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Explanatory INSURANCE FINAL OUTLINE SPRING 2005 - ABRAHAM INSURANCE Homeowners Policy Life Insurance Policy CGL Policy

y Auto Policy IMPERFECT INFORMATION NATURE & FUNCTIONS OF INSURANCE A. Risk- ransfer !rom comparati"ely risk-a"erse to less risk a"erse #insure$ to insurer%& risk a"erse prefer a lar'e risk #())*% of sufferin' a small loss #premium% +. Risk-Poolin' #,i"ersification% Insurer can re$uce amount of "ariance in expecte$ loss Pre$icta-ility increases ."erall com-ine$ risk is $ecrease$ #risk-a"erse parties s/are risk% C. Risk-Allocation Insurers set a price t/at is proportional to t/e $e'ree of risk pose$ -y eac/ insure$ #risk classification% ADVERSE SELECTION / MORAL HAZARD A. A$"erse 0election Hi'/er risk people are more likely to seek insurance1 if insurers cant fi'ure out w/ic/ people are a -i''er risk2 t/ey cant c/ar'e t/e correct amount 3sin' an a"era'e price makes low risk people seek insurance to a lesser rate an$ /i'/ risk people to seek insurance at a /i'/er rate +. 4oral Ha5ar$ .nce a person o-tains insurance2 t/ey /a"e less incenti"es to -e careful +ot/ pro-lems are pro$ucts of imperfect information1 insurers are force$ to make estimates o com-at t/ese pro-lems2 insure$s employ t/e followin' tec/ni6ues7 a. 0creen Applicants #ex ante% -. Experience Ratin' #ex poste% 1 look at fre6uency an$ se"erity of claims c. ,e$ucti-le !eatures1 insure$ -ecomes a partner w8 t/e insurer -y /a"in' to pay also $. Losses Cause$ -y Risky +e/a"ior are Exclu$e$1 co"ers intentional $ama'es an$ ot/er risky -e/a"ior BREACH OF WARRANTY ( ! Has to say warranty to -e a warranty. +ut e"en if it says it2 mi'/t -e interprete$ as a misrepresentation. F"#$ S%"&'% L&()&*&%+ M(%,"&(*&%+ C#$$#- L(. R/*,1 e"en an immaterial -reac/ of a warranty "oi$s co"era'e ,e"ices for miti'atin' /ars/ effects of common law rule7 (. Contra Proferentem #9a'ainst t/e $rafter:% ;. Interpret as affirmati"e2 not promissory warranties Interpret warranties seemin'ly relate$ to future facts as relatin' only to present facts (

Explanatory <arranty must -e true only at t/e time it was ma$e1 Vlastos #pretty $um- since -ot/ insure$ an$ insurer expecte$ t/is promise woul$ run for policy perio$% =. Collapse $istinction -8t warranties an$ representations -y statute Representation must -e material to "oi$ co"era'e #relie$ upon an$ cause$ $etriment% S%(%/%#"+ A*%,"-(%&0,1 (. !alse representation must increase risk #most pro-insurer% ;. !alse representation /as to contri-ute to loss #pro-insured% (. 0tatements must -e frau$ulently ma$e in or$er to -e consi$ere$ warranty1 if not frau$ulent2 t/en t/ey will -e consi$ere$ false +y implication2 t/is means un$er ( or ; knowle$'e of falsity is irrele"ant ;. Com-ination of some or all of t/e a-o"e Vlastos v. Sumitomo Marine & Fire Insurance Company (19 !" # p.$ 9<arrante$ t/at t/e =r$ floor is occupie$ as a >anitors resi$ence: </at -earin' $oes t/e misrepresentation t/at t/e =r$ floor is a >anitors resi$ence /a"e on t/e risk pose$? Court su''ests t/ere coul$ -e some -earin' 0uppose t/at at t/e time of t/e fire2 no one was on t/e =r$ floor?1 two ways to look at t/e pro-lem7 (. C#-%"&)/%, %# L#111 if misrepresentation $i$nt contri-ute to loss2 it s/oul$ -e meanin'less ;. I-'",(1, #2 R&131 if t/e misrepresentation simply ma$e t/e risk 'reater in 'eneral2 it is material #re'ar$less or w/et/er it contri-ute$ to loss% Ct explains t/at t/e -reac/ of a warranty "oi$s insurance1 "ery /ars/ result w8 ori'ins in Lloy$s coffee +3 2 at t/e time in En'.2 warranties only co"ere$ material t/in's w/ic/ increase$ t/e risk @ou woul$ ne"er /a"e a w/olly irrele"ant warranty t/at $i$nt increase risk Ct acknowle$'es t/at usin' warranties analy5e$ t/rou'/ increase of risk approac/1 only worka-le way to allow insure$ to protect t/emsel"es rial court rea$ in 9exclusi"ely: into t/e warranty2 -ut appellate court re"erse$ General Rule1 interpret am%i&uous lan&ua&e in favor of covera&e Gi"en t/e 'eneral rule2 as lon' as a >anitor occupie$ some of t/e =r$ floor on t/e $ate t/e contract was si'ne$2 insure$ pre"ails1 reman$e$ only for $etermination w/et/er >anitor occupie$ any part =r$ floor MISREPRESENTATION VS4 CONCEALMENT (56! ,efinition7 A representation a statement2 eit/er oral or written2 ma$e -y t/e insure$ to t/e insurer w/ic/ forms at least part of t/e -asis on w/ic/ t/e insurer $eci$es to enter into t/e contract A representation "oi$s co"era'e if7 #(% it is untrue or mislea$in'2 #;% is material to t/e risk2 an$ #=% is relie$ upon -y t/e insurer. o /ese elements are usually examine$ t/rou'/ an o->ecti"e test. +ut is t/is fair to t/e insurer wit/ a-o"e a"era'e risk calculations. Conceptions of 4ateriality7 o Contri-ute to t/e loss7 if t/e fact misrepresente$ /a$ -een true2 t/e loss woul$ not /a"e occurre$. proinsure$ Insurers ar'ue t/at t/e $ecision to offer insurance is an ex-ante calculation an$ t/us t/is ex post concept of materiality s/oul$nt -e use$. o Increase t/e risk7 if t/e fact misrepresente$ /a$ -een true2 t/e loss woul$ /a"e -een less likely to occur. Insurers ar'ue t/at t/is concept of materiality is more appropriate2 -ecause it $ecreases lyin' an$ results in lower premiums #a -enefit to t/e policy/ol$er%.

A. Process of .-tainin' Insurance (. Point of Application ;. Point of 0ale =. Point of Claim ;

Explanatory Almost always an &-%,"$,7&("+ in"ol"e$1 some type of salesperson w/o is a sales instrument for t/e seller /is a'ent also acts as a pipeline for information from t/e applicant to insurer

+. Case Law 'eill v. 'ation(ide Mutual Insurance Co. Policy/ol$er is not typically lia-le for false statements in application complete$ -y a'ent unless /e was complicit in t/e a'ents misrepresentation. !acts7 /is is a 9pre-point of application: case. Aeil /a$ experience$ pre"ious fire losses. Applie$ for /omeowners insurance. Aeil claims7 He 'a"e t/e correct answers to t/e 6uestions /e was aske$ A'ent asks a-out pre"ious fire claims. P says 9=: an$ a'ent says 9t/at wont matter.: His a'ent complete$ t/e application A'ent writes 9none: un$er pre"ious fire losses section. Aeil $i$nt carefully re"iew t/e final $ocument Any misrepresentation must /a"e -een t/e responsi-ility of t/e a'ent Hol$in'7 /e policy/ol$er is not lia-le if /e was unaware of t/e misrepresentation. Policy/ol$er mi'/t -e lia-le if /e -elie"e$ t/e a'ent was tryin' to mislea$ t/e company. Issue is t/us w/et/er policy/ol$er was complicit in t/e misrepresentation of an a'ent. /e 6uestion as to w/et/er t/e a'ent was t/e sole source of misrepresentation 6uickly $e"ol"es into a /e-sai$2 s/e-sai$ situation. /e pro-lem is multiplie$ in a life insurance case -ecause one of t/e parties w/o is suppose$ to testify is $ea$. /ere are a lot of $ifferent permutations on t/e a'ent #a'ent t/at i$entifies wit/ t/e company2 a'ent t/at really wants to see t/e wi$ow pai$ out2 etc.% -ut none of t/em really cut in fa"or of t/e trut/. Mac)en*ie v. Prudential Insur. Co. of +merica (19$9" # p.,- # P.S/-+PP0IC+/I.' MIS12P12S2'/+/I.' Applicant answers application 6uestions accurately2 -ut -efore policy is $eli"ere$2 /e is $ia'nose$ w8 /i'/ +P1 /e $oes not $isclose t/is fact w/en a'ent $eli"erin' t/e policy asks if anyt/in' /a$ c/an'e$ C%1 you must $isclose is new con$ition is 9o-"iously material: re'ar$less of -ein' aske$ Aot t/at /ar$ in t/is case2 -ut in more $ifficult ones2 will people know w/at nee$ to $isclose? B4i'/t -e -etter to not /a"e rule of affirmati"e $uty to $isclose2 -ut a $efense for insurer in t/e insurer makes an in6uiry 8A1 cant we >ust say t/at people want insurance imme$iately2 so we can exten$ co"era'e from t/e point of application C no pro-lem of a$"erse selection after t/e application PR.+LE401 still pro-lem of a$"erse selection if people apply w/en t/ey are sick suspectin' a pro-lem2 -ut -efore $ia'nosis BPolicy 6uestion is $o we want to pre"ent t/ose w/o take a$"anta'e or protect t/ose in 'oo$ fait/ t/at /a"e a c/an'e -efore $eli"ery -ut after application C w/ic/ situation pre"ails more?1 we cant tell so its /ar$ to make a c/oice In a$$ition2 t/ere is lapse perio$ -8t application an$ $eli"ery w/ere some people ret/ink1 t/ose w/o fin$ a new pro-lem are muc/ less likely to recant So adverse selection does not &o a(ay

CONTRACT FORMATION & MEANING (29! THE ROLE OF STANDARDIZED FORMS (29! =

Explanatory T:, P#*&'+ D"(2%&-; P"#',11 (-7 G,-,"(* I-1&;:%1 Property8casualty insurance policies are $ominate$ -y stan$ar$i5e$ forms C /ealt/ an$ life are not since t/ey come from 'roup employment policies Policies amon' competin' companies are t/e same C no w/ere else to 'o for a $ifferent contract (. /3e 4istory of IS. (Insurance Services .ffice" ,rafts t/e stan$ar$ form policies /ere were multiple re'ional2 state2 an$ e"en local 9ratin' -ureaus: in t/e (Dt/ an$ ;)t/ century Insurance companies 'et to'et/er an$ compare loss statistics #/elps refine policies an$ set a reasona-le premium not c/ar'in' too muc/ or too little%1 ratin's -ureaus $i$ t/is work rou-le is from t/is point it is only a "ery small step to collusion1 cartel woul$ -e easy 3n$erminin' t/e cartel non-existent -8c to 'et t/e nee$e$ $ata2 one must c/ar'e t/e cartel price .nce t/e $ata is poole$2 all t/e 'roups must -e sellin' t/e same t/in' in or$er for t/e $ata to work /us2 competition was only o"er price not o"er w/at t/e policy says E"entually2 t/ese -ureaus -ecome ; a. .ne for t/e stock an$ t/e ot/er mutual companies C Aational +ureau of Casualty 3n$erwriters #A+C3% w/ic/ -ecame t/e Insurance Ratin' +oar$ #IR+% -. 4utual Insurance an$ Ratin' +ureau #4IR+% /ese two com-ine in (DE) to form I0.

