Tom Baker

Tom Baker
  • William Maul Measey Professor of Law and Health Sciences, Professor of Health Care Management

Contact Information

  • office Address:

    Penn Law School
    Golkin 234
    3501 Sansom St.
    Philadelphia, PA 19104

Links: CV

Overview

Tom Baker, a preeminent scholar in insurance law, explores insurance, risk, and responsibility using methods and perspectives drawn from economics, sociology, psychology, and history. He is coauthor with Sean Griffith of Ensuring Corporate Misconduct (Chicago 2010), which examines relationships among liability insurance, corporate governance, and securities litigation. His latest article, “Do You Want Insurance with that? Protecting Consumers from Add-On Insurance Products,” employs behavioral economic analysis to support a more assertive approach to regulating such insurance products as collision damage waivers, extended warranties, and credit life insurance. His current research examines legal malpractice law in action and the implementation of the Affordable Care Act.

He is the Reporter for the American Law Institute’s Principles of Liability Insurance Project, a member of the Sloan/Sage Working Group on Behavioral Economics and Retail Financial Services, and the co-director of the Health Insurance Exchange Research Group of Penn’s Leonard Davis Institute of Health Economics. In August  2013 he received the Robert B. McKay award, a lifetime scholarly achievement award given by the Tort Trial and Insurance Practice Section of the American Bar Association.

Continue Reading

Research

  • Benedict G. C. Dellaert, Eric J Johnson, Shannon Duncan, Tom Baker (2024), Choice Architecture for Healthier Insurance Decisions: Ordering and Partitioning Together Can Improve Consumer Choice, Journal of Marketing, 88 (1), pp. 15-30. https://doi.org/10.1177/00222429221119086 Abstract

    Making good health insurance decisions is important for health outcomes and longevity, but consumers’ errors are well documented. The authors examine whether targeted choice architecture interventions can reduce these mistakes. The article examines the interaction of two choice architecture tools on improved consumer insurance decisions in online health care exchanges: (1) ordering the options from best to worst based on a high-quality user model and (2) partitioning the total set of options. Although ordering and partitioning do not always improve choices separately, the authors use one field study and three experiments to identify the conditions that allow the combination to greatly improve health insurance decisions. Findings indicate that when options are ordered such that the best options appear at the beginning of the presented list, partitioning nudges consumers to focus on the best options. However, if the best options are not at the top of the list, partitioning discourages search and can impair consumers’ discovery of the best options. Process data show that these effects are achieved by focusing consumers’ limited attention on higher-quality options. These results suggest that wise choice architecture interventions need to consider the joint effect of choice architecture tools as well as the quality of the firm’s user model.

  • Tom Baker and Peter Siegelman (Working), Enticing Low Risks into the Health Insurance Pool: Tontines for the Invincibles, an Idea from Insurance History and Behavioral Economics. Abstract

    Over one third of the uninsured adults in the U.S. below retirement age are between 19 and 29 years old. Young adults, especially men, often go without insurance, even when buying it is mandatory and sometimes even when it is a low cost employment benefit. This paper proposes a new form of health insurance targeted at this group—the “Young Invincibles”—those who (wrongly) believe that they don’t need health insurance because they won’t get sick. Our proposal offers a cash bonus to those who turn out to be right in their belief that they did not really need health insurance. The concept comes from the tontine life insurance that fueled the rise of the U.S. insurance industry in the late 19th Century. A largely forgotten casualty of the 1906 pacification of the life insurance industry, the tontine idea holds great promise for making health insurance attractive to the invincibles today. The tontine feature frames the health insurance purchase as a smart investment, rather than a way to spend money for something the customer does not think he needs. Tontines make insurance more attractive to the uninsured, without wasting funds by subsidizing those who are already covered. We identify a particular class of individuals (the invincibles), show how a specific cognitive bias accounts for their irrational behavior, and design an insurance mechanism (tontines or deferred dividends) to overcome the effects of this bias. The final sections of the paper offer an empirically calibrated pricing demonstration for a tontine health policy and an analysis of the legality of tontines in this context.

