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52 Cards in this Set
- Front
- Back
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Definition of Insurance
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Insurance is a contract where one person takes on the risk of indemnifying another if a certain condition occurs. It is subject to the basic rules of contracts just like all other contracts. Insurance is affected with the public interest, in other words, it has broad public good implications. Society likes people to have insurance because when there is no insurance, it hurts the entire public.
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Uberimae Fidei – Utmost good faith
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underwriters in early England had to have the utmost good faith in trusting the information on the chalkboard (“slip” today) about what they are insuring. If the chalkboard states that a vessel is sailing with 75 crew members but there were actually 74 and the boat sank, they do not have to provide coverage. Any incorrect information allowed the insurers to void the policy. This principle does not have much application these days because under most state laws an insurance company has to prove intent to deceive in order to void coverage.
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Types of Insurance
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Insurance policies can be divided into first party/property coverage and third party/liability coverage.
First party coverage is for my stuff: homeowners coverage, commercial property policy, flood insurance. Third party or liability coverage is for your liability in hurting someone else’s stuff: automobile liability, commercial general liability (CGL) There are also mixed coverage that will protect your stuff as well as liability: homeowners, auto insurance |
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Risk & Indemnity
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You cannot have an insurance policy without risk/fortuity and indemnity. Fortuity means an event that does not occur on purpose. Public policy does not want to indemnify you to do things on purpose. Also, you cannot get insurance for something that has already happened or that you know is going to happen. The law wants to prevent a moral hazard – the motivation to do something bad. For example, killing a wife for life insurance or burn down your house to get insurance.
Indemnity means that you are made whole. You cannot profit off of insurance. Ex. Someone with HIV that lies on a life insurance policy takes the fortuity out of the contract. If you are pretty sure that something is going to happen there is not fortuity. Where do you draw the line between reasonable certainty and possible but not sure? Usually courts draw the line somewhere in the middle. |
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Insurable Interest
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Most states impose something called insurable interest meaning that you have a stake in the thing being insured such that you benefit from its continued existence OR you suffer from its loss. Ownership is not required to have an insurable interest. For example, BP may not own a pipeline to an oil rig, but BP will benefit from its continued existence and suffer from its loss because BP owns the oil that comes through the pipe and enters its refinery. You must have insurable interest at the time of the inception of the contract and at the time of the loss.
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Government Regulation
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The federal government rarely interferes with insurance. It is left to state insurance commissioners who are mainly concerned with the solvency of insurance companies but they also watch out for fraud and approve policy forms and how much the insurance company can charge.
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General Rules of contractual interpretation
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• Ambiguous provision is construed against the drafter
o Be careful with this argument because it is not always the case o With standard form policies, the policy holder has no choice as to its terms o With bigger companies there will be manuscript policies where the terms are negotiated by both parties. It is not boiler plate, but custom made language o With an adhesion contract (one side has bargaining power) look at the drafting history to support the terms of the contract • The contract is limited to the four corners of the document in absence of ambiguity • Words are given their common meaning • Interpret the contract as a whole – refer to different parts of contract • Consider the nature of the contract |
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Louisiana Dual Inquiry
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• These interpretive rules reveal that LA recognizes two levels of ambiguity
o Part 1: if an ambiguity is perceived, then various tools of construction are applied that do not initially include construing the term against the drafter. Other mechanisms will be used first before the court automatically rules against insurer – see LA civ code 2045 o Part 2: if after applying the other general rules of construction an ambiguity remains, the ambiguous contractual provision is to be construed against the drafter or as originating in the insurance context, in favor of the insured. Further, the last principle applies only if “equivocal provisions” seek to “narrow and insurer’s obligation” and only where an ambiguous policy provision is susceptible to two or more reasonable interpretations. |
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Doctrine of Reasonable Expectations
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The reasonable expectations doctrine is a last resort effort at interpreting a contract when all other interpretation aids have failed. Must pay attention to jurisdiction because there are various explanations:
• Give the insured the protection he might decently believe he was buying without too close regard to the exceptions of the policy • In dealing with standardized contracts courts have to determine what the weaker contracting party could legitimately expect by way of services according to the enterpriser’s “calling” and to what extent the stronger party disappointed reasonable expectations based on the typical life situation • The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations. |
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Four Corners Rule
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• How can we reconcile the four corners rule with the reasonable expectations doctrine?
