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162 Cards in this Set
- Front
- Back
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Legal doctrines of waiver and estoppel
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Like a story on the front page of the newspaper where an insurance company was required to provide coverage (or pay on a claim) when it never intended to do so. This can happen because of the legal doctrines of waiver and estoppel. Whatever the insurance agent represents to you binds the agent, insurance provider and you.
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Waiver
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Waiver can be defined as the intentional relinquishment of a known right
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Estoppel
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Estoppel prevents a person or organization from adopting a position, action or attitude inconsistent with an earlier position if it would result in an injury to another person.
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Why are waiver & estoppel key to the policyholder?
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Why are the legal doctrines of wavier and estoppel important to you, the policyholder? Because they can work to your advantage when dealing with an insurance company. Application of one or the other doctrine to your specific situation can make the difference between your insurance being cancelled or remaining in force or between your claim being denied or being paid.
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3 Types of Waiver
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(1) Express
(2) Implied (3) Waiver by Silence |
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Express Waiver
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may be oral or written. In either case, they are clear statements that a right is being given up. If your insurance company, for example, notifies you that it has not lapsed your policy for nonpayment of premiums, even though it had the right to do so, it has expressly waived that right.
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Implied Waiver
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are not created by words, but rather through the conduct of the waiving party that clearly indicates that a right will not be enforced. For example, if your insurance company accepts a premium from you that is delivered after the expiration of the grace period, it has impliedly waived its right to assert that your policy has lapsed.
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Waiver by Silence
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is created when there is a duty to speak. If, for example, your insurance company learns of facts showing that you are no longer disabled but continues to pay you disability benefits, it is possible that a court might hold that the insurance company has created a waiver by silence when the insurance company later attempts to recoup the benefits it erroneously paid.
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Estoppel
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Different than waiver. It is often described as a rule of fair play. One court, for example, found that an insurance company was estopped (prevented) from asserting a policy’s cancellation provision against its policyholder when the insurance company had a history of accepting late payments from other policyholders. The court stated that the insurance company had misled its policyholder into thinking that sending late premium payments was acceptable, and it ruled that the insurance benefits were owed.
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Estoppel example
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Similarly, if your insurance company has routinely mailed you a notice when each premium is due and it suddenly stops sending premium notices to you without warning or explanation, your insurance company would likely be estopped from asserting that your policy has lapsed because your premium payment was late. In this case, you were misled into thinking a premium notice would always be sent before the policy would lapse for nonpayment of premium. The insurance company had created a reasonable basis for you to rely on the premium notice.
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Waiver example
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Another example: if your insurance company receives an incomplete application from you but fails to inquire about the missing information, courts will ordinarily rule that your insurance company has waived its right to deny benefits on the basis of missing information. Similarly, if, when processing a claim from you, your insurance company fails to state all known grounds for denial of your claim, courts will usually rule that it has waived those grounds it has not asserted. So, if the grounds it has asserted fail, it is out of luck. It cannot then bring up new grounds for denial.
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Moral hazard
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those with insurance may be less careful, or even commit crimes to get insurance payments.
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adverse selection
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those who buy insurance are the ones who need it and will use it.
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2 main problems with insurance
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(1) moral hazard
(2) adverse selection |
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captive insurance companies
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Captive insurance companies are insurance companies established with the specific objective of financing risks emanating from their parent group or groups but they sometimes also insure risks of the group's customers as well. Using a captive insurer is a risk management technique where a business forms its own insurance company subsidiary to finance its retained losses in a formal structure. The term "captive" comes from the fact that the policyholder owns the insurance company i.e. the insurer is captive to the policyholder. If the captive only insures its parent and affiliates it is called a pure captive.
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captive insurance companies: characteristics
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(1) you have to need it since its
(2) expensive (3) specialty companies |
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Insurance agents
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Insurance agents are insurance professionals that serve as an intermediary between the insurance company and the insured. As a broad statement of law, an agent’s liability to their customers is administrative. That is, agents are only responsible for the timely and accurate processing of forms, premiums, and paperwork. Agents have no duty to conduct a thorough examination of your business or to make sure you have appropriate coverage. Rather, it is your obligation to make sure you have purchased needed coverage.
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Insurance agents can be either:
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Captive – A captive agent is an agent who works for only one company and is a “captive” of that company. A captive agent will sell policies only for that insurer.
Independent – An independent agent is one who works as an agent for a variety of different insurers. An independent can produce policies from several insurers and offer some comparisons of different insurance policies. |
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Insurance brokers
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Insurance brokers can be best described as a kind of super-independent agent. Brokers can offer a whole host of insurance products for you to consider. Brokers are required to have a broker’s license which typically means the broker will have more education or experience than an agent.
Brokers also have a higher duty, in most states, to their clients. Brokers have the duty to analyze a business and secure correct and adequate coverage for the business. This is a higher duty than the pure administrative duty of the agent. However, this expertise comes at a price. Brokers typically charge an administrative fee or premium payments are higher when purchased through a broker. |
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Insurance policies usually have three parts:
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a)Coverage Grant.
b)Exclusions - stuff not covered. c)Conditions |
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Ways to combat moral hazard/adverse selection problems
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6.Ways to combat this:
a)Deductibles - put some risk back on the policyholder. b)Experience Rating - premium is based on the past history of the customer. c)Retrospective Premiums - charge more if the claims go over a certain amount. d)Coinsurance -policyholder pays a percentage of any loss. |
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Other insurance clauses:
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There are generally three possible clauses:
1. Pro Rata - if you have other coverage, then the two are pro-rated for damages. 2. Excess - if you have another policy, then this one is excess. 3. Escape - no coverage if you have other insurance. |
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Pro Rata clause
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In insurance, pro rata is used to determine risk based on the time the insurance policy is in effect.
It may also be used to describe proportional liability when more than one person is responsible for a loss or accident. A pro rata clause in an automobile insurance policy provides that when an insured person has other insurance policies covering the same type of risk, the company issuing the policy with the pro rata clause will be liable only for a proportion of the loss represented by the ratio between its policy limit and the total limits of all the available insurance. |
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construing ambiguities against the insurer
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This is based on the rule of contra proferentem - "against the drafter" - ambiguities will be interpreted against the party that drafted them.
