. This may cause the eclining roortion of cases which settle in summary courts ue to severer confrontation between both sies. Figure 4 also eicts that traffic-accient lawsuits in summary courts, in which the laintiffs claim less than 1.4 million yen, have been increasing significantly since the 2000s, when ILF starte to srea raily in Jaan as figure 1 eicts Accoring to Yomiuri Shimbun (25th of October, 2014), the survey by the sureme court showe that the number of traffic-accient lawsuits which were ealt with by the summary courts in 2013 was 5 times larger than that in It also showe a marke increase in the roortion of involving attorneys, in the average erio of trial an in the roortion of aealing. The article analyse that the main reason of these henomena must be the srea of ILF, which le to through confrontation between both sies even though the amage was small. 6

7 Figure 4: The Number of Cases Which Involve Attorneys in Summary Courts Note: The numbers o not inclue small claim actions. Source: Sureme Court (2013a). 4. Preceing Stuies an Theoretical Framework 4.1. The History of Law an Economics of Traffic Accients The relation between law systems an economic efficiency was first showe clearly by Coase (1960). He focuse on actions of business firms which ha harmful effects on others, such as factories which emitte smoke, an argue that, with no costs involve in carrying out market transactions 13, the rearrangement of legal rights through the market woul lea the greatest value of rouction regarless of the initial elimitation. After that, some stuies which alie economic moels to tort law of traffic accients aeare in the 1970s. Calabresi (1970) was one of the first stuies which analyse the efficiency of traffic-accient settlement systems clearly. He alie the economic moel which minimise the sum of the costs of accients an the costs of avoiing accients, an conclue that category etermination 14 was better than case-by-case etermination, although the fault system coul not justify its exense. He mentione the aministrative costs an argue that the costs were save by not shifting the loss in faultless accients only if the istinction between faultless an faulty accients was so clear, which was a ubious assumtion. Atiyah (1975) was another leaing stuy. He ointe out that the tort system, which inclue not only the juicial 13 Coase referre to some examles such as costs for iscovering traing artners, informing eole that one wishes to eal an on what terms, conucting negotiations, rawing u the contract, unertaking the insection. These costs are generally calle transaction costs. 14 This wor means that jugments shoul be base on some categorical stanars. 7

8 roceure but also the settlement by insurance ajustors an solicitors, was extremely exensive to oerate. He analyse the laintiffs ecision of whether they file lawsuits or not an ointe out that the buren of the legal costs significantly affecte their ecision making esecially with very small claim. The analyses of the aministrative costs imrove in the 2000s. Cooter an Ulen (2008) referre to the aministrative costs as an imortant element in a comlex moel. They showe that it was not clear which realise less total aministrative costs, a rule of negligence or a rule of strict liability, since in a rule of negligence reallocating the cost of harm occurre in fewer cases while the ajuicator s task woul be more comlex, an vice versa. They also argue that wholesale rules 15 save the aministrative costs but istorte the relationshi between the marginal cost of recaution an the marginal reuction in harm comare to case-by-case ajuication. In aition, they formulise the arties ecision making whether they file, comromise or aeale an emhasise the imortance of ooling of information in orer to reuce aministrative costs an error costs Theoretical Framework One of the most secific analysis of the aministrative costs is by Shavell (2004), which involves the theoretical framework this aer has aote. He efine the aministrative costs as the sum of the legal an nonlegal exenses such as time, effort, emotional costs an isutility. Then he argue that the true social costs of the accient were comrise of its irect costs (harm to roerty an to erson) lus aministrative costs, an formulise total social costs as a) if suit was not brought; SC qh, (1) b) if suit was brought; SC