This article analyzes the effects of insolvency on the injurer’s level of precaution. It shows that the outcome depends on whether the injurer can reduce the probability of the accident, the magnitude of the harm or both. Different legal solutions to the problem are examined: punitive (overcompensatory) damages, average compensation of the harm, undercompensatory damages (which can be seen as an implicit harm subsidy), and negligence (which can be seen as an implicit harm subsidy that is paid only when the injurer is non-negligent). It is shown that the optimal solution depends on the type of model.