Contra Proferentem (28) (. /3e 0in&uistic 5imension A policy is am-i'uous w/en it is suscepti-le to ; reasona%le interpretations Cynical "iew is Ct $eci$es w/o it wants to win an$ uses am-i'uity as excuse for t/eir $ecision Courts 'oes one of two ways w/en t/ere is imperfect lan'ua'e7 (. S%"&'% L&()&*&%+ ;. N,;*&;,-', L&()&*&%+ #Var&as6 Pan +m%< lia-ility only if reasona-ly perfecti-le lan'ua'e

A)"(:($=1 >",7&'%&0, %,1%7 $i"ision in t/e courts a-out w/at e"i$ence you can look at 0ome courts /ol$ t/at if t/e pro"isions are unam-i'uous on its face2 t/en cant look at extrinsic e"i$ence #<illiston parol e"i$ence "iew% .t/er courts say t/at you can look at extrinsic e"i$ence to pro"e am-i'uity #Cor-in "iew%. @ou woul$ t/ink t/at un$er eit/er approac/2 once am-i'uity is foun$2 contra proferentem woul$ say it 'oes a'ainst t/e insurer. 0ome >u$'es actually try to fi'ure t/e t/in' out an$ contra proferentem is use$ as a tie-reaker of last resort. A-ra/am tells us w/at /e t/inks is 'oin' on un$er t/e ta-le. </at $o t/ey take into account7 actual statements of t/e parties2 two main factors (. /ow perfecti-le t/e lan'ua'e is. ;. w/et/er people woul$ actually want t/e co"era'e t/at t/e court is interpretin' t/e policy to pro"i$e #per/aps -ecause t/ey t/ink t/ey are alrea$y 'ettin' it%. Var&as v. Insurance Company of 'ort3 +merica (19 1" 'e&li&ence 0ia%ility #p. ;F% ,oes co"era'e of all of 3.0. an$ +a/amas inclu$e air o"er water connectin' states to islan$s? /ere were >ust so many ways for t/e insurer to make t/e policy clearer 0ince t/e lan'ua'e was perfecti-le2 P wins e"en un$er ne'li'ence stan$ar$ Alternate interpretations were not commercially reasona-le rial court /el$ opposite -ecause >ust went wit/ $ictionary terms of co"era'e2 w/ic/ woul$ ar'ue in fa"or of insurance company. 7orld /rade Center Properties v. 4artford Fire Insurance Company(,--!" (!," /3e definition of a sin&le 8occurrence9 is si&nificant6 fre:uently liti&ated6 and often :uite unclear. G

Explanatory ; plane cras/es a sin'le 9occurrence:? ra"elers re6uests t/at t/e co"era'e $rafte$ on t/e W&**P"#> ;))) form. o W&**P"#> $efines an 9occurrence: as not only a sin'le e"ent -ut a series of similar causes. o Ex-ante pro-policy/ol$er -ecause it miti'ate$ $e$ucti-les. Came up /u'e for t/e insurance company /ere. Insurers ot/er t/an ra"elers a'ree$ to -e -oun$ -y t/e <illProp form or simply sai$ not/in'. ra"elers2 on t/e ot/er /an$2 re>ecte$ t/e <illProp form an$ sai$ 9well su-mit our own policy.: o +ut ne"er sent anyt/in' else. o All 0il"erstein /a$ were a'reements to a'ree. o .n 0ept. (G2 ra"elers issues policy pro"i$in' co"era'e on a per-occurrence -asis -ut t/ere is no $efinition of an 9occurrence.: 0il"ersteins lawyers ar'ue$ t/at term was unam-i'uous7 o $efine$ -y a series of A@ cases as 9t/e imme$iate cause of t/e loss: t/erefore un$er A@ law H ; causes of loss. Court foun$ t/ere was no unam-i'uous $efinition of 9occurrence: un$er A@ law. If t/e term 9occurrence: as reference$ in t/e ra"ellers -in$er is am-i'uous2 w/at role $oes a fin$in' t/at it is am-i'uous play? Iury instructions in"ol"e no /elp.

4any courts $o not use contra proferentem w/ene"er an applica-le pro"ision is am-i'uous. Rat/er2 t/ey apply it as a tie-reaker w/en ot/er sources of extrinsic meanin' $o not pro"i$e a sin'le answer. /e only principle$ test for t/e num-er of causes looks at t/e last possi-le t/in' t/at t/e insure$ coul$ /a"e $one to pre"ent t/e loss an$ t/e num-er of t/ese is t/e num-er of causes C it is not clear t/at t/is is ri'/t2 -ut it explains t/e result in #4ic/i'an C/emical2 w/ic/ we $i$nt rea$%. ;. /3e 5emand 5imension <oul$ t/e policy/ol$er8a ma>ority of policy/ol$ers want t/e co"era'e at issue at a fair price? P,-(*%+ S%(-7("7 #1ustoven%1 penali5e insurer for -a$ lan'ua'e Criticism1 $oesnt account for fact t/at if a Ct fin$s co"era'e in a 'i"en case2 insurers will raise premiums to co"er for t/e loss an$ policy/ol$ers will en$ up payin' for it Criticism1 w/en courts fail to apply ma>oritarian stan$ar$2 t/ey penali5e policy/ol$ers -ecause -asically t/e $ecision for co"era'e in ( case H e"ery policy/ol$er is now -uyin' t/ey may not want Criticism1 $oes A. /onor reasona-le expectations of policy/ol$ers. M(?#"&%("&(- S%(-7("7 #Var&as%1 woul$ a ma>ority of policy/ol$ers want t/is co"era'e? /is stan$ar$ protects insurers since am-i'uities will only -e a'ainst insurer if t/e policy/ol$er woul$ /a"e expecte$ t/e co"era'e1 1ust3oven woul$ lose /ere +%ra3am .vervie( Courts often uses all four interpretations to $eci$e cases1 almost like a flowc/art !irst C is t/e lan'ua'e perfecti-le? @E01 is t/e result outra'eous #policy/ol$er woul$ not reasona-le expect suc/ co"era'e% .R woul$ t/e policy/ol$er /a"e expecte$ suc/ co"era'e? A.1 fin$ for insurer unless in"okin' a strict lia-ility stan$ar$

=.

A. Honorin' Reasona-le Expectations of t/e Insure$ In contrast to contra proferentem2 t/is principle is not interpreti"e an$ re6uires /onorin' expectations $espite unam-i'uous lan'ua'e1 only aroun$ ()-(J >uris$ictions follow t/is rule an$ it is $eceleratin' in popularity Honorin' reasona-le expectations is simply ( 2('%#" in fa"or of insure$ #especially w/en usin' ot/er $octrines%1 t/is is not t/e sole $eterminant of cases #as a $octrine woul$ -e% How is t/is rule >ustifie$?

Explanatory +t(ood v. 4artford +ccident. (19;$" # p.!9 Repairman looks for insurance co"era'e for ne'li'ently installe$ t/ermostat t/at causes $eat/ Painstakin' re"iew of policy lan'ua'e s/ows possi-le co"era'e for on'oin' operations an$ complete$ operations1 P only -ou'/t on'oin' co"era'e1 no am-i'uity /ereK Ct in"okes ",(1#-()*, ,@>,'%(%&#-1 $octrine premise$ on nearly uni"ersal expectation #all woul$ expect t/is co"era'e% t/at a Ct can i$entify w8o an e"i$entiary /earin' Limitin' pro"ision 9-urie$: amon' irrele"ant an$ expecte$ su-clauses. Aot a factual 6uestion1 t/is $octrine only works as a matter of law /is case seems to come out ok1 t/is repairman almost certainly wante$ an$ expecte$ t/is co"era'e +ut w/y s/oul$ t/inkin' you /a"e co"era'e 'et you co"era'e?1 I! e"eryone w/o -uys t/is expects t/is co"era'e2 t/ey are pro-a-ly willin' to pay a premium for a policy w8 t/is co"era'e an$ are pro-a-ly -ein' c/ar'e$ suc/ a premium Ar'ua-ly you alrea$y pai$ for w/at you t/ink you /a"e .peratin' >ustification is t/e assumption t/at virtually all electricians in Atwoo$s situation woul$ want t/e complete$ operations co"era'e +t(ater Creamery Co. v. 7estern 'ational Mutual Insurance Company (19 <" # p.=, 8,,%#-=1 P"&-'&>*,7 9t/e #)?,'%&0,*+ ",(1#-()*, ,@>,'%(%&#-1 of applicants an$ inten$e$ -eneficiaries re'ar$in' t/e terms of insurance contracts .&** ), :#-#",7L even t3ou&3 painstakin' stu$y of t/e policy pro"isions woul$ /a"e ne'ate$ t/ose expectations.: Here t/ere is a stron'2 +3 not necessarily a uni"ersal expectation1 $ifficult to know w/ic/ people woul$ want to purc/ase t/e co"era'e if t/ey knew it was not inclu$e$ Policy re6uirin' p/ysical marks of entry are c/eaper1 no c/ance of payin' for insi$e >o-s an$ t/ere is no fact 6uestions to answer Ct. /ol$s t/at e"i$ence-of-forci-le-entry re6uirement /as only two rational >ustifications Pre"ention of co"era'e for insi$e >o Encoura'ement to insure$ to secure premises In instant case2 neit/er >ustification applie$. +ut $o most people expect t/is exemption from co"era'e?1 no way for Ct to knowK If @E01 t/en we may make people pay for t/in's t/ey $ont want If A.1 insurer nee$s to make a-solutely sure people know w/at t/ey are 'ettin' C "ery /ar$K +ut2 if people want ot/er type #wit/out exemption%2 w/y not alrea$y -ein' sol$? 1 possi-le t/at most people want it M t/ink t/ey /a"e it alrea$y #+t(ood% .R more likely >ust too /ar$ to explain to people $ifference in co"era'eK If it wasnt t/at /ar$ to explain2 -ot/ types woul$ alrea$y -e -ein' sol$1 mar>et tells us if people all e?pect a certain type of covera&e Pro-lem t/at exemption re$uces a$ministrati"e 8 liti'ation costs an$ makes policies c/eaper. Ct. in effect fin$s t/at ma>ority woul$ prefer extra co"era'e to t/ose sa"in's. A-ra/am1 cases like t/is are 9>u$'e ma$e: insurance. ra$itional rule7 ",(1#-()*, ,@>,'%(%&#-1 @ contract am%i&uity H co"era'e. Neetons "iew7 ",(1#-()*, ,@>,'%(%&#-1 H co"era'e. THE ROLE OF INTERMEDIARIES (9A! A4 T:, A/%:#"&%+ #2 %:, A;,-% (9B! A'ent is one w/o /elps applicant assess nee$s an$ c/ose t/e ri'/t co"era'e1 in -ot/ +t(ater an$ +t(ood2 a'ent is likely to -lame for t/e pro-lems A'ents act wit/ eit/er7 (. Actual Aut/ority a. Express -. Implie$1 inferre$ from facts ;. Apparent Aut/ority Appears to /a"e aut/ority2 -ut $oes not1 -in$s principle to =r$ party O

