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Insurance Law
University of Toledo School of Law
Boyd, Nathan R.

Formation and termination of an insurance contract
Legal contract requirements
Contract: a promise or a set of promises for with breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty
                                                              i.      complete offer and acceptance
                                                            ii.      give consideration to each other to support the other’s promise
                                                          iii.      possess capacity to contract
                                                          iv.      satisfy any applicable writing requirement, and
                                                            v.      contract for a purpose that is not contrary to public policy
Offer and acceptance
                                                              i.      application usually makes the offer, insurer accepts or rejects
1.      offer is revocable by the applicant at any time before acceptance
2.      in most instances law requires that an insured get tens days to rescind after acceptance, a deviation from the common law of contracts
3.      In some instances a mass mailing can be construed as an offer and filling out an application an acceptance (but this seems gay)
                                                            ii.      If insurer respond with a policy that has different terms this is a counter offer, then applicant then has the power to accept or reject
Consideration: if an insurance contract is viewed as a bilateral contract, the consideration supporting the insured’s promise to pay premiums is the insurer’s promise to pay proceeds if certain events occur, and the consideration supporting the insurer’s conditional promise to pay proceeds is the insured’s promise to pay premiums and to perform other duties in the event of a loss
Capacity: contracts are voidable at the option of infants, and the mentally incompetent
                                                              i.      intoxication: person who’s intoxicated at the time of signing can invalidate contract unless the other party had no knowledge
                                                            ii.      persons under guardianship have no ability to enter into a contract
                                                          iii.      These principles of contract law can be modified by state law
The writing requirement
                                                              i.      oral insurance contracts can be enforceable if they show parties’ mutual assent on certain terms
                                                            ii.      Statutes of frauds: 
1.      Suretyship: an oral contract of guaranty insurance is not unenforceable under the statute of frauds
2.      One year: almost all insurance contracts could be completed in one year, with exceptions for guaranteed renewals and unlimited payouts
3.      Life insurance statutes: some states require an agreement which is not to be performed during the lifetime of its promisor to be in writing
Public policy: insurance policies in general are not against public policy, but some specific rules invalidate insurance contracts in specific instances
Trouble spots in formation: misbalance of power and duties causes trouble spots specific to insurance contracts
Insurer’s delay in response to application: some jurisdictions hold that an insurer unreasonably late in responding to an application loses the right to reject it
                                                              i.      duty not to delay turns on the insurer’s holding of the applicant’s premium payment
                                                            ii.      Majority holds that the duty arises out of tort law: the relationship between the parties gives rise to a duty for the insurer not to delay in responding to an application
1.      was the insurer negligent
2.      did the insurer proceed with reasonable steps to consider the application
Insured’s duty to read: Generally, the insured has a duty to read the terms of the contract before signing it, with come exceptions
                                                              i.      The insurer misrepresents to the insured what is in the contract
                                                            ii.      Where a policy is issued upon an oral application and the insured fails to read the policy the insured can assume that the policy conforms with the application
                                                          iii.      When an insured renews a policy he can assume the new policy is the same as the old
                                                          iv.      Illiteracy or non English speaking
Insurer’s duty to explain: if the terms of an insurance policy are clear, unambiguous, and explicit, the insurer has no affirmative duty to explain the policy or its exclusions to the insured, with some exceptions
                                                              i.      Reasonable expectations doctrine imposes a de facto duty to explain: if the insurer had had provided an explanation of the coverage in the first place the insured expectations of different coverage would be unreasonable
                                                            ii.      Automobile options: some courts impose a duty to explain the optional policy add-ons like uninsured or underinsured motorist
Initial payment of premium: the insured does not have to make an initial payment of premium in order to make the contract valid, but a contract can include a provision requiring that an initial premium payment to be made
The binder
Generally: a binder is a document (separate contract) given to the insured that obligates the insurer to pay insurance if a loss occurs before the insurer acts upon the application
                                                              i.      Provisions
1.      identification of the insured
2.      description of what is insured
3.      limits on proceeds
4.      the risk insured against
5.      date and time coverage starts
6.      max amount of time the binder can remain in effect
7.   

a sufficiently close relationship by blood or operation of law to establish insurable interest
Timing: 
Property insurance: generally, the insurable interest must exist only at the time of loss, which is all that is necessary to conform with the policies of the indemnity principle
                                                              i.      Goods subject to a sale: the UCC states that a buyer of goods obtains an insurable interest when the goods are identified to the contract
Life insurance: insurable interest must exist at the time the policy is made, and absence of the interest at the time of the insured’s death is irrelevant
Liability insurance: while there is still an insurable interest requirement, one always has an interest in protecting against legal liability that one might incur to others
Waiver and estoppel: 
Majority: the insurer cannot waive or be estopped to assert the insurable interest requirement
Minority: allow waiver or estoppel to defeat the insurance interest defense in circumstances where the insurer is merely alleging that the value of the interest is less than the proceeds claimed under the policy
Exceptions: courts decline to follow the general rule (that II requirement cannot be waived/estopped) in circumstances where the agent writing the policy knew that the person obtaining the insurance lacked an interest in the insured person or property but wrote the policy anyway
Property insurance: trouble spots
Stolen property: 
                                                              i.      Thief: has no insurable interest in the property because he lacks any kind of title and has no substantial economic interest in the property
                                                            ii.      BFP: modern courts find that a good faith purchaser of stolen property has an insurable interest because, assuming the BFP neither knew or had reason to know that the property was stolen, has good lawful title against the whole world save the true owner
                                                          iii.      Factual expectation theory: the modern BFP rule is consistent with the FET of insurable interest because the insured has a substantial economic interest in the preservation of the property because the insured probably paid a significant sum of money for the property, which would be lost if the property were destroyed
Repossession by true owner: when a policy contains broad language defining what losses are covered and