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Examples of sources of ambiguities (construed against the drafter)
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There can be several sources of ambiguities:
i.Imprecise Language. Vagueness. Over-broad terms. Errors of syntax. ii.Ambiguity of organization. iii.Ambiguity created by extrinsic evidence. |
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Insured v. Assured
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Marine insurance
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Why have exclusions in a policy of insurance?
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1.Why exclusions?
a)Adverse selection. b)Moral hazard. c)Catastrophic losses. d)Avoid duplication of coverage. |
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How are coverage grants and exclusions construed?
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Coverage grants are interpreted as widely as possible, and exclusions are construed as narrowly as possible.
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INSURANCE
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= An agreement by which one party (the insurer) commits to do something of value for another party (the insured) upon the occurrence of some specified contingency; esp., an agreement by which one party assumes a risk faced by another party in return for a premium payment.
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Louisiana jurisprudence
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An insurance policy is a K between the parties and should be construed by using the general rules of interpretation of contracts set forth in the Civil Code.
The judicial responsibility in interpreting insurance Ks is to determine the parties’ common intent. In case of doubt, courts should resolve against the drafter and in favor of the insured. |
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(LA) Reasonable Reasonable Expectations Doctrine
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Reasonable Expectations Doctrine: Courts will protect the insured’s reasonable expectations . . . regarding the coverage afforded by insurance Ks even though a careful examination of the policy provisions indicates that such expectations are contrary to the expressed intention of the insurer.
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lex loci contracti
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law of the place where the contract was written
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lex loci fori
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The positive law of the state, nation, or jurisdiction within which a lawsuit is instituted or remedy sought.
The lex fori, or law of the jurisdiction in which relief is pursued, governs all procedural matters as distinguished from substantive rights. |
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lex loci delicti
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the law of teh place where the wrong was committed
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What law is the court likely to apply?
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Where is the policy delivered, negotiated?
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Risk
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Risk = the inherent uncertainty of events described in terms of chance or probability
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risk transfer
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Risk-transfer: this is like betting that you will get more than you give: the insurance company will
decide how much the bet will cost. |
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classification of insurance
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Classification of Insurance
You must classify insurance in order to determine what type of policy and inherent nature of risk would best be utilized. 3 types of classifications: (A) marine and inland (B) life (C) fire and casualty |
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Life Insurance
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contract under which the insurer promises to pay proceeds upon the death of the
person whose life is insured. |
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Term v. Whole Life Insurance
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a) Term = pure insurance; the insured purchases coverage for a specified duration and the
designated beneficiary collects the proceeds only if the insured dies with the specified term. b) Whole life = a policy of term insurance and a savings plan, i.e. part of every premium covers the cost of the insurance and the remainder goes into the savings component of the product- as years go by less goes into premium and more goes into savings component; amount of savings = cash value. |
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Types of Fire & Casualty Insurance
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1) Fire = coverage for loss caused by hostile fire.
2) Casualty = the insured’s legal liability for injuries to others or for damage to other’s property. 3) Worker’s compensations = liability for injury or death related to the job where the employer is legally responsible. 4) Suretyship = the practice of one person agreeing to guarantee the debts or obligations of another. Surety bond is essentially a promise, evidenced by as writing, to a creditor that one person or company (the surety) will pay the debt or perform the obligation of some other person (the obligee) should that person fail to pay or perform. 5) Accident insurance = reimbursement for pecuniary loss suffered as a result of injuries sustained in an accident. 6) Health insurance = reimburses for pecuniary loss arising out of disease related illness |
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First party vs. Third party insurance
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A) First party = the K between the insurer and the insured indemnifies the insured for a loss suffered
directly by the insured, i.e. you are the one who has the K with the insurance company. Insures for a loss suffered directly by the insured. B) Third party = the interests protected by the contract are ultimately those of third parties injured by the insured’s conduct, i.e. if you are the claimant under someone else’s policy against or with the insurance company. |
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Trade organizations, ISO
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Origin of insurance contracts: Much of the standard language of insurance policies is written by the insurance service organization.
Companies start with these policies and then modify them. |
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Drafting the policy- The Role of Standardized Forms
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The Insurance Services Office (ISO) drafts standardized forms that are used by many insurers.
i.Provides a consistent base from which to tailor custom provisions. ii.Allows customers to make meaningful comparisons on prices, coverage, and services. iii.Clearer, standardized coverage language. iv.Consistency of application and forms means easier data collection and processing. v.Court interpretations have more consistent meaning. Note: There still can be a lot of contention over standardized language, and it's not a panacea for problems of interpretation. |
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Insurance and antitrust laws
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Insurers are allowed to work together on certain matters, as exceptions to antitrust laws. Data collection is one of them
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Insurance policies as adhesion contracts
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Adhesion contract = a description of the manner by which the contract is formed: one party having superior bargaining power imposes its choice of terms on the other party- only a “take it or leave it” option for the insured.
G/R: Policies are construed with a lay person’s understanding. An exclusion in an adhesion contract of insurance must be expressed in words which are ‘plain and clear.’ |
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Doctrine of Reasonable Expectations
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(G/R: if a K is not ambiguous, doctrine of reasonable
expectation does not apply) Reasonable expectations doctrine = when two interpretations exist as to what an insured might expect a policy to mean, and one is inapt or absurd while the other is reasonable, the reasonable one if selected. |
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Analyzing a reasonable expectations problem...
