John Rappaport on “How Private Insurers Regulate Public Police”

Research Matters is a regular feature in which a member of the faculty talks about some of his or her latest work and its impact and relevance to law and society.

Assistant Professor John Rappaport wrote “How Private Insurers Regulate Public Police” as part of a broader project to examine the role that municipal liability insurance plays in regulating police behavior—an idea that he says has been largely overlooked despite its obvious relevance to the reform of American policing. The paper, a draft of which was made public earlier this year, will be published in the Harvard Law Review in 2017. For this installment of Research Matters, Rappaport discusses the ways in which the insurance industry helps shape police behavior, what it means for a private company to regulate a public entity—and how this relationship could offer lawmakers additional tools for legal reform.

Q: We already know that police behavior is notoriously difficult to regulate. But your research explores a rather unconventional resource: the insurance industry, which essentially uses financial incentives—availability of coverage, lower premiums, and other perks—to curb incidents of police misconduct. Few other scholars have examined this link; what inspired you to go down this path?   
A: We’ll never be able to improve police behavior until we understand all of the forces that shape it. Judicial decisions—this is where law professors have focused for a long time—are only one factor. Other work has rightly begun to focus on things like internal dynamics within police departments and the effects of legislation. But no one had really said much of anything about police liability insurance. I was reading some literature about the effects insurers have on environmental risks and employment arrangements, and the question just popped into my head: is the same dynamic at play in policing? And so I began trying to figure that out. 

Q: Although it is difficult to prove that liability insurance has lowered the number of misconduct claims—there aren’t enough data—your research reveals that insurance plays a compelling role in shaping police behavior. How so?
A: Liability insurance is common, particularly among small and mid-sized municipalities. These insurers influence law enforcement agencies in various ways. They shape the content of departmental policies on things like high-speed pursuits and the use of force. They have a hand in how officers are trained, and how much training they receive; I’ve seen examples of insurers helping departments use new approaches to training that, in the empirical literature, have been shown to improve outcomes. Insurers audit police departments, and they sometimes encourage agencies to obtain accreditation. On occasion, some insurers even intervene in personnel decisions. This is usually one of the most delicate areas, but at the end of the day, if the insurer doesn’t want to cover a department that employs a particular “bad apple,” that’s the insurer’s prerogative. I have at least a few examples where police departments have terminated officers at the behest of the insurer. There’s some suggestion that on occasion insurers have even influenced the choice of police chief.

Q: So the insurance industry is creating a financial incentive for better police behavior; they are making reform a risk-management issue rather than a question of good versus evil. Does stripping morality from the equation make it easier to achieve the legal goals?
A: This is largely a theoretical claim, but I think it might. The idea is that the police may be less defensive when the constraints on them are framed as part of a sensible risk-management strategy to reduce liability and free up funds to pay for operational concerns, and equipment, and salaries. That’s very different from saying, “You guys are bad moral actors who are constantly violating people’s fundamental rights, and you need to stop it because what you’re doing is wrong.”  

Q: And speaking of incentives: insurers have leverage because they control the cost and availability of the policies. But how much do the rank and file care about the cost of premiums? Does this work because the effects trickle down through agency policy and the supervisory structure?
Yes, that’s basically how it works. But I think the rank and file do understand their city’s interest in reducing liability payouts and, in at least some departments, police officers are told that lower payouts will result in perks for them—better equipment, better training, things like that.

Q: So the municipal government has an incentive to get the police department to set the right policy, and the ability to frame the policy as a necessary risk-management strategy when communicating about it with the police.
A: Exactly. I talked to one insurer who said that if he needed to raise premiums because a police department wasn’t following his risk-management advice, he’d just pick up the phone and call the city manager. The hope was that the city manager would call the police chief and say, “Hey, what’s going on? I think we need to listen to our insurer.” And then when the police department made the change, the chief would talk to the rank and file and explain why the change was needed. But this is also why the mechanism is so complex: the chain has many links.

