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

Spring 2010- Insurance
Complacent Standard of review is critical
*De novo standard of review- Ct reviews it afresh, no deference is given to lower ct ruling
 -Applies when ct grants Sum judgment, Dismissal, JNV, or Jury instruction, Q’s of law
 -All facts in complaint assumed to be true
*Abuse of discretion standard- if ct went beyond its power; deferential to lower ct
 -Judge’s decision w/ regards to evidence, if ct went beyond its powers
*Clearly erroneous standard- was there a plain error in determination of facts? hard to overturn
*Arbitrary and Capricious Standard- so long as there was any reasonable basis for admin judge to make that
 decision, it will be upheld (not likely that it will be overturned)
  >Appeal of an administrative decision (NY has article 78 petition)
Should you appeal?                                                          
-Look at reputations of the judge- 1 with a good one less likely to overturn ct’s decision, especially
-Try to come up with a legal Q that will be reviewed De Novo
If you were to take away insurance from a post modern society, society will not function
-buildings will not get build and companies would stop producing
*Most valuable asset is your ability to earn a living
 -Need disability insurance to protect that asset
     >in 80’s used to be if you cannot perform your specific occupation, can collect even if can practice another
        -Terms and prices were too generous
     >90’s malpractice goes up, ppl want to collect; hard to assess disability claim
        -Diagnosis are not always certain
     >Companies would examine these claims closely, deny claims
     >Coverage is more costly and less generous, less carriers now- Uniproviden is only major one.
*Social Function- Insurance effects our norms
 -Having fire detectors lowers premiums, not having seems irresponsible
 -Med procedures not covered by insurance not deemed routine
 -Type of regulator- docs w/o ins cant see patients in hospitals
 -Prevents monetary damages to ones who have bad luck
*One main problem is imperfect information- 2 disruptive effects insurance companies worry about
 1)-Adverse selection- people who most need insurance are more likely to apply for it
   – i.e. if congress enacts law that removes preexisting condition info- will raise rates, and ppl who have
     preexixsting conditions will be able to apply and not get rejected/pay very high rates
   >Genetic test that gives estimate of how long person will live- not allowed
   What insurance does to combat adverse selection
   *Risk transfer- Compares risk, transfers risk averse to less averse or neutral parties
    (risk averse party would prefer large risk of suffering small loss rather than small risk of suffering large loss)
      Insurance transforms small risk of suffering large loss into large risk of paying small sum (premiums)
  *Risk pooling- more risky are balanced by less risky, diversification
  *Risk allocation- insurers set prices for degrees of risks, allocate risk to group of insureds by using
     Characteristics- F/M, Smoking/non, health history, weight, height, blood pressure, general financials
    >Focus is on unfair discrimination
     -Women get into less accidents b/c they drive fewer miles than men
      >Even though its a quasi-suspect class-isn’t unfairly discriminatory to charge different rates based on gender
      >African Americans have lower life expectancy than whites- but can’t do that b/c it is a suspect class
         -Ins companies find ways to disc through occupation classifications
    -Policies contestable for 2 yrs- ins comp has right to look at things more deeply than in underwriting process
   2)- Moral hazard- people will destroy things that they have insured in order to collect on the insurance
   >After years of working as attorney/doctor may want to come up with way to get disability insurance
      -People will do extreme things for insurance (cut off own thumb)-
 >Ins companies use concept of insurable interest to protect against moral hazard
      -Can only insure things you care about
      -To have ins interest need to have a relationship of love/affection OR economic dependence
         >Wife, parents, grandparents, bank can insure you up to $ you owe, biz partners (can kill them for $)
    *if know something ins company doesn’t and destroy it=Adverse Selection & Moral Hazard
-Insurance highly regulated industry- regulated separately by each state- means more lawyers needed
   -Ins companies cannot go bankrupt (ch7) but can go into liquidation
   -State regulates insurance companies to make sure that they keep their promise
   -Goal of state- make sure finances of ins comp is secure & secure K rights of policy holders and beneficiaries
   -State also looks at rates of premiums that are charged
First Q is whether there a K in Existence?
Vlastos (34d Cir. 1983), appeal
>Were jury instruction 4 warranty (ambiguity) correct as matter of law? de novo
P insured commercial building- P warranted 3rd floor used as janitor’s residence. Fire destroyed building.
1st fl – bar, 2nd fl – massage parlor, 3rd fl – part massage & janitor. 4th fl – supplies and small office        
>NOT an issue of misrepresentation here
Caretaker at night, weekends; watch over thing. For this it doesn’t matter whether he used the entire floor.
