Insurance (Spring 2012)
a. 1688 – Edward Lloyd –Had a Coffee shop/Insurance Co. –for ships
1. Worst: UB
2. Best: AG
ii. Babylonians started the first insurance related to shipping merchants 3,000 years B.C. (insurance and loans –marina insurance). Lloyds of London expanded large. They are not the insurer. They brought the underwriters (people putting up the money) together with the insured. Started as a coffee house in London and focused on bringing people together. Fire insurance also started in London.
iii. The Greeks had mandatory marina insurance contracts –Terms:
1. Objects had to be numerous and similar
2. All objects insured –not just by 1 broker
3. Loss = accident
4. Test –to determine if accident actually occurred
b. Shipping insurance was first for thousands of years until “The Great Fire of London” –this created fire insurance
i. Bubble Era?
2. Chapter 1:
a. Two Basic Types of Insurance – First Party & Third Party ß Every Insurance K can be split up into one of the following 2 categories
i. First Party – protects insured from loss on account of insured’s own damages
1. Insures you from your own injuries or harm
2. Life insurance, health insurance, medical insurance, fire insurance, collision insurance
3. First-Party Insurance
a. First-party insurance is the type of insurance a person buys to cover themselves. This type of insurance covers you and your property, such as homeowner’s insurance or renter’s insurance. (car etc.)
ii. Third Party – covers damage caused by insured to a third party (a.k.a. liability insurance)
1. This insures you in case you cause harm to a 3rd party. Covers the 3rd party’s damages
2. Whose damages are being covered?
a. First party (party to the insurance contract)
b. Third party (someone not named on the insurance contract)
i. Ex. Car insurance –damages to car and/or damages for 3rd party’s physical injuries
ii. Liability, or 3rd party insurance
iii. Duties of 3rd party:
1. Duty to defend (Provide Lawyer),
2. Duty to indemnify (Pay)
a. Either settle the case, or if a judgment is rendered they will pay it up to the limit of the policy.
3. Third-Party Insurance
a. Third-party insurance is insurance to cover expenses or suits brought by a third party as a result of the insurance holder’s actions. Auto liability insurance is a prime example. This insurance covers you against damages that you might inflict on a third party (someone else) as a result of an accident or other happening. This insurance covers another person’s medical bills and may cover repairs to their vehicle.
b. 2 Basic Principles:
i. Contra Proferentem à Construed against the drafter (ambiguities)
1. Construed in favor of the insured and of finding coverage for the claim
2. Must be a reasonable construction
a. Ambiguous: More than one reasonable construction equals ambiguous (may be latent or patent)
ii. Contract of Adhesion à Seen as “Take it or Leave it”
1. Generally, insurance policies are considered contracts of adhesion because the insurance company writes policy, and insured takes them as written (construed against drafter)
2. Contract must be taken by the insured as it is written by the insurer; the insured cannot negotiate the terms of the contract so the terms of the policy are construed against the drafter (insurer)
a. There is no bargaining as to the terms of the K (insurance policy)
3. Some States (NOT TEXAS!) à Use the “Rule of Reasonable Expectations”
a. Doctrine of Reasonable Expectations – what the average insured expects the policy to cover, regardless of what the policy states
b. If a term in the policy is ambiguous, the court will construe the policy in light of the insured’s reasonable expectation of the meaning of the term
i. Meaning: The insured will get, and the court will give what the insured wanted à Stated as “If a reasonable person thinks that’s what they were getting, them the state will give them that”
1. I.e., what did the insured expect when he bought the policy?
2. NOT FOLLOWED IN TEXAS!
3. The Texas supreme court has never approved this and doesn’t even discuss it
4. In Texas, the Texas Insurance Board dictates what is included in the insurance policy, so this is not so applicable
a. Texas sticks to the writing! Rules of Construction. The policy is construed against the insurance company that drafted it.
i. Why? Insured is in a weaker bargaining position
ii. Texas: every insured has a reasonable duty to read their policy
5. State regulates what the policies are going to say. Standard forms
c. Barnett v. Aetna Life Insurance Co. à Plaintiff (Barnett) broke his heel in the navy. Aetna issued policy for Amoco, the company that employed Barnett. Barnett then hurt his knee while working for Amoco and became permanently disabled; he received monthly disability payments from a policy issued by respondent (Aetna). Aetna wanted to subtract the VA benefits he was getting. à “Carve Out”. Aetna argued that VA benefits were similar to Social Security and court be offset. (Social Security was stated specifically in the policy, VA benefits were not)
i. Carve out policy – when an individual is covered under more than one insurance policy, the second insurance company can carve out (deduct) whatever compensation is received from the first insurance company and then pay the individual the difference.
