The future of police liability

The future of police liability
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No sum of money will breathe back into George Floyd’s body the life Derek Chauvin squeezed out of it. Nor will the budgetary impact of the $27 million Minneapolis will pay to settle his family’s lawsuit rank as the most significant consequence of Floyd’s death. Yet $27 million is enough to make even the biggest and wealthiest municipalities take notice. Is the Floyd settlement — one of the largest on record — an aberration or a sign of things to come? And if police liability costs are rising generally, what will this mean for pandemic-pinched local governments?

The Floyd settlement, in all likelihood, is both an outlier and a clue about where we’re headed. Even among the most notorious and tragic cases, Floyd’s death was exceptionally callous and indefensible. It’s hard to imagine Minneapolis defending the explosive case at trial. The pressure to settle, at almost any cost, was enormous.

But there is also reason to think the $27-million figure reflects not only the circumstances of Floyd’s killing but also broader shifts in public sentiment. In a recent study, Aurélie Ouss and I looked at 23 years of police liability data — up through 2015 — from 350 law enforcement agencies in a midsized state. The patterns we saw were puzzling at first. The number of claims for compensation people filed each year trended slightly downwards over time, as did the number of claims alleging excessive force; fatalities held steady. But payouts — average and total — moved in the opposite direction, spiking by tenfold in 2014-2015, largely due to rising payouts on claims involving fatalities and excessive force. Claimants won more often over time, as well.


We identified multiple stories that could explain some of these trends but only one that could make sense of them all: evolving public attitudes toward the police.

Particularly after the killing of Michael Brown in 2014, Americans have grown increasingly alarmed about the harms police inflict (as our study also showed). It would be natural to think that juries, then, have become less inclined to afford the police the benefit of the doubt and more willing to hand down significant verdicts when the police do wrong. Cities negotiate settlement payouts, in turn, in expectation of what juries would do.

To understand what these trends might mean for local governments — and what impact financial and market incentives might have on police reform — we have to know a little more about how police liability costs are financed. There are three principal approaches. The vast majority of U.S. municipalities purchase liability insurance that covers police misconduct. When they settle, the insurer pays. Some buy it on the commercial market from companies like Travelers. We should expect these premiums to climb and, before long, for firms to leave the market. It’s not just the rising payouts — which insurers can price into the premiums they charge — but the increasing uncertainty about just how big those payouts will be.

Many municipalities — probably most — get liability insurance through a municipal risk pool. A risk pool is essentially a small mutual insurance company — basically, a bunch of cities get together and pool their risk. They contribute to the pool each year and draw on it when they settle claims or lose at trial. Just as on the commercial market, we should expect municipal contributions to pools to climb as payouts rise. But the pools, which are literally made up of their members, can’t leave the market — indeed, they first arose the last time private carriers fled, in the 1980s.

Unable to exit the market, pools may double down on “loss control” as a way to get a handle on costs. This could be a good thing. The best pools have deep expertise about policing and municipal governance. They work closely with police departments on policies and training, they do site visits and audits, and some even put struggling agencies on detailed “performance improvement plans.” As a last resort, pools have the power to expel municipalities that can’t, or won’t, right the ship. Cities that have lost coverage have been forced to raise property taxes to finance payouts or shut down their departments altogether. 


The third approach to financing police liability costs is “self-insurance.” This can mean anything from simply “going bare” to running a sophisticated, in-house “risk management” program. Only larger cities, with budgets big enough to absorb seven-digit payouts, can afford this option. How these cities will respond to rising payouts isn’t clear. It depends on a number of considerations, including how easily they can free up funds from elsewhere in the budget, issue bonds, or nudge property taxes upwards.

I expect that the largest settlements will tend to be with these self-insured municipalities. Insurance policies have limits that tend to act as natural caps on settlement amounts. Insured cities — which, again, tend to be on the smaller side — have strong incentives to resist settlements that exceed their policy limits, which can make a real dent in their modest budgets. There is no analogous limit for self-insured municipalities.

It’s not clear that all this is as it should be.

Media focus on big cities can make it seem like that’s where all the action is, but roughly two-thirds of all police killings occur outside the 100 largest cities. Fatalities appear to be trending upwards in suburban and rural areas, moreover, and downwards in urban regions.

At the end of the day, all of this analysis, while necessary to understand the incentives of the politicians and bureaucrats who govern police departments most directly, risks obscuring one crucial fact: Municipalities aren’t real, and they don’t have their own money. They are of us, and the money they spend is ours.

How many $27 million settlements will Minneapolis — or Chicago, my city — pay out? As many as we let them.

John Rappaport is Professor of Law and Ludwig and Hilde Wolf Research Scholar at the University of Chicago Law School. Much of his current research focuses on policing and police misconduct, including the effects on police behavior of collective bargaining rights, unionization, and regulation by insurance. He is the author of “An Insurance-Based Typology of Police Misconduct,” a look at whether the insurance market could be an effective tool for reining in police misconduct risk.