Insurance Law Outline

Insurance Law
Functions of Insurance. 1
Course Themes. 1
Imperfect Information. 1
Role of Standardized Forms. 2
Rules of Construction – protect the insured. 2
Reasonable Expectations Doctrine. 2
Agents. 2
Fraud, Waiver, Estoppel3
Public Policy Restrictions. 3
Punitive Damages. 3
Intentional Acts Exclusion. 3
Insurance Regulation. 3
ERISA. 3
Solvency Regulation. 4
Rate Regulation. 4
Residual Federal Regulation. 4
Fire & Property Ins.5
Sample Homeowner’s Policy. 5
Need physical damage to tangible items. 5
Need an Insurable Interest5
Business Interruption Coverage. 5
Exclusions & Exceptions. 5
Coinsurance. 6
Subrogation. 6
Real Estate Sales. 6
Life Estates. 6
Bailments. 6
Life, Health & Disability Ins.7
Life Insurance. 7
The Application. 7
Need an Insurable Interest7
Change of Beneficiary. 7
Assignment of the Policy. 7
Limitations to Recovery by Beneficiaries. 7
Incontestability Clause. 8
Limitations on Risk. 8
Negligence Action against ER for Delaying Application Approval8
Health Insurance. 9
HIPAA – only health ins.9
ERISA – only employee benefit plans. 9
Cost Containment – HMOs, PPOs. 9
Disability Insurance. 10
Bad Faith Liability. 10
Liability Insurance. 11
Commercial General Liability (CGL)11
Sample CGL Policy. 11
Insuring Agmt11
Trigger & Allocation of Coverage. 12
# of Occurrences. 12
Exclusions. 13
Expected or Intended Harm.. 13
Owned-Property Exclusion. 13
Business Risk Exclusion – Poor Quality Work. 13
Pollution Exclusion. 13
Claims-made coverage. 14
Liability Defense & Settlement. 15
Duty to Defend – generally broader than the duty to indemnify (ED for covered losses)15
Settlement15
Primary v. Excess Insurers. 15
Automobile Insurance. 16
Sample Personal Auto Policy. 16
Insurance law – a set of questions and answers about regulating and sharing risk
Insurance is a fiduciary contract. ER owes fiduciary duties to ED.
 
Functions of Insurance
Reduce risk for businesses & consumers; Cushion economic hardship
o         Risk transfer– to parties who are less risk averse
o         Insurers less risk averse b/c of risk pooling / diversification – charge % share of entire risk pool
o         Insurers allocate risk by setting a premium based on actuarial probability of the event occurring
Encourage productive investment & growth
Promote the best & safest reasonable business practices.
o         Underwriter sector looks at the operations of the insured; makes safety suggestions/reqm’ts.
 
First Party v. Third Party
§         First Party – covers insured’s own assets; the only parties are in the insured and the insurer
§         Third Party – covers another’s assets; someone outside your policy is making a claim against your policy
 
Course Themes
Security for the primary insured and the insured of reinsurance policies – provided by contract law
Profit for the insurance companies à maintain insurer solvency & maintain an insurance market
Provide confidence to investors of the insured
 
Imperfect Information
Adverse Selection – person facing a higher risk is more likely to seek insurance than person facing lower risk
Moral Hazard – you’re less careful with stuff that is insured
§         Ask questions about the insured.
§         Classify insureds à by age, gender, etc.
§         Experience-rateà a long-time customer who hasn’t made any claims may be charged less
§         Require an insurable interestà make the insured be interested in protecting the property
o         Insured must have ownership of the property to be insured.
o         Insured must also have some relationship to the person or property (love/affection or economic interest).
§         Exclude intentional acts of destruction
§         Require warranties of the insured
§         Impose a waiting period between the time of application & time of coverage
§         Require coinsurance, Charge deductible, Provide limited coverage
 
 
Warranty
Misrepresentation
What it is
ED’s affirmative swearing about the particular condition or quality of property
Say “warranty” or “warranted”
ED’s statement that is false, material & induced justifiable reliance by ER.
No affirmative swearing.
If substantially true, not a misrep.
Need materiality?
 
(Meaning of materiality varies.)
No – under CL.
Yes – under majority of state statutesàinterpret warranty like misrepresentation).
Yes
Remedy
If immaterial, enforce coverage.
If material and not ambiguous, void the policy.
Concealment à To void coverage, ER needs to show that ED knowingly failed to disclose a material fact
§         Innocent misrepresentation ≠ scienter
§         To show scienter, point to ED’s false answer on the insurance application.
o         ER should ask detailed questions on the application, but not too detailed so as to dampen business.
Inquiry Notice à if ED furnished reasonably complete answers that could lead ER to the info through diligent follow-up search, no misrepresentation or concealment.
 
Agent’s Recording Error à If ED truthfully stated the facts to Agent, but by fraud, negligence or mistake, the facts are misstated to ER, then ER cannot rely on the misstatements to avoid liability, if Agent was acting within his real or apparent authority and there is no collusion on the part of ED.
Point-of-Claim Underwriting à After a large claim is made, insurer reviews the application for inaccuracies to develop a misrepresentation defense. 
 
Signature Rul