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Insurance Law
Rutgers University, Camden School of Law
Feinman, Jay M.

Insurance, Law and Society
Basic concepts

Risk transfer
Risk aversion

Pay premiums to provide security in the event of harm

Law of large #s

If you get a larger pop. you can spread loss more efficiently
Higher predictability

Moral hazard (info concept) [doesn’t compute well w/ life ins]

Insured side: b/c you have ins you are less inclined to be careful

This is why insurers make insureds feel some pain of the loss (deductible, coinsurance, etc.)

Insurer side: after loss occurs, ins co acts opportunistically to avoid paying claim.

Adverse selection (info concept)

Insured side: more likely to buy ins if you’re the type who needs it (problem is… how can the ins co doesn’t know this and price its plan accordingly?)
Insurer side: seek the best insureds w/ low risk and high profit


Negative: undermine the relationship b/w insurer and insured

If ins co seems untrustworthy then ppl won’t invest in ins

Positive: security (car ins)

Uninsureds will benefit from the insurance industry, as will society

Harm prevention

Ins cos offer incentives or exercise control to limit harm (once an ins institution assumes responsibility for the financial consequences of a given harm, it has a substantial incentive to preven that harm); as such, insurance institutions have been a significant force in the development and dissemination of harm-reducing technologies and practices.


ins cos have power of selection in providing policies; and for many insureds, obtaining ins is often a prerequisite to partaking in other activity. Insureds must meet ins co stds and pay the necessary premiums.

As such, ins cos have the potential to serve as significant regulators, and this makes access to “private” insurance an intensely “public issue”

Social stratification

Ins reinforces existing distrib of wealth, but also has potential for redistrib (life ins).

Ppl who cannot get insurance occupy a different social position than those who can get insurance, and ppl who have to pay more for ins have fewer resources to spend on other things.

Consider mental illness.

Existing distrib? Redistrib? Somewhere in b/w?

Capital accumulation and allocation

Insurance institutions hold enormous sums of money in reserve to pay claims as they become due. This money is invested (in almost any place that capital can go in search of a return). Insurance, banking, and securities traditionally have been subject to different regulatory schemes. The contemporary “convergence” of the insurance, banking and securities industries in the financial services marketplace places great strain on the existing regulatory institutions, as they struggle w/ each other and the firms they regulate, both to achieve regulatory ends and maintain regulatory authority.

How do we regulate this? How should we regulate this?

Knowledge production [issues on 11-12]

Insurance is an information business. From a certain perspective an ins co is a tool for the collection, analysis, and use of information.

Identify future losses, choose which of those losses to insure, estimate their frequency and magnitude, prepare ins Ks that reflect those choices, then decide how much to charge which classes of ppl in return for this protection.
Also need to know how to motivate ppl to buy their insurance, and how to prevent loss.

Insurance and Social “Responsibility” (5 meanings)

Accountability (financial)

EX: decision to exclude experimental medical procedures from covered health insurance benefits is a decision to assign the responsibility for funding experimental treatments elsewhere (either w/ indiv patients or w/ some alternative medical research funding mechanism).


Insureds (can’t finance a home, car, etc. w/o insurance, and when ins cos “redline” geographical areas, it makes these areas risky places for banks to lend). If a borrower has insurance, they can be trusted to repay a loan even if disaster strikes.
Insurers (in deciding whether to pay a claim, appropriate level of coinsurance to apply).
Insurance institutions not only structure situations so that ppl behave in a responsible manner, they also d

risk (greater) and risk transfer, probably increases premiums or reduced benefits

Assumption – ins co should be able to individualize risk to the extent it makes costs more efficient.

K Law Foundations
Special features of ins K

Adhesion K à application varies (context)
Sequential performance
K about risk (aleatory)

Two linked approaches

Focus on K (what was the real deal?)
Focus on opportunism (take advantage of aspects of relationship)

Gaunt, focus on insurer opportunism.

WTC[p. 8, D] Reflection of Plain Meaning Approach – intentions of parties should control. Note: slightly diff. interp question here b/c we’re dealing w/ a binder and not an ins policy, and a binder is relatively short and necessarily incomplete

Intention of parties
Plain meaning
Ordinary usage
In light of common business purpose
Before going to extrinsic evidence of meaning, must

Find ambiguity
Question of law
Ambiguity can be est. by context, including

Trade usage (* this is not the classic view)

Contra proferentem à w/ ambiguity, interpret doc against intentions of the drafter

Plain meaning/ambiguity approach may frustrate the intentions of the parties
B/c we focus on intentions of parties we look to negotitations.
Also, what would such a policy typically ascertain? § reasons?

First set of appeals

2nd Circuit interpreted by using the def. of “occurrence” in Wilprop. THUS, only 1 “occurrence” (not two).

Losses/damages attributable directly or indirectly to one cause or a series of s

imilar causes.

Ct held this was common interp (reduce deductibles)

Second set of appeals