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Insurance Law
SUNY Buffalo Law School
Kohane, Dan D.

September 3, 2009
Dan Kohane
Exam: open book; bring to the exam anything you darn please; notes, materials, insurance policies, outlines; can’t bring anything law school doesn’t allow; no phone to call him!; 3.5 hours; has old exams online – exams generally in the same format essays, short answers, ridiculous fact patterns
Classroom participation: credit given for participation
CPCU Handbook of Insurance Policies – designation of advanced insurant agent training; includes multiple insurance policies
Need access to NYS insurance law – WestLaw – NYS Statutes
Almost everything is covered by some sort of insurance; life is about having someone else pay for things; everything you do is a risk, insurance protects the cost associated with risks; risk of loss; insurance spreads the risk so losses aren’t felt by one party – lots of money involved with risk (hx of insurance – shipping guilds – risk of sending, producing, receiving, etc.); insurance – provide for each other if X happens – bring to modern times, when losses are incurred, we find a way as a society to replace what/who is left; insurance is designed to spread the risk of loss – version of community who gets together to be there to cover or spread risk – often cover risk by passing it on to somebody else; insurance stands up to compensate those who have incurred losses; insurance industries are heavily regulated, keep sufficient money in pockets to payoff claims, insurance companies by other insurance to spread their risk, solvent companies, states regulate insurance to make sure costs aren’t too high; ex. AIG – insurance business did not collapse, the other things AIG collapsed – insurance was so heavily regulated that it did fine
·         Insurance covers things that are unexpected and some things that are expected (death – life insurance)
·         Assessment of risk –what is the risk of us making a payment and what will it be – calculation of premium based on risk, i.e. skydiver has a higher life insurance rate/premium than a non-skydiver
·         Cheap policy=high deductible; high deductible means you take the risk (you pay the first $500, $1000, etc.)
·         A deductible takes part of the risk off of the insurance companies shoulders
·         Higher deductible creates a lower premium because the first part of the risk becomes yours, you basically take on the role of the insurance company
·         Pedestrian hit by Driver; P sues D for money because P has broken leg, couldn’t work, medical expenses, girlfriend left him, evicted from apartment, lost career as Olympic cyclist
o        Should society take care of this pedestrian?
o        Risk is spread amongst society –OR- the Driver is responsible to compensate him for his losses because the Driver is the person who caused the problems
o        Chances are the person who caused the problem doesn’t have to money for the damages, and should Driver be required to pay money if the driver didn’t do anything wrong
o        If Driver was negligent it would make sense for Driver to have to pay
o        When Driver is sued, the Plaintiff is asking for MONEY (damages); driver has auto insurance which has liability insurance which is litigation insurance such as malpractice insurance which protects the holder of the policy from a claim by a third person; liability insurance often provides coverage for legal fees, deposition cost, cost of forensic experts, covers indemnity payments (if Driver found responsible for accident the insurance will cover the judgment), and most liability policies the cost of defense is separate from the cost of indemnity
o        No fault insurance – pays for mowing lawn costs, etc.
·         First party insurance and third party insurance; liability insurance is third party insurance because it protects you from a claim by a third party compared to your building burns down and you need to be compensated for you building if you have an insurance policy for that building you have a first party insurance because you are paid directly; first party insurance – health insurance, collision insurance
·         When you consider civil disputes and lawsuits, a lot has to do with who is going to make the payments for compensation for loss
·         Liability insurance is designed to cover accidents, generally speaking not designed to cover intentional conduct however some intentional conduct may result in unintentional harm
·         Insurance issue – think is the money coming to me from insurance company or am I making a claim against somebody who has insurance, sometimes it’s a ‘mixed bag’
·         NY minimum for car insurance is $25; only mandatory liability insurance in this state is for drivers
·         Collect judgment in NY for 10 years; can get a judgment renewed after 10 years
C=(WI) – (WO) + CPC
C= coverage
Wi – whats in the policy
Wo – whats out – reduced by what is taken out by exclusion
CPC – compliance with policy condition
September 8, 2009
Lawyers goal – try to help the client get through the issue; representing a victim or participant, or you represent someone who is arrested, or someone entering into a business transaction – your client is seeking from you your help
Insurance is designed to provide help because the government understands that if solutions aren’t provided by the private sector, then the responsibility of providing for those who have suffered falls upon the government; it is important for society to have in place a financially sound system that can tend to those who have suffered lost
We build a system of insurance protection which has to be financially sound and sufficiently strong and sufficiently reserved so that if a disaster occurs, small or big, that there are people and companies and assets available so people can rebuild without society as a whole taking on the responsibility
As a result, over the years the States took on the responsibility of creating sound insurance companies so that if there was a loss, the companies were sound enough and financially able to cover the losses
Definition of insurance, what an insurance business, and the regulation of the industry….looking at these, its important to understand insurance in context, to understand why its so heavily regulated …if an insurance company goes out of business, the losses end up in the governments hands
Government regulates insurance to make sure the companies are financially sound, to make sure if there is a loss for which the company has accepted premium the company can pay for it – when people are hurt, the government cares because they don’t want to be stuck footing the bill
What is insurance?
