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Insurance Law
SUNY Buffalo Law School
Kohane, Dan D.

 
UNIT 1: INSURANCE CONCEPTS AND THE “BUSINESS OF INSURANCE”                                                              
 
I. INTRODUCTION AND THE HISTORY OF INSURANCE LAW
o    Tontine arrangements- earliest form of life insurance (friends make bet to see who lives the longest) now illegal- now a requirement that when you purchase a policy of life insurance you need to have an interest in the life of the person who you are insuring; you must have relationship
o    Insurable Interest-when you are insuring something to protect something (life, property) you must have insurable interest in that thing being insured. Depending on what is being insured, may depend on when you have the insurable interest
§ Ex. life insurance- you must have insurable interest at the time you purchase the insurance
·         You can still maintain life insurance even though your interest isn’t the same as what it was when you purchased it
§ Property- insurable interest must be there when the loss occurs; ie, you sell house, but continue to pay premiums on the policy; fire; you have no insurable interest in the house, thus do not get the policy
o    Insurance companies that were insuring the risks were not financially solvent, and even with regulation, insurance companies wanted to protect themselves from catastrophic losses
§ Some insurance companies realized that the risk was too big for them, and thus went out and in turn insured their own risks
§ Concerned that they didn’t have enough financial capital to pay a claim and thus would buy insurance to pass on that risk- reinsurance
o    Reinsurance: where an insurance company transfers risk of payment to another company. It protects the primary insurer against catastrophic losses, and allows the insurance company to sell more insurance than its own financial capacity; a way of the insurance company limiting its exposure. 
§ No right against the reinsurer because there is no K.
§ A (insurance company) sells portions of its risk (4% to 1 company, 80% to another company, etc)
§ Lloyds of London- arrangement that allows numerous underwriters to reinsure, thus, risk is passed to those who can afford it. [Almost like an investment- if no loss, underwriters make money] o    Subrogation- when you stand in the shoes of the person who you’ve paid [Ex- when you give your damaged car back to the insurance company] o    NAIC: National association of insurance commissioners, a voluntary organization that regulates the business of insurance (voluntary and nongovernmental). Concerned with the licensing and the solvency of insurance companies (want to make sure the $ is there). If company is qualified in one state it can get quick licensing in another. 
o    ISO: Insurance services Organization. A non profit organization that writes forms for insurance companies. Formed by insurance companies to write polices, help set rates. Follows the case law and drafts insurance Ks
 
DEFINITIONS
a.       Accident insurance- (i) insurance against death or personal injury by accident or by any specified kind or kinds of accident and insurance against sickness, ailment or bodily injury, including insurance providing disability benefits pursuant to article nine of the workers’ compensation law, except as specified in item (ii) hereof; and (ii) non-cancellable disability insurance, meaning insurance against disability resulting from sickness, ailment or bodily injury (but excluding insurance solely against accidental injury) under any contract which does not give the insurer the option to cancel or otherwise terminate the contract at or after one year from its effective date or renewal date.
b.       Beneficiary
c.        Binder- An insurer’s memorandum giving the insured temporary coverage while the application for an insurance policy is being processed or while the formal policy is being prepared.
d.       Co-insurance
e.        Concealment- The insured’s intentional withholding from the insurer material facts that increase the insurer’s risk and that in good faith ought to be disclosed.
f.        Fire insurance- insurance against loss of or damage to any property resulting from fire, including loss or damage incident to the extinguishment of a fire or to the salvaging of property in connection therewith.
g.        Floater
h.       Group insurance- a form of insurance where the individual lives of a group of persons, usually employees of a business, are, in consideration of a flat periodical premium based upon an average age…
i.         Indemnity- A duty to make good any loss, damage, or liability incurred by another
j.         Insurable interest
k.       Insurance agent
l.         Insurance broker
m.     [the] insured
n.       Liability insurance
o.       Life insurance- insurance upon the lives of human beings, including the granting of endowment benefits, additional benefits in the event of death by accident, additional benefits to safeguard the contract from lapse, accelerated payments of part or all of the death benefit or a special surrender value upon (A) diagnosis of a terminal illness; (B) diagnosis of a medical condition requiring extraordinary medical care or treatment regardless of life expectancy, (c) any condition which requires continuous care for the remainder of the insured’s life in a facility, or (d) certification of chronic illness
p.       Material misrepresentation
q.       No-fault insurance- a guaranty of insurance payments regardless of who was at fault
r.         Omnibus clause – A provision in an automobile-insurance policy that extends coverage to all drivers operating the insured vehicle with the owner’s permission
s.        Premium- The periodic payment required to keep an insurance policy in effect
t.         [Miscellaneous]Property insurance- loss of or damage to property resulting from:(A) lightning, smoke or smudge, windstorm, tornado, cyclone, earthquake, volcanic eruption, rain, hail, frost and freeze, weather or climatic conditions, excess or deficiency of moisture, flood, the rising of the waters of the ocean or its tributaries; (B) insects, or blights, or disease of such property except animals; (C) electrical disturbance causing or concomitant with a fire or an explosion in public service or public utility property; (D) bombardment, invasion, insurrection, riot, civil war or commotion, military or usurped power, any order of a civil authority made to prevent the spread of a conflagration, epidemic or catastrophe, vandalism or malicious mischief, strike or lockout, collapse from any cause, or explosion; but excluding any kind of insurance specified in paragraph nine hereof, except insurance against loss of or damage to property resulting from: [see statute for exceptions] u.       Reciprocal insurance- whereby individuals, partnerships, or corporations engaged in a similar line of business undertake to indemnify each other against a certain kind of loss by means of an exchange of insurance contracts
v.       Risk distribution
w.      Subrogation- The principle under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy; when you stand in the shoes of the person who you’ve paid
x.       Suretyship- a warrantor or guarantor who is doing an insurance business
y.       Term insurance
z.        Warranties
 
