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

Insurance law outline.
I)       Was there is K? K cover?, Exclusion?
Chapter 2: K Law Foundations
I. Intro:
1.      Generally insurance law is governed by a contract law, and the contract law defines most aspects of the relationship between insurers and policyholders, except that areas that government regulates in a field such as Social Security, Medicare, Medicaid, unemployment insurance, and to an extent, worker’s compensation insurance.
2.      The federal law tried to regulate employment benefits insurance by enacting ERISA (Employee Retirement Income Security Act), so that court do not apply the usual de novo standard of review regarding the meaning of the K at issue.
II. Insurance K interpretation
①      An insurance K should be construed according to its (express) terms.
②      Contra Proferentem (“against the drafter”): Where any doubt or ambiguity exists as to the meaning of the Insurance Contract, it is to be construed against the insurance company, its draftsman.
i          The terms in K are ambiguous? Most courts use a “plain meaning” approach to the interpretation of insurance contracts.
ii        What is “ambiguity”?–>capable of more than one meaning when viewed by an objective, reasonably intelligent person in the pt trade or business.
iii      Then look at intention of parties?
③      Insurance is service that covers indemnifications and defense. UCC
④      K interpretation is matter of fact.
i          “Reasonable expectations”: Another way of interpreting insurance is “reasonable expectations”
1         With reasonable expectations, the ideal types remains the individually negotiated K between two parties of equal knowledge and economic power, and the governing ideal remains consent.
ii        The implied warranty Doctrine: the insurance policy is understood as a “product” a thing bought and sold in a market, rather than a negotiated relationship. The reasonable consumer depends on an insurance agent and insurance company to sell him a policy that “works” for its intended purpose in much the same way that he depends on a television salesman and television manufacturer. Here, the insured was to buy a insurance that will protect his damage from burglary whether it is breaks open an insider or outside.
iii      Unconcionability: With unconscionability, the governing idea is not consent or the accurate dissemination of knowledge but rather fairness. Gross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms.
● Gaunt v. John hancock ins co
PROCEDURAL POSTURE: Plaintiff beneficiary appealed from an order of a United States District Court in favor of defendant insurer in an action to recover under a contract of life insurance upon her son’s life. Note that here the insured passed the medical examination and paid the premium. OVERVIEW: [Facts: An agent of insurer solicited insured, and insured passed the physical exam, and the agent delivered the “application” and the premium, and the physician delivered the favorable report to a local agent who prepared a report recommendating acceptance which were sent to “home office.”
          Issue is whether the insured was insured when the “home office” approved (which did not approved at the time of the insured’s death) or what is the date of ‘completion” as written in the policy. So the real issue is here that “if the application, including Part B, is prior to my death, approved by the Company, at its Home Office,” must be reade as a condition precedent upon the immediately following promise: “the insurance… shall be in force as of the date of the completion of Part B.” The problem is if the clause as a whole be read literally, the insured was not covered if the died after “completion of Part B” but before “approval”
The beneficiary’s son took out a life insurance policy, successfully passed physical examination, and paid his first premium. Shortly after the contract, a gunman shot and killed the son. The court overturned the district court’s judgment in favor of the insurer. The court held that both the son and the insurance agent intended that the son be covered from the date that the insured completed and passed the medical examination and not the date of issuance of the policy. Insurer knows terms better than insureds what they means and lay person would think they are covered when they passed the medical exam and paid the first premium. The court also held that the son was intentionally shot and the double indemnity clause of the policy did not apply. OUTCOME: The court reversed the order of the district court and ordered that judgment be entered for the beneficiary.
●Gaunt v. John Hancock
The appellant brought suit alleging that her husband was insured by the appellee at the time of his death. He died after making application and being examined for a life insurance policy, but before the policy was issued. The complaint contains several causes of action based on several theories, but this appeal concerns the cause of action alleging that the decedent was temporarily insured. The appellant here asserts that it was error for the trial court to have dismissed her cause of action which asserted that such temporary insurance was in force, and was in error in entering judgment for the appellee.
The record shows that the decedent completed part one of an application for a life insurance policy, that he paid the amount of $90.97 as the premium for the policy applied for, and received a receipt. The decedent further underwent physical examination on June 13, 1959, and part two of the application was then completed to describe the results of such examination. The decedent died on July 5, 1959, the appellee never having acted on the application. The appellant asserts that a contract for temporary insurance was in force from the date the physical examination portion of the application was completed.
The record shows that the decedent had a subarachnoid hemorrhage in 1959, and under the rules of appellee the decedent was not a risk acceptable at the rate of premium set forth in the receipt he received, nor was he entitled to a policy which contained a waiver of premiums as requested in his application. He would have been insurable however at a higher premium. The trial court, in dismissing appellant’s first cause of action asserting temporary insurance, ruled that it was necessary for appellant to prove that the decedent was at the time of the application a risk acceptable under appellee’s rules, limits, and standards, on the plan and for the amount of insurance applied for at the rate of premium paid, and that he was then in good health.