ii. Issue: Can Aetna subtract the money Barnett is receiving from VA benefits from the money they give him? NO!
iii. General Rule à If a contract is plain and unambiguous, then the policy is construed as written
1. If the written instrument is worded so that it can be given one reasonable construction, it will be enforced as written à Construe K as a whole
iv. Ambiguity Rule: When the policy has more than one reasonable construction or interpretation –Then Rules of Construction Apply!
a. Patent – ambiguous on face; it is apparent from the language that it can mean 2 different things
b. Latent – have to look at fact pattern before becomes manifest; has more than one reasonable meaning under the facts of the particular case but reads OK at 1st. à Arises when language that looks OK becomes ambiguous when applied to certain situations
i. Exclusion should be in plain language! (here the policy did not specifically mention VA benefits)
v. Holding: the policy allowed an offset of benefits that were similar to Social Security, Workers’ Compensation and Railroad Retirement benefits and the key issues were the purposes and implementation of the different benefits. Because the purposes of the VA were very different from the other benefits and a claimant’s right to VA benefits differed from a claimant’s rights to the other benefits, VA benefits were not similar, and the disability payments could not be reduced by VA benefits. Therefore, the court reversed the judgment, awarded petitioner attorney fees and remanded the case to determine the amount due petitioner.
d. BARNETT”S 7 RULES OF CONSTRUCTION – only if finding that policy is ambiguous.
i. Fundamental Rule of Law à Insurance policies are contracts and as such are controlled by the rules of construction –which are applicable to contracts generally
1. If the insurance contract is expressed in plain and unambiguou
th clear and unambiguous language any exclusion it sought to enforce, the jury was entitled to find an improper denial of coverage. à A jury found for respondent and awarded actual damages, exemplary damages, and attorney’s fees. The court of appeals struck the award of exemplary damages but otherwise affirmed the judgment of the trial court. The court affirmed.
v. ISO à Insurance Services Office: Cones up with standard policy language for insurance companies
1. Policy language that is consistent in all 50 states is the goal of ISO (so as to get uniform interpretation in all states)
vi. ISO Commercial General Liability Coverage Form (5 parts to an insurance policy)
a. Has blanks to fill in with insured’s specific information
b. includes details like name, address, policy #, coverage period, limit of liability, location of insured property, & aggregate coverage (i.e. will not pay more than that amount)
c. limits of insurance: The most insurance company will pay (max amount) –it can be different limits for different parts of the policy
2. Insuring agreement
a. Broad grant of coverage (we cover you if you die)
b. What policy will cover (general)
a. Specifics that the wont cover (excluded from general)
b. Conditions under which they are not liable (i.e. not if sky diving or car racing – also usually includes intentional harms)
i. Ex. Liability insurance: won’t cover intentional harm
ii. Ex. medical insurance: won’t cover plastic surgery or experimental procedures
a. “Catch All” –duties and rights between insurance companies and insurers
b. Usually are conditions precedent to coverage (duty to promptly notify)
a. (The Last § in the policy) Will control even if the regular definition of a word is different
b. Undefined terms have their plain & ordinary meaning (Webster’s dictionary)
c. If a word used in the defined meaning is ambiguous, the plain meaning of it is used.
f. Liberty Mutual Ins. Co. v. Cruz à Cruz sued petitioner’s insured, a taxicab company, after one of its drivers killed Cruz’s two children in an automobile accident. The Insurance policy placed a duty on the insured (Metropolitan Taxi Co.) to notify the insurance company (Liberty) in the event of an occurrence, claim or suit. Liberty found out about the suit through a newspaper article, 41 days after a default judgment had been entered against Metropolitan ( D did not show up so P =entitled to a default judgment)
i. Issue: The Policy Required Notice: Whether Liberty had notice of the suit? NO!
1. An insurer that is not notified of suit against its insured until a default judgment has become final, absent actual knowledge of the suit, is prejudiced as a matter of law
2. Generally, actual knowledge of the claim against an insured does not equate to actual knowledge of suit against an insured.