Explanatory 2lmer /allant +&ency6 Inc. v. Aailey 7ood Products6 Inc. (19;9" # p.=9 A'ents aut/ority to -in$ principle was restricte$ to prior appro"al -y Puric/ Insurance Company A'ent -in$s P w8o appro"al Applicant sues -ot/ a'ent an$ insurance company on apparent aut/ority1 Ct a'ree t/ere was apparent ,ecision is ri'/t2 -ut not/in' P can $o to a"oi$ t/is result1 >ust nee$s to pick -etter a'ents +ut2 can 'o after a'ent for -reac/ of contract Is t/e aut/ority 9apparent: or 9automatic:?1 (>>(",-% 1&$>*+ '#$,1 2"#$ >&'3&-; %:,$ (1 ((;,-%2 not/in' elseK #t/is is a "ery $ifferent type of apparent aut/ority t/en use in ot/er contexts% In 'eneral2 once you 'i"e an insurance a'ent a position of -ein' an a'ent2 you automatically 'i"e /im t/e apparent aut/ority to $o w/at normal a'ents $o1 re'ar$less of restriction you use B+enefits to /a"in' a'ent /a"e apparent aut/ority7 Applicants s/oul$ not /a"e to in"esti'ate aut/ority of e"ery insurance a'ent (. Alt/ou'/ a'ent may occasionally excee$ scope of aut/ority2 insurance companies want a'ents to pro$uce -usiness for t/em #i.e. to /a"e t/e aut/ority to -in$ t/em%1 AECE00I @ B4 F"(/7C W(&0," (-7 E1%#>>,* (56! 7olinet* v. Aer>s3ire 0ife (,--=" # p<! 5iscovery 1uleB Statute of limitations tolls from date (3en P 3as enou&3 info to su&&est inCury %y 5Ds conduct. F('%1D +erks/ire a'ent sol$ P 9"anis/in' premium: life insurance policy #$eat/ -enefit7 Q=+%. Ranis/in' premium policies re6uire t/e insure$ to pay a certain num-er of premiums -efore t/e policy -ecomes self fun$in' #once cas/ "alue reac/es a certain le"el2 future premiums are simply pai$ from it% A'ent explaine$ t/at after payin' (G years of Q;)N premiums2 t/e policy woul$ -ecome self fun$in'. o A'ents estimates -ase$ on /istorical rates of return. o .ri'inal illustration of pro>ections came wit/ a $isclaimer2 emp/asi5in' estimates not 'uarantee$. P purc/ase$ t/e policy in (DFE. P recei"e$ reports from +erks/ire a-out un$erperformance. +roker of anot/er insurer su''este$ t/at ,s pro>ections were incorrect2 P sue$ #in (DDE% un$er a num-er of contract claims #$ismisse$ an$ not pursue$% an$ tort claims #t/at t/e ori'inal pro>ections were -ase$ on frau$ulent information2 etc.%. 0tatutes of limitations for t/ese policies were t/ree an$ four years. I11/,7 73en did t3e statute of limitations on PDs tort claims %e&in to runE D&1'#0,"+ "/*,7 0tatute tolls from $ate w/en P /as enou'/ information to su''est in>ury -y ,s con$uct. o P ar'ues7 /e meetin' wit/ t/e ot/er insurance -roker in (DDO. Claim of frau$ in/erently unknowa-le at inception of policy. , ar'ues7 P recei"e$ 9sufficient storm warnin's: to put /im on notice -efore t/at $iscussion. o .ri'inal $isclaimer in (DFE2 annual reports -etween (DD(-(DDG 2 cas/ "alue8$i"i$en$ statements for (DD(-(DDG2 form letters in (DD; statin' t/at "anis/in' premium /ol$ers mi'/t /a"e to pay a$$itional premiums. 51% C&"4 2&-71D o <it/ re'ar$ to t/e ori'inal $isclaimer7 P knew t/e premium promise was not 'uarantee$2 -ut coul$ not /a"e t/ou'/t t/at t/e promise was -ase$ on frau$ulent $ata at t/e policys inception. o <it/ re'ar$ to t/e annual reports2 letter2 an$ cas/ "alue statements7 /e information P recei"e$ s/owin' t/at /is policy was un$erperformin' was not sufficiently su''esti"e of frau$. 1oset3 v. St. Paul Property & 0ia%ility Insurance Company (19 <" # p.< Ps li"estock are /urt in acci$ent an$ a'ent su''ests sellin' t/e /urt li"estock1 P t/en makes claim an$ t/en fin$s out only /as co"era'e for $ea$ li"estock1 ar'ues /e woul$nt /a"e sol$ less a'ents a$"ice. Alle'e$ly2 <attleswort/ of +lack Hills #reseller2 essentially% allowe$ Roset/ to 'o on t/inkin' t/e co"era'e existe$. Possi-le /e ne"er /a$ t/e policy in t/e first place. +lack Hills s/oul$ /a"e ma$e at least t/e uncertainty clear up-front. Aot necessarily ne'li'ent2 -ut not 'oo$. E

Explanatory 3nlike /allant6 t/is in"ol"es >#1%-*#11 '#-7/'% C estoppel or not? #estoppin' con$uct% P is ar'uin' t/at con"ersation 'a"e /im co"era'e /e ne"er /a$ /ere are ; main rules concernin' estoppel7 R3LE A #4AI.RI @%1 estoppel cannot expan$ co"era'e #-ut w/at else coul$ it e"er $o?% 4ay-e estoppel can only ne'ate restrictions of policy #con$itions su-se6uent%2 -ut not expan$ policy. Can only 'i"e co"era'e t/at your own actions woul$ /a"e $iminis/e$. R3LE A #4IA.RI @% #t/is court%1 estoppel can expan$ co"era'e an$ ne'ate restrictions /is rule is 'rowin' in popularity R3LE +1 estoppel can operate only if a'ents con$uct occurre$ at inception of policy2 not after policy is consummate$. 0o misrepresentation only expan$s -efore policy issuance. Ct /ere follows t/is rule 1 rule makes little sense #may-e reflexi"e concern a-out apparent aut/ority since insurer can $o little to limit scope of a'ent aut/ority post contract2 rule says e"en if apparent aut/ority2 no -in$in' effect1 $rawin' t/e line% A t/inks t/is is splittin' t/e -a-y at t/e exact wron' place. urns t/e Parol E"i$ence rule on its /ea$ #i$ea t/at contract superse$es%. 0eems to 'et it exactly -ackwar$s. +ut t/is is t/e rule.

C4 G"#/> I-1/"(-', ( 5! 3sually sol$ t/rou'/ an employer. Economies of scale M competition to pro"i$e top -enefits. Less a$"erse selection. ax -enefit #-enefits not taxa-le as income%. ou'/ $ecision w/et/er to cut off a'ent or take risk t/at /e will excee$ aut/ority #/e 'ets you -usiness so it is a tou'/ $ecision% o w/at extent is t/e employer 9an a'ent: of t/e insurer? ERI0A a$$resses t/is2 -ut /as exemption for preemption -y state insurance re'ulation. 3nsystematically2 ERI0A trumps state rules 9influencin': insurance. Here insurer relies on employer for clerical functions1 makes market for 'roup insurance "ery competiti"e In s/oppin'2 employer looks for limite$ lia-ility1 makes it tou'/ for insurer to limit t/e employer PUBLIC POL4 RESTR4 ON CONTRACT TERMS ( 9! In t/is area2 we mo"e passe$ issues of meanin' to t/ose of "ali$ity = -ases of "ali$ity #pu-lic policy% concerns7 a. Riolation of Constitution or statute -. Encoura'ement of 4oral Ha5ar$ #most cases fall /ere C co"era'e of puniti"e $ama'es?% A0N1 (. </en can puniti"e $ama'es -e awar$e$? ;. ,o some awar$s fall -elow le"el of pu-lic policy concern? c. Promotion of 3nreasona-le +e/a"ior 4artford Casualty Insurance Company v. Po(ell (199 " - $= Insurance "oi$ for pu-lic policy reasons C 4AI.RI @ R3LE H sou'/t $eclaratory >u$'ment t/at it $i$nt /a"e to insure Powell un$er policy issue$ to /er employer C s/e was $runk2 in a wreck2 face$ puniti"e $ama'es. Court ma$e Erie 'uess t/at Ss purpose in puniti"e $ama'es is punis3ment and deterrenceL o contracts #insurance contracts% miti'atin' t/at punis/ment woul$ -e a'ainst pu-lic policy 3n$er state law2 w/at can puniti"e $ama'es -e awar$e$ for?1 only w/en intent to cause /arm or su-stantial certainty you will cause /arm1 'i"en t/is2 you can ne"er -e insure$ for puniti"e $ama'es First Aan> # Aillin&s v. /ransamerica Insurance Company (19 =" # p. 1 3n$er state law2 you can sometimes 'et puniti"e $ama'es for somet/in' -elow /i'/ le"el of -lamewort/iness2 so as a rule2 you cant always say you cant -e insure$ for puniti"e $ama'es

Explanatory Stric>land v. Fulf 0ife Insurance Co. (19; " - ;$ INSURANCE REGULATION (E2! THE ALLOCATION OF POWERS (E2! In Paul v. Vir&inia #(FOD%2 t/e 0up. Ct foun$ t/at Con'ress /a$ no power to re'ulate insurance /is case was o"errule$ in price fixin' situation Sout3-2astern Gnder(riters #(DGG% an$ foun$ Con'ress coul$ re'ulate un$er commerce power an$ all anti-trust statutes now $irectly impacte$ t/e insurance in$ustry Insurance Companies wante$ a way out of t/is $ecision1 look to Con'ress to $ecline t/is power... Implication was t/ey werent e"en allowe$ to s/are loss $ata or write stan$ar$i5e$ policies. McCarran # Fer&uson +ct (19=<" # p. ! Con'ress in$icates it is refrainin' from insurance re'ulation e"en t/ou'/ it /as Constitutional power to $o so Ao implie$ fe$eral preemption of state insurance re'ulations B!e$eral anti-trust laws are inapplica-le to t/e extent t/at 9-usiness of insurance: is 9re'ulate$: -y a state </at $oes it mean to -e 9-usiness of insurance:? 9Re'ulate$:? </at is scope of exception Antitrust pro/i-itions apply to 9-oycott2 coercion2 or intimi$ation: </at is 9-oycott2 coercion2 or intimi$ation:? After t/is Act passe$2 states >umpe$ at t/e c/ance to re'ulate. THE STATE REGULATORY RESPONSE (E5! A. ."er"iew of 0tate Re'ulation Re'ulations create$ an Insurance Commissioner to assure t/at rates are not 9excessi"e2 ina$e6uate2 or unfairly $iscriminatory: Policy lan'ua'e is su->ect to appro"al Insurance Commissioners may re'ulate $ecepti"e2 mislea$in'2 or unfair practices 0ol"ency of in$i"i$ual insurers is to -e monitore$ +. Re'ulations to Assure 0ol"ency #FJ% !irst "irtue of an insurance company is its sol"ency1 Commissioners attempt to assure it t/rou'/ au$it -y re6uirin'7 (. 4inimal capital re6uirements ;. 0AP #o"erly conser"ati"e% an$ Risk--ase$ capital "aluation =. In"estment criteria G. !ilin's an$ perio$ic examination J. Guaranty fun$s1 $esi'ne$ to affor$ policy/ol$ers of an insol"ent company a ri'/t to fun$s in t/e 'uaranty fun$ #t/is is all states except A@ w/ic/ /as no fun$2 -ut will create one post insol"ency% Pro-lem w8 'uaranty fun$s is t/at consumers $ont c/oose company -ase$ on sta-ility since t/ey are 'uarantee$ money anyway. Creates moral /a5ar$ -ecause risky in"estments pro$uce 'reater upsi$e -ut $ownsi$e limite$ -y 'uaranty fun$s. Ao-o$y worries a-out w/et/er t/eir claim is 'oin' to 'et pai$. Insol"ency /appens anyway sometimes -ecause of frau$2 poorly performin' in"estments2 etc. C. Rate Re'ulations #FD% PP sli$es online Insurance companies are in ; -usinesses7 (. 3n$erwritin' !unction ;. In"estment Profit D

Explanatory O>,"(%&-; >"#2&% H un$erwritin' profit8loss T in"estment profit8loss In a competiti"e market2 premiums will -e -i$ $own -ase$ on -ot/ aspects of insurance U-7,"."&%&-; P"#2&% H sum of premiums C #losses T expenses% 0oss 1atio H losses compare$ to premiums #e.'. D)1 for e"ery $ollar you take in you pay out . D)% 2?pense 1atio H expenses compare$ to premiums Com%ined 1atio H losses T expenses compare$ to premiums #a com-ine$ ratio U ()) in$icates an un$erwritin' loss% L#-;-T(&* I-1/"(-', #me$ical malpractice%1 t/ose types of insurance wit/ un$erwritin' loss ten$ to -e companies t/at /ol$ onto t/e premiums lon'er #more in"estment%1 in"estment offsets un$erwritin' loss S:#"%-T(&* I-1/"(-', #fire2 t/eft%1 >ust t/e opposite In a competiti"e market2 rates $iscipline t/emsel"es1 ex. one insurer tries to make -i' profit $ue to /i'/ interest rates2 anot/er will c/ar'e lower an$ still make profit T",-7&-; (-7 D,0,*#>$,-% 0oss /rend1 t/e pattern of annual loss increases or $ecreases in a 'i"en line of insurance 0oss 5evelopment1 rate at w/ic/ loss un$er a 'i"en years line of insurance accumulate o come up w8 premiums2 company /as to use t/ese tren$s to pre$ict /ow t/in's will work out in future Pro-lems is t/at to set a rate for ;))(2 you can use more relia-le (DDO $ata w8 J years of loss trackin'2 +3 t/is is ol$er policy2 or you can use ;))) w/ic/ is muc/ more similar in time2 +3 only /as one year of $ata Actuaries can /elp2 -ut t/ey assume t/in's will c/an'e in t/e same way t/ey $i$ in t/e past1 t/us2 insurance companies use actuaries in a$$ition to 'uesses a-out future c/an'es in t/e worl$ BNey 6uestion is not /ow rates 'et set2 -ut <H. 'ets to $eci$e /ow muc/1 insurers2 states2 IC2 Courts? 0tate insurance re'ulators are confronte$ wit/ t/e same $ata as t/e insurance companies. ra$e-off -etween completeness of $ata an$ recency of $ata. 0tate insurance commissioners /a"e notoriously t/in staffs. !ew attempts to apply term 9unfairly $iscriminatory.: 4ost of t/e most unfair -ases #race2 etc.% /a"e -een screene$ out. </en issue comes up2 usually $eci$e$ -y le'islature.