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First must determine if language is ambiguous- is not, go with what is stated in policy; if it is
ambiguous, G/R: construed against insurer. 1) Reasonable expectations doctrine does not apply unless the contract language is ambiguous. a) It is ambiguous if it is capable of more than one meaning. b) Because this is an adhesion contract, it is strictly construed against the insurer. c) This is a very broad definition that allows courts to do what they want with the facts of the case. 2) If the contract language is ambiguous, interpretation is a matter of law. Once the ambiguity is discovered, use reasonable expectations and it is up to the jury to decide what is reasonable. |
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Factors in the reasonable expectations doctrine
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Factors:
1) The expectations by both the insured and the insurer must be OBJECTIVELY reasonable, not subjective. 2) An objective inquiry must be used: a person is entitled to rely upon a reasonable understanding of manifestations of the other party. 3) The extent to which the insured could gain an understanding of the situation through a reasonable effort. a) Note: reasonable effort will vary from situation to situation, i.e. individual vs. corporation. b) Case law varies if court should look at the reasonable person versus the specific instance and / or specific person. |
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5 steps in forming the insurance contract
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5 Steps in forming the Insurance Contract:
Initial contract (usually between the applicant and the intermediary); submission of application, issuance of binder, investigation by the insurer, and delivery of the policy. |
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Step 1:
INITIAL CONTRACT |
The key is knowing how much authority the agent or the broker has and what your remedy is should the agent or the broker make a mistake. The area of agent liability is hard on the insured; there usually has to be a special relationship.
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Setp 3:
BINDER |
Binder = a temporary contract for insurance which is usually issued to the insured prior to receiving
official authorization for insurance and immediately following the application for insurance. 1) The binder obligates the insurer to pay the insurance if a loss occurs before the insurers act upon the application. 2) Always get something in writing because the insured is usually not covered until the application is accepted. Also, one should always request this to identify what you have paid for. 3) Binder must meet all requirements for forming a contract: mutual assent, consideration, sufficiently definite. |
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Analyzing a problem with multiple clauses/other policies
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other insurance clauses = attempt to prioritize or coordinate the coverage of two or more applicable policies
purpose = to address the risk of moral hazard that accompanies multiple coverage which in combination exceed the value of interest insured |
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stacking of policies (be careful- in theory it sounds good, but they could cancel each other out!)
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stacking of policies = combining all of the policies you have to avoid the least amount of personal liability for a [judgment] against you; this may or may not be prohibited based on
the policy language b/c it is fair for a person to stack when he has specifically bought more insurance to prevent such personal liability |
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is the agent responsible to explain to the insured the words of the policy?
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This is fact dependent / factors to consider: (1) if the policy is ambiguous or clear (2) who is best able to determine if there is coverage (3) how much agent takes upon themselves and what representations are made – G/R: go through everything with the insured or don’t go through anything at all. 1) The agent has a duty to explain what the general terms mean (like “full coverage”) 2) The agent has a duty to explain the terms of the policy if the agent knows the insured misinterprets the policy. 3) If the market changes, the agent does not have a duty to come back and advise 5 years later; additionally, most modern policies have built-in inflation provisions. |
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No-assignment clauses
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A no-asugnment clause is ineffective as to past acts, it is only effective as to future losses; and we design M&A agreements to make sure that the insurance covers the liability.
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bumper-shoot policies
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tend to have specific drop-down policies...but this isn't the norm of most excess policies, most do not drop down- especially if the insured is insolvent
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Elements of misrepresentation (Step 2: The Application)
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Elements of misrepresentation (know the factors and consider and weigh those).
1) Is untrue or misleading: does not have to be intentional but practically does. a) Fact: Can misrepresent without intent. This is easier to prove. b) Opinion: subjective so intent is hard to prove. 2) Materiality a) How important the fact is; did the insurer make a decision based on the fact. b) Look at materiality at the time the contract is formed. 3) Reliance: The insurer relied on the information and was induced to issue the policy. (would have required a different premium). a) If the insurer knows that the misrepresentation was a mistake then reliance is unreasonable. b) The insurance company will always want to argue this point, i.e. especially if the information that was misrepresented is not material. |
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co-insurance
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co-insurance = a kind of loss-sharing agreement between the insured and the insurer where insured bears a portion of the loss that is a function of the percentage of the property’s total value not covered by the insurance
2. the insured is also an insurer along with the underwriter, i.e. if the underwritten amount is less than the value of the property, the insured is a coinsurer in the sense that the owner bears a portion of the risk 3. Policy: causes both insurer and insured to bear the risk and ultimately reduces moral hazard; also encourages insureds to buy insurance in amounts closer to actual value of their property |
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Flanagan's coinsurance
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penalty that can be applied for not carrying enough insurance (if you underinsure your policy)
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Why have co-insurance?
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So, Coinsurance basically means you pay beyond a deductible before the Insurance will provide
coverage. The insurer uses this because it reduces moral hazard, i.e. someone will think twice before having a test done b/c he will have to pay 20% of it; also encourages responsible behavior. This is a fair system b/c insurance really exists to prevent against catastrophic events. |
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Most common insurance clause?
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Pro-Rata
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Flanagan's Pro Rata
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If you have another policy and it covers the same loss, we share the loss with that other policy.
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PRO RATA insurance clause
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= most common kind of clause; declares that the insurer’s liability shall be limited to a portion of the loss not exceeding its proportion of the total insurance coverage
Formula = if a loss covered by this policy is also covered by other insurance, we will pay only the proportion of the loss that the limit of liability that applies under this policy bears to the total amount of insurance covering the loss |
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EXCESS insurance clause
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= provides the insurer shall reimburse only the loss exceeding the coverage of other
valid and collectible insurance Formula = the company shall not be liable for loss if at the time of loss, there is any other insurance which would attach if this insurance has not been effected, except that this insurance shall apply only as excess and in no event as contributing insurance and then only after all other insurance has been exhausted |
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ESCAPE / AVOID
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= (least common) provides the insurer shall have no liability if there is other valid and collectible insurance
Formula = it is hereby agreed that if other insurance is written on the insured interest….this Company will be notified of the amounts of such other insurance….It is further agreed that unless or until so notified of such other insurance the coverage under this policy shall be suspended |
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Pro rata vs. Excess / Escape
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G/R: policy with pro rata is the primary policy and the excess is the secondary
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Excess v. Excess
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G/R: No play-- referree comes in and says no play, the court says that those two excess policies are mutually repugnant. Court will typically fashion a remedy to make both of them pro rata.
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Excess vs. Escape
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G/R: policy with escape clause is primary and the policy with the excess clause is “excess” or secondary
Flanagan: Will be mutually repugnant...generally |
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Proration formula for exam...
