We analyze how insurance law can mitigate moral hazard by allowing insurers to reduce or cancel coverage in some circumstances. We consider an incomplete contract setting in which the insurer may obtain information related to the policyholder's behavior through a costly audit of the circumstances of the loss. Court decisions are based on a standard of proof such as the balance of probabilities. We show that an optimal insurance law brings efficiency gains compared to the no‐audit case. We also highlight the conditions under which the burden of proof should be on the insured, provided that insurers are threatened with sanctions for bad faith.

中文翻译：

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保险法和不完整的合同

我们分析了保险法如何通过允许保险公司在某些情况下减少或取消保险来减轻道德风险。我们考虑了不完整的合同设置，在这种情况下，保险公司可能会通过对损失情况进行昂贵的审计来获取与保单持有人的行为有关的信息。法院的判决基于证据标准，例如概率平衡。我们证明，与无审计案例相比，最优保险法带来了效率提升。我们还着重指出了条件，在这种情况下，如果保险人受到恶意制裁的威胁，则应为被保险人承担举证责任。