o It really depends on the particular court and their philosophy on things o Source of the expectation: Marketing or advertising – misrepresentation Cost of coverage – unconscionability or unjust enrichment Surprise at the lack of coverage – mistake Insurer’s invitation of trust, estoppels or reliance |
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Concentric Rings of Defense
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• Do business with good people
• Require other party to indemnify you • Put the other party’s insurance in front of yours • Rely on your own insurance as a last resort |
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Indemnity v. Release
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• “Contractor shall defend, indemnify, and hold harmless Operator Group…”
o Protects you from claims of third parties o Typical component of a commercial or industrial contract • A “release” is different – it addresses the other party’s own damages o “Contractor shall release, defend, protect, indemnify, and hold harmless Operator Group…” |
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Full insurance protection requires the “big three”:
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1. Additional insured status
2. Waiver of subrogation 3. Primary status |
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Policy
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The insurance certificate is a snapshot of the policy but it has a disclaimer on the back that states that you cannot rely on anything it says on it.
The DEC page is also a snapshot of what is contained in the policy like a certificate but it is specific to that policy and you CAN rely on what it says. Most general liability policies are written on an occurrence basis rather than a claims-made basis. An occurrence based policy is triggered based on when the occurrence happened. Professional malpractice and D&O liabilities policies are claims-made policies, which means the policy is triggered when the claim is asserted. You can have an insurance agreement that is written on an all risk basis or on a named perils basis. Most GL policies are written on an all risk basis. Most commercial property policies are also written on an all risk basis. All risk policies cover all general liability risks unless specifically excluded. |
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Deductibles and Retentions
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To avoid moral hazards, encourage you to be safe, save the insurance company money, and discourage small claims, insurance companies impose deductibles. A deductible is an amount of money deducted from the indemnity payment. For example, if you get in a car accident and you have a $10,000 policy with a $1,000 deductible, you have to pay $1,000 to get $9,000. This provides a disincentive to get into an accident and causes you suffrage – a negative motivation. Sometimes you can manipulate your deductible to alter the premium. You can “buy down” the premium by raising your deductible to have a cheaper premium. Most often, companies have a policy against $0 deductibles.
A retention, or SIR (self-insured retention), serves the same purposes as a deductible, but there are differences in how they work. A deductible is usually associated with personal lines coverage whereas a SIR is associated with commercial or industrial policy holders. Deductibles are usually much smaller than SIR. Most importantly, with a deductible, the amount is taken off the top of the indemnity payment, while the SIR differs in that you do not have coverage at all until you pay the amount of the retention. Sometimes there are aggregate retentions rather than first claim. The policy will provide a formula that says “coverage will not attach until the sum total of all of your claims reaches X dollars but we are only going to count claims that exceed Y dollars.” For example, a policy may require total claims to reach $500,000 but will not count claims less than $100,000. Thus, several $50,000 claims would not count. |
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Insurance & Public Interest
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Insurance is regulated in the public interest. That is the reason why there are special rules for interpreting insurance contracts. There is a conflict between the stated rules and what really happens.
Why does the policy holder have an advantage? The contract is interpreted against he who drafted it – the doctrine of contra proferentum. Should this doctrine apply where the risk manager insists on manuscript language – negotiated terms? No, the criteria would not apply. |
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Contractual liability cover in a basic GL form
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is actually found in an exception to an exclusion in the policy.