  • Tom Baker and Sean Griffith (Working), How the Merits Matter: D&O Insurance and Settlements in Securities Class Actions. Abstract

    This Article seeks what may be the holy grail of securities law scholarship – the role of the “merits” in securities class actions – by investigating the relationship between settlements and D&O insurance. Drawing upon in-depth interviews with plaintiffs’ and defense lawyers, D&O claims managers, monitoring counsel, brokers, mediators, and testifying experts, we elucidate the key factors influencing settlement and examine the relationship between these factors and notions of merit in civil litigation. We find that, although securities settlements are influenced by some factors that are arguably merit-related, such as the sex appeal of a claim’s liability elements, they are also influenced by many that are not, including, most obviously, the amount and structure of D&O insurance. The virtual absence of adjudication results in payment to the plaintiffs’ class for every claim surviving the motions stage and, as importantly, a lack of authoritative guidance about merit at settlement. Without such adjudication, the weight of various factual patterns is untested, and the validity of competing damages models remains unknown. Parties structure their settlement by reference to other settlements, but these are opaque and subject to the same set of distortions. In this murky environment, plaintiffs and defendants collude to pressure the D&O insurer to settle on terms that may not reflect the ultimate merits of the claim. More adjudication, we argue, would be the best solution to the problem, but barring that, disclosure of D&O insurance and settlement terms would offer some improvement.

  • Tom Baker, Patricia Born, Kip Viscusi (Working), The Effects of Tort Reform on Medical Malpractice Insurers’ Ultimate Losses. Abstract

    Whereas the literature evaluating the effect of tort reforms has focused on the impact of reforms on insurers’ reported incurred losses, this article examines the ultimate effects of reforms using the developed losses from a comprehensive sample of insurers writing medical malpractice insurance from 1984 to 2003. Noneconomic damages caps are particularly influential in reducing medical malpractice losses and increasing insurer profitability. The long-run effects of these reforms are greater than insurers’ expected effects; for example, 5- and 7-year developed loss ratios are below the initially reported incurred loss ratios for those years following the enactment of noneconomic damages caps. Analyses of reported losses consequently understate the ultimate effects of tort reforms. The quantile regressions show that reforms have the greatest effects for the firms that are at the high end of the loss distribution.

  • Tom Baker and David Moss (Working), Government as Risk Manager.
  • Tom Baker (Working), Liability Insurance at the Tort-Crime Boundary. Abstract

    This essay explores how liability insurance mediates the boundary between torts and crime. Liability insurance sometimes separates these two legal fields, for example through the application of standard insurance contract provisions that exclude insurance coverage for some crimes that are also torts. Perhaps less obviously, liability insurance also can draw parts of the tort and criminal fields together. For example, professional liability insurance civilizes the criminal law experience for some crimes that are also torts by providing defendants with an insurance-paid criminal defense that provides more than ordinary means to contest the state’s accusations. The crime-tort separation in liability insurance cannot be explained by economic incentives, alone. Morality matters, too. The fact that liability insurance sometimes provides coverage for criminal defense costs suggests that liability insurance institutions could cover a broader swath of crime torts than they do, providing further support for the claim that consequentialist reasoning, alone, cannot explain the observed relationship between liability insurance, torts, and crime. The tort-crime separation reflects and reinforces a concept of liability insurance as protection for defendants, rather than as a fund for victims. In turn, this concept of insurance reflects and reinforces an understanding of tort claims as encounters between particular plaintiffs and defendants, rather than as a price setting or loss spreading insurance mechanism.

