Insurance Law
Summer 2010
Professor Robinette
1. What is Insurance
a. Baseline is about risks
b. Basic Definition
i. Transfer the risk
1. The insured transfers the risk to the insurer
ii. Risk-Pooling
1. Pools the risk and distributes it. Transfer the risk from all sorts of people and spread the risk among them
iii. Allocate the risk
1. Pricing based on risk factors
2. Pay based on your individual risk levels
2. Problems with Insurance
a. Adverse Selection
i. People who want it the most, need it the most
ii. People with the higher risk tend to seek insurance more
iii. Starts bad and gets worse
iv. Don’t have the right premiums from everyone, drives up costs, then insurer charges more, prices out the people who didn’t need the insurance as much
b. Moral Hazard
i. Just because you have insurance, you may behave differently (in a bad way)
ii. Product liability regime
1. Perhaps you cut some corners when manufacturing because you are covered by insurance
3. Combating Problems with Insurance
a. They demanded the right to receive accurate information from the applicant
b. Warranty
i. More historical
ii. Warranty vs. Representation
1. Warranty, insurer does not need to show materiality. Requires strict compliance
2. Representation, substantial compliance is enough. Representation must be shown to material before the contract may be voidable
iii. Any ambiguity is going to construed against the insurer who is the drafter
iv. Warranties have been blended into representation, don’t need strict compliance for either of them
c. Misrepresentation
i. Action that insurers will bring to try and avoid a contract
ii. Misrepresentation (Or a concealment) Test
1. Was there a false statement?
2. Was t false statement material?
a. Courts are split, but the majority says that you look at it from an objective standpoint
b. Some that are agreed upon by the courts
i. If you misstate your net worth in life insurance policy, that is material
ii. Life insurance contract, that you are not under the current care of a physician, but have seen a physician several times over the course of the year
c. Defense
i. You would have issued a policy anyway, I just would have had to pay higher premiums. Is this a material difference? Courts hold that this is material and a misrepresentation and the insured gets nothing
3. Was there justifiable reliance?
a. Few different ways
iii. Concealment
1. Harder to prove because, you knew that you knew it was material to the insurer and you still didn’t tell them
2. Dealt with by adding more questions to their forms (insurance company)
4. Material
a. Difference in premium alone is enough
b. If something changes between application and issuance of a policy, you have a duty to report it
Role of Standardized Forms
1. Construing Ambiguities Against the Insurer
a. As an insurer
i. Need to argue that your construction is the only reasonable construction of the language
ii. Need to see if there is any other reading of the language
b. Contracts will be construed in favor of coverage
2. Ways to use the ambiguity rule
a. Language must be perfectible
i. Could focus on whether it was read. Are people going to read it?
ii. Basically a restriction
b. Punitive
i. You wrote a bad policy, you’re going to have to deal with the consequences
c. Use to be used as a tie breaker
i. Have an ambiguous policy
3. Ambiguity Rules
a. Going to construe it broadly
b. Exclusions/Exceptions are construed narrowly
c. Construe it so that the average reader could understand it
Interpreting Binders
1. Things to know about binders
a. Rules for interpreting binders differ from that of interpreting insurance policies
b. Rule about construing against the insurer may NOT apply to binders
c. Pay attention to what you are talking about in terms of what an “occurrence” is
Reasonable Expectations
ntage. Used for something said or represented by the agent
ii. Rules for estoppel
1. Majority
a. Cannot create new rights
b. Can only get rid of defenses
2. Minority
a. The only thing that constitutes estoppels happen at the time or before the formation of the contract.
b. Representation that happens after the fact is not good enough
d. Group Insurance and ERISA
i. Usually see the employer as the “Agent”
ii. ERISA
1. The employee retirement income security act
2. Pre-empt all state law on pension matters concerning pensions except matters that regulate insurance
2. Public Policy Restrictions
a. Principle of Indemnity
i. Simply supposed to be indemnified for your loss.
ii. Only supposed to be made whole, you’re not supposed to make a profit
b. Insurable Interest
i. Two reasons
1. You love someone and want to take care of them
2. If you have some kind of economic interest
ii. Life
1. Timing
a. At the time the contract is formed is good enough
2. Types
a. Familial
b. Keyman policy
i. Business is allowed to write policies on certain key personnel
c. People whom you expect a financial gain from
i. Employment relationship alone is not enough
iii. The only person who can challenge if there is an insurable interest is the insurer
iv. Employers lack an insurable interest in ordinary employees
a.
v. Property (What is needed for an insurable interest)