q' h x q'( c c c ), (2) where c was the victim s (laintiff s) cost of suit, c was the injurer s (efenant s) litigation cost, c s was the state s cost 16, h was the harm suffere an what the victim woul collect if he sue, q was the robability of harm h if suit was not brought, q ' was the robability of harm if suit was brought an x was the recaution exenitures that injurers woul be inuce to make if there was suit (Thus, q ' woul be less than q if x was ositive.). Hence, the bringing of suit will lower total costs, be socially worthwhile, if an only if s q' ( c c c ) ( q q' h x. (3) s ) On the other han, if liability is strict 17, victims will sue if an only if c h. (4) In conclusion, he argue that the use of the liability system woul be socially worthwhile if an only if the savings from accient reuction it brought about exceee its aministrative costs, which woul not be realise when the magnitue of accient losses was low or when there was 15 The meaning of the wor is almost the same as category etermination above. 16 In fact, ealing with traffic-accient lawsuits has been the enormous buren esecially to the summary court juges an court clerks, who usually eal with simle cases they can easily settle. 17 For simlicity, I assume the strict liability in this aer. The result will be essentially the same even if we aot the negligence rule incluing contributory negligence an comarative negligence. In that case, each arty s exectation for the etermination of negligence will be ae to their ecisionmaking equation, as well as c, c an c will become higher. This will unerline the imortance of s information ool between the arties an the categorisation of the etermination of negligence. 8

9 little that iniviuals woul o to revent losses on account of liability. He also argue that the amount that liable injurers ought to ay shoul equal the sum of the irect harm lus aministrative costs (Damages shoul equal the irect harm lus the victim s litigation costs, while the state s costs shoul be collecte from the injurer in the form of a fine.). In aition, he analyse the ossibility of comromises. Let of the robability of winning W at trial, laintiff will revail, C be the laintiff s trial cost an the laintiff s minimum comromise amount is comromise amount is W which is to say, if an only if C be the laintiff s estimate be the efenant s robability estimate that the C be the efenant s trial cost. Then W C an the efenant s maximum. Hence a comromise is ossible if an only if W C W C, (5) W W C C. (6) Moreover, if the arties have ifferent beliefs about the amount that woul be won, a comromise is ossible if an only if W W C C. (7) In conclusion, he argue that a mutually beneficial comromise exists as long as the laintiff s estimate of the execte jugment oes not excee the efenant s estimate by more than the sum of their costs of trial Stuy of ILF in Jaan There have been few acaemic stuies about ILF in Jaan. Yamashita (2011) is the ioneering stuy of ILF from the stanoint of law. He mentione the ossibility of lawsuit abuse with ILF although he conclue that the abuse woul be revente by isaroval right of the insurer an the ossibility of claim by the other arty 18. Unfortunately, no other stuy which analyse ILF from the stanoint of economics has been foun. 5. Alying the Economic Moel to ILF 5.1. Imlications of the Simle Economic Moel with ILF In the theoretical framework referre to by Shavell (2004), if we suose that the tort resonsibilities may harly encourage rivers to make efforts to revent traffic accients, which is a natural assumtion 19, filing lawsuits is harly economically efficient accoring to equation 18 I am ubious about this conclusion. This is because insurance comanies can not isarove the use of ILF easily ue to maintaining their reutation of generosity an the requirements of lawsuit abuse are quite severe in Jaan. 19 For consiering the valiity of this assumtion, it is useful to think about the subsequent questions; o we rive carefully to avoi the tort resonsibilities when traffic accients occur, or to avoi criminal an aministrative sanctions, or to revent ourselves an our family from being injure? When we think about these questions, we will realise that enying this encouraging effect may be natural. The srea of liability insurance will also suort this assumtion. If we acknowlege the encouraging effect, ILF will enhance this effect because filing lawsuits c. will be more likely an comromising will be less likely since 0 C 9