Commissioner of Insurance v. 'ort3 Carolina 1ate Aureau (199$" # p.9, !or practical purposes2 Commissioners /a"e muc/ $iscretion1 $ecision are almost ne"er o"errule$ on su-stanti"e 'roun$s C if anyt/in'2 t/ey are reman$e$ for proce$ural reasons /is case is a perfect example1 Ct >ust says write a -etter opinion Ct will almost always $iffer to t/e expert1 as lon' as it is not ar-itrary or capricious 0tate appeals courts $ont (ant t/ese cases. Iust want to fin$ 9enou'/ e"i$ence: in t/e =J)) pa'e recor$ to 'et ri$ of it an$ 9'o t/rou'/ t/e motions.: wo 4o$els of Rate Re'ulation (. /raditional Pu%lic Gtility Aature of monopoly is lack of competition2 so some commission nee$ to allocate resources to $eterminin' a fair rate ;. Competition o t/e extent t/ere is competition2 w/y employ a pu-lic utility mo$el?1 market re'ulates prices >ust fine #sa"es on someone /a"in' to construct a 9fair: price% Allocate resources to ensurin' competition Calfarm Insurance Company v. 5eu>meCian (19 9" # p.11$ E@>*(-(%&#-1 2#" I-'",(1,1 &- A/%# I-1/"(-', a. R&1&-; C#1% B(1,1 /ealt/ care costs2 "e/icle repair2 frau$2 increasin' num-er of acci$ents as population $ensity rises -. A-%&-'#$>,%&%&0, B,:(0&#"1 -y insurers2 e"i$ence -y7 4arket structure #concentration% 4arket con$uct #collusion% 4arket performance #excess profita-ility% ()

Explanatory In CA2 t/ere was little e"i$ence of anti-competiti"e -e/a"ior2 +3 t/e premise -e/in$ prop ()= #rate roll-acks% /as to -e anti-competiti"e -e/a"ior1 makes little sense 0upposin' prop ()= 'ot it wron'1 w/at /appens w/en t/is roll-ack occurs to prices t/at $i$nt nee$ it? 0omet/in' you sell /as to s/rink2 so co"era'e is slower2 more $isputes o"er payouts2 etc. In lar'e states like CA2 t/e re'ulator may -e a-le to enforce restricti"ely low prices2 +3 in ot/er smaller states2 insurers will >ust lea"e an$ t/e state woul$ -e in -i' trou-le 0o in effect2 CA resi$ents 'et a -i' tax -reak

,. 93nfairly ,iscriminatory: Rates #DE% C/ar'in' $ifferent rates for $ifferent people is fine -8c risk classification /elps com-at a$"erse selection an$ moral /a5ar$1 +3 2 w/en $o t/ey 'o too far? +llstate v. Sc3midt (,--=" # 99 Gnfairly discriminatory classificationsHplain lan&ua&e 3oldin&. 4I. F('%1D Allstate /as 9one year wit/ a $ri"ers license: re6uirement for applicants an$ re>ecte$ t/ose w/o $i$nt meet it. Applicant w/o was $enie$ on t/is -asis complaine$2 an$ insurance commissioner #0c/mi$t% issues a Cease an$ ,esist .r$er2 $isallowin' Allstates re6uirement for re>ection un$er HI statute pro/i-itin' suc/ $iscrimination. I11/,D ,oes t/e HI statute apply to ratemakin' only2 or to t/e un$erwritin' $ecision? 0upreme Court of Hawaii fin$s7 o In construin' statutes2 court must look to plain lan'ua'e first2 le'islati"e /istory secon$. </en construin' plain meanin'2 court attempts to ren$er no clauses or wor$s superfluous. o 0tatute refers to 9any stan$ar$ or ratin' plan: in pro/i-itin' certain $iscrimination. Applyin' t/e a-o"e rule2 9stan$ar$: must refer to somet/in' $ifferent t/an 9ratin' plan2: or it woul$ -e superfluous. 90tan$ar$s: inclu$es un$erwritin' stan$ar$s. H#*7&-;D 0c/mi$t wins. </at classifications are unfairly $iscriminatory? /ose t/at are7 o N#--'(/1(*4 Raria-le t/at is -asis for classification may -e merely correlate$ wit/ pro-a-ility of loss -ecause it is merely a proxy for somet/in' t/at is causal. o N#--'#-%"#**()*,4 en$ency of t/e law is not to punis/ people for immuta-le c/aracteristics. 0/oul$ t/e results of t/e 9natural lottery: -e a factor for insurers to consi$er? /at is2 t/ere are less pro-lems in c/ar'in' more to someone w/o c/ooses to sky$i"e t/an in c/ar'in' more to someone wit/ art/ritis. o S/1>,'% '*(11&2&'(%&#-1 2#" -#--&-1/"(-', ",(1#-14 Race2 reli'ion2 'en$er2 an$ pro-a-ly 'enetic factors #-anne$ or limite$ in o"er /alf t/e states% (. Actuarially unsupporte$ rate classes are $iscriminatory1 t/is is true2 -ut not exclusi"e /is almost ne"er /appens C i.e. c/ar'e Cat/olics more t/an Protestants Insurers will naturally 'ra"itate towar$s t/e plan t/at is most cost effecti"e for t/em Role of Commissioner is to take rate cate'ories w/ic/ are supporte$ -y $ata2 -ut unaccepta-le for ot/er reasonsVnot/in' wron' wit/ makin' people pay a little more to cut out classifications. </en2 t/ou'/? Human Genome Pro>ect an$ Life Insurance Wuestion is w/o s/oul$ -ear economic -ur$en of some people -ein' suscepti-le to certain $iseases? wo issues7 a. Cost of 'enetic testin' is still pro/i-iti"ely /i'/ -. /ere are 'enetic tests for most $iseases <e tell issuers t/ey cant take any suc/ tests into account w/en settin' rates1 -ut t/is says not/in' a-out w/et/er t/ey can refuse insurance E"en if insure$s $ont ask for suc/ tests2 people will still 'et t/em on t/eir own if t/ey /a"e to $isclose a family /istory of $isease an$ will attac/ if ne'ati"e results <e are 'ettin' to t/e fear of /i'/ a$"erse selection if we always want to c/ar'e t/e same for all people E. /e Contin'ent-Commission Contro"ersy #()J% 0pit5er estimony ((

Explanatory RESIDUAL FEDERAL REGULATION (555! A4 W:(% I1 FB/1&-,11 #2 I-1/"(-',GH (552! Practice /as t/e effect of sprea$in' or transferrin' risk Practice is part of t/e policy relations/ip Practice is limite$ to entities wit/in t/e insurance in$ustry (. Aac>&round <e know t/at un$er Sout3eastern2 insurance is consi$ere$ interstate commerce an$ t/erefore2 t/e 0/erman Act s/oul$ apply to insurance in$ustry Insurance in$ustry complains an$ Con'ress passes 4cCarron to exempt insurance from fe$eral antitrust re'ulation to t/e extent it comes at t/e state le"el #not a 6uestion of re'ulation or not2 -ut -y w/om% Is t/is >ust a power allocation statute #fe$eralism% or an immunity statute?1 no answer

Gnion 0a%or 0ife v. Pireno (19 ," /2S/ # p.11, (st nee$ to know w/at 4cCarron was really a-out1 insurance companies nee$ to colla-orate on rates /ree Pron's to $etermine if practice is t/e 9-usiness of insurance:7 a. ,oes t/e practice in"ol"e t/e 1>",(7&-; of t/e policy/ol$ers risk? /is is an 9in$ispensa-le c/aracteristic of insurance: +usiness of insurance is not t/e -usiness of insurance companies. -. ,oes t/e practice in"ol"e t/e insurer8insure$ relations/ip? How close is t/e practice to rate makin'? Ct1 c/iropractic committee not inte'ral to t/is relations/ip NA1 yes it isK c. B,oes t/e practice /a"e an impact on non-insurance market? E"en if insurance -usiness nee$s stan$ar$ rate-makin' an$ immunity from cooperati"e -e/a"ior2 $oes not mean t/is immunity can carry o"er to ot/er markets Pireno1 usin' outsi$e -oar$ /as an a$"erse impact in c/iropractic market #woul$ seem to fall outsi$e of t/e cate'ory of 9-eni'n: acti"ities% NA t/inks t/is is t/e most important pron' Aot "ery satisfactory test -8c real 6uestion is7 9is t/is kin$ of t/in' -eni'n an$ somet/in' t/e in$ustry nee$s an antitrust exemption for?: +ut t/e test $oesnt really /a"e muc/ to say a-out t/at. B4 W:(% I1 FR,;/*(%&#-G )+ %:, S%(%,1H (520! As lon' as a state /as a systematic re'ulatory sc/eme in place2 sufficient to satisfy t/e re6uirement t/at t/e state is re'ulatin' insurance. est7 re'ulatory sc/eme /as to -e 9$#", %:(- ?/1% ( 1:($.: 0tate >ust /as to -e re'ulatin' some features of insurance. C4 W:(% I1 FB#+'#%%C C#,"'&#-C #" I-%&$&7(%&#-GH (520 )#%%#$! /ere is one exception from 4cCarron exemption1 any a'reement to 9-oycott2 coerce2 or intimi$ate: !ixin' rates is not pro/i-iti"e2 +3 forcin' people to fix rates is pro/i-iti"e SGMM+1I .F A.IC.// Aarry1 9concerte$ refusal to $eal: C in t/at case2 refusal to $eal on any terms 4artford1 refusal to $eal2 w/et/er on any terms or on specifie$ terms2 in ai$ of ac/ie"in' a purpose in connection w8 anot/er transaction C t/at is2 an ,-2#"',$,-% %,':-&I/, St. Paul Fire & Marine Insurance Co. v. Aarry (19; " # p.1,1 ,urin' (DE)s2 after years of stea$y claims an$ se"erity of claims2 t/e climate for me$ical malpractice c/an'e$ an$ t/in's -ecame muc/ less sta-le. (;

Explanatory !re6uency M se"erity of claims accelerate$ 1 muc/ /ar$er to pro>ect co"era'e an$ make rates. o com-at t/is2 companies switc/e$ from 9occurrence-ma$e: to 9claims-ma$e: policy1 t/is way2 claims are resol"e$ more 6uickly after t/e close of t/e policy year1 $octors /ate$ t/is - 'reater risk It was alle'e$ t/at 0t. Paul stoppe$ sellin' occurrence-ma$e policies AA, tol$ ot/er = companies in t/e city to not sell to t/eir customers at all1 t/ey a'ree /is forces 0t. Paul customers to stay wit/ t/em an$ -uy claims-ma$e policies /is is certainly a 0/erman "iolation2 I! it applies1 is t/is arran'ement a 9-oycott:? urns out t/at -oycott is a term of art wit/ a less t/an concrete $efinition. Ct. says -oycott applies to ( '#-',"%,7 ",2/1(* %# 7,(* #- (-+ %,"$1 1 w/et/er competitor2 someone else2 or customer1 A. >ust limite$ to refusal to $eal w8 competitor In t/is case2 companies are refusin' to $eal at all in or$er to allow 0t. Pauls to 'ain le"era'e in a separate transaction. Critical point is t3at refusal is not made for itDs o(n sa>e. /at is usin' t/e -oycott as an enforcement mec3anismVrefusin' to $o somet/in' not -ecause you $ont want to $o it2 -ut as a means to a separate en$. Ex7 Cant refuse to sell refri'erator unless customer >oins Elks Clu-. O>,- I/,1%&#-7 in t/is case2 refusal to $eal w8 consumers on any terms is a -oycott& +3 if ot/er insurance companies refuse$ to sell consumers occurrence policies2 -ut were willin' to sell claims-ma$e2 t/en may-e no -oycott #still anticompetiti"e%. BWuestion is always w/et/er (3at is alle&ed woul$ constitute a -oycott? Wuestion of is t/e alle'ations actually /appene$ is a 6uestion of fact for trial.