There are instances in which the liability that company X is trying to satisfy kind of looks like it is an insured contract but its not. The lesson is if you have a client whose business is moderately complicated or enters into contracts that are moderately complicated, it may not be wise to rely on an exception to an exclusion to insure you have the contractual liability coverage you need to satisfy that obligation. When you agree in a contract to undertake an insurance obligation and you can’t back it up, you have become the insurer of the obligation yourself. Flanagan would include in the policy “you will have coverage for all of the indemnity obligations that you undertake, not just for an insured contract.” Second, he sometimes asks for their insurance policy to make sure that the indemnity obligation will be covered. If he really wants to be sure that they have the right kind of coverage, he will encourage them to buy a contractual liability endorsement that says “exclusion B is hereby deleted and coverage is hereby afforded for all of the contractual liability obligations undertaken by X” Sometimes the coverage provided in an exception to an exclusion is insufficient for certain kinds of policy holders in certain kinds of industries. Some people don’t feel comfortable imbedding the company on an exception to the exclusion. Therefore, many risk managers buy contractual liability endorsements (provisions that override the language of the policy). |
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Risk allocation scheme
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Without a risk allocation scheme, a plaintiff that sues two defendants will cause them to shoot at each other and drive up fees and insurance costs. Allocating the risk without regard to fault and making fault irrelevant will allow plaintiff to just deal with insurance company.
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The following are typical exclusions in a GCL:
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• Workers compensation
• Employer’s liability • Aircraft, auto, or watercraft These coverages are provided elsewhere. Insurance companies tend to specialize in the types of risks they cover and traditionally these areas have been covered by other lines of insurance. Some companies feel that workers compensation coverage is not profitable or that they do not have the expertise to write such policies. A company with vehicles and watercrafts that want coverage for them can get what is called a “package policy,” which is a collection of policies written by affiliates of a big company. It is also inefficient for the market if some policies include worker’s comp and some do not. We do not want to have two companies liable for workers comp. |
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G - Auto exclusion
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The law in LA and other jurisdictions requires that the damage arise out of the use of the vehicle. In order for the liability to be excluded, the automobile must be an essential element of the theory of liability. For example, if a man uses a vehicle as a platform to launch firecrackers and damages another car, the damage did not arise out of use of the car but use of the firecrackers. The question is whether the damage could have occurred absent the use of the vehicle. Here, the man could have been standing on something else – the car was not essential to the damage.
The act is excluded only if the person performing the act intends the result. It doesn’t matter whether the act was voluntary or involuntary. Thus, if you throw a firecracker but you do not intend to hurt someone, it is not necessarily an intended act. The intentional act exclusion generally applies as a matter of public policy where there is a knife, gun, or molestation. |
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J. property in the care, custody, and control exclusions
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the practical reason for excluding property of others that is in your custody is that you would tend to be more careful with it if it was not covered. The insurance companies do not want to get into an argument about whether you owned that property as a matter of fact. Also, certain property is supposed to be scheduled under a property policy.
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OSCA case
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There was a 3 level platform with a coil tubing rig on the platform that ran all the way down into the water. It exploded below the platform beneath the water. The insurance company says “yes it fits within the insurance agreement because it is property damage, however the entire facility was excluded.” The court concluded that the particular part of the property was not the entire thing and that the insurance company only excluded the surface area of the facility.
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F. Sudden and accidental pollution exclusion
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pollution broadly defined in this policy is excluded unless it is sudden and accidental. Whether a certain subjective condition is met depends on the standpoint of the policy holder. Initially the this exclusion had its intended effect to stop payment for seepage claims, pollution to aquifers and marshes which were a big liability for chemical companies. Later, the word “sudden” was ignored and the policy holder just had to prove that the pollution was not intended. Almost every CGL policy now has an absolute pollution exclusion.
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Define Insurance
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Insurance is a contract in which one person agrees, under certain conditions, to indemnify the other for losses, in exchange for the payment of a premium.
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What are the main types of pollution exclusions? Briefly explain the significance of each
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"absolute" and "sudden and accidental." An absolute pollution exclusion excludes coverage for all pollution events regardless of the cause or nature of the loss. The sudden and accidental exclusion provides coverage for certain pollution events that are, from the insured's standpoint, "accidental" and "sudden."
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What are the differences between a broker and an agent?
