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Comment by resolutebat | Hacker News Reader

TL;DR of the court cases: the fisherman was guilty of damages to the tune of $1.2M, and his insurance cover was voided because his act was so reckless.

Funnily enough, the cable owners (Telus) tried to thread the needle of making the owner liable, but not so badly that insurance wouldn't pay for it. The judge didn't buy this, and obviously a sole operator crab boat can't pay over a million in damages (although he did lose his boat), so in the end everybody except the insurance company got screwed.

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Despite not recovering any money, Telus may have seen some value in letting others know what the consequences can be.

“Kill the chicken to scare the monkey

I think they taught the value in letting others know to NOT put things together yourself that you cut an operational cable and report it to police yourself voluntarily.

Makes you wonder if those cables should (can) be insured against such problems instead of relying on a craber's insurance.

$1.2m is a drop in the bucket for Telus.

In most cases, when insurance covers a loss, they also subrogate the loss and pursue damages from the responsible party, if feasible...

It's reasonable for the responsible party to pay the damages. And yet, it's a risk, which is why it's common to carry insurance for your own liability (in which case, your insurance usually wouldn't subrogate and sue you)

Telus’ insurance would have a deductible, they can’t claim for every little thing

Not even a down payment on the fine?

There were no criminal penalties, this was a civil case.

Seems like the insurance would still pay but he loses his boat to the insurance company at that point, assuming carrying insurance was part of his fishing license.

Due to problems with moral hazard, insurance generally doesn’t cover anything illegal done intentionally or due to extreme (willful) recklessness/negligence.

Hard to argue that wasn’t what the fisherman was doing at the point he was sawing a cable in half using a saw he’s already dredged up several times.

Makes me wonder if car liability insurance covers the damages you can cause if you drive recklessly or even purposely hit someone's car

They do, they'll just come after you for the money and will not cover your costs since you acted reckless.

Where I live this is the minimum you MUST insure yourself for and they pay out no matter what (to the other party). If you acted in bad faith they will come for your money. If it's an accident or out of your control they pay the damages you caused for you and you are fine. Since everyone is insured by law what usually happens is the companies involved all pay out and then afterwards figure out among themselves if and from whom they can collect.

Similar here: auto insurers lobbied to exclude coverage for damage to your vehicle if you were under the influence or alcohol or drugs.

I guess people may ethically agree to that but did premiums go down? Of course not.

A very profitable move for the insurance companies to provide less insurance without handing over the savings.

And it even applies to “anyone you let drive your vehicle” so everyone is supposed to be a drug recognition expert, which is even controversial amongst those that are supposed to be the “experts”.

Mandatory insurances (that are mandatory to ensure victims get paid) are often required to pay even in such cases, but are then allowed to (try to) get the money back from the perpetrator. This protects the victim but not the perpetrator, eliminating the moral hazard.

He apparently didn't realize that it was important:

"is in his 60s, has fished since he was 15. The courts were told that he had no formal training but picked his fishing grounds by experience"

"he saw a chart showing a line running through his fishing area with the handwritten notation “abandonne.” He concluded his underwater nemesis was fair game and when he snagged it again in June of 2006, he pulled it up and sliced through it with an electric saw."

"Vallee heard that police were looking for the culprit. He came forward and made a voluntary statement."

Poor guy. He might be an idiot for just slicing some cable he dredged up, but possibly had neither the education nor the knowledge to understand what he was doing.

The willful negligence is not asking someone or saying something before slicing into an expensive looking underwater cable with a saw - which would take some time, preparation, and persistence.

And if it was actually abandoned, what was cutting it going to do for him anyway? Unless he removed the cable, he was going to keep snagging it in different areas.

This isn’t like cutting a corner pulling out of a parking lot and running over some flowers. This is like digging with a backhoe in front of your business to install some irrigation, and getting irritated at all those pesky cables and stuff underground. And rather than talking to someone about it, ripping them all out because ‘it didn’t look like anyone was using them’.

The “moral hazard” argument is completely bullshit as usual, there's no moral hazard if there's consequences besides the damage, and it's always the case when doing something illegal (there's a fine, or jail time for instance).

But insurances' business is about finding reasons not to pay, so it's not surprising at all…

Imagine a scenario - a restaurant owner is insured for $3 million dollars for the business and structure (not atypical).

Business isn’t doing great. The place catches on fire and burns down. All the business assets and the structure are lost, so the business needs to shut down.

If arson wasn’t an exclusion;

1) why would anyone look closer to figure out if it was intentional or not? Assuming no one was injured. Who has the incentive to do all the investigation?