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PRORATION FORMULAS
when two or more pollicies are mutually repugnant, how do you prorate the loss among the various insurers? G/R: the insurers pay shares of the loss proportional to their limits of coverage I.e., add total available limits and caluclate percentage of total, Excess: of other insurance available, we are excess and we don't pay until the other |
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Summary of clauses
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pro-rata v. pro-rata: do the formula
excess v. pro-rata: excess is secondary excess v. excess: mutually repugnant, revert to pro-rata excess v. escape: mutually repugnant, revert to pro-rata |
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Risk manager
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Risk manager: In a commercial context, who buy’s insurance for a company…the risk manager – buys the insurance, but also is an employee of the policyholder company;
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insurance certificate
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Insurance certificates: a snapshot (like your car insurance card) with just the basic info about what kinds of insurance you have, as a matter of fact when one company contracts they will likely ask for an insurance cert to see what kind of insurance you have. Usually a single page front and back that says proof of insurance/evidence of insurance and gives the basic details of your insurance…
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Problem of insurance interpretation: Certificate
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SPECIAL PROBLEMS OF CONTRACT INTERPRETATION
Problem of multiple documents G/R: courts will look first to the master policy = the primary contract between the group representative and the insurer (not the certificate given to each insured) Minority G/R: when the terms in the master policy conflict with the certificate, the court will go off of the certificate Policy: how is an insured supposed to know that the master policy is different from what he has received, i.e. the certificate |
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liability variant of a Liability Policy
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pays on behalf of
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Indemnity policy
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reimburses
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Principle of indemnity
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G/R: goal of indemnity = to reimburse the insured for the loss sustained and no more
Objective is to put the insured in the position the insured would have been in had the loss not occurred; the insured is not entitled to recover more than the damages property is worth or more than its decline in value as a result of the damage |
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Advantages of all-risk coverage
"Fill in the gaps" |
thought to be advantageous in several respects: coverage is presumably simpler to understand; duplication of coverages & premiums from separate, specified-risk policies is avoided; pressures toward adverse selection is minimized policies are easier & less expensive to adminster
*ESp. The avoidance of gaps in coverage; losses that would otherwise fall within the gaps of specified risk coverage will be indemnified if a policy is deemed to be all risk. |
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Liability insurance
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coverage for all sums that the insured becomes legally obligated to pay because of bodily injury or property damage, and sometimes other wrongs to which an insurance policy applies
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Liability insurance is 3rd party insurance
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liability insurance, because the interests protected by the contract are ultimately those of third parties injured by the insured's conduct
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First-party insurance (all insurance except liability insurance)
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Where the contract between the insurer and the insured indemnifies the insured for a loss suffered directly by the insured (property insurance)
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All-risk v. specified risk coverage
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(most important in property ins context)
All risk: covers the insured for damage to the subject matter of the policy, from all causes, except those specifically excepted in the policy (marine insurance is traditionally all risk, 3 of the 4 major categories of insurance are all risk, life, liability, marine) Specified: covers damage to the subject matter of the policy, only if it results from specifically identified causes listed in the policy |
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Main types of pollution exclusions
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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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Assured v. insured
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Practically speaking, nothing. Assured is marine, insured is not.
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Broker
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A broker:
1) does not have the right to bind the insurer 2) works primarily for the insured 3) is generally used by large and sophisticated companies An agent: 1) is usally the "mandatory" of the insurance company and can bind it 2) works primarily for the insurance company and can bind it (w/duties to the insured) 3) mostly used by small businesses & homeowners |
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Insurance, def.
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Insurance is:
a contract, in which one person agrees, under certain circumstances, to indemnify the other for loses, in exchange for the payment of a premium. |
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A contract of insurance is:
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A contract of insurance is an agreement in which one party (the insurer), in exchange for a consideration provided by another (the insured) assumes the other party's risk and distributes it across a group of similarily situated persons, each of whose risk has been assumed in a similar fashion.
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What is the intermediary's role in insurance?
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Insurer--> 3rd party intermediary (broker or agent)--> insured
Generally speaking the principles of agency apply to insurance companies and their agents/brokers, or an intermediary in the context of insurance. An intermediary's authority can be actual or apparent.. |
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Coverage grant→
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a provision of the policy, the ‘engine of the policy; the big promise. The coverage grant or insuring agreement is what Flanagan calls the ‘big promise; they start out by saying here’s what I’ll do for you, then narrow it down to by exclusions, and then they have a revised promise- and in order to get to that revised promise you have to comply with conditions, or hoops as Flanagan says.
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Bad faith→
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Statutes or laws that punish an insurance company for acting vexatiously- unreasonably or unjustified…
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Interpreted against the drafter→
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two things we have to prove 1) does the language fit and 2) do the facts fit the application of the exclusion. The insurance company has the burden of proving the facts that the exclusion should apply.
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Warranty representation…
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In an application for insurance…first, however, what does a commercial concern do to get coverage? To get someone to bit? Deal with a broker, who runs out and gets quotes/prices and comes back with a matrix and says here is what I found…what is the thing that the broker used to go out and get those choices for us?
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Submission-binder: Contents
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1. brochure of the company,
2. pro forma …? 3. loss history 4. application May also contain the loaded question…. Do you certify that this is true? Are you aware of any accidents that are likely to become claims? |
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Breach of warranty (the problem of imperfect information)
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Warranties were statements in policies that had to be literally true, or else there was no coverage.
Example: Massage parlor building had a warranty that the 3rd floor was used as a janitor's residence. i.The language was determined to be ambiguous, and ambiguous language is always construed in the favor of the policyholder. Warranties can easily be abused, and have largely been abandoned. These have been replaced by coverage provisions, which are included and based on the insurer, not the policyholder. Warranty = "policyholder warrants that the third floor used as a residence." Coverage Provision = "no coverage unless third floor is used as a residence." |
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Misrepresentation and Concealment (imperfect information)
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These arise because of the questions that the policyholder must answer on the insurance application.