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A broker (1) does not have the right to bind the insurer, (2) works primarily for the insured, (3) is used by large or sophisticated companies. An agent (1) is usually the mandatary of the insurance company and can bind it (2) works primarily for the insurance company but also owes duties to the insured, and (3) is mostly used by small businesses and homeowners.
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What are the differences between an insured and an assured?
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Practically speaking, nothing. "Assured" is the British term for the promisee of an insurance contract, and is also used in the marine context in the US. "Insured" is the American term.
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Vidrine owns an alligator obedience training school in Pointe-a-la-Hache. He has had "claims made" general liability coverage for several years. However, the insurance agent in Belle Chasse has convinced him that "occurence-based" insurance is better, so he decides to switch. What advice would you give him? Should he be ready to pay more or less for his new coverage? Why?
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The problem with switching to the new form is that, unkown to Vidrine, an accident could have occurred during the claims made period for which no claim was reported or made during the policy period. Once the claims made policy period (or the extended reporting period, if there is one) is over, there is no coverage under the claims made form. But a claim arising from an "occurrence" or "accident" predating the occurrence based policy will not be covered by the new policy either. Thus, Vidrine must buy "tail" either separately as a rider to his new policy to cover the period before the occurrence based policy attached. The new coverage will cost more. claims made policies are cheaper because they allow the insurer to plan its "run off" (potential future claims payments) with much more certainty.
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Alexander is a London market insurance broker who is trying to place coverage for his assured, Joubert's Boat Rental. Alexander has met with Joubert at his dock in Fourchon to discuss Joubert's insurance program. Alexander knows that Joubert's boats are very old and in need of repair. However, Joubert has promised that he is undertaking a complete overhaul of his fleet and expects to have all of his vessels in tip-top shape within a year. Explain Alexander's responsibilities to both the London Market as well as his client.
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Alexander owes his client a fiduciary duty of good faith, and must represent Joubert faithfully and to the best of his ability to underwriters. He must "sell" Joubert as a "good risk" in an attempt to get appropriate coverage at the best price. But Alexander also has a practical, moral, and legal duty to tell the truth to potential insurers. If Alex lies to the underwriters, he risks his license and his reputation, and faces potential civil and criminal liabilities. His lies may also have the effect of barring coverage to the assured.
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Lambert's wife, Kat, called him from the WalMart in Cutoff to say that her 1987 Chevy Silverado would not start. Lambert drove over from Des Allemends to jump start Kat's truck. When Lambert arrived at the Wal-mart parking lot, he found he was unable to charge the battery. So, Lambert pushed Kat's truck 40 miles back to Des allemands. When Lambert got home, he was surprised and saddened to find that the bumper from Kat's truck had scratched and dented the front bumper on Lambert's Navigator. Lambert made a claim on his auto insurance but it was refused; the insurance company contended because Lambert intended to use his Navigator to push Kat's truck, and because Lambert is presumed to intend the logical results of his actions, that the damage is excluded. Discuss.
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The issue here is whether Lambert intended the result or the extent of that result from his actions. Of course, "intentional acts" are excluded under all policies and would not be covered anyway because insurance provides indemnity only for fortuitous losses. But here, the insurance company is analyzing the claim under a tort model; that a person can be presumed to intend the logical consequences of his act. This standard is inappropriate. The standard for insurance coverage is whether the insured intended the result. See Breland v. Schilling. also, it is not the voluntary nature of the act that led to damage (pushing the truck) which is under scrutiny - it is whether the damage was intended. I would argue that here, Lambert would not have purposely subjected his "prized" Navigator to scratching. He only pushed the truck because it could not be towed.`
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Discuss the following assertion:
A court interpreting an insurance contract in the context of an insurance coverage dispute will generally apply the law of the state in which the policy was "delivered" |
This is generally true, under the rule of lex loci contractus, but it is subject to many variations based on the facts of the case and on local statutory law.
