abstract. This chapter begins by surveying and quantifying the magnitude of the different sources of compensation for personal injury, illness, and death. The survey places tort law in perspective, both by locating it within our larger “system” of compensation and by comparing its functioning and scope with the other methods of loss distribution that are employed by the system. The examination reveals the extent to which there is in fact a vast system of loss distribution, of which tort is only a small part. By contrast, that system is by no means comprehensive; it contains important gaps.

The central issue is whether these gaps should be filled by tort law or by the other sources, and how that might be accomplished. To begin to address this issue the chapter then turns to the relationship between tort and the rest of the loss-distribution system. It analyzes the different possible relationships by identifying and exploring the loss-distributional and other impacts of four possible variants of the collateral source rule. Finally, the chapter looks at the rarely-considered, distinct treatment accorded to life insurance and savings under existing rules, and then recommends an alternative approach to tort law's treatment of all collateral sources, including life insurance, that would help to fill the compensation gap. This approach would afford first-party insurance policyholders the option of transferring all their tort rights of recovery to their insurers, in return for lower premiums or more generous first-party insurance coverage.