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Insurance Law
University of California, Hastings School of Law
Lariviere, Margie

Insurance Law Lariviere Fall 2017
Required Elements of Insurance:
A contract or agreement between an insurer and an insured which exists for a specific time
Insurable interest in the thing insured
Consideration in the form of a premium paid by the insured
The assumption of risk by the insurer whereby the insurer agrees to indemnify the insured for potential pecuniary loss to the insured’s property resulting from certain specified perils. 
Shaya (p. 1) – Employee sues employer for over their policy limit.  Employer’s insurer provides defense.  The defense attorneys tendered a claim for excess coverage to National Union but were denied because failure of timely notice.
Def tried to argue that they were not hired to provide coverage analysis – rather, they were merely hired to provide a defense for the underlying PI action. 
Court found that the law firm did have an obligation to advise on insurance coverage issues – as an attorney for the employer/insured, they needed to at least ask their client what excess coverage they had, if any
What is Insurance?
The insurance contract – a shifting of risk among similarly situated parties
An insurance contract does not follow the same rules as regular contracts
The insured pays for the insurer’s promise to cover the damage resulting from some kind of specified peril. 
There needs to be:
Consideration from the insured is the premium; the insurer’s consideration is the promise to cover
Pooling of the consideration (all homeowners with a policy through the insurer pay a premium so the insurer is insuring a similar kind of risk).
Insurable interest in the thing insured (states differ in what is considered insurable interest)
First Party Policy – When the insured suffers a damage that is covered
Third Party Policy – When the insured is liable to another and that liability is covered
ERISA (Employment retirement Income Security Act)
Health Insurance
Life Insurance
Workers’ Comp
Property and Casualty (liability)
Regulation of Insurance:
Heavily regulated – considered a financial institution under the Gramm Leach Bliley. 
Insurer’s must have money to pay the claims of their insureds
Regulated in order to maintain equality
Who can sell insurance is regulated
***Warranties are NOT insurance (to differentiate, look at who is selling the insurance and to what their primary focus of sale is.  i.e. is their main goal to sell you tires, or to sell you coverage for your tires)
State Regulation
The functions of the State Department of Insurance:
Ensure solvency
Conserve insolvement
Consumer protection (market conduct, respond to complaints)
Bring enforcement
Control rates
License agents, brokers, and insurers
The exception is surplus lines insurers
Approve policy forms
Combat fraud against insurer’s
Policy holder
Ostrer – Agents got commission on policies they sold at a rate of 55% of the first premium payment.  However, the commission on GROUP policies was 5.2% of the first premium payment of the whole policy, rather than commission on each of the individuals being covered by the policy.
The court has limited oversight over the regulations promulgated by the DOI because they must give deference to the agency unless the rule was arbitrary.  
Jones – The commissioner has the
Surplus Lines Insurers
Admitted insurer – an insurer licensed to do business in the insured’s home state. 
Surplus Lines Insurer – a non-admitted insurer
The surplus lines industry is important because it provides a market for insurance for risks that are not written by admitted carriers, or that admitted carries will write only on terms that do not adequately protect most insureds. 
There are three basic categories of surplus lines risks:
Specialty risks that have unusual underwriting characteristics or underwritings that admitted insurers find undesirable. 
Niche risks for which admitted carriers do not have a filed policy form or rate
Capacity risks (risks where an insured needs higher coverage limits than those that are available in the admitted market).
Surplus lines carriers are not subject to the form and rate restrictions that are imposed on admitted insurers.  That does not mean that they are unregulated.  They still must be licensed in their home jurisdiction and meet that state’s solvency requirements and financial standards.  
State departments maintain lists of authorized surplus lines insurers
Regulation of Surplus Lines Brokers
A broker must be specially licensed as a surplus lines broker to be able to place coverage with a non-admitted carrier.  Some states further require licensed surplus lines brokers to post and maintain a suitable bond. 
They must also make a diligent effort to place coverage with an admitted insurer.  They do this by filing an affidavit with the DOI stating that they have been unable to secure the required coverage from the admitted carriers. 
Regulation of Auto Insurance
Omnibus clause – a statute that mandates the extension of liability coverage for a designated vehicle to people driving it with the owner’s permission. 
Federal Involvement in State Insurance Regulation
The McCarran-Ferguson Act – Congress delegated broad authority to state legislatures in defining the scope and subject matter of state insurance regulation.  (basically saying: States regulate insurance)
The business of insurance encompasses a variety of activities but has been defined to address the relationship between the insurer and the insured, the type of policy that can be issued, and the liability, interpretation and enforcement of the policy. 
The business of insurance is conducted by many companies on an interstate basis, and insureds, move within and without state lines.  Thus, it can be regulated by Congress under the Commerce Clause. 
Three criteria to determine whether a practice falls under the business of insurance for the purposes of the McCarran-Ferguson Act:
Whether the practice has the effect of transferring or spreading a policyholder’s risk
Whether the practice is an integral part of the policy relationship between the insurer and the insured
Whether the practice is limited to entities within the insurance industry.
Federal Regulations
Civil Rights Laws
Under Norris:
The issue in this case was an employment practice where employees of the same age paid into a plan in equal monthly installments but the pay-outs after retirement were less for women because women live longer.   
The holding resulted in employers being given the task of eliminating sex-based di

insurer to decide whether to underwrite the risk which is done through completion of an application and collecting the initial premium upon request.
Agents are paid by commissions on premiums for policies issued upon applications they secure. 
Agents cannot obligate the insurer to accept particular risks, but they can issue a binder upon receipt of the premium
Health Insurance
Most obtain health insurance through their employers on a group basis.
Individuals may purchase health insurance from agents who specialize in it. 
Agents who sell health insurance:
Often are agents who sell life insurance
Must have a health insurance license.
Group Insurance
This allows an insurer to issue a master policy to a single party (such as an employer) with which all members of the group are affiliated. 
The employer negotiates the terms of the policy
The individual insureds in the group receive certificates that describe the essential features of their coverage
Insureds may be able to select different coverage alternatives
Group insurance can be sold by agents or brokers.
Government Insurance
Most insurance is provided from private sources, however, the government sometimes provides insurance. 
Largest role in insurance is health insurance
Medicare is the largest government health insurance program
Medicaid is not an insurance plan, although it appears to operate as one
Cooperative federal state program jointly financed by the federal and state governments. 
Other insurance programs offered by the government include: crop insurance and flood insurance.
In most instances insureds of federal programs apply for coverage through the appropriate agency
Can also purchase into federal insurance programs.
i.e. national flood insurance “write your own” program can be purchased through the same agents and brokers that sell insureds homeowners and property insurance
Lloyd’s of London
Began with marine merchants insuring ships
Lloyd’s typically insures unusual risks
Customers ask brokers for coverage
Brokers go to underwriters
Negotiation on issuance of the policy. 
****Insurance Companies are rated based on a variety of factors including their financial status.
Law of Misrepresentation – An Applicant’s Problem in Negotiation
Merchants Fire Assurance v. Lattimore (p. 110) – Insured got a policy for personal property stating that hse had 9k worth of property.  At trial, she stipulated she had 36k of property.  The court applied CA Insurance Code 332 which stated that an insured must disclose all material facts.