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Jurisprudence Constante
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Under Louisiana law, a single case does not establish binding precedence. “Instead, a long line of cases following the same reasoning within this state forms jurisprudence constante.” Doerr v. Mobil Oil Corp., 774 So. 2d 119, 128 (La. 2000). “Under the civilian tradition, while a single decision is not binding on our courts, when a series of decisions form a „constant stream of uniform and homogeneous rulings having the same reasoning,‟ jurisprudence constante applies and operates with considerable persuasive authority.” Id.; see also Lake Charles Diesel, Inc. v. General Motors Corp., 328 F.3d 192, 197 (5th Cir. 2003) (“The sources of law in Louisiana are constitutions, codes, and statutes; judicial decisions acquire the force of law only when their numerosity and uniformity are sufficient to achieve the status of jurisprudence constante.”).
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Auto Exclusion
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Edwards v. Hortsman, 687 So. 2d 1007, 1012 (La. 1997) (The excluded conduct cannot “simply occur coincidentally „while‟ the [the insured is] using the auto; it [must occur] „by virtue of‟ his negligent use of the auto.”); Sarp v. U.S.F.&G., 572 So. 2d 158, 160 (La. App. 1st Cir. 1991) (“The use of the auto may be an essential fact of the accident but it is not an essential component of the theory of liability.”); Speziale v. Kohnke, 194 So. 2d 485, 487 (La. App. 4th Cir. 1967) (Exclusions with “arising out of use” language are not “co-extensive with … „while using.‟” That interpretation “would render the claim synonymous with the words „while using‟ and would write out of the contract the words „arising out of.‟”); see also Janex v. Hanover Compressor Co., 694 So. 2d 415, 418 (La. App. 4 Cir.), writ denied, 701 So. 2d 171 (La. 1997).
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Watercraft Exclusion; Duty to Defend - Singleton v. United Tugs
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Travelers assigned a lawyer to defend plaintiff in a slip and fall case. In his deposition he states that he fell while boarding a boat. Travelers gets a report of this and does an 8 corners analysis and notes that in the policy there is a watercraft exclusion. Travelers then pulled the lawyer because there was no possibility in which plaintiff could recover under this claim.
Petition is filed deposition pull defense trial During trial, for the first time, Singleton says “I wasn’t boarding the boat.” The moment in the deposition he said that he did, the duty to defend was resurrected. The trial judge incorrectly awarded attorney’s fees which later got reversed. Travelers no longer had a duty to defend. |
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Actuaries
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number crunchers that analyze accidents, their causes, how much money they end up costing, and the probabilities of accidents happening in any given situation. They allow the insurance company to figure out how much premium to charge to turn a profit.
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Underwriters
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the underwriter takes the info from the actuary and figures out how much to charge and whether or not he wants to accept the risk when a broker or agent asks him to insure someone. This function is often taken over by programmed computers that calculate the premium based on a number of parameters.
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• Agents/Brokers
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a liaison between the insurance company and a potential policy holder. A captive agent writes coverage for only one insurance company and are generally independent contractors and owe their primary duty of loyalty to the insurance company. The agent is not the agent of the policy holder in the sense of business enterprises agency function – he is doing something for you, but his authority is limited in that he can only do exactly what you tell him to do.
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Discuss 2 options for pollution coverage
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1. Sudden & accidental
a. Expensive b. May not be available 2. 72 hour buy back a. Notice within 72 hours b. Identifiable time – must show when leak first started / how it happened |
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work product exclusion
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A CGL covers accidents and not doing a bad job. Property damage does not cover work product. It is a moral hazard to reward bad behavior. Do we have an insurable event when windows leak because they were installed improperly? Not for the cost of replacing the installed window. Yes, for property damage caused due to the leak.
The products completed operations hazard (PCOH) provides certain exceptions to the own work exclusion. |
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the sistership exclusion
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we are not going to pay for withdrawing similar products off the market when there is something wrong with one of them and it is suspected there is something wrong with the rest. This does not apply when someone has been hurt and there is a claim for bodily injury.
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inefficacy clause
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we are not going to pay as damages any claim that your product doesn’t work the way that it is supposed to. For example, weed killer that doesn’t kill weeds. No coverage. An exception is when the product causes damage or bodily injury. For example, weed killer that kills grass. This clause does not apply to an active malfunctioning.
