Yale Law Professor George L. Priest, who teaches in the fields of insurance law and law & economics, has written the first paper that I am aware of which applies a law & economics analysis to the ALI's Insurance Principles project. This paper gives a very good explanation of the basic law & economic explanation of liability insurance and the social benefit of liability insurance (although that explanation takes nearly 25 pages of a 43 page paper).
As readers of this blog may know, the American Law Institute has undertaken a project to publish a "Principles of Liability Insurance," similar to the Restatements of the Law which the ALI is well-known in legal circles for publishing. The Principles of Liability Insurance project has shifted from being little-known outside of academic circles and is now widely discussed at meetings of coverage lawyers. Note that this is no Restatement of the law; which, by its name, would imply it simplyrestates the law as it exists.
The project is currently being managed by Tom Baker of the University of Pennsylvania and Kyle Logue of the University of Michigan, along with input from a number of stakeholders, and seeks to produce a book (perhaps, a multi-volume set) to set forth the law (as the authors believe it should be) on important issues of liability insurance coverage. In states with a paucity of insurance case law, the publication by the ALI of the Principles of Liability Insurance Law will likely have a major impact; in those states, judges will be more likely to rely on the ALI's Principles project as akin to a national treatise on insurance law.
In states which already have a well-developed body of state common law (i.e., New York, New Jersey), the impact of the Principles project will likely be less. North Carolina would probably fall somewhere in the middle; our state's insurance law has several large areas which are underdeveloped or completely undeveloped, however we are far ahead of many states which have less reported opinions, lack an intermediate appellate court, have fewer cases decided on summary judgment (and thus fewer appeals of legal issues), and which lack courts for complex commercial disputes such as the North Carolina Business Court.
Professor Priest clearly explains his view that the greatest aggregate social utility of liability insurance is when it is easy to obtain and thus widely distributed. He believes, in short, that although Professor Baker and Professor Logue intend to re-write various rules to be pro-policyholder in the short term (i.e., in an individual case), that these revisions may end up harming policyholders more broadly in the long run by making liability insurance harder to obtain, thus having a net negative effect.