Misrepresentation: i.False or misleading statement. ii.The subject matter is material to the risk. Something that increases the risk. Something that contributed to the loss. iii.Insurer has to reasonably rely on the misstatement. States vary as to whether this is a subjective or objective standard. PA and some other states also require that there be intent to deceive. Concealment: i.Nondisclosure. ii.Knowledge that the information is material or important. iii.Specific intent to conceal. |
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Example of misrepresentation/concealment: Change in circumstances of the policyholder
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- the applicant answered a question honestly about high blood pressure, but found out after turning in the application and before issuance of the policy that he did have high blood pressure.
i.The applicant has a duty to correct the application if he learns of new information before the policy is issued. ii.This is the Stiptich rule - fair dealing requires that the applicant inform the insurer of any changed circumstances. iii.This led to a total denial of coverage for the policyholder. |
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Example of misrepresentation/concealment: Insured reveals information but agent doesn't put it on the application
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policyholder answered questions honestly but his agent cousin didn't put them on the form.
i.The knowledge of an agent is assumed to be the knowledge of the insurer. ii.A jury could reasonably find that there wasn't actually misrepresentation. iii.Evidence of collusion with the agent will change this rule, however. |
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Example of misrepresentation/concealment: Agent's duty to ask specific questions
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a HIV positive man did not mention that fact on an insurance application because he did not feel that the questions were directly asking for that fact.
i.The insurer must ask specific questions if it wants specific answers. ii.The applicant is not required to volunteer information. iii.Some states now limit or regulate the ability of insurers to question about HIV status. |
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Types of intermediaries
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a)There are several types of Intermediaries:
i.Agents. Independent Agents - work for/with many insurers and recommend the best source for your coverage. Exclusive Agents - work only for one insurer. ii.Brokers - large companies that mostly seek insurance for corporate market. iii.Direct Writers - insurers that sell directly to customers. |
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Types of intermediaries, cont.
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Generally speaking, agents of both types work for the insurers, brokers work for the insured.
In addition, general agents have the authority to bind the company, but soliciting agents and local agents do not. |
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Example of apparent authority
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An agent issued a "binder" for coverage from Zurich for a sawmill customer that had been turned down by other insurers.
i.The contract between Tallant and Zurich specifically forbade Tallant from issuing coverage for either of those. ii.Tallant had apparent authority to bind, so Zurich has to provide coverage. iii.Zurich may recover from Tallant for the costs, however, as Tallant did not have actual authority. |
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Fire & Property Insurance: The requirement of an insurable interest
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1.Two reasons:
a)Prevents moral hazard. b)Principle of Indemnity - you recover what you lost but do not benefit; insurance is not gambling. 2.Tests for insurable interest. a)Legal or property interest. b)Property interest. c)Contractual interest. d)Legal liability for the loss. e)Factual expectancy test - expect an economic advantage from the continued existence of something, or you would suffer an economic loss if it ceases to exist. 3.For property interest the interest must exist at the time of the loss, not at the time the policy was taken out. a) You can thus buy insurance for something you don't own, so long as you acquire it by the time of the loss. |
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Factual expectancy test for insurable interest: Insuring something for the future example
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the policyholder insured a house that they were repairing, but didn't take title before it burned down.
a)Since at the time they were under no legal obligation to buy the house, they have no insurable interest in the whole. b)They do have an interest in the improvements they already made. c)The expectancy test has only been adopted in about ½ of jurisdictions. |
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Subrogation
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Subrogation is the legal technique under the common law by which one party, commonly an insurer (I-X) of another party (X), steps into X's shoes, so as to have the benefit of X's rights and remedies against a third party such as a defendant (D). Subrogation is similar in effect to assignment, but unlike assignment, subrogation can occur without any agreement between I-X and X to transfer X's rights.
Using the designations above, I-X (the party seeking to enforce the rights of another) is called the subrogee. X (the party whose rights the subrogee is enforcing) is called the subrogor. |
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Reasons for subrogation
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Reasons for subrogation:
a)Helps the principle of indemnity by making sure the insured does not collect from multiple sources. b)Makes sure the tortfeasor is the one who pays. c)Allowing the companies to recover keeps costs down. |
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Main ideas/rules for subrogation
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The main rule is that insurers cannot have subrogation rights against their own insureds.
(There is an exception in mortgages. An insured who breaches a mortgage can be sued by the insurer after the insurer pays off the lender; we consider the mortgage to be transferred to the insurer at that point.) -Insureds who interfere with subrogation can void their coverage. -A third party released from liability by the insured is not released by the insurer so long as that third party has notice of the insurer's right of subrogation. |
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Interference with subrogation- example
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Northern signed a contract that limited the liability of a construction company that was building it a refinery.
a)This is a case where the interference with subrogation occurred before the loss. b)The overwhelming rule is that pre-loss releases of subrogation will |
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business interruption insurance
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There are two parts to this insurance
a)Business interruption - covers property you own. b)Continent business interruption - covers properties that you don't own but rely upon. |
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business interruption insurance, def.
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Business interruption insurance protects a business owner against losses resulting from a temporary shutdown because of fire or other insured peril. Generally, business interruption insurance provides reimbursement for lost net profits and necessary continuing expenses.
There are various types of business interruption coverage available. A business interruption policy that includes extra expense coverage in case you have to carry on business at a different location because of insured damage at your original place of business can be a wise business insurance investment. |
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business interruption insurance, example
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- a paper plant burned, and some production was moved to another facility.
a)The insurer claimed this meant there was only a partial interruption. b)Business interruption insurance is for specific facilities only. c)The court says that mitigation means that the insured must work to restore production at that facility, but is not required to move all production to another plant. |
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Life insurance: The application
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the applicant paid and submitted an application, but never was approved before death because the insurer asked for 4 medical tests.
a)A reasonable person would have assumed coverage from the passage of the first medical report. b)We don't want the insurance companies to be able to take and hold peoples' money for long periods without actually giving them coverage. c)Some courts hold there is at least temporary coverage until that first premium is refunded. |
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Life insurance: The requirement of an insurable interest
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Insurable interest exists:
a)For yourself. b)Close family members. c)Pecuniary interests (employer/employee, creditor/debtor, etc.). d)Combination of 2 and 3. |
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CQV
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If the life insured is not the same as the owner of the policy, then that person is the cestui que vie (CQV), the "one who lives".