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Supplementary Payments Coverages A and B – omnibus insured
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bringing in someone to work may be covered under the policy. Their names may not appear anywhere on the policy
A wants to be an additional insured under B’s policy. Why? A wants B’s insurance to pay first to protect your loss history. See tab 6. Another benefit of being an additional insured is that you are a policy holder and party to the contract. See page before tab 4. The insured and additional insured cannot bind each other to a policy unless the insurance company gives permission. The insured would get such permission through an endorsement. A person that promises insurance on behalf of another without permission of the insurance company, they become personally liable to that person. |
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how long will an insurance company defend?
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An insurance company will defend you in a lawsuit as long as there is liability or until they exhaust their limits.
Often there are 2 limits: a per occurrence limit and an aggregate limit. |
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Cooperation Clause
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The policy holder has 3 main duties: (1) pay the premium, (2) tell the truth in both making the policy and in claims, and (3) cooperate. Your cooperation duties are found within the conditions sections of the CGL policy which consists of the following: it does not mean that the policy holder has to do what the insurance company wants – it means that you have to (1) tell the truth, (2) give prompt notice of a loss, (3) provide documents, and (4) show up and testify when they want you to.
The cooperation clause of the policy does not require you to crunch numbers. Thus, if a company asks you to calculate how much you owe them, you should not do it because it is an indication that you agree to owe them. The prompt notice requirement cannot be used to deny coverage unless the insurance company has been prejudiced by the late notice. In a claims made policy, there is no prejudice inquiry – if you are late you are toast. |
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Other Insurance Clause (tab 7)
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Almost every insurance policy has what is called an “other insurance” clause which essentially says that if there is other insurance out there for the same loss, it is going to be taken into account. It is inefficient to have two policies covering the same loss. (See tab 7).
Pro Rata – Suppose policy A is $1 million and policy B is $2 million. Suppose there is a $600,000 loss. Policy A is 1/3 of the combined coverages, thus policy A will only over $200,000 of the loss. Excess Clause – only when company B pays up to their limit will company A begin to pay. But what if both company A and B have an excess clause? The law in most jurisdictions is that they will be mutually repugnant and you must revert to pro rata. |
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Coverage Trigger Theories (Tab 8) (make sure you know the cases that go with these theories)
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In long latency personal injury claims and property damage claims in which the property is affected over a long period of time there may be an overlap in policies over the years.
Manifestation theory – injury is capable of diagnosis Exposure theory – all of the policies on the risk during the exposure period are triggered Continuous trigger (or triple trigger) – occurrence happens when the claimant is exposed, when damages occur, or when the injury manifests itself. Injury in fact – the occurrence happens when the disease has overwhelmed a person or caused significant injury. This type is in the minority. The preceding three in the majority. In a claims made policy, what matters is when did he make a claim? The claim has to be reported during the policy period or during the extended reporting period. The occurrence must be after the retro date. Some claims made policies have the reporting requirement in the coverage section – it makes sure the policyholder has the burden of proving the filed the claim timely. Tail cover |
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Defense
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When a claim comes in to an insurance company, you send it to your agent who sends it to a claims handler or a TPA or outsourced claims department. The insurance company will convene a coverage committee. They will perform what is called an 8 corners analysis and take the allegations of a petition and compare it to the insurance policy. They will determine based on the allegations whether the claim falls within coverage. They are supposed to be looking for potential coverage, and if any part of the allegations are covered, they have a duty to defend. The duty to defend is broader than the duty to indemnify. They may not end up indemnifying you, but they will most likely owe a defense until it is determined unequivocally that the claim is not covered. The duty is satisfied by providing a competent conflict free lawyer.