   -To void policy under misrep- warranty has to be material to the risk
     Fact that janitor lived on entire floor was not material to risk of fire
 For breach of warranty, materiality is irrelevant-if warrant X & don’t do X, no policy, no K. 
>A statement or promise by policyholder in policy itself – must be strictly complied with or policy is void
>An ambiguous provision must be construed in a manner favorable to insurance coverage.
Here warranty is “janitor shall reside on third floor”- ambiguous, should have said entire floor.
-Ambiguous b/c can be 2 reasonable interpretations; interpret ambiguities in favor of insured & against drafter.
*Cts typically look if any ambiguity in warranty
*most cts find warranties as representations or find warranty ambiguous
*Ins co’s therefore look to see if there was a misrepresentation when a claim comes in
In order to void a K for misrepresentation. you have to find that:
                        1. the rep. was false;
                        2. that is material;
                           -Majority view- misrep has to be material to the risk insured against, not against loss occurred
                           -A few states require materiality to the loss
3. the misrepresentation has to induce justifiable reliance by  some1 who suffers damages
>Complete accuracy of info given by insured not necessary- info has to be substantially true
>Cts differ on whether to apply subjective/objective test
-For insurance companies it is easier to prove a subjective test
-Requires showing of misrepresentation to this company & we would not have issued policy at this price          
    >(doesn’t require showing that would not have issued policy, just wouldn’t have at that price)
-Exception; If you lie about your age, K will not be voided if you pass away, ins company will pay out whatever
   you would have received according to real age- RT; it is easy to determine
  >Smoking is a material factor, if lie K is void
Neill v Nationwide (Arkansas)
Insurer appeals summary judgment in declaratory action
P’s mobile home damaged by fire, ins co finds out he had 3 previous fires, denies claim for misrepresentation. 
Issue- Neill says agent didn’t ask him the question if he had previous fired and if he did P didn’t understand it, because he would have told the agent that the fires occur

bly a sympathetic situation)
World Trade Center
Partial summary judgment to ¾ insurers that there was 1 occurrence Ct of appeals 2d cir
Silverstein just got 99 yr lease and had a per occurrence policy (was it 1 or 2 occurrences?)
How far back do you go back in time to determine causality- the entire plan or the two planes separately
Ins co had occurrence definition- “all losses or damages attributable to 1 cause or 1 set of similar causes”
Companies did not agree to any particular form, 3 of the insurers used broker’s form
Ct affirms SJ to 3 insurers that 9/11 was single occurrence
RULE- where insurer issues binder based on broker’s form, the terms of that form govern policy
Travelers didn’t use form, didn’t define “occurrence”- argues that under NY law definition is ambiguous
 -Strange for insurer to make this argument,
– Insured argued that NY definition was- “actual direct physical cause”
RULE- term occurrence is ambiguous when undefined in 1st party property damage ins binder
   >The rules of ambiguity are not at play when the insured is a sophisticated party.
   >NY law is that extrinsic evidence not admissible to contradict clearly unambiguous language
   >NY allows extrinsic evidence when language in insurance binder IS ambiguous to determine intent of parties
     -Custom and usage in ins industry is not consistent whether to define “occurrence”
     -State law does not provide uniform meaning of occurrence
Ct does not state in jury instruction to construe ambiguity against drafter- just to consider extrinsic evidence
-found that there were 2 occurrences- factually important for NY law
-“Occurrence” is a term that is often litigated- billions of dollars have been litigated over it
Honoring The Reasonable Expectations Of The Insured
Even if no ambiguity exists ct may read out a provision b/c it seems unfair & against the reasonable expectations of the insured
RT- Insurer in some way misrepresented what is in policy, Insurer estopped in denying coverage b/c allowed the insured to labor under misimpression about policy, Somewhat unconscionable to omit coverage for what insured reasonably expects.
Atwood   NH S Ct, Ins co. appeals judgment
Self employed electrician, repaired a thermostat, learned next day that child died in apartment of heat prostration. P notified his insurer of this; child’s estate sued P.
Policy was coverage for while he was doing the work.
Exclusion was unclear? Among 13 other clauses that were unimportant
Insurance agent also believed he was covered- therefore reasonable layperson would also believe so
Reasonable expectation of insured is that he would be covered for completed operations
Perverse incentive not to read your policy?
(If you are an attorney, do not rely on this doctrine)
Ins. co- make it more clearer policy doesn’t cover- ct may still read it out
            -Or add a rider, or include coverage- more expensive
            -Stop providing this coverage
            -Train agents better (Suing agent not a good idea)
     >Puts expense on consumers
Atwater Minn S Ct. Ins co sought declaratory judgment