The receipt here in question is the type generally referred to as the ‘insurable’ type rather than an ‘approval’ type.1 2 A.L.R.2d 943, 107 A.L.R. 195, 81 A.L.R. 332, 44 Yale L.J. 1223, 63 Yale L.J. 523, Simpson v. Prudential Ins. Co. of America, 227 Md. 393, 177 A.2d 417. Thus it provides that the insurance would be in force if at the date the application is completed, the application be in good health, be a risk acceptable under the company rules on the plan of insurance applied for and at the rate of premium paid. The application is not subject to the approval or acceptance by the company as provided in the ‘approval’ type of receipt. Hence it is not necessary to discuss the authorities considering the ‘approval’ type of receipt. The parties cite and discuss Mofrad v. New York Life Ins. Co.,206 F.2d 491 (10th Cir.); Liberty National Life Ins. Co. v. Hamilton, 237 F.2d 235 (6th Cir.); Ransom v. The Penn Mutual Life Ins. Co., 43 Cal.2d 420, 274 P.2d 633, and Gaunt v. John Hancock Mutual Life Ins. Co., 160 F.2d 599 (2d Cir.).
The trial court found that the receipt was not ambiguous. It distinguished Gaunt v. John Hancock Mutual Life Ins. Co., supra, on the point that it concerned a receipt containing confusing provisions. The trial court observed that a fair, understandable condition precedent or prerequisite to liability is not objectionable, and we agree. The receipt in the case at bar is clear and sets out the conditions to be met. These conditions are part of the understanding between the parties, and they must be complied with. The plain, clear provisions of the receipt cannot be ignored or overridden. The receipt with which we are here concerned is not so grossly unfair or misleading as to prevent its enforcement. This receipt expressly provides that it is a conditional one if the requirements are not met. We held in Mofrad v. New York Life Ins. Co., 206 F.2d 491, a case arising from Utah, that the conditions in a receipt of this type requiring insurability at the date of application would have to be met. This court further said that under the receipt there concerned, nothing indicated a temporary insurance agreement. The same result must follow in the case at bar. The conditions must be met, and there is no intent to create an agreement of insurance until they are met. Appellant points to no particular provision of the receipt which could create temporary insurance. Either the policy applied for is in force or there is no coverage of any nature. Since the conditions were not met, no insurance was in force at the time the applicant died. In Taylor v. New York Life Ins. Co., 324 F.2d 768 (10th Cir.), this court had before it a receipt which was conditioned upon the company being ‘satisfied from evidence received by it that, at the time of the application, the proposed insured * * * was acceptable under the company’s rules for the policy applied for, * * *’ and the agent having received the premium. The court there found no ambiguity in the application and that the conditions were clear and should be complied with. The jury there found that the applicant, on the basis of the information furnished to the company, was not insurable under its rules. Thus the conditions of the receipt were not met and no insurance was in force.
Appellant strongly urges that Liberty National Life Ins. Co. v. Hamilton, 237 F.2d 235 (6th Cir.), be applied as the law of Kansas. The trial court discusses this case in its Memorandum of Decision but did not follow it as the law of Kansas. The court cites, among others, New England Mutual Life Ins. Co. of Boston, Mass. v. Hinkle, 248 F.2d 879 (8th Cir.), a case arising in Iowa, on the requirement that good health and insurability were prerequisite to liability.
There are no Kansas cases in point, and the trial court’s determination of the law of Kansas will be accepted by this court unless we are clearly convinced to the contrary. Dallison v. Sears, Roebuck and Co., 313 F.2d 343 (10th Cir.); Robert Porter & Sons, Inc. v. National Distillers Products Co., 324 F.2d 202 (10th Cir.).      Affirmed.
●World Trade Center
Issue: whether the two attacks are one occurrence or two occurrence. It does matter because most property damage insurance is written on a “per occurrence” basis—the maximum insured amount will be paid for each covered occurrence; if two occurrences occurred, the insured will get paid more.
Fact: The insurer did not define the term “occurrence” so whether the term
PROCEDURAL POSTURE: Plaintiffs, real estate companies, sued defendant insurance company with regard to insurance coverage. The real estate companies moved for summary judgment on the issue of liability.OVERVIEW: The real estate companies entered into 99-year leases for the World Trade Center complex. In connection with the contemplated leases, the real estate companies were obliged to procure first party property insurance coverage on the World Trade Center properties. The property insurance consisted of a layered program whereby claims of loss would be initially covered by a primary layer of insurance. When claims of loss exceeded the primary layer, coverage up to specified amounts would be provided by excess layers. On September 11, 2001 the properties were destroyed by terrorists. Although there was no final insurance agreement the insurance company signed a binder in which it agreed to provide insurance coverage on a per occurrence basis. The parties disputed whether the terrorist attacks constituted one or two occurrences. The court held that there was no all-inclusive definition of the term “occurrence” or any formulation of a test that was applicable in every case, for the word had been employed in a number of senses and given varying meanings depending on the relative context.OUTCOME: The motion for summary judgment as to the liability of the insurance company was denied.
● C&J fertilizer inc v. allied mutual ins.