4artford Fire Insurance Company v. California (199!" # p.1,$ Is a refusal to $eal on specifie$ terms2 not all terms2 still a 9-oycott:? /ere was an effort to re"ise t/e stan$ar$ CGL policy1 'i"en /i'/ interest rates2 you $i$nt /a"e to c/ar'e a lot to 'ain a /i'/ return G issues $iscusse$ in relation to t/e re"ision of CGL7 (. 0/oul$ insurance in$ustry s/ift from occurrence policies to claims policies? ;. Insurers wante$ retroacti"e $ates use$ w8 claims ma$e policies <8out t/e restriction2 any in>ury occurrin' anytime prior2 t/at t/is type of insurance co"ers2 is co"ere$ #"ery /ar$ to estimate t/e risk since we nee$ to know e"eryt/in' t/at /appene$ in t/e past% Restriction woul$ set an ar-itrary $ate -efore w/ic/ no claims are co"ere$ =. A-solute pollution exclusion in CGL policies G. ,efense w8in limits #all t/e suits w8 no $efense limit was costin' insurer a ton%1 t/is met/o$ woul$ take e"ery Q spent -y insurer on $efense an$ $etract t/at amount from lia-ility co"era'e Alle'ation in t/is case was t/at -i' G insurance companies were unsuccessful in con"incin' t/e I0. committee to enact t/e G c/an'es to CGL1 instea$ of 'i"in' up2 t/ey alle&edly -oycotte$ -y7 a. Goin' to reinsurers an$ con"incin' t/em t/e I0. policy nee$s to -e re"ise$ in or$er to allowin' t/em -etter pre$icta-ility #reinsurers 'o to I0. an$ say t/ey wont reinsure w8out c/an'es% /is is really a refusal to $eal on specified terms in tar'et transaction -. +ack up t/eir t/reat -y sayin' if t/ey $ont c/an'e CGL policies2 reinsurers wont reinsure CGL polices .R any ot/er I0. policies /is is a con$itional refusal to $eal in anot/er transaction Are eit/er of t/ese t/reats a 9-oycott:? .ne may look to Aarry an$ say a -oycott must -e a refusal to $eal on any terms1 0calia re>ects t/is i$ea an$ says -oycott is muc/ -roa$er B0calia says a -oycott is a refusal to $eal2 w/et/er on any or all terms2 &- (&7 #2 (-#%:," %"(-1('%&#-2 not t/e one at issue 0o2 refusin' to sell reinsurance to I0. CGL policies is /i'/ly anti-competiti"e2 -ut it is not a -oycott1 +3 2 refusin' to reinsure ot/er polices is a -oycott (=

Explanatory B0o2 we nee$ a refusal to $eal AA, in ai$ of anot/er transaction @ou will almost ne"er fin$ a case w/ere someone refuses to $eal on (-+ %,"$1 if t/ey are not en'a'in' in a -oycott </en t/ere is refusal to $eal on 1>,'&2&,7 %,"$12 t/ere is a /i'/ c/ance t/at t/ere is no -oycott1 t/is is likely >ust -ar'ainin' Con'ress is so concerne$ o"er -oycotts -8c t/ey screw up multiple markets2 not >ust insurance market If t/e alle'ations were true2 w/y were insurers una-le to 'et w/at t/ey wante$ out of I0. #w/y $i$ t/ey /a"e to use t/e reinsurers% (. Possi-ly t/e rest of t/e insurance in$ustry $i$ not feel t/e same way </y care w/at t/e rest of t/e insurers t/ink 'i"en t/eir "olume of t/e market? ;. +i' G knew t/ey woul$nt -e a-le to sell t/e new policies if ot/er people still sol$ t/e ol$ type #E"en if t/ey c/ar'e$ a lot less -8c un$er-price$ occurrence co"era'e is too /ar$ to -eat% /is is a muc/ more plausi-le ar'ument .n t/e supply si$e2 t/e rest of t/e insurance in$ustry was pricin' t/e ol$ policies too low #price war 'i"en 'oo$ interest rates%1 -i' G knew t/is was a -i' mistake an$ e"eryone woul$ e"entually 'o -roke on t/ese policies 0o2 if we remo"e t/e t/in' you are c/ar'in' too little for2 t/e pro-lem is sol"e$ In t/e en$2 t/e attempte$ -oycott $i$ not succee$1 t/ey faile$ at 'oals (2;2 an$ G2 -ut $i$ 'et t/e pollution exclusion a$$e$

FIRE AND PROPERTY INSURANCE (56 ! O0,"0&,. First Party Insurance1 "ictims insurance Person protects a'ainst losses to t/emsel"es #fire2 property2 /ealt/2 $isa-ility% /3ird Party Insurance1 in>urers insurance Person protects t/emsel"es if t/ey are le'ally lia-le for anot/ers in>ury SAMPLE HOMEOWNER=S POLICY (56 ! Cri- 0/eet 4ost insurance policies 'i"e co"era'e an$ t/en take some away in exclusions /ink of /omeowners a'reement as CPL1 compre/ensi"e personal lia-ility /is is -asically insurance a'ainst e"eryt/in' w8 many exclusions +asic 0etup a. 5eclarations S3eet #(=F% +asically a $ata pa'e1 info on t/e insure$ an$ co"era'e amounts 4ost policies /a"e $e$ucti-les #amount insure$ pays /imself% w/ic/ co"ers7 (. A$ministrati"e costs of claims ;. Protect a'ainst moral /a5ar$ -. Insurin&Ds +&reement #insurer affirmati"ely makes promise1 contract% c. 5efinitions #(=D% People co"ere$1 all resi$ents of t/e /ouse/ol$ Property ,ama'e1 "ery -roa$ -ut $oes not inclu$e loss of "alue #nee$ p/ysical loss% $. Property Insured #(G(% Property co"ere$ H $wellin'2 ot/er structures2 personal property #w8 limits to 'uar$ a'ainst a$"erse selection%1 t/en exclusions take some co"era'e away. e. Perils Insured +&ainst #(GO% A** R&13/O>,- P,"&* C#0,"(;,1 insures all property co"ere$ a'ainst all in>ury except t/e one in t/e list of exclusions #t/is is t/e type of policy in t/e -ook% List of exclusions ten$s to su''est t/e $ama'e nee$s to come from t/e outsi$e #property cant >ust fall $own or rot away% (G

Explanatory f. S>,'&2&,7 R&13/N($,7 P,"&* C#0,"(;,1 only co"er $ama'e occurrin' in t/e followin' ways 2?clusions #(GD% E"en if only part of t/e loss is cause$ -y somet/in' exclu$e$2 no co"era'e at all /ere is no ne'li'ence pro"ision1 t/is is part of t/e insurance #>ust no intentionally% @ou also /a"e a $uty to miti'ate $ama'es once t/in's /appen Conditions #(J(% /ese are really con$itions an$ ot/er relate$ pro"isions /ere is a mort'a'e clause1 'i"es ri'/ts to mort'a'ee is t/ere is a loss Section II # 0ia%ility Covera&e Section I and II Conditions

'.

/. i.

REJUIREMENT OF AN INSURABLE INTEREST (5 5! !ollows from t/e >"&-'&>*, #2 &-7,$-&%+1 protect policy/ol$er from sufferin' a loss2 A. to 'i"e t/em a 'ain Lea$s to t/e &-1/"()*, &-%,",1% ",I/&",$,-% 1 to -e permitte$ to insure2 t/e insure$ must /a"e a la(ful and su%stantial economic interest in preser"in' t/e su->ect matter insure$ /is $octrine is primarily to com-at moral /a5ar$1 t/e pu-lic policy ser"e$ /ere is so compellin' t/at in most states2 an insurer cannot wai"e t/e re6uirement or -e estoppe$ from in"okin' it /e $octrine was $e"elope$ -y Cts2 -ut su-se6uently put into statutes -y many states 0atisfie$ -y7 a. Le'al interest1 owners/ip2 etc. -. !actual expectation1 not clear w/at will satisfy t/is stan$ar$ Policy/ol$er seems to nee$ some sort of real expectation of owners/ip c. Contractual interest1 means you /a"e an o-li'ation to purc/ase or take a le'al interest in t/e property $. Potential lia-ility Gi"en all t/is you are almost always -etter off to /a"e t/e property ne"er 'et $ama'e$ Policy/ol$ers want co"era'e2 e"en w/en it results from carelessness2 -ut it lea$s to moral /a5ar$ pro-lem an$ so insurers want

1ic3ard Fossett and Mar&aret 5. Fossett v. Farmers Insurance Company of 7as3in&ton (199;" # p.1 $ Examine t/e G factors7 Ct cant fin$ t/at Ps /a"e any le'al interest in t/e property C trustee $ee$ /a$ t/e property /ey /a$ no contractual interest1 not o-li'e$ to -uy anyt/in' /ey /a$ no factual expectation1 at -est it was a /ope #no /i'/ likeli/oo$% Gi"en t/is situation2 Ps are muc/ -etter off if somet/in' /appens to t/e propertyK1 only not -etter off if t/ey /a"e an o-li'ation to -uy from trustee $ee$2 -ut t/ey $ont /is is a -a$ failure in lawyerin' Ct /ol$s Ps 'et 0I1 +3 insura-le interest is limite$ to t/e impro"ements t/ey ma$e </y is a policy 'i"en w/ere t/ere is no insura-le interest? Insurance company is ne"er estoppe$ from ar'uin' no insura-le interest exists Policy is to protect pu-lic2 not insurance company TRIGGER & OCCURRENCE ISSUES (5 !

BUSINESS INTERRUPTION COVERAGE (5 A! 5uane 1eade v. St. Paul Fire & Marine Insurance (,--!" - 1$; F('%1D P purc/ase$ property insurance policy from , w/ic/ inclu$e$ )/1&-,11 &-%,""/>%&#- '#0,"(;,. Policy containe$ 9perio$ of restoration: clause un$er w/ic/ payment -y , was to continue only as lon' as woul$ reasona-ly -e re6uire$ for insure$ to re-uil$2 repair or replace t/e $estroye$ propertyV$esi'ne$ to 'i"e insure$ an incenti"e to miti'ate losses. After D8(( attacks2 Ps store in t/e < C was lost. I11/,D </at is t/e extent of co"era'e un$er t/e 9perio$ of restoration: clause? (J

Explanatory P ar'ues7 Actual perio$ t/at woul$ -e re6uire$ to restore Ps operations to t/e le"el t/at existe$ at t3e 7/C Store prior to t3e attac>s coterminous wit/ re-uil$in' of complex t/at will replace < C. , ar'ues7 Perio$ expire$ w/en P coul$"e restore$ operations somew/ere else. 0.,.A.@. fin$s7 o Aeit/er interpretation is ri'/t. ,s interpretation woul$ not pro"i$e co"era'e unless ALL of Ps stores were lost #,R is a c/ain%2 or only until -usiness at all ot/er P stores picke$ up to return o"erall -usiness to pre-D8(( le"el. Ps interpretation is wron' -ecause t/e clause $oes not speak to t/e perio$ t/at woul$ -e re6uire$ to reconstruct t/e complex surroun$in' t/e store2 only t/e store itself. o Courts interpretation7 .nce P could resume functionally e:uivalent operations in t3e same location (3ere t3e 7/C store stood6 t3e restoration period (as over. (closer to PDs interpretation". EKCLUSIONS AND EKCEPTIONS (5A2! A. Reason for Exclusions a. A"oi$in' catastrop/ic loss for insurer1 correlate$ risks #ne"er insure all /ouses on one -lock% -. Com-at moral /a5ar$ c. Limit a$"erse selection $. Pre"ent $uplication of co"era'e #$ont inclu$e autos in /omeowners2 -8c auto policy co"ers it% +. /e Pro-lem of Causation1 ; causes of a loss C one is co"ere$ an$ one is expressly exclu$e$?

