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Insurance Law
St. Johns University School of Law
Rosh, Robert M.

Insurance Law, 2016 – Professor Rosh
Moral Hazard: situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost.
Protections: deductibles, intentional act exclusions
Adverse Selection: the tendency of those who need insurance, to get insurance. Ex. They are in dangerous jobs or high-risk lifestyles, thus, they get life insurance.
Protections: underwriting, contestability, suicide exclusion
First Party: When you are insuring yourself
Third Party: Insure yourself against your negligent acts that harm someone else
Insurance Companies don’t like trial! Don’t want to go to trial: Widows, orphans, and disabled people win at trial!
The Requirement of Insurable Interest
Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence, without impairment or damage, of the insured object (or in the case of a person, their continued survival). It is designed to protect from moral hazard.
There are 4 tests for an insurable interest. Typically satisfying one is enough. (Page 215 note 2)
A legal equitable interest in property, subject sometimes to condition that interest has some value
Factual expectancy- pecuniary interest, expectation of appreciable financial gain
Contract right that depends on continued existence of property
Legal liability for the destruction of property
Life insurance = interest must be at the time you take out the policy
Property insurance = interest must be at the time of the damage
Ryan v. Tickle – Nebraska
The decedent operated a funeral home business with his business partner. In order to ensure that the survivor could acquire ownership of the business upon the death of one of the partners, the decedent and the business partner purchased life insurance policies on their joint lives, which were payable to the survivor. After the decedent's death, the business partner was paid as the beneficiary under the life insurance policies. The wife filed an action against the business partner to recover the insurance proceeds on the grounds that the business partner did not have an insurable interest in the decedent's life, and that the policy was a wagering contract that was void as against public policy.
The court ruled on appeal that the wife did not have standing to maintain the action
: insurable interest in the decedent's life insurance policy could only be raised by the insurance company
Rubenstein v. Mutual Life Ins.
Owner of taxi cab company interested in staring a TV Journal took out $240,000 life insurance policy on 23 year old employee who sold advertising for him. He went on hunting trip with employee and a friend who was a convicted felon. Convicted felon shot employee from 10 feet away and Rubenstein tried to collect on life insurance.
: no insurable interest
: Value of life insurance policy cannot be grossly disproportionate to the amount actually owed by insured.
Gossett v. Farmers Ins.
Respondents entered into an agreement to purchase a home. They began to make improvements to the home but before they could obtain long-term financing, a fire destroyed the home. The court concluded that the trial court correctly granted summary judgment in favor of respondents, while holding that their
: insurable interest was limited to the improvements they made to the property.
: In Property Insurance, you look to whether there was an insurable interest at the time of the CLAIM not at the time the policy was taken out. (life insurance you need an insurable interest when you get policy)
Breach of Warranty –
Vlastos v. Sumitomo Marine & Fire Ins. Co. – COA 3rd circ.
Plaintiff had sought to recover under an insurance policy issued by defendants. The policy was issued on a commercial building which was destroyed by fire. Plaintiff owned the building. Based on the trial court's declaration that plaintiff unambiguously warranted that the third floor of her building was occupied exclusively by a janitor, the jury found that plaintiff had breached her warranty. On appeal, plaintiff contended that the jury was incorrectly instructed that the warranty was unambiguous. The court held that plaintiff did warrant that the floor would be occupied as a janitor's residence. Yet, the warranty was found to be ambiguous since it was susceptible to more than one interpretation. While defendant's view, that the floor would be occupied exclusively by a janitor, was a possible construction, a reasonable person could have understood plaintiff has having warranted merely that the janitor lived there.
: Finding that the interpretation of plaintiff's warranty was susceptible to more than one meaning, the court reversed the judgment of the trial court insofar as it instructed the jury that plaintiff made an unambiguous warranty in the insurance policy.
: Warranties don’t have to be material to be breached
Warranties susceptible to more than one meaning are ambiguous
Misrepresentations and Non-disclosure
: Has to be false, material, and has to induce justifiable reliance.
Neill v. Nationwide Mutual Fire Insurance Co. – Arkansas
The insurer's agent verbally asked the insured a series of questions and entered responses on a computer. The agent then printed the application and handed it to the insured. The insured signed the application. It was undisputed that the insured did not read the application before signing it. The application stated that the insured had no past losses. The insured had in fact suffered three previous fire losses. The insurer claimed that the policy was void b/c of misrepresentations. The insured claimed that the agent never asked about prior losses. 
: where an insured signed an application, which was prepared by an insurance company's agent, and a conflict in the evidence arises as to whether an error on an insurance application was caused by the fraud, negligence, or mistake of the agent, a question of material fact is presented which precluded the entry of summary judgment.
New York Rule: Very weak for insured – so long as application is attached, you cant’ fight rescission based on the fact that you told agent something and they did

inition of burglary in the policy could not be interpreted to defeat plaintiff's reasonable expectations.
Why should skill of burglar become a factor in whether there is a claim?
Atwood v. Hartford Accident and Indemnity Co – NH – p61 FN5
Insurer denied coverage to an electrician on the basis of a “completed operations” exclusion after he was sued due to an alleged failure to properly fix a thermostat, which contributed to the death of a baby from heat prostration. Emphasizing that the exclusion was buried in a long complex policy and he was never told of the exclusion, court held that he reasonably expected coverage.
: the agent knew plaintiff's business and plaintiff relied on the agent to see that he was fully insured, thus, it was unreasonable to expect plaintiff to know he was not covered because it was buried within a long complex policy.
Number of Occurrences
World Trade Center Properties v. Hartford Fire Ins. Co.
$ 3.5 billion insurance on a “per occurrence” basis. Issue with whether the events of September 11, 2001 constituted one or two “occurrences” for the purpose of determining policy limits. The definition of Occurrence was Broad. Jury looked at intent of the parties.
: No finder of fact could fail to find that the events were a single occurrence.
Met Life v. Aetna – Connecticut (liability)
Events Test: immediate event giving rise to injury (in re prudential, stonewall) “the last link in the causal chain”
Cause Test: when and where an occurrence happened (not followed in NY of Conn)
Effects Test:
: Events Test: The occurrence in this case is each claimant’s initial exposure to asbestos, rather than metropolitans alleged failure to warn. The continuous exposure to asbestos allows there to be several occurrences in this case
Although occurrence is not defined, 2nd circuit has held that the term is not ambiguous.Even if the term occurrence were ambiguous, contra preferentum cannot help Metropolitan because the rule does not apply in actions by one insurer against another.
: Events test: “the last link in the causal chain”
Michigan Chemical Corporation v. American Home Assurance Company
The district court is instructed to determine how many shipments of PBB occurred. Under the cause test, the occurrence is the shipment of PBB. The number of occurrences is the number of shipments that took place.
: Cause test: when and where an occurrence happened
New York: Unfortunate Event or triggering event test. (Cause test). P493