  • Tom Baker (Working), Transparency through Insurance: Mandates Dominate Discretion. Abstract

    This chapter describes how liability insurance has contributed to the transparency of the civil justice system. The chapter makes three main points. First, much of what we know about the empirics of the civil justice system comes from access to liability insurance data and personnel. Second, as long as access to liability insurance data and personnel depends on the discretion of liability insurance organizations, this knowledge will be incomplete and, most likely, biased in favor of the public policy agenda of the organizations providing discretionary access to the data. Third, although mandatory disclosure of liability insurance data would improve transparency, a reasonably complete understanding of the empirics of the civil justice system also requires mandatory disclosure of the payments and defense expenditures that are not covered by liability insurance.
    The first part of this chapter describes existing approaches to transparency through liability insurance in the U.S. The second part analyzes the role of liability insurance in promoting transparency in several discrete civil justice arenas – auto, medical, and products liability – and, for comparison purposes, workers’ compensation. The concluding section addresses objectives to expanding mandatory claims reporting and links the discussion in this chapter to the literature on the relationship between liability and insurance more generally.

  • Tom Baker (Working), Liability Insurance, Moral Luck, and Auto Accidents. Abstract

    Beginning with the seminal work by Williams and Nagel, moral philosophers have used auto accident hypotheticals to illustrate the phenomenon of moral luck. Moral luck occurs in the hypotheticals because (and to the extent that) two equally careless drivers are assessed differently because only one of them caused an accident. This article considers whether these philosophical discussions might contribute to the public policy debate over compensation for auto accidents. Using liability and insurance practices in the United States as an illustrative example, the article explains that auto liability insurance substantially mitigates moral luck and argues that, as a result, the moral luck literature is unlikely to make a significant contribution to this public policy debate. That debate would benefit more from philosophical analysis of victims’ luck, which is not as substantially mitigated by liability insurance.

Teaching

Current Courses

  • LAW9370 - Litigation Finance (baker/marra)

    Litigation Finance

    LAW9370001

Past Courses

  • LAW5020 - Contracts

  • LAW5040 - Torts

  • LAW7070 - Corporate Law

    Corporate Law

  • LAW9370 - Finance

    Litigation Finance

  • LAW9990 - Independent Study Project

    Independent Study Project

In the News

Knowledge @ Wharton

Tom Baker

Tom Baker
  • Deputy Dean and William Maul Measey Professor of Law and Health Sciences

Contact Information

  • office Address:

    3400 Chestnut Street
    Philadelphia, PA 19104

Research Interests: contracts, insurance law, torts

Overview

EDUCATION:

J.D. – Harvard – ’86

B.A. – Harvard – ’82

Tom Baker, a preeminent scholar in insurance law, explores insurance, risk, and responsibility using methods and perspectives drawn from economics, sociology, psychology, and history. He is author of The Medical Malpractice Myth (Chicago, 2005), in which he attacks misperceptions behind the tort reform movement and proposes an evidence-based approach to medical liability reform. In his 1996 paper, On the Genealogy of Moral Hazard (Texas Law Review) Baker explores the shortcomings of moral hazard as a neutral, technical basis for reforming tort law, workers’ compensation, health insurance, and social welfare programs. His latest book, Ensuring Corporate Misconduct (Chicago 2010), coauthored with Sean Griffith, examines relationships among directors’ and officers’ liability insurance, corporate governance, and securities litigation.

His current research seeks to use insights from behavioral economics to improve financial services regulation. He is the Reporter for the American Law Institute’s Principles of Liability Insurance Project and is active in the Law and Society Association.

Continue Reading

Research

  • Benedict G. C. Dellaert, Eric J Johnson, Shannon Duncan, Tom Baker (2024), Choice Architecture for Healthier Insurance Decisions: Ordering and Partitioning Together Can Improve Consumer Choice, Journal of Marketing, 88 (1), pp. 15-30. https://doi.org/10.1177/00222429221119086 Abstract

    Making good health insurance decisions is important for health outcomes and longevity, but consumers’ errors are well documented. The authors examine whether targeted choice architecture interventions can reduce these mistakes. The article examines the interaction of two choice architecture tools on improved consumer insurance decisions in online health care exchanges: (1) ordering the options from best to worst based on a high-quality user model and (2) partitioning the total set of options. Although ordering and partitioning do not always improve choices separately, the authors use one field study and three experiments to identify the conditions that allow the combination to greatly improve health insurance decisions. Findings indicate that when options are ordered such that the best options appear at the beginning of the presented list, partitioning nudges consumers to focus on the best options. However, if the best options are not at the top of the list, partitioning discourages search and can impair consumers’ discovery of the best options. Process data show that these effects are achieved by focusing consumers’ limited attention on higher-quality options. These results suggest that wise choice architecture interventions need to consider the joint effect of choice architecture tools as well as the quality of the firm’s user model.

