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Insurance Law
West Virginia University School of Law
Cady, Thomas C.

WV Insurance Outline Cady
Insurance law is important for all lawyers to know about because it is pervasive in every aspect of American life.
Appleman and Couch: two bibles of insurance (p. 4 of Understanding).
§ 10 Defining insurance
Insurance involves risk. Insurance is a way of diminishing the chance of an adverse risk occurring.
ISSlt: a% chance or a probability (1 in 1000) of an uncertain event occurring. It is absolutely clear that everyone is going to die. When all of us are to die is uncertain.
Risk averse: individuals seek to transfer the risk by purchasing an insurance policy for a premium and transferring a portion of the risk to an insurance company, who then, after receiving the transfer of the risk, distributes the risk among the insuring class.
The insurance company will indemnify the indemninified for the loss — i.e. will pay them for the loss.
Coping with risk
We are concerned with the transfer of risk.
p. 20. Textual definition of insurance: “a K of insurance is an agreement in which one party (the insurer) in exchange for a consideration …”
§ 11 Brief Historical Review
Traces the history of insurance from ancient Babylon to the United States. The first liability insurance in the US dates back to 1 886.
Lloyds of London: bar where the insurance game started in England. Ship owners would seek to insure ships from the perils of the sea. Sheet of paper would pass around; listed the ship, captain, destination, cargo, and date of departure. This determined what the perils of the sea could or would be. All of these figured into the degree of risk. The individuals in the insurance game would initial the sheet of paper and how much risk they wished to assume. Those who initialed the paper were known as underwriters.
Underwriters: people who figure out how much to charge for a given risk. These people got together at Lloyds. They created a syndicate — this became known as Lloyds of London.

S 12 The “Business of Insurance” [a] State Statutory Definitions
§33-1-1 Insurance. “Insurance is a contract whereby one undertakes to indemnify another or to pay a specified amount upon determinate contingencies.” (WV definition, p. 25).
1886 – first US liability insurance.
Construes the definition of insurance liberally.
Issue: Whether a warranty by home owners warranty was a commercial warranty or was an
insurance policy. This was important for commercial activity because if a transaction is
construed to be insurance, then all insurance impinges upon the transaction. If it is not
insurance, then the morals of the marketplace and UCC control.
Holding: The transaction was indeed insurance. Hence, this ensured much more favorable
plaintiff treatment.
D.C. case)
Key Idea: Whether or not an incidental warranty is an insurance policy?
NOTE: This case provided the principal object and purpose^test—whether the principal object and purpose was to put on roofing material and whether the policy was minor. This would be decided differently today.
The issue usually becomes whether it is insurance controlled or commercially controlled. All
purchases from Office Depot or the Car dealership are not commercial transactions only, but are commercial transactions. This is tremendous leverage for lawyers.
§ 13 Classification of Insurance
Insurance used to be classified by lines, which are:
(1) Life (and Accident) insurance.
(2) Fire and Marine insurance.
(3) Casualty insurance (liability!).
Lines defined the types of companies that provided insurance. Separate companies/lines sell different types of insurance. The reason for this is usually regulation. Most agents confine their practice or expertise to a particular line.
First party vs, Third party insurance
First party: The insurance insures the insured. There are two parties to the transaction—the insured and the insurer. Most insurance is first party. A claim for loss is made by the insured to his company.
Third parry: This involves the insured, the insurer, and the 0 (victim or claimant who has a claim against the insured in tort). The insurance company will provide liability insurance.

The largest insurance company in the US and in WV—State Farm has approximately 29% of the insurance market. Typical of markets, you have one dominant company and then you have little tiny companies that barely appear on the screen. The next company is Nationwide with 16%, then Eerie with 8%, Allstate with almost 8% and then Shelby with 2.7%. § 13B Classification by Nature of the Insurer
1) Individuals: kind of insurers you may come in touch with may be individuals. You may be in contact with bail bondsmen to bail out your clients. These people may write out of their own pocket or a bail bonds company.
2) Lloyds Syndicates: underwriters backed by investors. Sec p. 53 for explanation.
3) Stock Companies: for profit; made by selling insurance. Insurance is a good game to be investing in because state departments of insurance are set up and designed to ensure that insurance companies make a profit. Rates are set to assure the solvency of insurance companies.
4) Mutuals: not for profit; owned by policyholders to whom the profits are distributed if any in the form of reduced premiums. May generate tremendous income; not for profit is a bit illusory.
5) Fraternal Benefit Societies: these are mutuals, but are designed to serve a narrow group of persons (members of a fraternal organization; the moose, eagles, etc.).
6) Reciprocal or Interinsurance Exchange: This is a group of insurance companies grouped together to provide reciprocal insurance for each other so if one suffers a loss the others will help pay for it.
7) Captives: An insurance company spun off from another larger corporation. These are located offshore—usually in Bermuda. General Electric has a captive insurance company.
8) Service Organizations to the Insurance Industry: The most prominent is ISO (insurance service organization). This is the organization which provides policy services to insurance co

e the federal regulator may be during a democrat administration which would insist on pro-insured legislation as opposed to the lax regulation of different states.
21 [b] The Substance of the MF Act
This reversed SEU and adopted the principle of REVERSE preemption. Preemption is such that the federal act is supreme and preempts contrary state legislation. Reverse preemption says that where there is state law on the book, that occupancy of the area preempts federal legislation. Bizarre to what we usually recognize about the relations between state and federal law.
Every state has adopted a comprehensive state code of insurance, has an insurance commissioner, and has adopted many of the Model Acts proposed by the National Association of Insurance Commissioners.
21 [d][4| and 21 [d][5] Federal Antitrust Law and State Regulation/ The Boycott, Coercion, and Intimidation Exception
State regulation of the insurance industry is not totally preempted by state insurance enacted. The
insurance industry may not engage in boycott, coercion or intimidation. v
Boycott is like a collective refusal to deal. If you do this you could be indicted for federal antitrust violations.
21 [f] State Federal Accommodation Issues Arising Under ERISA
ERISA was enacted and became effective in 1974. It stands for the Employees Income Retirement Security Act. The purpose of the act was to establish federal control over union employee pension and retirement funds given the abuse by Jimmy Hoffa and the Teamsters Union in mismanaging the Teamsters Retirement Trust.

ERISA cases are subject to dual jurisdiction, but are freely removable. They are all removed. All of them go to federal court and many go to republican judges.
There are three clauses in ERISA:
The Preemption clause: this provides that ERISA is designed to preempt all state common law
or statutory rules of trust and otherwise that were previously used by the states in inadequately
regulating pension funds. The idea is to establish one tough federal law regarding government
and pension trusts.
The Savings clause: this saves from preemption and reserves to the state all laws concerning the
general regulation of insurance—generally. Pilot Life Insurance v. Dedeaux p. 101 murdered
the savings clause.
The Deemer clause: this provides that any welfare, pension, and retirement trust fund shall not
be deemed to be an insurance company.