/e Pro-lem of Intrinsic Loss C3ute v. 'ort3 1iver Insurance (19,;" - 1;, State Farm Fire and Casualty Company v. Aon&en (199$" # p.1;= .ne co"ere$ cause #=r$ party ne'li'ence% an$ exclu$e$ one #mu$flow% Policy says as lon' as loss is e"en partly or in$irectly cause$ -y an exclu$e$ clause H no co"era'e Ct says t/is lan'ua'e is fine1 it means w/at it says - t/ey are a"oi$in' le'al $octrine an$ t/ey canK 0o2 since t/e policy says co"era'e is exclu$e$ w/en mu$flow2 t/en no co"era'e /ere 4inority says t/ere is a rule t/at t/e main #or 9,22&'&,-% >"#@&$(%, '*(/1,:% cause of t/e loss is w/at controls2 AA, no policy lan'ua'e can o"erri$e t/is rule NA1 w/at $oes t/is mean? /is is an all-ris> policyK All causes are co"ere$ unless exclu$e$ C so w/at $oes it mean to say t/at t/ere is concurrent causation? #you will always /a"e a co"ere$ cause w8 all-risk 1 t/e w/ole point of /a"in' an exclusion is to pre"ent co"era'e w/en t/at t/in' /appensK% 0o2 minority rule is simply a -a$ insurance rule 0iristis v. +merican Family Mutual (1;9" - ,--, Pro-lem of causation ,oes /omeowners insurance policy co"er mol$ contamination of t/e /ome alle'e$ly cause$ -y water use$ to extin'uis/ an acci$ental fire? Policy exclu$es mol$ contamination. Policy co"ers 9risks of acci$ental $irect p/ysical loss to property unless t/e loss is exclu$e$ in t/is policy.: Policy $oes not co"er 9loss to t/e propertyL resultin' $irectly or in$irectly from or cause$ -y mol$: Ps ar'ument o 4ol$ $ama'e is an acci$ental $irect p/ysical loss to t/e /ome cause$ -y t/e (ater. Court7 If P can pro"e t/e causal connection wit/ t/e fire2 t/en t/e mol$ $ama'e is co"ere$. If P cannot pro"e causal connection2 t/en t/ere is no co"era'e. Iury 6uestion. o An insurance company t/at wis/es to limit co"era'e must use lan'ua'e t/at clearly communicates t/e limitation C. /e Pro-lem of Increase$ Risk #(F=% /ere is a tension in property insurance -8t $esira-ility of co"erin' loss cause$ -y acci$ent an$ loss cause$ -y ne'li'ence1 nee$ to $raw a line some(3ere w/en t/e moral /a5ar$ -ecomes too 'reat (O

Explanatory 4ost increase of /arm pro"ision /a"e temporal element1 if increase$ risk en$s2 you /a"e co"era'e

1osen v. State Farm Feneral Insurance Company (,--!" # p.1 ! Pro%lem of Increased 1is> Insurance policy #clearly an$ unam-i'uously% insure$ a'ainst collapse as $efine$ as 9actually fallin' $own: Insure$ replaced $ecks on rec. of contractor t/at collapse was 9imminent.: 0tate !arm refuse$ to co"er. Court of Appeals sai$ pu-lic policy o"erri$es w/at 0tate !arm was tryin' to $o #personal in>ury 'roun$s%2 -ut +ut 0upreme Court of CA re"erse$. .ne i$ea #moral /a5ar$% is t/at policy/ol$ers will >ust claim all sorts of t/in's are imminent an$ make repairsVonce repairs are ma$e2 its $ifficult for insurer to pro"e w/at was an$ was not imminent. Cost of repairin' imminent $ama'e typically is co"ere$ on commercial properties. 5ynasty v. Princeton Insurance Co. (,---" # p.1 ; FI-'",(1, #2 H(L("7 P"#0&1&#-: General Principle7 If t/e /a5ar$ is increase$ -y somet/in' in t/e 9>no(led&e .1 control: of t/e policy/ol$er2 co"era'e is "oi$. Plaintiffs ni'/tclu- 'oes up in -la5esVfinancial trou-le an$ sprinkler system was in t/e 9off: position e"en t/ou'/ it was inspecte$ as -ein' in t/e 9on: position. </at real $ifference -etween trial courts instruction an$ instruction insurer wante$ 'i"en t/e knowle$'e AA, control interpretation. +ot/ meanVif t/e insure$ knew somet/in' a-out t/is2 /e coul$ /a"e $one somet/in' a-out it. /is area is "ery s6uis/y an$ Cts will often -en$ stan$ar$s to pro$uce a certain outcome ec/nically means no co"era'e at all w/ile t/e risk is increase$2 -utL G ways in w/ic/ 9/ars/ effect: of limitation on co"era'e is ma$e more flexi-le -y t/e Ct7 a. Ct rea$s knowle$'e .R control to mean H knowle$'e AA, control -. Increase of /a5ar$ must -e su-stantial in $uration an$ ma'nitu$e c. </o is insure$ is flexi-le $. /e a-o"e are 6uestions of fact for t/e >ury #>uries more sympat/etic t/an >u$'es% THE MEASURE OF RECOVERY (5B6! A. Actual Cas/ Ralue /is type of reco"ery is 'oo$ for -usinesses2 -ut not for personal insurance since it $oes not 'i"e enou'/ co"era'e to replace t/e lost item <ays to measure actual cas/ "alue7 (. 4arket "alue Look to compara-le properties. <orks in ro-ust market. ;. Replacement cost minus $epreciation =. /e -roa$ e"i$ence rule 4ust Ct follow t/is rule in or$er to o"ercome t/e s/ortcomin' of ( an$ ; an$ look at multiple factors1 anyt/in' t/at /elp $etermine actual cas/ "alue can -e consi$ere$ ,ifferent from ",>*(',$,-% '#1%. Can see w/y insurance companies $ont want replacement costVcant 'et your fen$er an$ $oor replace$ w/en t/e car is 9totale$.: Replacement cost is somet/in' most /omeowners -uy -ecause t/eir particular /ouse /as sentimental an$ use "alue. Commercial property-/ol$ers $ont typically -uy t/is -ecause t/eir property /as only economic "alue to t/em. Joc3ert v. 'ational Farmers Gnion Property & Casualty Co. (199 "Hp. 19! Poc/erts /a$ win$ $ama'e to silos o Aatl !armers $e$ucte$ for $epreciation w/en calculatin' t/e repair cost o Poc/erts claime$ t/at actual cas/ "alue meant t/at "alue wit/out any allowance for $epreciation court $isa'ree$ wit/ Ps2 sayin' t/at t/e policy $istin'uis/es (E

Explanatory o a 'reater t/an F)* loss #yiel$in' full replacement cost wit/out $epreciation% o an$ a less t/an F)* loss #yiel$in' actual cas/ "alue%2 s/owin' t/at t/e two are not e6ual2 an$ t/us for t/e Poc/erts to 'et full replacement cost woul$ 'i"e t/em more t/an t/ey pai$ for un$er t/e policy

+. Pro-lems (. 4oral Ha5ar$ Insured (ill %e economically %etter (3en 3ouse %urns do(n %ecause 3ave replacement costs covera&e t3an if t3e 3ouse is left standin&. Insurers tolerate t/is -ecause #(% notwit/stan$in' youre 9-etter off: people $ont /a"e incenti"e to capture excess "alue -ecause its a pain to $eal wit/ your /ouse -urnin' $own& #;% re6uirement t/at you -uil$ it an$ mo"e into it2 so its a pain in t/e ass Also2 people suffer more t/an economic costs w/en property is $estroye$ ;. Replacement Costs 4uc/ -etter for personal losses since it /elp people replace lost item w8out expen$in' any money Pro-lem is moral /a5ar$1 people can 'ain lots of money -y $estroyin' property Aonet/eless2 insurers are willin' to take t/is risk1 some try an$ pre"ent t/e moral /a5ar$ -y only 'i"in' replacement cost if t/e lost item is actually re-uilt C. Coinsurance Application of Clause C on p. (J(-(J; 1 $ont nee$ to know t/e mat/ for t/e exam Property insurers c/ar'e t/e same rate per Q())) of "alue insure$2 re'ar$less of ratio of insurance to t/e total "alue of property1 a"oi$s /i'/ cost of cali-rate$ ratin' +3 2 t/is simple approac/ is not >ustifie$ -y t/e pro-a-ility of loss1 in fact2 t/e mar'inal cost of a$$itional increments of insurance s/oul$ $ecline Insurin' for less t/an full "alue of t/e property t/erefore is a -etter -ar'ain t/an insurin' for t/e full "alue1 really an incenti"e for people to -uy less t/an full insurance an$ take a risk +ut insurers $ont like t/is BAnti$ote1 pro"i$e for only partial reco"ery if less t/an full "alue is insure$1 '#&-1/"(-', ",I/&",$,-% If policy/ol$er -uys less t/an F)* of replacement cost2 /e 'ets only partial reim-ursement #/i'/er of%7 Actual cas/ "alue2 or Pro-rate$ replacement cost at7 @ou only 'et #* co"era'e% 8 F)t/s co"era'e. If you -uy O)* co"era'e on a Q())2))) policy2 you only /a"e O)8F)t/s co"era'e H EJ*. 4eans t/ere is ;J* coinsurance. SUBROGATION (5BB! .ri'inally an e6uita-le $octrine1 put insurer in s/oes of insure$ w/en loss was cause$ -y wron'ful act of =r$ party1 NA sees ; kin$s of su-ro'ation7 a. 9A'%&0,G S/)"#;(%&# Insurer pays insure$2 -ut insure$ /as claim a'ainst =r$ party Insurer is acti"e party7 steps into s/oes of insure$ an$ -rin's tort claim for amount =r$ party owes insure$ -. 9P(11&0,G S/)"#;(%&# Insurer pays insure$2 insure$ sues an$ reco"ers2 t/en insure$ reim-urses insurer Insure$ is re6uire$ -y law to reim-urse insurer Insure$s incenti"e to $o t/is is if insurer $i$ not fully compensate or t/ere are pain an$ sufferin' claims A"aila-ility of su-ro'ation is a "alua-le tool for insurers Purposes H in$emnity M com-atin' moral /a5ar$ #win$fall%1 +3 its also a "alua-le asset of insurers BR3LE1 w/en insure$ interferes w8ri'/t of su-ro'ation2 co"era'e is "oi$e$ (F

Explanatory +ut t/is only applies w/en t/ir$-party is not aware of insurers ri'/ts Insurer will /a"e a cause of action a'ainst insure$ if t/ey settle Exception applies most often in cases w/ere release of lia-ility occurs A! ER t/e acci$ent