10 (3). On the other han, victims inten to file a lawsuit as long as their execte gain excees their aministrative costs accoring to equation (4). When the victim has ILF, the situation eteriorates. ILF makes c 0 when the laintiff makes a ecision whether he or she files a lawsuit or not. As a result, they always file a lawsuit accoring to equation (4). This tren can be seen in recent soaring of lawsuits involving less than 5 million yen claim as figure 2 an figure 4 eict, many of which involve attorneys 20. Moreover, they are more likely to avance to trial without comromising strength since C 0 in equation (6) an equation (7). In conclusion, ILF is likely to aggravate the aministrative inefficiency. In orer to reuce the istortion, imosing the aministrative costs on the laintiffs may be the most realistic an effective solution. In that case, if liability is strict, victims will sue if an only if c c cs h. (8) In comarison to equation (4), victims are more execte not to file lawsuits in which they claim small comensation an not to waste money for attorney s fee since they have to resonsible for the aministrative costs of the efenants an the government, which ten to increase accoring to those of the laintiffs. In Jaan, the laintiffs are rarely resonsible for the legal fee of the efenants an a charge of filing a lawsuit is significantly small comare to the aministrative costs of the government. In aition, a art of their own legal fee coul be ai by the efenants when they win 21. This system aarently causes economic inefficiency. We have to recognise this inefficiency an iscuss how the istribution of resonsibility for legal costs shoul be. Confirming categorical stanar for jugment may be another solution. It will enhance the accuracy of exectation of both sies about how much the comensation will be, which encourage them to comromise without filing lawsuits 22. Encouraging insurance for victims coul be another solution as well. Since the right to comensation will move from the insure to the insurer by the insurance ayment, the insurer, who are resonsible for c even though ILF exists, is to make a ecision whether it files a lawsuit. As a result, they will file a lawsuit if c h accoring to equation (4). Since they usually have necessary information about c an h as rofessional, as well as they usually try to share information with the other arty as their rational behaviour, they are less likely to make an inefficient ecision an, as a result, c an c s are more likely to be otimise as well. On the other han, if the laintiff is comensate artly by insurance, economic inefficiency which was ointe out in revious aragrahs will remain In aition, it shoul be ointe out that they are likely to waste money for attorney s fee because they o not have to care about it, which usually raises total amount of the aministrative costs incluing the efenant s an the government s ones. 21 In Jaan, legal fee is resonsible for each arty in rincile, although aroximately 10% is usually ae to amage as the laintiff s legal fee in tort law. 22 Actually, the Jaanese courts succeee significantly in ecreasing the number of traffic-accient lawsuits by stanarising the etermination of the negligence an the amount of comensation in the 1960s to the 1970s as mentione above. 23 In New Zealan, a government cororation has rovie some categorical accient comensation whether the victim is at fault or not, which has comletely relace the common law action for ersonal injury cause by accient since 1974 (Brown, 1985 an Fleming, 1984). This may be the case which avance categorisation an insurance for victims thoroughly. 10