NY INSURANCE LAW §1101 (pg 3 of supplement)
Coverage (C) is the difference between what is in the policy (WI) reduced by what is out by exclusion (WO) plus compliance with policy conditions[C= (WI) – (WO) + CPC] o    §1101(a)(1): Insurance contract- an arrangement, transaction by which someone suffers injury via a fortuitous event and someone, the insurance company conveys a benefit- there must be a material benefit in that loss
o    §1101(a)(2): Fortuitous event- any occurrence or failure to occur which is, or assumed by the parties to be, a substantial event beyond the control of either party?
§ Why is this important? Insurance companies do not design their policies to cover expected events. You can’t go and buy insurance to protect you from going and hitting your and neighbor, and the next day you do it- not fortuitous. Distinguish life insurance- it is certain that we will all die, but fortuitous as to when
o    §1101(a)(3):Contract of warranty, guaranty, or suretyship; If a company is granting a warranty (agreeing to indemnify, etc) that person who is guaranteeing, warranting a product, service, etc, that transaction will not be considered insurance unless that person providing is in the insurance business
§ Licensed by state, has sufficient assets, reserves, etc
§ If the person is not in the insurance business- no regulation,

ACTS: National Securities had contrived a fraudulent scheme centering on a contemplated merger between National Life & Casualty Insurance Co. (controlled by National Securities) and Producers Life Insurance Co. SEC contends that National Securities, after taking control of Producer’s board, sought to obtain shareholder approval of the merger by sending communications to Producer’s 14,000 shareholders- these communications contained misrepresentations of material facts and omitted to state other material facts.
ISSUE: Whether the relevant Arizona Statute (requiring the Director of Insurance to find a merger “not inequitable to the stockholders of any domestic insurer and not otherwise contrary to law) is a “law enacted for the purpose of regulating the business of insurance within the meaning of the McCarran Ferguson Act?
·         Are state laws aimed at protecting the interests of those who own securities in insurance companies the types of law referred to in the MF Act?
HOLDING: No, a state statute aimed at protecting the interests of those who own stock in insurance companies is not a state attempt to regulate “the business of insurance”, and thus, comes within the sweep of the MF Act.
REASONING:
o    MF Act did not purport to make the states supreme in regulating all the activities of insurance companies; its language refers not to the persons or companies who are subject to state regulation, but to laws ‘regulating the business of insurance”
§ “business of insurance” refers to the relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, enforcement, fixing rates, selling and advertising of policies, licensing of companies and their agents. Therefore, statutes aimed at protecting or regulating the relationship between the insurance company and policy holder are laws regulating the “business of insurance”
o    Must make distinction between AZ’s regulation between a stockholder and the company in which he owns stock. This is not insurance regulation, but securities regulation.
o    Crucial point is that the state has focused its attention on stockholder protection; it is not attempting to secure the interests of those purchasing insurance policies- such regulation is not within the scope of the MR Act.
o    SC has never held that state regulation of insurance securities preempts federal regulation, on the theory that the federal securities law would be ‘superseding state laws regulating the “business of insurance”
 
Note Case: LA Dept. of Water and Power v. Manhart: SC held that Title VII of the Civil Rights Act of 1964 prohibits an employer from requiring women to make larger contributions in order to obtain the same monthly pension benefits as men.
 
Arizona Governing Committee, Etc. v. Norris- Policies that are gender based violate Title VII
FACTS: The State of Arizona offered employees the opportunity to enroll in a deferred compensation plan offered by various state-selected companies which offered (1) single lump sum payments; (2) periodic payments of a fixed sum for a fixed period of time; (3) monthly annuity payments for the remainder of the employee’s life- all companies selected by the state to participate in the plan used sex-based mortality tables to calculate monthly retirement benefits, and thus, a man would receive larger monthly payments than a woman who deferred the same amount of compensation and retired at the same age because the tables classify annuitants on the basis of sex