  • Tom Baker and Peter Siegelman (Working), Enticing Low Risks into the Health Insurance Pool: Tontines for the Invincibles, an Idea from Insurance History and Behavioral Economics. Abstract

    Over one third of the uninsured adults in the U.S. below retirement age are between 19 and 29 years old. Young adults, especially men, often go without insurance, even when buying it is mandatory and sometimes even when it is a low cost employment benefit. This paper proposes a new form of health insurance targeted at this group—the “Young Invincibles”—those who (wrongly) believe that they don’t need health insurance because they won’t get sick. Our proposal offers a cash bonus to those who turn out to be right in their belief that they did not really need health insurance. The concept comes from the tontine life insurance that fueled the rise of the U.S. insurance industry in the late 19th Century. A largely forgotten casualty of the 1906 pacification of the life insurance industry, the tontine idea holds great promise for making health insurance attractive to the invincibles today. The tontine feature frames the health insurance purchase as a smart investment, rather than a way to spend money for something the customer does not think he needs. Tontines make insurance more attractive to the uninsured, without wasting funds by subsidizing those who are already covered. We identify a particular class of individuals (the invincibles), show how a specific cognitive bias accounts for their irrational behavior, and design an insurance mechanism (tontines or deferred dividends) to overcome the effects of this bias. The final sections of the paper offer an empirically calibrated pricing demonstration for a tontine health policy and an analysis of the legality of tontines in this context.

  • Tom Baker and Sean Griffith (Working), How the Merits Matter: D&O Insurance and Settlements in Securities Class Actions. Abstract

    This Article seeks what may be the holy grail of securities law scholarship – the role of the “merits” in securities class actions – by investigating the relationship between settlements and D&O insurance. Drawing upon in-depth interviews with plaintiffs’ and defense lawyers, D&O claims managers, monitoring counsel, brokers, mediators, and testifying experts, we elucidate the key factors influencing settlement and examine the relationship between these factors and notions of merit in civil litigation. We find that, although securities settlements are influenced by some factors that are arguably merit-related, such as the sex appeal of a claim’s liability elements, they are also influenced by many that are not, including, most obviously, the amount and structure of D&O insurance. The virtual absence of adjudication results in payment to the plaintiffs’ class for every claim surviving the motions stage and, as importantly, a lack of authoritative guidance about merit at settlement. Without such adjudication, the weight of various factual patterns is untested, and the validity of competing damages models remains unknown. Parties structure their settlement by reference to other settlements, but these are opaque and subject to the same set of distortions. In this murky environment, plaintiffs and defendants collude to pressure the D&O insurer to settle on terms that may not reflect the ultimate merits of the claim. More adjudication, we argue, would be the best solution to the problem, but barring that, disclosure of D&O insurance and settlement terms would offer some improvement.

  • Tom Baker, Patricia Born, Kip Viscusi (Working), The Effects of Tort Reform on Medical Malpractice Insurers’ Ultimate Losses. Abstract

    Whereas the literature evaluating the effect of tort reforms has focused on the impact of reforms on insurers’ reported incurred losses, this article examines the ultimate effects of reforms using the developed losses from a comprehensive sample of insurers writing medical malpractice insurance from 1984 to 2003. Noneconomic damages caps are particularly influential in reducing medical malpractice losses and increasing insurer profitability. The long-run effects of these reforms are greater than insurers’ expected effects; for example, 5- and 7-year developed loss ratios are below the initially reported incurred loss ratios for those years following the enactment of noneconomic damages caps. Analyses of reported losses consequently understate the ultimate effects of tort reforms. The quantile regressions show that reforms have the greatest effects for the firms that are at the high end of the loss distribution.