C & J Fertilizer (P) ( the owner was a high school graduates who signed the insurance) operated a fertilizer plant and was insured by Allied Mutual Insurance Co. (D). The insurance contract defined “burglary” as “the felonious abstraction of insured property from within the premises by a person making felonious entry therein by actual force and violence, of which force and violence there are visible marks made by tools, explosives, electricity or chemicals upon, or physical damage to, the exterior of the premises at the place of such entry.”
          Employees reporting for work one morning found the front office door unlocked. The door could be forced open without leaving visible marks or damage. The door to an interior room used to store chemicals was damaged and had marks apparently made by tools. Chemicals worth $9,582 and other property valued at $400 was taken from the building. The policy does not
          The plaintiff brought t

rd-party defendant contended that the policy was limited to a lower amount than third-party plaintiff sought. The court held that it was not limited solely to the written words of the boilerplate insurance contract ( “insured” did not include “lessee.”). The court recognized equitable estoppel as a device to prevent enforcement of boilerplate terms of an insurance contract, which were more limited than the coverage expressly agreed upon by the parties. The court also recognized the doctrine of reformation. The court held that summary judgment in favor of third-party defendant was not proper because the court was not restricted solely to the words of the boilerplate contract.    ▫Reformation: Reformation may be sought 1> where there is a one part’s mistake, 2> the other party knew the party’s mistake: Insured was mistaken abou the extent of coverage under his umbrella policy. It may results from insurer agent’s failure to properly explain the terms of policy; the agent might have known the insured’s mistake. OUTCOME: The court vacated the decision of the appellate court and reversed the trial court’s summary judgment in favor of third-party defendant insurer because the umbrella insurance policy could be interpreted in favor of third-party plaintiff insured using the doctrines of equitable estoppel and reformation.
    ▫ The court uses the ideal of reasonable expectations to justify the application of estoppel doctrine in the insurance context.
●Bible v. John Hancock life ins co
PROCEDURAL POSTURE: Appellant insurer sought review from an Appellate Division of the Supreme Court in the Second Judicial Department (New York) judgment for appellee husband of decedent on his suit to recover under N.Y. Ins. Law � 58 on life insurance policies issued to decedent because breach of the policy conditions had been waived by the insurer.OVERVIEW: Decedent’s husband filed suit against her insurer seeking to recover under two life insurance policies on which the insurer disclaimed liability on the ground that the policies had been avoided by the breach of conditions relating to the mental health of decedent, who had been institutionalized when the insurance policies were issued. The lower court granted recovery to the husband and the insurer appealed. The court held that (1) the breach of the policy conditions could be waived if the insurer had knowledge through its agent of the state of health or circumstances of decedent when the policies were issued and the premiums were accepted, (2) under N.Y. Ins. Law � 58 additional applications procured by the insurer from decedent, which were not attached to the policies, could not be considered in adjudicating the matter, (3) the agent in question had been more than a soliciting agent, but had made delivery on the policies and accepted premiums for the insurer, and (4) limitations on the agent’s authority to waive did not affect the fact that the insurer had actual knowledge through its agent of the condition of decedent at policy inception and had waived any breach by its conduct.   OUTCOME: The court affirmed the judgment.
       ▫ Here the agent was more than a soliciting agent; he was authorized not only to solicit applications, but to make delivery of the policies, and upon delivery and afterwards to collects the weekly premium; he got application in the hospital where the insured was in.
      ▫ In the absence of warranty or warning, the delivery of the policies by the insurer, and the keeping of the premiums with knowledge of a then existing breach of the conditions as to the health of the insured and her treatment in a hospital, gave rise to a waiver or an estoppel. Insurance agent here knew that insured breached K by hiding his condition.(?)
● Jenkis v. Indemnity insurance co.
      The insured’s wife was injured when the insured got into an automobile accident. After the accident, the wife’s attorney informed the insurer that there were no legal questions as to coverage in interspousal accidents where the policy was written in New York but occurred in another state. Thus, the insurer agreed to pay the claim. Thereafter, the insurer disclaimed coverage under N.Y. Ins. Law � 167(3), which provided that a spouse’s injuries were not within the coverage of an automobile policy unless the policy expressly indicated that they were. The insured’s wife sued him for damages, and judgment was entered for the wife. In his declaratory judgment action, the insured sought coverage for the wife’s judgment. the court held that although � 167(3) would have precluded coverage, the insurer had waived its � 167(3) defense; it was not necessary that the insurer was certain of the correctness of any � 167(3) claim, but it was enough that it knew of the existence of � 167(3).The insured won.
    Ct reasoning: Waiving party needn’t have absolute knowledge of the right in order to waive it; need only know of the existence of the claim and its reasonably possible legal efficacy. Otherwise, D could always just claim ignorance of the right to avoid waiver. D’s letter to W to agree to pay was a waiver, which is an intentional relinquishment of a known right..
     ▫ The general rule is that the validity and construction of a K are determined by the law of the place where the K was made. But if the K is to have its operative effect or place of performance in a jurisdiction other than the place where it was entered into, the law of the place of operative effect or performance governs its validity and construction.