Select Page

Insurance Law
SUNY Buffalo Law School
Kohane, Dan D.

I. Intro
Two Types of Insurance
1.      First-Party: benefit pad to person who paid the premium.
2.      Liability- Protects the insured from the claims of others.  Insurer provides (1) counsel, (2) defense in lawsuit, (3) indemnity
            A. “Risk” & “Fortuity”
                        (1) Insurance is about RISK b/c insurance policies allocate risk
                                    -everything we do everyday has risks. more/less risk-adverse
                        (2) Insurance is method by which people (individuals/co’s/corp’s) share risk
                                    -if you don’t engage in risks, life is tenuous so insurance policies allow                                                         one to take risks b/c if you do suffer a loss (i.e. financial pain), you have a                                       place to go to ease that pain = insurance policy.
                        (3) Insurance co’s buy insurance for themselves “re-insurance”
                                    – if you have insurance, insurance co.’s have insurance to pay you
                                    -insurance co.’s sell off that risk to other ins. co.’s “retrocessioner”
                        (4) Higher the risk, higher the premium
                        (5) Insurance is most heavily regulated sector by the State
                                    -b/c when accidents happen, the community is left to deal w/problem
Hypo car accident.  P wants to recover & D better have sufficient insurance.  NY minimum requirements “Liability Insurance”:
(1) $25K /person you may injure in accident (2) $50K for all people (3) $10K in property damage
                        (6) Other kinds of Insurance
                                    (a) underinsured – if D does not have enough $
                                    (b) personal/business insurance
                        (7) Must notify ins. carriers if injury is sustained b/c S.O.L.
            B. 2 Categories of Insurance
                        (1) First (1st) Party – ins. you pay & if you have loss = ins co pays you directly
                                    (a) Life ins
                                    (b) Homeowners ins – if property damaged, unless bank has                                                  mortgage (= interest in your property)
                                    (c) Health ins – can tell ins. co to pay Dr.
                                    (d) Collision – can get $ & choose not to fix car
                                    (e) No-fault – medical bills/wage losses get reimbursed
                        (2) 3rd Party Coverage/Liability Insurance – parts of policies where insured covers                potential risks to others
                                    -when 3rd party makes claim against you = you face lawsuit = expenses for                           lawyers (i.e. expert witnesses, discovery, etc.)  3rd party insurance                                          (called “burning-limit policies) covers general litigation costs w/o losing                                               ins coverage (i.e. $50K of expenses, but you still have $25K available)
Analysis Formula:       C (coverage) = [ (WI) (what’s in) – (WO) (what’s out) ] + (CPC)
                                                                                                (compliance w/ policy conditions)
II. Insurance Concepts & “Business of Insurance”
            A.  Intro
(1) Insurance provides security for policyholders & many regulations directed to ensuring continued security
                        (2) Another purpose of regulation is to satisfy general goals of society at large
            B. NY Ins Law §§ 1101, 1102, 1113
                        (1) § 1101
                           (a) Insurance contract (K) gives benefit of $ upon happening of fortuitous event
                              -no statutory requirement policyholder actually purchases the insurance
                  (b) you need: (1) agreement – obligation to confer benefit upon another party (2)                        fortuitous event & (3) material interest
         (c) expected or intended action = intentional conduct VS. not expected/intended
         = accident
                                    (d) ins K vs. warranty/guarantee – ins policy issued by someone licensed to be an                                          “insurer” whereas warranty co could be anybody
                                                -difference b/w 2 is that insurance co is one that's regulated by State           
               (2) § 1113  types of insurance NY allows (a lot!)
                           (a) fidelity – designed to protect against dishonesty
                        (b) surety- surety promises to stand in for contractor if contractor doesn't do work
                              -K calls for building to be built in 120 days, if no building after 120 days,                       surety policy allows property owner to discharge contractor & have
                              surety hire new contractor to finish job.  IT INSURES AGAINST PUBLIC
                                 -a/k/a “surety bond”
                           (c) title insurance – protects title of one's house (very common in NY property                                     transactions)
                              -ins helps people protect business transactions (protects basically                                     everything business does – both business & consumers)
                                 society needs protection to do business!
                           (d) gap insurance – covers gap in difference in value b/w FMV of vehicle &                             amount due under payments for loan taken out to pay for car
                                       -Ins co’s don't decided how much to charge a premium b/c they can only                                             charge that which insurance co insures
                                       -if you sell ins, you can shop premiums depending on risks they take
Danzeisen – (1st party claim) -Realty obtained property insurance –> called “all risk” policy b/c covers all risks – on building.  There was a fire prior to insurance policy & roof was fixed –> “sliding” roof.  Claim for roof was disclaimed by insurance co b/c roof sliding resulted from previous fire damage that was inadequately fixed –> argues that repairs done were inadequate & had you supervised better, roof would not have slid = not fortuitous event.  Court rejected on this argument b/c insured relied on Kor to fix the roof & even if insured did not supervise properly, fact that insured was negligent does NOT mean it doesn't get coverage for its loss b/c not expected/intended that roof would slide off its building = Court found this to be a fortuitous event b/c from standpoint of insured, this event was unexpected. 
-Insurance co will sue Kor = SUBROGATION CLAIM – when insurance co pays claim, it now stands in the insured shoes & can now (exercise insured's rights) file a claim against Kor b/c negligent party (options were either make a claim or sue Kor)
-Kor insured & insurance co will have to pay for damages caused to roof
-but if Kor is found liable for cost of replacing roof, insurance co will NOT pay for replacement cost b/c if Kor knew it had insurance & insurance co would have to pay for cost of Kor doing bad work (b/c instead of paying 18K for material you'd buy only 7K), insurance co’s don't want to pay for cost of Kor replacing its own work/goods, otherwise you will encourage co’s to do lousy work
*point of case is fortuity negligence does not disclaim coverage
 Blue Crest Plans – what is business of insurance?  b/c insurance policy is K issued by someone who is in the business of insurance.
Co was selling legal insurance (unforeseen legal crisis) w/o a state issued license.  Court lists characteristics of co’s engage in business of insurance: prepayment for services to provide benefit in fortuitous event, distribution of loss among a large group, insurable interest, etc.  Court found that D was engaged in business of selling insurance & Court thus required an license. 
            C. McCarran Act
                        (1) States have always regulated insurance policies b/c Supreme Court said selling                             insurance doesn't affect interstate commerce.  Paul v. VA