a)Both the owner and any other 3rd party beneficiaries must have an insurable interest in the CQV. Possible parties to a life insurance policy: i.The Owner. ii.The Person Insured (the CQV). iii.The Beneficiary (the one who gets the money). iv.Assignees (if any). |
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Life insurance: Insurable interest example
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two mortician partners bought insurance on each other so that the survivor could buy out the whole business.
a)The other partner did expect some benefit from the life of his partner, and this can provide the insurable interest. b)The wife of Ryan has no standing anyway, because only the insurer may raise the issue of lack of insurable interest. The insurable interest must exist at the time of the creation of the policy, but doesn't necessarily still have to be there when it's paid. |
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Beneficiary change example in life insurance
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- a woman sent two letters to her insurer changing the beneficiary, but never filled out the precise form they wanted.
a)The policyholder did change the beneficiary under the substantial compliance doctrine. i.The owner clearly intended to change the beneficiary. ii.The owner did substantial affirmative action to make the change. |
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liability insurance: the agreement
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This basically covers some standard language, which was usually: "we promise to pay:
a)all sums b)the insured becomes legally obligated to pay c)as damages d)because of e)bodily injury or property damage |
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occurrence: liability insurance
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2.Occurrence was defined in the late 60s to be:
a)"An accident b)including continuous or repeated exposure to conditions c)which results during the policy period in bodily injury or property damage d)neither expected nor intended e)from the standpoint of the insured." |
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Exclusions to liability coverage: intended or expected harm
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National Gypsum is being sued by its insurers about asbestos coverage.
i.The burden of proof in showing that harm was intended or expected is on the insurer. ii.The standard for expectancy of harm is objective, with a reasonability standard. iii.The standard is also on a product-by-product basis, not generally. iv.The court also says that it was not certain that this was a "known loss," and the company could have reasonable thought that their products were still okay. v.The insurers were free to set their premiums at a rate appropriate to the risk and uncertainty associated with the asbestos industry. vi.The "known loss" defense is indeed becoming more important, especially in environmental cases. (query: unnecessary, as we already have fraud and misrepresentation?) |
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reasonable expectations doctrine
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Legal principle that, in general, the provisions of a contract are to be interpreted according to what a reasonable person (who is not trained in the law) would interpret them. This doctrine is particularly applicable in adhesion contracts (such as bank lendings and insurance policies) or where a provision is open to more than one interpretation. It favors the objectively reasonable expectations of the weaker party (borrower or insured) although the language of the provision(s) does not explicitly supports them. Also called reasonable expectations doctrine.
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RE Doctrine v. unconscionability
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Unconscionability requires following 2 elements:
i) Substantive unfairness: Difficult to prove for Insured (need prove unfairly expensive premium) ii) Detrimental reliance: If no other insurance is available, no reliance anyway. This is why Reasonable Expectation doctrine came out. Reasonable Expectation does not need to prove these 2 elements. |
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Argument against RE Doctrine
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By applying Reasonable Expectation test, court's interference and making of another insurance policy have expanded coverage unreasonably, which raises premium. Thus application of Reasonable Expectation in one way may disadvantage another Insured in future cases.
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False statement in application through agent
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In a case of false statement in application through agent, general rule: “knowledge of agent imputed to Insurer itself.” However another test can be applicable:
i) If Insured would have expected kind of fraud, Insured lose. ii) If no chance to know the agent’s fraud and misrepresentation, Insured win, because Reasonable Expectation of Insured comes in. |
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Estoppel: Issue spotting
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Estoppel: Look at conduct of Insurer’s representation and Insured’s change of position.
a. In estoppel, Insurer’s representation in 3 situations: i) When contract made: There is reliance. ii) After contract but before loss: There is reliance. iii) After loss: No reliance. If after loss, estoppel is rarely applied. Reasonable Expectation helps Insured any way. |
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Waiver: Issue spotting
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Waiver: Look at conduct of Insurer if Insurer voluntary relinquished.
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Warranty concept origins
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The warranty concept comes from an ancient doctrine called ubberimae fidei which means utmost good faith- but the translation is misleading…because utmost good faith has nothing to do with it- in the ancient doctrine, ubbermae was warranty…back in the day at Lloyds coffee house the owner of the ship would walk in to the place and say I have the vessel Siren, she’s 30 and she was built in S Hampton of oak and she was retrofitted two years ago, with a big crew, and the master is Billy Banks…and everyone thinks Billy is a good captain, so the prospective insurer says, I’ll underwrite 10% of that loss. (origin of the word underwriter…)
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Warranty: A condition precedent
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Warranty: a condition precedent. What does that mean? That if its wrong, no coverage. They have to be plenty in maritime, but not landside.
• Why are warranties not so common? Market says so. The market has trained insurance companies not to ask for warranties unless they are absolutely necessary, we see them in specialized polices- marine, D&O (directors and officers) and fraud policies…financial instits have to get policies against the infidelity of their employees Under the laws of almost every jdxtn, a warranty is a misrepresentation. |
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Misrepresentation: elements
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Misrepresentation: In order to avoid liability, an insurer must prove that : (to void coverage for an incorrect representation, must prove these:
1. FALSITY 2. MATERIALITY i. 2 pronged: Impacts whether to insure and also the premium… Materiality 2 types: a.Whether to insure: Whether insurer would have refused underwriting. b.Premium: Whether insurer would have charged a higher rate. 3. INTENTIONAL |
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Policyholder's duties
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Policyholders three duties: Pay the premium, tell the truth, and cooperate.
Cooperation claim: (1) prompt notice, (2) documents (3) provide people and/or testimony and (4) tell the truth Prompt notice is key- they can void coverage… |
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Pollution exclusions- explained
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One of the most hotly litigated insurance coverage questions of the late 1980’s and early 1990’s has been the scope and application of the pollution exclusion.” Madison Construction Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 605, 735 A.2d 100, 106 (1999). The reason is obvious: industrial polluters are confronting billions of dollars of environmental cleanup liability resulting from their long-term waste disposal practices
From the early 1970’s until the mid-1980’s, most comprehensive general liability (CGL) policies included a pollution exclusion which eliminated coverage for liability arising out of the discharge of pollutants unless the discharge was “sudden and accidental.” The sudden and accidental exclusion was later replaced by an absolute exclusion. The effect of the sudden and accidental exclusion was to eliminate coverage for pollution liability based on the routine discharge of pollutants. As a result of the operation of this exclusion, coverage would potentially be available only when pollution resulted from a sudden, boom-type accident. |
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Morton
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Case involving attack of "sudden and accidental" exclusion in pollution.... Policyholders claims that ctual contract language was not the critical factor, but rather that courts should rely on extrinsic evidence to modify, or even contradict, the express terms of the contract.
