Insurance Law Outline
Contract Law Foundations
Need for Insuranceà Basic overview
Insurance company best at bearing the risk
Most people are risk averse
Willing to pay insurance company to take risk away
Difference btw risk shifting and risk spreading
Moral Hazard
Insured that doesn’t worry about things because they know the insurance company will take care of it
Insurance companies reduce moral hazard:
Exclusions in policies
Give money back for careful insured
Insurance Regulation
Two types of regulations
Regulation of insurance companies by state
Structure
How much capital and operating reserves
State regulation through state agencies/insurance commissioner
Some areas of federal regulation
EE health benefits
Chapter 2 Insurance Contract Interpretation
Ambiguity
Black Letter Rule: Contra prefentum
Interpret ambiguous insurance policies in favor of policy holders
Construe ambiguities against the drafter
Three prong test
Is policy term plain
Is policy term conspicuously displayed
Is policy term conscionable
*If no to any of three apply test
Gaunt v. John Hancock Mutual Life
Insurance company interpreting that person had to be alive at time of approval
Insured arguing that insured at time medically cleared
Handà assuming insured will read the K before signing it
Insurance company must write the K so a lay person could clearly understand that insured must be alive at time of approval
Clarkà Should be a fairness test
C&J Fertilizer, INC. v. Allied Mutual Insurance
Policy defines burglary with need of force of violence with visible marks to the exterior
Exterior door had no mark…visible marks on interior
Is definition of burglary ambiguous?
Court
Reasonable expectations doctrine
Look at what customer discussed with the agent
World Trade Center v. Travelers Indemnity
Unless the K is ambiguous follow the plain meaning ruleà no extrinsic evidence
Is “occurrence” ambiguous
Court said yes and allowed extrinsic evidence
Court did not find clear definition of occurrence in case law
Waiver and Estoppel
Waiver
Occurs where a party voluntarily and unilaterally relinquishes a known legal right.
A party can only waive a contract right that would benefit him or her.
Waiver may be either express or implied, and the party waiving the right must
1. be aware of the right that is being waived AND
2. intend to forgo the right
Estoppel
Occurs when one party’s acts or representations reasonably induce detrimental reliance on the part of another.
Unlike waiver, Estoppel depends on the conduct of both the insurer and the policyholder.
The insurer must make a representation or take an action, and the policyholder must reasonably and detrimentally rely on that representation.
Equitable Estoppel
Conduct by which one:
Induces another to believe in certain material facts
Which inducement results in acts in reliance theron, justifiably taken
Which causes injury
The Role of Insurance Intermediaries
Agent v. Broker
Agentà works on behalf of the insurer
Brokerà Works on behalf of person seeking insurance
Broker does not work for one company
Bad faith by first party insurance
Where insured is the claimant (suffers a loss)
I have damage to my car and I bring an action against my insurance company
Third Party
Insurance company must defend insured and indemnify insured up to the policy limits
Insurance company misconduct and/or failure to protect the insured, can support bad faith claims in first or third party context
Anderson v. Continental
What does insured have to show for tort of bad faith?
Must show absence of reasonable basis for denying benefits of the policy
And the defendant needs to know that there is no reason for denying coverage
Punitive Damages
Campbell v. State Farm (Third party bad faith)
State farm provided defense but not willing to settle
Courts reviewing punitive damages must consider
The degree of reprehensibility of the defendants misconduct
The disparity btw the actual or potential harm suffered by the plaintiff and the punitive damages award, AND
The difference btw the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases
Evidence not allowed in punitive cases