·         Historically – when a group of people get together to protect each other, i.e. shippers saying if your ship goes down we will all chip in to fix it
·         Theoretically its I’ll help u if you help me
·         In NY §1101 of Ch.28
o        “any agreement whereby one party, the “insurer,” is obligated to confer benefit of pecuniary value upon another party, the “insured” or “beneficiary”, dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected, to have at the time of such happening, a material interest which will be adversely affected by the happening of the event
§         Fortuitous – some intentional acts result in a fortuitous event
§         Happening of the event – the even must affect your insurable interest; with property you have to have the insurable interest when the loss occurs
·         Insurable interest: insurable interest exists when an insured person derives a financial benefit from the continuous existence of the insured object or suffers a financial loss from the loss of the insured object. A person has an insurable interest in something when loss-of or damage-to that thing would cause the person to suffer a financial loss or other kind of loss.
·         Life insurance: by policy on person who is going to die – they die, same question comes up – what was your insurable interest in their life, you must have an insurable interest in the person’s life at the time of the purchase of the policy
§         Requirements: insurable interest, fortuitous event for it to be an insurance policy
o        Fortuitous event: “means any occurrence or failure to occur…”; something you don’t expect or intend
·         Regulate insurance companies
o        Insurance policies and policies that look like insurance
§         Warranties – buy a warranty, life-time guarantee warranty for your stereo system meaning if you pay an extra 10% of the purchase price the company guarantees to fix it; you go back ten years later and the company is out of business and they don’t fix it – you are not protected by this; a warranty is not an insurance policy, no regulations, no protections
§         Regulate those in the insurance business
o        §1102: who is in the insurance business
§         Can’t sell insurance unless you are licensed as per section (a)
§         Licensure requirements see section (e); unlike other companies, in order for license to be issued for insurance company, the superintendent must conduct a financial investigation to make sure there is sufficient surplus, money so in case there is a loss incurred there is money to pay for it
·         FYI insurance companies buy reinsurance to cover their losses
·         Lloyds of London – this is where you insurance a huge item such as space satellite; go table to table and insurers purchase percentages of risk
o        Perhaps they get 88% coverage; the other 12% is uninsured or self insured by the company that owns it
§         Satellite goes up in space, enters wrong orbit and the satellite is useless – the policy covered uselessness and the policy holder goes to lloyd’s people with his loss and asks for and gets 88% of his 50 million dollars
§         The guys who paid the loss now own the salvage of the satellite, its going to cost 25 million dollars to catch satellite 1 with a rocket to enter into the proper orbit and they do it and its in the right orbit and now they get the money
§         The insurers own 88%; they get what they insure
§         If a company is not an insurance company, its not regulated
o        §1113 – kinds of policies
§         “ransom” insurance
§         Boiler machinery
§         Animal insurance
§         Medical insurance for your dog
§         Fidelity insurance: insurance to cover dishonesty

ers, merely tried to return balance to before the 1940s Supreme Court case
·         Court said…in this case Arizona…intending to affect relationship between stockholder and stock, this is not insurance
·         Government was trying to protect shareholders
·         Distinction between business of insurance and shareholders rights in a merger action; just because its an insurance business doesn’t mean it’s the business of insurance
Llyod’s of London
·         Title of case brought by lloyd’s of London should be “interested underwriter at lloyd’s” because lloyd’s of London is not insurance company, its essentially a building
·         Llyod’s will insure basically anything
·         There are little booths and within the booths are people
·         Questions to be answered to insure something
o        What is the risk
o        What is the insured item worth
o        How long will item be insured
o        Can we get people to join insuring the item
·         The broker at llyod’s will make decision on the above and writes out a “brokers’s slip”; decide how much to insure for (x) and the annual premium (y)
o        Broker now has to round up people to accept the risk
o        Broker goes to booths of underwriters and passes the risk around
o        underwriter will say I take 10% but I need this amount of premium; not all underwriters will accept same risk and require same amount of premium
o        if broker is successful, she will get a syndicate which is the group of underwriters and within that syndicate there may be another syndicate; this all becomes one big unit and they all get a decision
o        all the premiums total the amount paid by the desired insured; if they come to an agreement an insurance contract is created
o        lloyd’s will insure anything as long as they can put a syndicate together
o        this whole process is totally unregulated
·         say the insured insured his voice against lost, and then he loses his voice and he submits a claim
o        the underwriters are then required to pay what they promised to pay
o        each time one underwriter accepts 10% for a premium, they have assigned themselves a limit of liability and if the claim is made and they agree to pay they pay this limit of liability amount
·         the underwriters can insert exclusions in the contract
·         underwriters can insure their liability
o        in those claims there may not be the same limits of liability
·         each syndicate has a different group of attorneys to do their work
·         collecting claim on Lloyd’s
o        decisions don’t happen quickly because it’s a big maze
·         at its essence, this is the insurance business
o        underwriters – every company has underwriters who look at and analyze risks then determine premiums
Cases and materials on the law of insurance
·         state powers:
o        license
§         licensing involves the solvency of the insurance company, its ability to accept business and make claims
§         licensing also has a monitoring function
§         get license by showing that you can handle the risks and pay the claims if they come up
§         each state can license an insurance company; company can have operating company in another state but be licensed in each state
§         as soon as you are licensed by the state you agree to abide by the regulations
§         in NYS you comply with §3420 of the insurance law
·         in order to issue policy in NY your language has to be approved by NYS Ins. Dept. with very little exception
§         you can do business or have claims if you aren’t licensed; if issued policy in CT and person comes into NYS and not bound by NYS laws
§         if not authorized in NY you lose the protections as the insured that you have with a licensed insurance company in NYS
§         NYS regulates and monitors the solvency
§         Two ways to lose licensure
·         If your claim payment is unfair
·         if you are becoming insolvent (NYS can put you in rehabilitation where they try to take over and operate to get back on its feet/let it pass away or they can liquidate – insurance guarantee fund)
o        regulation
Fairness and Discrimination