The principal support cited for the outside-the-contract approach is the decision of the New Jersey Supreme Court in Morton Int’l, Inc. (1993). In Morton, the court recognized that the plain meaning of the word “sudden” possessed a temporal element. Nonetheless, the court declined to give effect to the literal terms of the pollution exclusion on the grounds that the insurance industry had allegedly duped New Jersey insurance regulatory authorities when the exclusion was submitted for approval and that insurers should therefore be estopped from enforcing the exclusion as written. |
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General into definitions
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i. Policy—Insurance Contract
ii. Premium—Consideration paid for the insurance contract. iii. Insurer—Insurance company that issues the policy iv. Insured—Person or entity covered by the policy. |
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Effective date of the policy?
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Effective Date
1. If the applicant uses an insurance broker, the applicant is not insured until the broker obtains the policy. 2. If the applicant uses an insurance agent, coverage usually begins when the application is made if consideration is paid. a. Agent may issue a binder, a written temporary insurance policy. 3. Parties may agree that the policy will be effective at a later time. |
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Life insurance effective date?
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Life insurance may be effective when the first premium is paid or when the applicant passes a physical exam.
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coinsurance clauses
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Coninsurance Clauses
1. Clause that requires a property owner to insure his or her property up to a specified percentage of its replacement value. If this is done the owner will be fully reimbursed for any loss. |
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indemnity clause
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iv. Indemnity clauses require the holder of the clause to be restored to the financial condition he or she had before the loss. A hold harmless clause is a type of indemnity clause and it means the person who holds the clause will not be held responsible for any of the loss suffered.
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subrogation clause
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A subrogation clause allows the insurer to sue a third party who was responsible for the loss instead of the insured.
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good faith obligations
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Good Faith Obligations
1. Both parties are responsible for the obligations they assume under the contract. a. Insured—Reveal everything necessary for the insurance company to evaluate the risk. b. Insurer—Has a duty to investigate the facts surrounding a claim, to make reasonable efforts to settle claims, and defend suits against the insured. |
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defenses against payment on a policy
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viii. Defenses Against Payment
1. Regular contract defenses apply. 2. Lack of insurable interest. 3. Improper actions by the insured. |
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contract construction: 3rd party insurance
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3rd Party – Covers a third party’s damage for which the insured is liable
example: Liability Car Insurance 2 types of 3rd Party Coverage Defense – insurance company defends the insured Indemnity – insurance company pays your expenses |
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contract construction: 1st party
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1st Party – Covers the insured’s own damages
examples: homeowner’s, collision, life insurance, medical insurance |
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contracts of adhesion
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Insurance policies are contracts of adhesion b/c they are take it or leave it contracts – ie take it or leave it from the insured
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reasonable expectations: contract law
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Doctrine of Reasonable Expectations – It holds that with uncertainty in the contract, the court will look at the reasonable expectations of the insured.
If unambiguous, then enforced as written and court may not resort to the construction rules. If ambiguous, then construe the ambiguity in favor of the non-drafting party, so long as that interpretation is reasonable. Ambiguity exists if more than one reasonable expectation exists in the contract. |
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commercial general liability (CGL) policy
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A standard insurance policy issued to business organizations to protect them against liability claims for bodily injury and property damage arising out of premises, operations, products, and completed operations; and advertising and personal injury liability. The CGL policy was introduced in 1986 and replaced the "comprehensive" general liability polic
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CGL: element of notice
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Notice is required under the CGL and any 3rd party coverage
Notice means properly served on insured - service of citation. Copy of petition alone is not good enough Insurance company cannot deny coverage for breach of prompt notice provision unless suffered prejudice Prejudice is a question of fact for the jury to decide Note:When notice is first recieved after a default judgment has become FINAL (after plen power), then presumed prejudice as a matter of law |
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CGL: element of occurrence
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Occurrence is an accident, which is an unexpected happening or event
Where acts voluntary or intentional and injury is natural result, then injury is not an accident or occurrence. (eg intentionally taking dirt is not accident). Furthermore, conduct is not an accident where dmgs are natural result or where injuries reasonably anticipated from the insured's actions. Thus a hunting accident will be covered b/c it is not the natural result of the actions. Time of occurrence is when dmgs occurred, not when negligent act took place Note: Sexual molestation is intentional as a matter of law in all 50 states -more than one occurence allowed out of one event -misrepresentations do not occur out of an occurence, unless it causes unexpected accidents |
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CGL: element of damages
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Bodily Injury & Property Damage
CGL & Homeowners - only occur from bodily injury or property dmg Ment anguish by itself does not const bod injury 2 exceptions: 1) ment anguish results in phys dmg or 2) mental anguish from phys dmg Bod injury is dmg to phys struct of human body Injury to property means phys injury to tangible property. Same under both policies, even w/ diff language Econ losses alone do not result in property dmg. Except: When loss of property results in "loss of use of phys property" like rent. (IE WHEN LOSS OF USE IS A MEASURE OF DMG) Punitive Damage (punitive damages depends on law of jurisidction.. some courts have predicted that puni dmgs could not be covered b/c punishes wrong party) |
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continuous damage claims
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Continuous Damage Claims
4 Doctrines Manifestation Period Theory- policy in effect when 1st manifested applies Continuous/triple trigger Theory - all policies through all above periods apply Injury in Fact Theory - Trigger when plantiff in fact injured only policies in effect when plaintiff actually injured in fact - could start during exposure period, but also could be latency, and ends until fixed. This is main difficulty: determining begin date. Good b/c tracks language of policy the best. Exposure Theory - Exposure theory says to "prorate the years that the policy was in effect." Policy in effect when began exposed and ended exposure. This is great spreads risk and easy to figure begin and end. Total Pl.'s dmg (# yrs ins co was on the risk / Total years exposed) |
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Duty to defend (misc. provisions)
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GEN RULE: "8 Corners" or "Complaint Allegation" Rule
look to allegations in the petition, assume that all are true, and ask if anything is covered in terms of policy. Give those coverages liberal interpretation and construe against drafter. (ie 8 corners rule: compare allegation in petition against coverage. Doubts in favor of insured.) - Facts matter not legal theory. Legal theory is the same as alleging the elements as facts. If facts alleged result in no coverage, then no duty as a matter of law to defend. Ins co entitled to rely on what is plead, unlike California, where fruits of investigation must be defended against as well. Called complaint allegation rule. - will not imagine facts that could have been plead but were not Exceptions - possible exception to the 8 corners rule, b/c Sup Ct. has never accepted an exception before. If exception exists, it says to only look beyond the 8 corners if 1) do not contradict anything that's pled, and 2) those facts must only bear on coverage and not on liability. Satisfying both is hard, but possible. (i.e. facts may come in that are not plead if both above requirements are met.) Multiple Claims - foundation leveling that damaged home. ... so long as one thing that is plead is covered, then ins. co. must defend WHOLE lawsuit. |
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Reservation of rights (misc. provisions)
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In most states, the duty to defend is broader than the duty to indemnify
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duty to indemnify: note
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Duty to indemnify depends on true facts, regardless of what's pled, and normally requires jury findings. So pay all attorneys fees and costs of defense, but only have to pay what jury tells you you're actually liable. Therefore, attorneys that understand the rule, ask juries in original trial b/c otherwise need to have 2nd trial to determine amount liable.
