Insurance – Bill Davis
Insurance defined: a contract whereby one undertakes to indemnify another or pay a specified amount upon determinable damages.
Must be issued by an insurance company
Payable upon certain contingencies
A mechanism for spreading loss (a form of indemnification; insurers are in the business of spreading risk; insurance shifts the risk to the insurers.)
Must have an insurable interest – person who takes out the insurance policy must have an interest that is insurable.
The insurance industry is huge!
Insurance contracts are adhesion contracts. But state statutes and courts can change the policy terms.
Insurance is a planning device.
Government regulates insurance industry through state legislatures, regulatory agencies, and the judiciary. (Mostly state regulated).
Paul v. VA, 1869: issuing an insurance K is not a transaction in commerce, so the federal government can’t regulate it.
US v. Southeastern Underwriters, 1944: federal antitrust acts apply to insurance transactions; federal government can regulate insurance.
control rates to make sure they are not:
inadequate [rates must be high enough to cover payment of claims, profits for insurer, and costs of operation; part of each premium dollar goes to profit, reserves (for claims), and operating],
excessive [people should be able to afford them], or
discriminatory [eg, can’t charge women higher premiums, LA v. Meynhard];
prevent unfair practices by insurers;
regulate designated assets and reserves of insurance companies to prevent insurers’ insolvency and to protect insureds.
[rating bureaus help set, must approve most types of insurance rates]
Other ways of regulating:
Regulation of Unfair Competition:
Federal Unfair Trade Practices Act doesn’t apply to insurance.
Federal McCarran-Ferguson Act, 1945: reverse preemption; Congress will leave regulation of insurance to states, but where states don’t regulate it, fed law will fill in gaps.
SC has unfair trade statutes for insurance.
Regulation of Unauthorized Insurers:
Uniform Unauthorized Insurers Service of Process Act.
Service on Insurance Commissioner is good against the insurer, even if insurer is not registered in state. (SC)
Prevention of Insolvency:
er benefits due to him under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan. Both state courts and federal courts have concurrent jurisdiction over these actions.
Any state law which relates to employee benefit plans is preempted by ERISA, except that where a state has promulgated law governing/regulating the insurance issue, such state law is not preempted. Any state law regulating insurance cannot deem an employee benefit plans to be an insurance company.
For a law to regulate insurance, the law must be specifically directed toward the insurance industry.
State common-law tort and contract actions alleging improper processing of claims for benefits under an employee benefit plan are preempted by ERISA.
II. Judicial Regulation
1. Courts are not well-suited to regulating insurance, but they must interpret the statutes (legislative regulation). Most insurance rules come from the courts; but courts aren’t good regulators of insurance, because they make fact-specific decisions that may not be widely applicable.
2. Judicial regulation is primarily contract interpretation.
3. When courts decide a case, there is retroactive application of rules to a particular fact situation. If an insurer denies coverage and the court decides that the policy’s language provides coverage, the insurer is collaterally estopped from take a counter-position in future cases. Although other carriers are not bound by the court’s decision, they will likely adjust their conduct to comply with precedent.