Freat 'ort3ern .il Company v. St. Paul Fire and Marine Insurance Company (19;1" # p.,- Policy/ol$er M contractor a'ree to -uil$ on policy/ol$ers property1 contract contains release of lia-ility for ne'li'ently cause$ $ama'e Policy/ol$er interferes w8its property insurers ri'/t of su-ro'ation ),2#", *#11 Ao 6uestion t/at t/ere was interference #in$ee$2 extin'uis/ment% of su-ro'ation1 issue is as to timin'. BANSWER1 w/ere t/eres an express su-ro'ation pro"ision in t/e policy M t/at pro"ision $oesnt say t/at youre pro/i-ite$ w8interferin' w8su-ro'ation ri'/ts %efore loss2 t/en apply t/e pro"ision as (ritten1 only interference after loss "oi$s t/e policy 0olution1 a"oi$ t/is outcome -y not interferin' w8su-ro'ation ri'/ts e"er #-ot/ -efore M after loss% Its rare t/at t/is will occur1 after loss people focus on reco"ery2 not tryin' to a"oi$ insurance co"era'e Ex1 $ry cleaners limit H Q())8item. +ut /omeowners insurance s/oul$ co"er you& t/eres a limit on insurance cos a-ility to su-ro'ate from $ry cleaner. ,ont want ppl to -e "oi$in' t/eir insurance co"era'e w8o knowin' it #-8c no one rea$s t/e $ry cleaners limit% B+ottom line1 say w/ate"er you want a-out t/is in t/e contract - t/is is w/at court will enforce 9Exemplary fair $ealin': rule #$um- rule%1 cant mean anyt/in' more t/an t/e contract rule Contractin' party 'ot insurance from 0t Paul w8o payin' for it1 'ot lower price for construction -y si'nin' t/e exculpatory clause an$ split t/e surplus M lai$ t/e risk t/at somet/in' woul$ /appen on t/e insurer. S#*/%&#-1 you can $o t/is a-sent a pro"ision in t/e policy t/at expressly pre"ents it. t/is is t/e efficient solution1 insurers know a-out rule M s/oul$ c/ar'e e"eryone for it or contract aroun$ it early if t/ey are t/at worrie$ Rule t/at e"en after co"era'e in place2 insurance ri'/ts will constrain your a-ility to enter into contract is not efficient1 if it was policies woul$ /a"e c/an'e$ after t/is $ecision MORTGAGES - LIMITED INTERESTS (205! wo situations7 (. S%"(&;:% F#".("71 insure$ is co"ere$ su->ect to a mort'a'e on /is property ;. C#$>*&'(%,71 mort'a'e loan on property2 -ut owner /as $one somet/in' to "oi$ co"era'e 4ort'a'e Clause #p.(EF% If t/eres a mort'a'ee #i.e -ank% name$ on t/e ,ec s/eet of policy2 t/en we will pay procee$s of insurance if t/eres a loss to t/e len$er2 as interests appear. Len$er 'ets 9first $i-s: on t/e procee$s of t/e property #w/et/er sol$ or as a result of insurance procee$s% up to t/e outstan$in' -alance of t/e loanVt/e rest 'oes to policy/ol$er 0. if property -urns w8a Q()) policy M QF) mort'a'e2 F) 'oes to -ank M ;) 'oes to insure$ (. 0trai'/t forwar$1 IA03RE, I0 C.RERE, Property is $estroye$ = parties7 +ank2 Insure$2 insurance co. Insurance procee$s1 -ank 'ets pai$ first2 if anyt/in' is left o"er2 insure$ 'ets pai$ Insurance pays Cust li>e a purc3aser of t3e property (ould payHAan> &ets paid first Complicate$1 IA03RE, I0 A. C.RERE, -8c /e $i$ somet/in' to "oi$ co"era'e #+lt3auser% 4aterial misrepresentation on application& arson& etc so insure$ is no lon'er co"ere$ for t/is loss if insured is not coveredK mort&a&ee still is 0ame = parties7 +ank2 Insure$2 insurance co. Insurance procee$s1 -ank 'ets pai$ first2 insurance co su-ro'ates #t/at amount% a'ainst insure$ 3n$er 94ort'a'e Clause: insurer su-ro'ation claim a'ainst insure$ - insure$ will s/oul$er full amount of t/e loss C t/e exact t/in' t/at /appens w/en someone suffers a loss M is not insure$ (D

;.

Explanatory 'ort3(est Farm Aureau Insurance v. +lt3auser (19 " - ,-$ A< insure$ A2 A misrepresente$2 A< "oi$e$ policy so w/en As /ouse -urne$2 A< pai$ mort'a'ee an$ claime$ su-ro'ation to mort'a'ees interests2 pursuant to t/e policy t/en w/en A $i$nt pay mort'a'e payments to A<2 A< mo"e$ for foreclosure C court rule$ t/at -ein' su-ro'ate$ means t/at A< coul$ start collectin' mort'a'e payments

LIFE INSURANCE (22 ! /ere is no stan$ar$ form life insurance policy wo main kin$s7 (. T,"$ I-1/"(-', /is simply life insurance an$ not/in' else As you 'et ol$er t/e premium 'oes up since your risk of $eat/ is risin' C amount of co"era'e stay t/e same /owe"er ;. W:#*, L&2, I-1/"(-', /is form com-ines insurance wit/ a sa"in's element from interest collecte$ on premiums /ere was a -i' a$"anta'e to t/is prior to (DEE -8c in$i"i$ual in"estors coul$ not in"est in /i'/ return 'o"t -on$ fun$s #w/ole life was a way to $o it%1 now you can in ot/er ways

SAMPLE TERM LIFE INSURANCE POLICY (22 ! Cri- 0/eet Important Pro"isions (. ,eclarations Pa'es C p.;;E Aee$ an insure$2 an owner #/ere it is t/e insure$%2 an$ a -eneficiary ;. Insurin' A'reement C p.;=( +eware of X(.G #incontesta-ility% an$ X(.J #suici$e% =. .wners/ip2 Premiums2 an$ Con"ersion C pp.;=( Policy always insure$ t/e CWR2 -ut owners/ip may c/an'e Con"ersion1 most policies let you con"ert t/e policy G. +eneficiaries C p.;=G 0pecifies /ow to c/an'e -eneficiary an$ pro"i$es tax a$"anta'es J. .ptions for Payment of +enefits C p.;=J O. Complete$ Application C p.;=D In some >uris$ictions2 a misrepresentations on t/e application $oes not co"era'e unless it is attac/e$ to t/e policy THE APPLICATION (29 ! Faunt v. Lo3n 4ancoc> Mutual 0ife Insurance Company (19=;" # p.,=$ Pro-lem stems from $ifficulty in sellin' life insurance1 to 'et more people to -uy in2 you take t/e first premium w8 t/e application -8c t/ey are more likely to stick w8 it once t/ey are in"este$ In return policy/ol$er 'ets -in$er t/at if insure$ pays (st premium /e is 'uarantee$ co"era'e if7 (. 0atisfaction of insura-ility ;. Appro"al prior to $eat/ If met2 insurance as of $ate of completion of part +1 in effect -ack $atin' co"era'e +ut w/at $oes t/is mean? (. @ou $ie prior to appro"al @ou /a"ent satisfie$ ;n$ con$ition2 so you 'et no -ack-$atin' ;. @ou $ie after appro"al 0o w/atK1 you 'ettin' not/in' a$$itional since you were ali"e -8t time of part + an$ time of appro"al1 you 'ot a$$itional insurance -ut you $i$nt nee$ it ;)

Explanatory BEit/er way2 you 'aine$ not/in'K1 Ct says make people t/ink t/ey are 'ettin' somet/in' -8c lan'ua'e is mislea$in' C.AC3RRIAG #Clark%1 lan'ua'e says w/at it says an$ is not mislea$in'2 we really mean to say t/at t/is is unconsciona-le NA1 -ut if anyone w/o attac/es a c/eck 'ets imme$iate co"era'e2 t/is encoura'es a$"erse selection Insurance a'ents woul$ /a"e to make sure ne"er to take a c/eck w8 t/e application 0u-se6uent $ecisions /a"e s/own t/at not e"ery case w8 a c/eck means imme$iate co"era'e

THE REJUIREMENT OF INSURABLE INTEREST (250! In most states2 t/is re6uirement was set fort/ -y Cts an$ t/en co$ifie$ in statutes Re6uires 9a su-stantial interest en'en$ere$ -y lo"e M affection or a su-stantial an$ lawful economic interest: /is is a "ery fact specific in6uiry !irst nee$ to $istin'uis/ -8t owner2 CWR #party w/ose life is insure$ C may -e owner%2 an$ -eneficiary If owner is CWR1 -eneficiary nee$s no insura-le interest If owner is not CWR1 owner must /a"e an insura-le interest If owner is not CWR1 -eneficiary must also /a"e an insura-le interest 0ome >uris$ictions 'o furt/er to re6uires t/at CWR must consent to t/e c/osen -eneficiary #minority "iew% imin'1 insura-le interest /as to -e present at time t/e policy is ma$e C if it t/en $isappears2 t/e policy $oes not -ecome in"ali$ #t/is >ust isnt a worrisome moral /a5ar$% 1yan v. /ic>le (19 ," # p.,<1 ; -usiness partners w8 insurance on eac/ ot/er1 it is clear t/ey eac/ /a"e an insura-le interest in eac/ ot/er2 -ut 6uestion is /ow muc/ t/ey can /a"e in eac/ ot/er P su''ests t/at alt/ou'/ , /a$ insura-le interest2 'i"en t/e lar'e amount insure$2 /e /as a stron' incenti"e to see /is partner $ea$1 in$emnity is "iolate$ Ct re>ects t/is sayin' t/at 'i"en t/at t/e -usiness profite$ more w8 -ot/ of t/em aroun$2 t/ey were still -etter off /a"in' eac/ ot/er aroun$ NA1 -asically2 Ct will not 'et into it unless t/e amount is way too muc/ or t/ere are 9presumpti"e s/enani'ans: 7al-Mart (Mayo v. 4artford 0ife" (,--=" # ,<$ 4ust /a"e an 9&-1/"()*, &-%,",1%: to -uy life insurance on someone elses life2 eit/er as family2 a cre$itor2 or an expectation of financial 'ain from t/eir continue$ life. An or$inary employer-EE relations/ip $oesnt count. <al-4art took out LI policies on -e/alf of its EEs2 an$ name$ itself as -eneficiary #moti"ate$ -y tax reasons%. ,ecent was a <al-4art 9associate: until $eat/ in (DDF. His estate $isco"ere$ t/e existence of t/e policy an$ sue$ <al-4art for "iolatin' t/e exas insura-le interest $octrineVestate sou'/t to -e pai$ t/e procee$s from t/e policy. H#*7&-;7 o /e employer8EE relations/ip $oes not satisfy t/e re6uirements of t/e insura-le interest $octrine. Pu-lic policy for Insura-le Interest ,octrine7 wit/out a proper interest people mi'/t use life insurance to 'am-le8prospect on peoples $eat/s. exas courts reco'ni5e t/ree cate'ories of in$i"i$uals w/o /a"e insura-le interests7 o !amily C close relati"es o Cre$itors C if you $ie2 t/ey 'et not/in' o /ose /a"in' an expectation of financial 'ain from t/e insure$s continue$ life. <al-4art trie$ to ar'ue t/at it fell into t/e =r$ cate'ory for its EEs2 -ecause must to pay -enefits2 train new employees2 etc.2 upon $eat/2 -ut lost -ecause S was "ery clear wit/ its statute. o 0ome exceptions t/ou'/. CHANGE OF BENEFICIARY & ASSIGNMENT (2 0! 1. Change of Beneficiary ;(

Explanatory 2n&elman v. Connecticut Feneral 0ife Insurance Company (199;" # p.,$1 Policy owne$ -y 4r. Ry$er2 CWR is 4rs. Ry$er2 an$ -eneficiary is cousin1 owner $ies2 -ut policy remains in effect an$ someone -ecomes a successi"e owner #/ere /appens to -e CWR% CWR sen$s a letter sayin' s/e wants to c/an'e -eneficiary1 company sen$s /er a c/an'e of -eneficiary form an$ since s/e ne"er returns it2 , refuses to pay new person after $eat/ -ase$ on 1%"&'% '#$>*&(-', +enefit to strict compliance stan$ar$ is e"eryone knows w/at to $o AA, insurance company $efiniti"ely knows w/o is t/e -eneficiary </en insurance company $oesnt know w/o to pay2 t/ey file an &-%,">*,(7," an$ pay t/e court1 in t/is case t/ey were so sure cousin #Pinc% was ri'/t person2 t/ey >ust pai$ /im #real miscalculation% /e closer to 1/)1%(-%&(* '#$>*&(-',& t/e less likely IA0co knows w/o to pay more likely to use interplea$er an$ cause liti'ation All courts say it must -e 9intention plus: w/ic/ means intention plus some action. ypes of su-stantial compliance7 a. All-in-/er-power test 1 owner $oes e"eryt/in' in power to make t/e c/an'e #intent clear% -. 0u-stantial affirmati"e action test1 Ct uses t3is test BResult1 usin' su-stantial compliance lea$s to a mo"e from payment to interplea$er liti'ation

2.

Assignment As you 'et ol$er2 t/e "alue of your life insurance policy increases1 w/en life expectancy is pre$icta-ility lower t/an t/e premiums -ein' pai$2 you /a"e an asset Assi'nment is more "alua-le t/an -ein' name$ -eneficiary -8c you are in control of t/e policyV cant lose your interest -y re-$esi'nation or non-payment of premiums -y t/e policy/ol$er.

