Insurance – Intro
1. Darby v VSI Intl
Lawyer defending client in IP infringement case doesn’t have duty to determine whether client has insurance to pay for any damage
Clients obtained general liab insurance themselves
They should know whether they have insurance coverage or not
a. Jordache v Brobeck, Phleger, Harrison
Client sued law firm for malpractice for not finding out client had insurnace
Ct dismissed case b/c of SOL
Implicitly, atty might have had duty to determine client’s insurance coverage
But not sure
b. Third Eye Blink v Near North Ins
Lawyer failure to ascertain insurance coverage exposed them to liability to resulting harm to client
2. What is insurance
Definition of insurance, very hard to define
Usually deals with risk and uncertainty
CA Ins Code 22
Insurance- K where one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event
NY Ins Code 1101
Insurance K – any agreement or other transaction where insurer is obligated to confer benefit of pecuniary value upon happening of fortuitous event in which insured or beneficiary has or is expected to have at time of such happening, a material interest which will be adversely affected by happening of such event
2 significant req of insurance
a. Risk of loss
Or contingent or unknown event
Events which are subst beyond control of parties
b. Distribution of risk among similarly situated people
a. Is transaction an evil which regulatory statute is aimed?
b. Are risk elements essential to or incidental to K?
But broad def of insurance can include many different relationships that aren’t typically thought of as insurance
Not all relationships and transactions that shift risk b/w parties is insurance
Medical group that provides care to patients in exchange for monthly payments is not necessarily insurance
Even though risk is shifted from unhealthy patients to healthier ones
a. Griffin Systems v Ohio Dept of Insurance
Statute says no company can enter into business of insurance unless authorized
P sold “vehicle protection plans”, but wasn’t the seller of mfg of the cars
Sellers and mfg can do car protection plan b/c it is a way to induce buyers to buy their cars
P argues plan is a warranty not insurance
Reimbursement is limited to loss due to defects
Duffy
P sold tires and issued warranties protecting against lots of things including road hazards, as well as defects in workmanship
Warranty indemnifies against defects in articles sold
Insurance indemnifies against loss or damage resulting from perils outside of and unrelated to defects in article itself
Herbert
Tire warranty only covered defects over specified time and conditions
But expressly excluded happenings unconnected to defects
Warranty doesn’t amount to insurance
K substantially amounts to insurance if it promises to cover losses or damages over and above, or unrelated to, defects within product itself
Whether warranty offered by seller/mfg or 3rd party doesn’t matter in determining if it’s insurance
Key is principal purpose of K – substance of K
Dissent
3rd party selling warranty does make a difference in determining whether it’s insurance
b. Different courts can reach diff result based on focus elements
a. Griffin Systems v IL
Same vehicle protection plan as above, but IL ct says it’s insurance
a. K b/w insurer and insured for specific period of time
b. Insurable interest possessed by insured
c. Consideration in form of premium paid by insured
d. Assumption of risk by insurer, where insurer will indemnify
IL ct also thought status of warrantor as seller/mfg does matter
c. Known loss rule
If loss is known and certain, there is no risk
Event has already happened
No risk is assumed, so not insurance
d. Truta v Avis
Rental car companies offer collision damage waiver that says rental company will be responsible for damage to car if daily fee is paid
P says CDW is insurance, companies are subject to insurance regulation
CA Ins code 22 – Insurance contains 2 elements
1. Risk of loss to one party, and shifting of that risk to another party
2. Distribution of risk among similarly situated people
Insurance regulations not meant to apply to all K that have elements of risk shifting
CA Physician’s Service v Garrison
Doctors provided services to people based on monthly membership dues
Absence of presence of assumption of risk is not sole test to determine whether it’s insurance
Looking at operation as a whole, medical service is principal object, not indemnity
CDW is not insurance
Doesn’t indemnify lessee’s from damage
Only waives lessor’s right to hold lessee liable for damaging the car
Doesn’t require lessor to pay any money to anyone
Not spreading risk, only allocates risk to lessor
Principal purpose is to rent car; CDW is peripheral
e. Surety Bonds
Cates Construction v Talbot
Surety bonds – obligation to pay debt of someone else
CA SC says not insurance, even though it meets CA ins code 22 def
One party must pay the debt, but that’s all, no fiduciary duty, not a relationship b/w 2 parties, but 3
Not quasi public in nature
In other states, surety bonds are treated as insurance
f. Self insurance pool
Insurance requires insurer to indemnify the insured against loss
Self insurer doesn’t shift the risk to someone else, so not insurance
g. 3 general categories of insurance
i. Insurance covering liability
ii. Insurance covering prop and economic loss
iii. Insurance covering personal concerns; life and disability
Gov Regulation of Insurance
1. State regulation
a. Purpose of insurance regulation
i. Ensure continuing security that insurance provides people
ii. Satisfy general goals of society at large – availability of coverage to public
iii. Ensure consumers are charged fair and rsb prices for insurance
iv. Protecting solvency of insurers – to be able to pay
v. Prevent unfair practices and overreaching insurers
b. CA regulation of insurance
i. CA ins code
ii. Provides terms of standard insurance policies
iii. Sometimes individual provisions in policies are mandated
c. Ostrer v Schenck
NY regulation 65 put limit on commission received by insurance agents who sell insurance on mass basis to union members to 5.2%
P could sell individual policy and earn 55% commission
P sold individual policies to union members and claimed 55% commission
P argues reg 65 is invalid regulation that conflicts with NY statute
Ct says – 3 powers of superintendent – Pg 27 2nd paragraph
1. Wide authority to proscribe regulations
2. Implied powers – powers that can be rsb implied from statute
3. Interpret, clarify, and implement legislative policy
What is reviewing court’s role in assessing what superintendent has done?