ng but where there is ambiguity as to existence of coverage, doubt must be resolved against insurer & in favor of insured
                        -Court here determined key term “bodily injury” as used in policy was ambiguous
Schiff – involved a claim made under 2 profession O & E policies = consumer not ORP but employees of life insurance co’s  important b/c ORP had specialized knowledge = held to understand that they have some understanding of what is covered by the policy  they understand certain terms ORP may not = they are held to understand them!  EE's sued for entering into arrangement where they were selling some product & claim against them was “willful & malicious usurpation of trade secrets” (some special program EE's were charged w/using it w/o permission).  Court says these are not ordinary consumers = they should understand this wasn't claim of negligence in not getting coverage in place but this was claim of trade secret violations & held this policy did not cover claim (pg. 175).
*note highlighted portions* Court goes through formula via gloss & complete analysis
III. Introduction to Liability Insurance
Ins. Law § 3420
-Legislature wanted to protect consumer so they past statute that makes certain things mandatory = req.
*used to be § 167.  most important liability insurance statute in NYS
-statute, by its terms, changes policy b/c Legislature said so (by passing reg.)
(a) If you issue policy in NY, must contain these provisions or ones just as good, for insured & people who have judgments against them.
-if you don't see this type of provision, this statute, by implication, says these policies are in policy whether written in there or not!
-statutes add language to your policy
(1) If insured determined bankrupt, all debts are discharged but being bankrupt will not do away w/ the insurance
-insolvency does not affect “pot of gold” (only discharged for that amount the policy limits)
-contingent asset b/c if this provision is not contained w/in policy, ins co could just walk away w/$100K or whatever policy limit is  
(2) Fight is over whether this claim is not covered by this policy
-once Pat becomes judgment creditor, he can sue ins co to challenge decision not to provide coverage if:
(1) he secures judgment
(2) sends judgment to ins co & says pay me
(3) ins co has to do nothing for 30 days. then & only then does judgment-creditor through attorney have the right to commence a direct action against ins co to challenge decision by ins co that claim is not covered by policy (Called “direct” action). 
*Every policy requires notice to ins co of (1) accidents; (2) claims; & (3) lawsuits; these are conditions that must be fulfilled by insured b/c this language is w/in the K*
-if Seymour doesn't give timely notice, Pat is pissed b/c he wants $ & Ins co disclaims coverage for breach of K
-if not for this statute & insured didn't provide such timely notice, Pat would be screwed b/c policy breached = no coverage; legislature didn't like this result so they enacted subdivision 3. 
(3) Notice by anyone involved in accident w/insured who gives enough info to ins co that deems sufficient notice to provide ins co will notice = deemed sufficient notice (i.e. Pat notifies ins co = notice timely given).
(4) If P makes attempt to obtain Ins carrier info, P can show later that they tried BUT YOU'VE GOT TO TRY!
(5) If insured fails to provide timely notice & it prejudiced insurer.