2) even if they got caught and convicted, in California the jail penalty is only 3 years for structure arson. $3mln is a hell of a payday for three years in jail, and without the exclusion, they’d still be entitled to the payout.

3) what if they had a buddy do it, and the evidence they conspired wasn’t strong enough to get a criminal conviction - but enough for civil court. Or civil discovery would uncover evidence, where a criminal investigation may not.

Same dynamic plays out for life insurance, vehicle, personal liability, home insurance, etc.

Moral hazard is a real issue for any insurance, as knowledge that a payout can come due to a circumstance someone can intentionally trigger definitely changes the odds of those circumstances occurring. In some cases to the point of strongly encouraging or even outright warping the market so those circumstances occur regularly.

Without insurance, the owner is the one who bears the costs directly no matter what, so we’d likely have a lot fewer buildings burning down!

People would in general be a lot more careful, just like they’d be more careful driving if every car has a giant knife embedded in the center of the steering wheel instead of having airbags. A lot more lives would be ruined though when being careful isn’t enough eh? Or people get overwhelmed.

And of course insurance companies have a strong incentive to not pay out illegitimate claims. They’d go bankrupt if they did anything else!

Sometimes (or often, depending on your POV) they try to not pay out legitimate claims, which is why documentation and legal representation is important too - and why it’s such a heavily regulated industry pretty much everywhere.

I don't understand your example because from your description I can't tell who set the place ablaze.

If it's the owner, then it's insurance fraud, and it has nothing to do with moral hazard.

If it's not the owner but say a random crackhead, then I also fail to see how it qualifies as moral hazard, and if the insurance doesn't not cover them nobody will (because the arsonist is insolvent and will never be able to pay $3M) and the business owner is screwed, which is a terrible outcome (and is exactly what happened here).

In any case the answer to 1) clearly is “the insurance company” exactly as if arson is excluded.

> Without insurance, the owner is the one who bears the costs directly no matter what,

Which is exactly what he's trying to avoid when paying for an insurance in the first place.

And like with health insurance, there's actually very little link between the fact that you're insured or not and the risk you're taking (Like nobody gets hurt because their injuries get reimbursed) because the harm goes far beyond the economic loss you're insuring yourself against.

All I can say is you clearly don’t understand what moral hazard is, because my example is a textbook (literally) example of it. [https://www.merriam-webster.com/dictionary/moral%20hazard][h...

If the owner won’t lose out on the payout from insurance by committing arson, or could plausibly get away with it without getting caught, he is experiencing a moral hazard to commit arson.

It’s only insurance fraud if he lies to get a payout from insurance. Which means the insurance policy would need to have an exclusion to not pay him out if he committed the arson, so he lied about it. If it did not have that exclusion, then he doesn’t need to lie about it, hence no fraud.

Either way, that the insurance policy would pay him if he burnt his place down is literally the moral hazard. It’s called a moral hazard because it creates an incentive for him to commit an immoral act that he otherwise would not. It’s existence is a hazard to his morals.

That they would exclude if he did it himself, and would investigate it, is what the company is doing to attempt to mitigate that moral hazard. But it always exists.

> All I can say is you clearly don’t understand what moral hazard is, because my example is a textbook (literally) example of it. [https://www.merriam-webster.com/dictionary/moral%20hazard][h...

This random example is interestingly at odds with all the other definitions and example on that very web page!

> If the owner won’t lose out on the payout from insurance by committing arson, or could plausibly get away with it without getting caught, he is experiencing a moral hazard to commit arson.

This makes zero sense, because in that line of reasoning, the moral hazard is always there no matter what the policy is about arson: “all the owner needs to do” is to commit arson without being caught, which is exactly the same thing whether or not arson is excluded from the policy, since committing arson on your own good to receive payment from insurance is insurance fraud anyway.

The only thing that changes if arson is excluded is if the arson is committed by somebody else!

> Either way, that the insurance policy would pay him if he burnt his place down is literally the moral hazard.

But you are making things up! This particular moral hazard would only exist if insurance fraud was not a crime in itself, which it is already! And as such, there can be no such moral hazard, because no insurance company is to pay a dude that burns down his own place no matter if there's an exclusion about arson in their contract.

> That they would exclude if he did it himself, and would investigate it, is what the company is doing to attempt to mitigate that moral hazard. But it always exists.

The company would have to do no investigation and it would do no mitigation, as it would be the police investigating to protect public order.

AS I said before, the moral hazard would only exist in a place where insurance fraud is not recognized as a fraud.

Saying that this a moral hazard is like saying that bank robbery is a moral hazard on the perspective of banks, and that's clearly not what this phrase means.

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