1. Decision was lacking in reason to be arbitrary
2. Uphold decision if it was not completely irrational or arbitrary
3. Rational basis
Reasoning for reg 65
Prevent agent from collecting 55% commission on individual policies when he actually just made one sales effort to the entire group
Ct says Superintendent’s reg was rsb, uphold
Chevron Doctrine – as long as executive agency promulgates a reasonable reg that is permissible in light of statute, uphold reg
d. Wilson v All Service Insurance
P sues broker for placing their car insurance with Transnational, who was insolvent, and unable to pay all of P’s c
ics that women live longer than men
SC says state employee pension plan is not insurance, it’s employment practice and compensation
McCarran Ferguson doesn’t apply to exempt it from Title VII
State pension plan must be sex neutral
Result is state pension plans will have to use sex neutral actuarial tables to calculate insurance rates
c. Employee Retirement Income Security Program
Generally people don’t buy their own health insurance
Either provided by Medicare or Medicaid – for the poor and old
Otherwise health insurance provided by employers
Through employee benefits plans
B/c 99% of population get health insurance through employer, ERISA applies to them, even though it’s insurance
It’s insurance provided by employer = employee benefit plan
ERISA Sec 1144
ERISA supersedes any and all state law with respect to employee benefit plans
Savings clause – But, insurance co are still subject to state law too
Employee benefit plans are not insurance
Net effect – employee benefit plan is subject to ERISA
d. Pilot Life Ins v Dedeaux
P injured in accident, and sued insurance co when they failed to pay benefits
P sues for bad faith, tortious breach of K; all state law claims
Ct says ERISA controls employee welfare benefits plans that purchase health insurance for employees
P’s suit for bad faith relates to employee benefit plan, so it’s pre-empted by ERISA
Widely criticized case
e. UNUM Life Ins v Ward
CA’s notice prejudice rule requiring insurer to pay claim even if it’s untimely, unless there’s prejudice to insurer, relates directly to insurance
So McCarran Ferguson would say ERISA doesn’t pre-empt this rule
Insurer is still subject to notice prejudice rule
f. Aetna Health v Davila
State law cause of action that duplicates supplements or supplants ERISA civil enforcement remedy is pre-empted by ERISA
ERISA purpose was to provide uniformity in regulation of employee benefits plans
g. Financial Services Reform
Gramm-Leach-Bliley act deregulates banking, insurance, and securities firms from entering other industries
Led to merging of many business lines among industries creating financial conglomerates
So consumers can get all their needs taken care of by one company
h. Terrorism Risk Insurance Act – TRIA
Fed gov will share in losses covered by insurers due to losses from terrorism
Fed gov is responisble for 90% of loss, after insurer is exposure exceeds 15% of the loss
Capped at 100billion per year
TRIA pre-empts insurance policies that exclude terrorism losses
Is it good idea for gov to be involved in insurance business?
Arg that gov plays big role in facilitating insurance for acts of terrorism
Arg that if gov insurers, it discourages private insurers to cover acts of terrorism
i. Handout – Genetic Information Nondiscrimination Act
Forming and Negotiating Insurance K
1. Formalities of K making
Insurance policies are essentially K
But main differences with insurance
K generally involve simultaneous performance by both sides
Insurance
Insured pays premiums
