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Insurance Law
University of California, Hastings School of Law
Martinez, Leo P.

A contract will be considered insurance when it has 3 characteristics:
(1) Risk Distribution,
(2) Among a substantial number of members,
(3) through an insurer engaged primarily in the business of insurance
I.        RISK DISTRIBUTION – broad sharing of economic risk
A.     Purpose: Insurance serves to distribute the economic loss among as many as possible of those who are subject to the same kind of risk
1.      By paying predetermined amount (premium) into general fund out of which payment is made for economic loss of the defined type, each member contributes toward compensation for losses suffered by any member
B.     Business Context: insures against losses to merchandise/other property and computes cost of premiums paid into the prices charged to the public for the business’s products/services
II.     SUBSTANTIAL MEMBERSHIP – substantial number of members among whom risk is distributed under a plan of insurance
A.     Why is it necessary? Probability that insurer’s prediction of total losses will not be thrown off by an unanticipated number of losses increases as number of insurance policies issues increases
1.      Predictability that permits insurer to fix rates
III.   INSURER PRIMARILY IN THE BUSINESS OF INSURANCE – Risk distribution among large number of individs is incidental to primary goal of obtaining a fixed + certain income in advance for services to be rendered
A.     Need to be contracts that are subject to statutory and CL rules that relate specifically to insurance
B.     Contra Contracts that are not insurance per se:
1.      Broad contracts of warranty on merchandise
2.      Pre-paid service contracts
3.      Legal services
IV.  INSURER AS UNDERWRITER – insurer initially fixes and collects premium for the period
A.     Insurer assumes personal liability to pay the proceeds on any loss
A.     Sale of its policies
B.     Gathering/interpreting data necessary to fixing premiums that will cover all costs
C.     Collection of premiums
D.     Drafting of K of insurance in conformity with statutory and case law
E.      Investigation and payment of legit claims, as well as defense against illegitimate claims
F.      Financial mgmt. of funds in its possession
·         HISTORICALLY, insurance could typically be classified into 3 types of categories:
(1) Life Insurance, (2) Fire and casualty insurance and (3) Marine and inland marine insurance
·         CURRENTLY, restrictions on what can be insured have relaxed – just can’t be against public policy
I.       LIFE INSURANCE (LI): K to make specific payments upon death of the person whose life is insured
A.     Parties Involved: one person might occupy all position by name her estate as beneficiary OR each position is held by a separate party
1.      Owner of policy
a.       Has power to name/change beneficiary,
b.      Right to assign policy (under certain conditions)
c.       Can cash it in for its surrender value
d.      Can use it as collateral in obtaining loan
e.       Has the obligation to pay the premiums
2.      Person whose life is subject of the policy
3.      Beneficiary – to whom the proceeds are paid
B.     WHOLE-LIFE INSURANCE – coverage intended to run for entire life of the insured, proceeds to be paid upon the death of the insured
1.      Cash surrender value of policy can be paid if (i) cancelled by the owner or (ii) lapses through nonpayment of premiums
a.       Generally available at any time after first 2-3 years and prior to death of insured
b.      Accumulation of surrender value + certainty of ultimate payment in some form = subst investment
2.      “Ordinary” / Straight LI: premium payments continue throughout the life of insured OR until he has reach specific age
3.      “Limited Payment LI: premiums paid for certain # of year or until specific pre-planned event (eg retirement)
4.      Single Premium LI: entire premium paid in lump sum
C.     TERM LIFE INSURANCE – coverage is to last only for specified term, payment occurs only if insured dies within the term
1.      Rates are lower than whole-life insurance bc of possibility insurer will not have to pay at all if insured survives the term
2.      NO surrender value – aka no investment value
3.      Renewability might be possibility
a.       Increased age of insured at time of renewal and waiver for medical screening by insurer = subst higher rate than initial term
4.      Convertibility: option frequently added to term ins is right of insured to convert term insurance policy to one of whole life or endowment life
5.      Contra Whole-Life:
a.       Whole-LI = more broad financial plan of investment as protection
b.      Term LI = fills finite need of offering protection against a partic economic harm that will occur is insured dies during particular period
D.     ANNUITIES – provides payment of fixed annual (or more freq) benefit beginning t a specified date and continuing the life of the insured (annuitant)
1.      Contra Life Insurance Ks: insures against economic problems resulting from long life vs early death
2.      Refund on early death of part of premiums paid is often provided in K