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liability insurance policies typically describe 2 duties:
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Liability insurance policies describe two duties on the part of a liability insurer: the duty to defend a suit against an insured and the duty to indemnify an insured when there is an obligation to pay damages. These duties are spelled out in the liability policy in language similar to the following: "we will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit"seeking those damages."
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reservation of rights provisions
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reservation of rights defense allows the insurer to comply with its obligation to defend, but not waive its right to withdraw that defense at a later date, nor waive its abilityto deny a duty to indemnify any judgment against the insured. It is typically employedwhere some, but not all, of the allegations create a duty to defend or when the complaintis so vague and ambiguous that one cannot tell if there is a duty to defend or no
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reservation of rights: process
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defend under a reservation of rights, an insurer sends the insured a "Reservationof Rights" letter which sets out those coverage issues known to the insurer which mightpreclude coverage for the claim. The timing of the letter can be important. Usually, thebest practice is to send this letter before the defense is undertaken. Under certaincircumstances, undertaking to defend the insured without a reservation of rights canpreclude the insurer from later withdrawing the defense or denying the duty to indemnify
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Automobile policies: Notes
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Ownership, Maintenance, & Use
Auto policy covers ownership, maintenance, & use, but additional insureds are only covered for use Permissive users are insureds, but maintainers are NOT. Nevertheless, insured is ALWAYS covered. -Rule/EXAM - Must give effect to the purpose and intent of the policy. The only coverage given is for the purpose given under the policy. IF the policy language does not define, then look to purpose & Intent, facts, and other case law -Rule/EXAM - for someone to be covered under an auto person, they must fit one of the many definitions of covered person in the policy and use looks to the purpose and intent of the person using the vehicle to determine if covered |
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permissive user (c/L)
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Look only to the subjective belief of the person driving the automobile, including 2nd, 3rd, and 4th, drivers,
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permissive user exclusion
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NOW: Permissive use no longer applies; now any person using your car is covered under the policy. However, now an exclusion to anyone w/o a reasonably belief to use the vehicle. So before, worried about the owner and permission giver, now we only care about the driver's reasonable belief. So in prior 2 cases, only look at driver.
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UM/UIM coverage in auto policies
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What is an Underinsured Claim?
No policy Policy exists, but limits are less than the amount of actual damages Policy exists, but debtor is insolvent or ins co denies coverage Hit & Run – Requires unidentified motorist, with physical contact Coverage exists, in the following amount, if greater than zero: Actual Dmgs – Setoff = amount paid by UM/UIM Setoff = Total insurance coverage – what’s already paid |
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Homeowner's policies: Generally
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-covers property damage, vacant land, land used in conjunction, cemetery plots, temporary housing, LOCATIONS and PERSONAL PROPERTY while on those locations
(Soil settlement cracking foundation - If caused by plumbing, then it IS covered. MOLD: generally exclusion exists, but exception for water damage. Litigation arises from water damage that then causes mold) Personal injury & Property damage -main difference b/t CGL & homeowners is whether or not it is a business, including SOLE PROPRIETORSHIPS. Other key is that it is not limited to being on your property/premises, meaning that homeowners is general liability coverage so long as not arise from business, intentional, etc. |
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Homeowners policies: elements
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2 Elements
Must have personal injury or property damage – Element One Must be caused by an "occurrence." – Element Two |
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duties of contract, generally
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Generally--Overall Duties broken b/t contractual & Extra-contractual
-Contract Duties: 1. Duty to defend - 3rd pty duty 2. Duty to Indemnify - 3rd pty duty 3. Duty to pay claim - 1st party duty -Extra Contractual Duties ("Bad Faith," but no such thing b/c many things fall into category) (arises outside of the contract): Duty of Good Faith & Fair Dealing |
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voidable misrepresentations
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Voidable Misrepresentations
Rule a. -5 elements of a successful voidance of policy making of a representation 2. it was false 3. ins co relied on it in issuing the policy (ie would have charged more, not issued, etc.) 4. Insured intended to decieve in making the representation (HARD to prove) same as stutuory - must be material to risk or to the loss 6. other statute - ins co must give notice that they intend deny |
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McCarran-Ferguson Act:
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1. Insurance business is regulated under state law subject to exemption.
2. Federal Antitrust may apply as long as no state law. 3. Federal Antitrust apply as to agreement to boycott, coerce, intimidate. |
