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Insurance Law
Rutgers University, Newark School of Law
Chesler, Robert D.

INSURANCE LAW                     Robert Chesler                           Fall 2014
Introduction to Insurance
Insurance—spreading of risk
Companies don’t usually offer insurance for floods.
Insurance can also cause social good as in companies saying we won’t insure unless you provide seatbelts.
Obamacare spread out the pool with younger people taking on the burden of older people.
Until the early ‘80s, insurance was accident based. Asbestos litigation changed that b/c it takes so long for the problem to manifest itself. Nobody paid attention to the environment until this time.
Insurance brokers sell the insurance from the companies to the policy holders. Agencies such as All State are agents of the insurance company.
Occurrence—much like accident, but takes place over many years. This is the most important concept for insurance.
Until 2000, a general liability policy usually covered everything. New risks like cyber risk arose and the companies were willing to provide less coverage. Now there are additional policies you need to get in addition to a general liability policy. The world of insurance is in the midst of change. 
Tangible risks (Brick)—GL coverage
Intangible risks (Data)—not covered by GL, requires separate coverage
Occurrence policy vs. claims made policy—the latter are harder to deal with and not popular
Late notice under a claims made policy almost always fails, it’s also problematic for GL.
2 Types of coverage—1) Duty to defend: your insurance company will defend you during litigation. Unlimited in GL policy. 2) Duty to indemnify: duty to pay based on judgment.
Since the insurance policy is an adhesion contract, it is interpreted against the insurer. It should be read broadly and any ambiguities should be looked at against the insurance company.
2 Types of policies—1) Liability Policy: People suing you, 2) Property Insurance: Damage to your property. There was almost no case law on this until the ‘80s. There is more case law since 9/11, Katrina and Sandy.
Most insurance policies require subjective intent to cause damage. Courts can interpret subjective intent (intentional conduct) in different ways and the outcome really depends on which judge you get.
Insurance companies usually suffer from bad investments, not coverage issues. Re-insurers insure insurance companies.
Kievit v. Loyal Protective (1961)—Established that insurance policies, unless the insured helped draft the contract, are adhesive contracts. (Doctrine of reasonable expectations)
Lehrhoff v. Aetna (1994)—The declaration page listed the insured’s son, but somewhere else in the policy there was an exclusion about residence. The son wasn’t a NJ resident or a part of the household at the time of the accident. If the insurance policy is too difficult to read and comprehend for the average policy holder (including the presence of hidden exclusions) and therefore doesn’t meet his reasonable expectations, then there can be judicial intervention and the policy should be read according to consumer reasoning (Reasonable Expectations Doctrine). The declaration page of the insurance policy is very important and should not contradict with the rest of the policy. (Declaration page/doctrine of reasonable expectations)
Morrison v. American International (2005)—This policy also included an exclusion (a step down provision) and the driver was a family member who wasn’t a resident of the household. When the insurance policy is written in a clear and unambiguous fashion, the courts cannot interfere. The step-down provision was written in a clear language and not hidden.
Zacarias v. Allstate (2001)—This boat coverage didn’t cover any bodily injuries to the insured’s family members. A plainly written and unambiguous intra-family exclusion provision is valid. Since there is no contradiction or ambiguity, the court doesn’t have to interfere and the insurance policy will be read in its own language and not adapted to the expectations of the consumer. (Doctrine of reasonable expectations)
Reading the insurance policy—The first thing to look at is indemnification and defense. What is a legal obligation? Is it defined by federal law or state law? How do you define damage? What if you are exposed, but not sick yet—is that bodily injury? It is analyzed on a case by case basis. The next thing is the exclusions. Expected or intended from the subjective intent of the insured? There’s a lot of litigation on this point.
Contractual liability (any risk you assume by contract)—another complicated point, this is usually not covered. Your own property isn’t covered and you need a property policy for that. The same applies to any products you sell in the marketplace. There’s an exception for done by subcontractors. Third party damage can be covered. Is lost date property damage?
Coverage for invasion of privacy (Ex: data breach), very limited IP/copyright offenses and defamation—this is the only intangible coverage. Privacy coverage=Right to be left alone and right of seclusion. To avoid the blast faxes, insurance companies excluded statutory invasions of privacy and included only common law invasions of privacy.
There’s also coverage for media/entertainment industries. You need separate policies for those fields. There are also provisions and exclusions on advertising. How do we define advertising? Is putting up posters advertising? Finally, advertising was defined in policies. Cyberworld was given some coverage in this definition.
What’s the role of the broker in telling you that there’s a gap in your coverage and you need to buy extra coverage?
Indemnification—if you have subcontractors, you want to avoid liability and burden your own policy.
Other insured clause—Additional insured status is very important.
Badiale—Argued at the Supreme Court on 09/08/2014. It concerns the bad faith of the insurance company. NJ is bad in this area, it usually finds for the insurers. If the insured has a small loss, he is stuck because it is not worth going to litigation for it. Punitive damages are almost impossible to get in NJ, but you can get attorney’s fees.
Kievit v. Loyal Protective (1961)—When members of the public purchase policies of insurance they are entitled to the broad measure of protection necessary to fulfill their reasonable expectations. They should not be subject to technical encumbrances or to hidden pitfalls and their policies should be construed liberally in their favor to the end that coverage is afforded “to the full extent that any fair interpretation will allow.
Before this case, insurance policies were

tuation also involved drugs, the court said that they cannot withdraw until drugs are ruled out.
Reservation of rights—This is when the insurance companies don’t defend but pay for or share the costs under reservation of rights (ROR). ROR letters tend be incredibly burdensome and long. The average insured wouldn’t know what to do with them.
Nazario—An ROR case. In NJ, the insurance company has the obligation to tell the insured that (?).  It is easy to forget to put this in the letter, so this case gives insurance companies a nightmare.
SL Industries v. American Motorists (1992)—Subjective vs. objective intent to injure. Plaintiff allegedly had insomnia, mental pain and suffering etc. The issue was whether that could be considered a bodily injury. If the wrongdoer subjectively intends to cause some sort of injury, that intent will generally preclude coverage, unless the extent of the injury was improbable. If there is no intent to cause the improbable injury, the injury is deemed accidental and coverage must be provided. “Absent exceptional circumstances that objectively establish the insured's intent to injure,” involving acts that are particularly reprehensible, such as sexual abuse of children in a day care center, “we will look to the insured's subjective intent to determine intent to injure.” 
Four Corners Test (sometimes called the Eight Corners Test)
If the plaintiff makes an allegation that doesn’t trigger the defendant’s insurance policy, then there won’t be payment. The duty to defend is very broad. The insurance company has coverage and no duty to pay you until you give them notice.
It’s not the act that controls insurance coverage, it’s the result.
NJ adapted what is known as the Karlinsky Test. If you do something unintentionally that results in injury, you can still get coverage. Injury from a wrongful act that would normally not have that result (not foreseeable) is covered.
If the insurance company doesn’t defend you and it is asked to step in, it has to pay only for the intentional injury claims and not negligence claims. There is also apportionment, but courts sometimes find this difficult and make the insured pay.  The last thing the judge wants to do is go over the attorney’s fees and try to figure out which ones are eligible.
Hebela—An allocation case. The court said there are 3 kinds of attorney’s fees. 1) Covered causes of action and insurer pays. 2) Uncovered causes of action and insured has to pay. 3) Both causes of action and insurer has to pay. Most cases involve the 3rd kind. This is a very favorable ruling for the insured.