Q: Is there any evidence that liability insurance has the opposite effect, making police feel as though they have some room to behave badly?
A: Yes, this is an ever-present concern with all insurance. It’s called moral hazard. It’s basically our starting assumption for thinking through any insurance relationship. But most insurers take steps to reduce moral hazard by ensuring that the police agencies have skin in the game—for instance, through policy limits or higher deductibles. And they have risk-management programs like what I described earlier. That way, the insured still has financial incentives to behave well. The big question is whether taking these steps is enough to neutralize, or even reverse, the effects of moral hazard.

Q: A particularly intriguing piece of your work is that it illustrates a way in which private companies essentially regulate public entities. How new—and how significant—is this idea? Do we see it in other contexts?
A: It depends on how you define “regulate.” Certainly it is common for public and private actors to be entangled and for public entities to rely on private actors and private companies for advice and assistance. What I think is significantly less common is this scenario in which the private actor is basically giving an ultimatum to the public entity and saying, “Do this or else.” A colleague told me you see this with the World Bank and the IMF, which will condition a loan on the recipient country’s agreement to adopt some specified governance reform. But domestically, it is pretty unique, as far as I know.

Q: The insurance industry engages in a certain amount of constitutional interpretation when insuring police departments, for instance when they insist on a certain policy or practice regarding the use of force. Should a private, for-profit company be influencing or interpreting the law? Is this kind of extrajudicial interpretation unusual?
A: There’s a large literature on so-called shared constitutional interpretation. The traditional paradigm is that the courts—and in the end, the Supreme Court—interpret the Constitution; they say what the law is. But legal scholars have been pushing back on this for a long time, revealing the ways in which legislatures and administrative agencies also interpret the Constitution. But I hadn’t seen any examples of private companies being the ones to do this, so that’s unusual. As for whether it’s appropriate: my objective in this paper was simply to identify the phenomenon. I think there is a lot more one could say about the normative question. 

Q: Does an insurer distinguish an actual lack of misconduct from misconduct that simply isn’t reported? We know from Craig Futterman’s work that a “code of silence” exists among police. Does the desire to minimize risk by avoiding loss create an incentive to keep bad behavior a secret?
A: It’s complicated—the insurer’s systemic interests and interest in a particular case may cut against each other. In a particular case where an officer has hurt somebody, is it in the insurer’s interest that nobody discover the misconduct? Quite possibly, yes. But if you zoom out and think about the insurer’s systemic interests, it’s less clear. Because if I’m an insurer, and I know that I live in a world where police misconduct is constantly being buried, and many officers escape the consequences of their actions, that sounds like a world where more misconduct occurs. And that’s scary, especially with the rise of video recording of police-citizen encounters. I may have little long-run incentive to favor the code of silence.

There’s an interesting parallel here to medical malpractice insurance. Malpractice insurers had been advising doctors never to apologize or admit wrongdoing as a way to minimize payouts. But now the literature is starting to go the other way, suggesting that it might be better to apologize quickly, to acknowledge wrongdoing. Plaintiffs may be less likely to sue, or they may be willing to settle for a lower amount. It’s very difficult to know which way this cuts.
Q: You have noted that this model could enable policymakers to regulate police indirectly by regulating insurers. Could you walk us through how that might work?
A: Regulators might decide to require deductibles in all police liability policies because they think it is in the public’s best interest for the city to keep some skin in the game. Or they might simply require all police departments to purchase liability insurance—although, as we know from the debates over Obamacare, as soon as you start using “insurance” and “mandate” in the same sentence, a lot of backs go up. Regulators could consider a “soft” mandate, like we see in other insurance contexts, which would require a municipality either to buy liability insurance or to demonstrate that it’s taking self-insurance seriously by engaging in loss prevention.


Q: Let’s end by talking about what’s next. Your latest piece, “An Insurance-Based Typology of Police Misconduct,” looks at which types of claims are most and least likely to respond to regulation-by-insurance. What other questions do you hope to explore?
A: I want to learn more about the effect that insurance may have on the way that police misconduct cases are litigated and settled. It’s plausible to think that self-insured and market-insured municipalities may approach litigation and settlement differently. There’s also a market for individual-level policies for law enforcement officers, but only on the federal side, and I want to understand that market better.

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