  • Tom Baker and David Moss (Working), Government as Risk Manager.
  • Tom Baker (Working), Liability Insurance at the Tort-Crime Boundary. Abstract

    This essay explores how liability insurance mediates the boundary between torts and crime. Liability insurance sometimes separates these two legal fields, for example through the application of standard insurance contract provisions that exclude insurance coverage for some crimes that are also torts. Perhaps less obviously, liability insurance also can draw parts of the tort and criminal fields together. For example, professional liability insurance civilizes the criminal law experience for some crimes that are also torts by providing defendants with an insurance-paid criminal defense that provides more than ordinary means to contest the state’s accusations. The crime-tort separation in liability insurance cannot be explained by economic incentives, alone. Morality matters, too. The fact that liability insurance sometimes provides coverage for criminal defense costs suggests that liability insurance institutions could cover a broader swath of crime torts than they do, providing further support for the claim that consequentialist reasoning, alone, cannot explain the observed relationship between liability insurance, torts, and crime. The tort-crime separation reflects and reinforces a concept of liability insurance as protection for defendants, rather than as a fund for victims. In turn, this concept of insurance reflects and reinforces an understanding of tort claims as encounters between particular plaintiffs and defendants, rather than as a price setting or loss spreading insurance mechanism.

  • Tom Baker (Working), Transparency through Insurance: Mandates Dominate Discretion. Abstract

    This chapter describes how liability insurance has contributed to the transparency of the civil justice system. The chapter makes three main points. First, much of what we know about the empirics of the civil justice system comes from access to liability insurance data and personnel. Second, as long as access to liability insurance data and personnel depends on the discretion of liability insurance organizations, this knowledge will be incomplete and, most likely, biased in favor of the public policy agenda of the organizations providing discretionary access to the data. Third, although mandatory disclosure of liability insurance data would improve transparency, a reasonably complete understanding of the empirics of the civil justice system also requires mandatory disclosure of the payments and defense expenditures that are not covered by liability insurance.
    The first part of this chapter describes existing approaches to transparency through liability insurance in the U.S. The second part analyzes the role of liability insurance in promoting transparency in several discrete civil justice arenas – auto, medical, and products liability – and, for comparison purposes, workers’ compensation. The concluding section addresses objectives to expanding mandatory claims reporting and links the discussion in this chapter to the literature on the relationship between liability and insurance more generally.

  • Tom Baker (Working), Liability Insurance, Moral Luck, and Auto Accidents. Abstract

    Beginning with the seminal work by Williams and Nagel, moral philosophers have used auto accident hypotheticals to illustrate the phenomenon of moral luck. Moral luck occurs in the hypotheticals because (and to the extent that) two equally careless drivers are assessed differently because only one of them caused an accident. This article considers whether these philosophical discussions might contribute to the public policy debate over compensation for auto accidents. Using liability and insurance practices in the United States as an illustrative example, the article explains that auto liability insurance substantially mitigates moral luck and argues that, as a result, the moral luck literature is unlikely to make a significant contribution to this public policy debate. That debate would benefit more from philosophical analysis of victims’ luck, which is not as substantially mitigated by liability insurance.

Teaching

Current Courses

  • LAW9370 - Litigation Finance (baker/marra)

    Litigation Finance

    LAW9370001

Past Courses

  • LAW5020 - Contracts

  • LAW5040 - Torts

  • LAW7070 - Corporate Law

    Corporate Law

  • LAW9370 - Finance

    Litigation Finance

  • LAW9990 - Independent Study Project

    Independent Study Project

In the News

Knowledge @ Wharton

Activity

Latest Research

Benedict G. C. Dellaert, Eric J Johnson, Shannon Duncan, Tom Baker (2024), Choice Architecture for Healthier Insurance Decisions: Ordering and Partitioning Together Can Improve Consumer Choice, Journal of Marketing, 88 (1), pp. 15-30. https://doi.org/10.1177/00222429221119086
All Research

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