Where an insurance company does not fully accept coverage, the law in most jurisdictions is that the company must allow you to pick the lawyer who will defend you. Most of the time, they will see that potentially some of these claims aren’t covered and will issue a reservation of rights letter that says we will provide you a lawyer but we aren’t confident that you are covered and you have to agree that we are not waiving our rights to deny coverage if the facts turn out that we do not owe coverage. Waiver can be established by action or inaction. |
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Detrimental Reliance
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Requirements: (1) manifestation (statement) or silence; (2) reliance or change in position; (3) reasonableness
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Express policy limits
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Your typical policy limit is one million dollars per occurrence and two in the aggregate. Your typical excess limits are $5 million. Most medium sized businesses have these limits. You must exhaust the primary policy by payment of judgments or settlements in order to trigger the excess policy. He wrote something on the board about $800,000? The more excess coverage you get, the cheaper the policy is per dollar of coverage. You want to make sure that all of your coverages are in your excess policy because some many only be limited to the primary. You want to ensure the excess adopts the provisions of the primary – “following form.” A non-following form, or “stand alone”, excess limit has its own provisions. A “following form with exceptions” follows the primary policy except where indicated. With a bumpershoot policy, if a risk is not covered in the primary, the excess coverage will drop down and cover it. For example, if the GL has an absolute pollution exclusion, but the bumpershoot has a sudden and accidental coverage, it will drop down and cover that loss.
The law in most jurisdictions is that the moment there is a loss, the no-assignment clause is irrelevant. No matter who the policy holder is, they are owed something as soon as the loss occurs. They owe a defense to someone and an indemnity to someone. Most times policies are defense outside limits in which the money spent on the lawyer does not erode your policy limit except for vanishing policies such as professional liability policies, Director and Officers liability, and employment liability policies. An indemnity policy is one that reimburses the policy holder for lawyer’s fees and payment of judges. These policies are not common but they exist. What happens is the policy holder pays first and gets a reimbursement from the insurance company. A prime example of this policy is the Maritime SP-23 P&I form. |
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Captive Company requirements:
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• Huge company
• Lots of money • Infrastructure • Specialty line of work • Have to be run like a regular insurance company |
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a) Independent agent and a captive agent:
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Captive Agent
Writes coverage only for one company Tend to have larger accounts Duty primary to the insurance company (though they have a duty to both insurance and individual) Tend to have personal lines of coverage Independent agent contractor, they tend to see themselves as orditory (thinks they satisfy their duty by taking orders from the insurance company). Becomes the limited mandatory. They are not the mandate of the policy holder, have limited obligations to you. You can’t get to him because the insurance company has created an independent contractor defense. They put a bar between the independent agent and the insurance company. Independent (Broker) Writes for different companies Generally smaller accounts Duty is primarily (so when there is a conflict) for the individual (though they have a duty to both insurance and individual) Tend to have more commercial accounts (more often than not) Typically the limited mandatary of the policy holder, limited agency policy that allows them to deal with other insurance company. If he makes a mistake he is liable for you (does not place coverage you want, or makes a mistake). |
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An Independent broker has a fiduciary duty to the policy holder, in other words a broker owes a special duty of faith and trust to the policy holder. A broker must hold the interest of the policy holder above their own. A broker can get in trouble in two ways:
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1) Administrative/ministerial mistakes or
2) Fiduciary mistakes (exam) Administrative/ministerial mistakes: bulk of cases 90%- the typical example is where a policy holder asks for a specific coverage and they forget to give them said coverage. (“Raise my coverage” and the broker forgets, transposing a number, piece of paper getting loss…) 1) Three prongs to prove that there has been an administrative mistake: a) Policy holder requested for insurance b) There was an agreement to get the insurance c) There was reasonable reliance that the broker would in fact obtain the coverage as agreed. (circumstances) The cause of action in this case is a breach of fiduciary duty 1) Measure of loss is the rest of the coverage amount (wanted to be covered for 9 million, but only covered for 1 million, so suing for the 8million). Fiduciary duty: Doing something dishonest/immoral 1) Broker is self dealing, or the broker is dishonest (taints the premium), phony certificate etc. 2) Failure to give good advice a) LA very narrow now, not the case before b) Today, in order to recover for a bad advice claim… you told me this, I got this. i) You have to prove that you are not sophisticated ii) And the broker has some specialized knowledge that you do not have. |