11 5.2. Comromising an the lack of mutual trust in ILF The simle moel shows that if the information which each arty has is share between both sies in the roceeings of arranging issues an evience 24, they are more likely to comromise before trial. However, esite efforts of attorneys an juges, the roortion of cases which finish by comromising has not increase. One ossible reason is the lack of trust between the attorney an the insure. This is because, when ILF is use, the attorney is orinarily chosen by the insurer or JFBA with no trust with the insure. As a result, unless he or she succees in builing trust with the insure for a short erio of time until the roceure avances, it is very har to ersuae his or her client when their strategies are ifferent. This might cause making a wrong ecision without accurate information an eteriorate the economic inefficiency. In orer to reuce this tye of istortion, the three solutions mentione above may also be effective. These are execte to encourage the laintiffs to be more concerne about the avice by their attorneys. 6. Conclusion ILF coul be one main cause for a significant increase in traffic-accient lawsuits an the ifficulty of comromising. But this situation may not encourage rivers to make efforts to revent traffic accients. In this case, ILF systematically aggravates the istortion of the ecision making about what tye of roceure the arties choose an how much they ay legal costs for the roceure, which eteriorates the aministrative inefficiency. Builing trust between the attorney an the insure is another issue. For these roblematic situations, imosing the aministrative costs on the laintiffs, confirming categorical stanar for jugment an encouraging insurance for victims may be ossible solutions. Further stuies about ILF an the juicial roceures from the stanoint of economics incluing emirical analyses are neee. 24 In Jaan, trial is not istinguishe clearly in juicial roceure, but examination of witnesses is usually hel intensively after roceeings of arranging issues an evience. 11

12 References Atiyah, P. S. (1975). Accients, Comensation an the Law, 2n e., Weienfel & Nicolson, Ch. 11, 21, 24. Brown, C. (1985). Deterrence in Tort an No-Fault: The New Zealan Exerience. California Law Review, vol. 73, issue 3: Calabresi, G. (1970). The Costs of Accients: A Legal an Economic Analysis. Yale University Press, Ch. 10, 14. Coase, R. (1960). The Problem of Social Cost (in: D. A. Wittman-e., Economic Analysis of the Law: Selecte Reaings), Blackwell, Cooter, R. an T. Ulen (2008). Law & Economics, 5th e., Pearson, Ch. 8 to 10. Fleming, J. G. (1984). Is There A Future for Tort?. Louisiana Law Review, vol. 44, No. 5: Hanrei Times (2000). Minji kotsu bu saibanrei wo hurikaeru <zaankai> (Review of the cases of secial eartment for traffic-accient lawsuits <iscussion>) (in Jaanese), Hanrei Times 1033, (2011).Kotsu songaibaisho ni okeru jitsumu no genjo <zaankai> (The state of the ractise of traffic-accient lawsuits <iscussion>) (in Jaanese), Hanrei Times 1346, 4. Hoken Mainichi Shinbun (2012). Jiousha Hoken no Kaisetsu 2012 (Commentary for Automobile Insurance 2012) (in Jaanese). Ministry of Internal Affairs an Communications (2013). Heisei 24 nen chu no koutsuujiko no hasseijoukyou (The Number of Traffic Accients in 2012) (in Jaanese), htt:// Shavell, S. (2004). Founations of Economic Analysis of Law. The Belkna Press of Harvar University Press, Ch. 12, 17 Sureme Court (2005). Saiban no jinsokuka ni kakaru ken-shou ni kansuru houkokusho (Reort of the Investigation for Early Resolution of Lawsuits) (in Jaanese), (2007). Saiban no jinsokuka ni kakaru ken-shou ni kansuru houkokusho (Reort of the Investigation for Early Resolution of Lawsuits) (in Jaanese), (2009). Saiban no jinsokuka ni kakaru ken-shou ni kansuru houkokusho: Gaikyou, shiryou hen (Reort of the Investigation for Early Resolution of Lawsuits: Summary an ata) (in Jaanese), (2011). Saiban no jinsokuka ni kakaru ken-shou ni kansuru houkokusho: Gaikyou hen (Reort of the Investigation for Early Resolution of Lawsuits: Summary) (in Jaanese), (2013a). Saiban no jinsokuka ni kakaru ken-shou ni kansuru houkokusho: Shakaitekiyouin hen (Reort of the Investigation for Early Resolution of Lawsuits: Factors of the Society) (in Jaanese), (2013b). Saiban no jinsokuka ni kakaru ken-shou ni kansuru houkokusho: Gaikyou hen (Reort of the Investigation for Early Resolution of Lawsuits: Summary) (in Jaanese), 241. Tokyo Marine Nichio (2013). Total assist jiousha hoken gokeiyaku no shiori (Guie to Total Assist Automobile Insurance) (in Jaanese). Yamashita, N. (2011). Wagakuni ni okeru bengoshihiyouhoken ni kansuru ichikousatsu (Stuy of Insurance for Legal Fee in Jaan) (in Jaanese) (in: S. Ishia-et-al-e., Ohtani Kouichi hakushi koki kinen hokengaku hokenhougaku no kaai to tenbou), Seibuno, Watanabe, C. (2012). Saiban no Senmonka to Saibankan (Juges with Secialisation of lawsuits) (in Jaanese), Ritsumeikan Hougaku, ,