E.     GROUP INSURANCE – master policy issued to party negotiating K with insurer (ER) and certificates of participation are issued to individual insured members of the groups (EEs)
1.      Master policy sets forth all terms and conditions of insurance
2.      Certificates of participation serve to inform individ members of major features of insurance
a.       NOT considered part of insurance K itself
3.      Forms of GI: life insurance, disability insurance, group annuities intended to act as retirement benefit
4.      Agency of Representative – whether group rep is/is not acting as agent for group members or insurer
a.       Acting as admin of group policy (by adding/subtracting names of insureds, collecting/forwarding premiums, etc)
i.        NOT agent of insurer à cannot waive conditions of policy or estop insurer to rely on any defenses
ii.      NOT agent of members à members cant be charged with knowledge of info known to rep
F.      ENDOWMENT LIFE INSURANCE – usual K provides for payment of proceeds either in the event of death during the specified period OR at the date of “maturity” in the even that insured survived the period
1.      Different from other forms of LI because insured has change of reaping benefits while still alive
2.      Maturity payments can be made in lump sum or as annuity
a.       Makes this form of LI useful in retirement planning
II.    FIRE & CASUALTY INSURANCE – together provide comprehensive coverage on reality and personal property (like boats, cards, airplanes)
A.     FIRE INSURANCE: generally covers any loss by fire, other than that deliberately caused by insured, to property listed specifically or by location
1.      Traditionally Included in Coverage: losses through lightening, explosion, earthquake, water, wind, rain, collision, riot
B.     CASUALTY INSURANCE – generally includes coverage for legal liability, burglary and theft accident and health, property damage, collision, glass, boiler and machinery, workmen’s comp, credit insurance, and fidelity and surety bonds
III.  LIABILITY INSURANCE (Third Party) – purchased by insured to protect against potential tort liability to others (contra first-party insurance like LI and PI)
A.     Coverage triggered by liability of the insured for damage to another’s person or property
1.      NOT triggered by a loss to insured’s property (1st party)
2.      Depends on if insured’s liability to 3p arose out of “occurrence” or “accident” covered by policy

.      MA requires personal injury included in auto policy to provide coverage for personal injury expenses in addition to liability coverage for injuries to any one person with a limit per accident
a.       Coverage includes medical, surgical, x-ray, funeral expenses, etc
b.      Lost wages included
I.       ORAL CONTRACT – generally must be in writing, UNLESS can be performed within one year
A.     Oral Binder: used to provide immediate temporary insurance until a written binder can be issued
1.      Danger of fraud and collusion always exists so must keep time oral agmt in effect to a minimum
II.    WRITTEN BINDERS – temporary place holders of actual policy which reference terms of the full policy form and are effective until the actual policy is issued or rejected by the parties
A.     Issued when formal ins policy cannot issue immediately bc of admin delay or necessity of formal investigation
1.      Why? To satisfy need of insured for immediate coverage and to prevent losing customer in the interval
B.     To limit/control effectiveness of binders insurers freq word binder form so that it was made subject to later acceptance on part of insured or insurer
1.      Courts can avoid this by strictly interpreting lang against insurer OR resolving ambiguity in insureds favor
·         Rationale of statutes requiring: (1) avoidance of wagering/gambling, (2) avoidance of inducement to murder
“Insurable Interest”: interest that law requires beneficiary of insurance policy to have in the thing or person insured in order that the K of ins will not be held to be void as a wager of an inducement to bring about event insured against
I.        “INSURABLE INTEREST”: interest that law requires beneficiary of insurance policy to have in the thing or person insured in order that the K of ins will not be held to be void as a wager of an inducement to bring about event insured against
·         CIC § 281 – “Insurable Interest”: “every interest in property, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured”
A.     Standing Limitation to Raise Defense of Insurable Interest
1.      Maj – only insurer  has standing
a.       Invoked most freq  to prevent alt claimant to proceeds from arguing that they should not go to named beneficiary for lack of ins interest
2.      Basis of Limitation: only a party to the ins K has legit interest in raising the defense
B.     Counter-Defense to the Insurable Interest Doctrine à Waiver & Estoppel
1.      Counter with proof of stmt/action on part of insurer that amounts to waiver of insurable interst defense OR held to estop insurer to rely on it
a.       Court then considers whether public interest in enforcing II > desire to reach equitable result btwn parties
2.      Some courts à II NOT subject to counter defense of waiver and estoppel
Other courts à no defense against no II at all but maybe permitted to defeat claim that existent II not valuable as proceeds claimed under policy