Fri&s%y v. 1ussell (1911" # p.,$$ .wner an$ CWR sells owners/ip ri'/ts to someone else1 new owner wants to c/an'e -eneficiary to /imself1 is t/is ok since new owner $oes not /a"e an insura-le interest in t/e CWR? BCt says assi'nee of a 9'oo$ fait/ purc/aser: is a lawful assi'nee. If transaction is le'itimate at outset2 su-se6uent assi'nment to a party w8o an insura-le interest is lawful1 i$ea is t/at moral /a5ar$ is muc/ less C owner must know w/o to trust. Implication7 were not 'oin' to make you wait until your policy "alue is ())* #ie. $eat/% to sell it. +3 2 Ct $oesnt seem fully con"ince$ of rationale1 w/y is wa'er assume$ to -e 'one? At -est moral /a5ar$ is re$uce$ an$ c/ecke$ -y interest of t/e person assi'nin' /is rule is not entirely consistent w8 t/e next rule we $iscuss. LIMITATIONS ON RECOVERY BY BENEFICIARIES 'e( 2n&land Mutual 0ife Insurance Company v. 'ull (19;9" # p.,$9 CWR seeks co"era'e an$ t/e $ay after policy is issue$2 /e assi'ne$ t/e policy1 next $ay /e is kille$ CWR purc/ase$ t/e policy in insistence of Cal"erts an$ /is intention all alon' was to assi'n to someone w/o $i$nt /a"e an insura-le interest in t/e first place BCt7 since intention from t/e outset was to 'et aroun$ t/e lack of an insura-le interest rule2 t/e transaction is "oi$7 Cal"erts 'et not/in'. 0ince transaction is "oi$2 Mrs. Aull cant reco"er t/e money eit/er. +ut t/is rule means insurance company /as an incenti"e to sell to people wit/out insura-le interest.

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Explanatory 0ome courts say t/ere is cause for ne'li'ence a'ainst insurer for issuin' w8o insura-le interest w/ere t/ey s/oul$ know 9s/enani'ans are afoot: an$ creatin' incenti"e for $eat/ of CWR. /is 9o"erplu's: incenti"e pro-lem. 0o2 we nee$ to $etermine w/et/er t/is assi'nment was planne$ to $etermine w/at rule to follow

V&(%&'(*1 0ome companies calle$ 9"iaticals: will purc/ase insurance policies from t/ose w8 a terminal illness un$er t/e Fri&s%y rule in or$er to 'i"e t/e $yin' person some Q w/ile t/ey are ali"e A 9(et viatical: is one in w/ic/ t/e ink on t/e policy /asnt $rie$ yet1 company first finances purc/ase of new policy t/en pay t/em a percenta'e of face "alue for an imme$iate assi'nment Reason t/ese companies want as assi'nment instea$ of -ein' t/e -eneficiary is some you /a"e control o"er t/e payment of t/e premiums State Mutual 0ife +ssurance Company of +merica v. 4ampton (19 <" # p.,;! 0ometimes e"en w/en insura-le interest re6uirements are met2 people are not allowe$ to reco"er BCon"iction of mur$er ( or ; $epri"es -eneficiary of reco"ery Ce"en if "ali$ policy at inception BAc6uittal or ot/er $isposition lea"es issue open for resolution in ci"il action B0econ$ary -eneficiary or estate recei"es procee$s if ci"il action fin$s re6uisite scienter 0ome >uris$ictions allow ne'li'ence action a'ainst IA0co for ne'li'ently issuin' a policy w/en t/ey knew moral /a5ar$ was /i'/2 e"en if insura-le interest was satisfie$. Generally2 A-ra/am fa"ors -ri'/t-line rules2 -ut no >ustifia-le complaints in a case like t/is. INCONTESTABILITY (2AB! .ri'inate$ -y insurance companies to 'i"e insure$s more assurance an$ to compete w8 ot/er companies Ga"e insure$ assurance t/at after ; years2 payment on t/e policy -ecame incontesta-le 0tates like$ t/ese so muc/2 t/ey all a$opte$ a re6uirement t/at all policies /a"e t/is clause Acts like a contractual statute of limitations1 -ot/ on innocent misrepresentation AA, frau$ </y?1 concern for innocent -eneficiaries an$ $ifficulty of -eneficiary in $ispro"in' frau$ lon' after it /appene$ ra$eoff is t/at some policies will -e procure$ -y frau$1 make company in"esti'ate carefully Exactly w/at -ecomes incontesta-le? Classic $istinction is 9'#-7&%&#-1 #2 '#0,"(;,: -ecome incontesta-le C ex. $o you fly airplanes? If you $ie = years later ri$in' a -ike an$ lie$ a-out flyin' airplanes2 youre fine. FL&$&%(%&#-1 #2 %:, "&13: $o not C ex. Ao co"era'e if you are kille$ w/ile flyin' an airplane +3 2 t/ese are often /ar$ to $istin'uis/ +me? 0ife +ssurance Company v. Superior Court (199;" # p. ,;9 .wner8CWR applies for co"era'e an$ sen$s an imposter for t/e -loo$ test C clearly frau$ It is a con$ition of co"era'e t/at t/e -loo$ -e t/e CWRs Ct says insurer $oes not /a"e a $efense re'ar$less of frau$1 Ct also points out /ow easy it woul$ /a"e -een to $etect t/is frau$ early #person $i$nt e"en look t/e same% ,istinction -8t present fact an$ future fact C t/e frau$ was still a-out a fact in existence at t/e time t/e policy was issue$ Simpson TEST1 is -asis of insurers $efense 7&1'#0,"()*, at t/e time of issuance? @E01 not contesta-le A.1 always contesta-le B+3 2 t/is >ust means w/et/er is was $isco"era-le C no in6uiry into /ow /ar$ it was to $isco"er2 >ust nee$s to -e a present fact2 not a future fact. ,isco"era-ility isnt really t/e test7 If twin -rot/er was sent as imposter1 rule is still t/e sameK /is test is o"er-roa$ -8c t/ere will -e present facts no one coul$ $isco"er1 still incontesta-le. ra$eoff of accuracy for fairness7 'i"in' co"era'e to 4orales2 w/o is totally un$eser"in'2 is necessary to protect t/e interests of /onest policy/ol$ers in 4orales position.

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Explanatory LIMITATIONS OF RIS8 (2E6! Silverstein v. Metropolitan 0ife Insur. Co. (19!-" # p., ! Co"era'e 'oo$ un$er an (''&7,-%(* 7,(%: >#*&'+ w/en policy/ol$er slippe$ an$ a milk can went into /is stomac/ e"en t/ou'/ /e /a$ a small ulcer an$ policy exclu$e$ co"era'e for an acci$ent 9in w/ole or part cause$ -y a $isease: BCt say 9acci$ental: means su->ect to "/*, #2 ",(1#-()*, ,@>,'%(%&#-11 steps outsi$e policy lan'ua'e C3arney v. Illinois Mutual 0ife (19 <" # p., $ 0uici$e clause in policy applies e"en if CWR is insane1 Ct refuses to step outsi$e policy lan'ua'e NAVno a$"erse selection /ere -ecause /e was fine w/en /e -ou'/t co"era'e an$ committe$ /arikiri -ecause of a $ru' /e was takin'. Comparison of t3e , Cases How t/ese Ct $eci$e t/ese two $ifferent ways?1 Silverstein $oes not rea$ t/e lan'ua'e ri'i$ly an$ 'i"es a "ery flexi-le rea$in'2 w/ereas C3arney says t/e lan'ua'e says w/at it says C "ery ri'i$ NA1 cases are decided correctly %Mc %ot3 follo( reasona%le e?pectation of insured People -uyin' acci$ent insurance want to s/are t/e risk t/at t/ere is some un$isco"ere$ con$ition t/at will contri-ute externally t/at will cause acci$ental $eat/ +3 2 most people w/o -uy life insurance $ont want to s/are a'ainst risk of suici$e1 if t/ey $i$2 insurers woul$ sell t/is #t/is is a -usiness t/at wants to sell to make Q%K 0o2 t/ese $ecision are >ust 'enerally 'i"in' people w/at t/ey want /is is a 'oo$ lea$-in to /ealt/ insurance w/ere co"era'e is often interprete$ t/e same way. 0ome /ealt/ limitations are t/ere -ecause people $ont want to pay for t/e co"era'e t/at woul$ -e pro"i$e$ if t/e limitations werent t/ere. HEALTH INSURANCE (2B6!

General ."er"iew Consi$er in connection w8$iscussion re 3ealt3 care policyVits a ..L in t/e stru''le2 -ut not t/e centerpiece of t/e $e-ate1 more a means to an en$ /ree 4a>or Issues in Healt/ Care (. Access to co"era'e1 mo"e to uni"ersal /ealt/ care? ;. Cost1 in (DF(-(DDG cost of me$ical care increase$ at a rate in excess of inflation in e"ery sin'le year result of all t/ose increases7 4ana'e$ Care1 a $e"ice for controllin' costs =. Wuality B /ese 'oals are in tension w8eac/ ot/erVt/ats w/y t/eres a $e-ate w8o a solution 54 ACCESS TO CARE (2B6! !rom insurance P.R2 t/is is a transitional era7 from era w/ere /ealt/ insurance #like -ur'lary insurance% is a pri"ately purc/ase$2 $iscretionary 'oo$& to an era w/ere /ealt/ insurance is merely one of t/e mec/anisms we use to 'uaranty /ealt/ care to e"eryone. A lon' eraV-e'an in (D=F2 an$ continues still Aot possi-le to /a"e /ealt/ insurers as pri"ate -usinesses makin' profit AA, e"eryone /a"in' access 0ources of Healt/ Insurance7 i. Pri"ate insurance 4ainly employment--ase$2 pri"ately-purc/ase$ 'roup insurance M(&- '(/1, .(1 ,'#-#$&' $urin' <<;2 ; t/in's com-ine to pro$uce employer--ase$ pri"ate /ealt/ insurance1 wa'e8price controls an$ la-or s/orta'e Also2 %(@ 1+1%,$ encoura'es M su-si$i5es1 ERs can $e$uct /ealt/ insurance expenses an$ EEs are not taxe$ on t/ese -enefits .t/er =)*1 non-employer -ase$ Group insurance M pri"ately purc/ase$ ii. 4e$icare ;G

Explanatory !e$eral pro'ram pays for /ealt/ care for el$erly1 must -e O; an$ /a"e pai$ in DD* of el$erly /a"e t/is7 t/e pro-lem of access is not one for t/e el$erly iii. 4e$icai$ !e$erally aut/ori5e$2 state-operate$ pro'ram for t/e "ery poor Approximately FJ* of Americans /a"e /ealt/ insurance co"era'e </o are t/e (J-;)* w/o arent co"ere$?1 mostly youn'2 workin' poor Ar'uments for 3ni"ersal Co"era'e7 /at (J-;)* is not co"ere$ /at t/ey ou'/t to -e force$ to /elp pay for t/eir co"era'e -y -ein' force$ to -uy insurance E"eryone /as access to care in one sense1 pu-lic /ospitals will take e"eryone w/en t/eyre sick or in>ure$ ; 4a>or ,octrinal Issues re Access7 P#"%()&*&%+1 t/e transfera-ility of co"era'e #a little of a misnomer% C:(-;,1 &- %,"$1 #2 '#0,"(;,

A4 P",-E@&1%&-; C#-7&%&#-1 (PEC! (2B9! PEC $esi'ne$ to $eal w8a$"erse selection1 $ont want people seekin' co"era'e after alrea$y sick 9HIPPA:7 Healt/ Insurance Porta-ility an$ Accounta-ility Act of (DDO #t/e Nenne$y-Nassa-aum Act% ,oes not really makes co"era'e porta-le1 instea$ w8 respect to any /ealt/ plan co"ere$ -y t/e act #exception for 'roup /ealt/ insurance policies t/at co"er O or less or in$i"i$uals% /ere is a maximum (; mont/ pre-existin' con$ition limitation. .nce youre co"ere$ for (; mont/s2 no more limitations. 4an$atory cre$it for time co"ere$ un$er prior policy #of pre-existin' con$ition limitation% ,oes not mean your ol$ policy is porta-leVmeans you are porta-le. ,oesnt $o >ack for you if t/e new policy simply $oesnt co"er t/e con$ition. 0.2 if you were co"ere$ for (( mont/s at ol$ >o-2 youre only su->ect to PEC for ( mont/ C if at ol$ >o- (G mont/s2 no PEC at new >o-. Anti-$iscrimination rules re'ar$in' eli'i-ility an$ rates +ut2 in$i"i$ually-purc/ase$ insurance exempt. /is act only /as to $o w8 pre-existin' con$itionsK1 new policy will pro"i$e new co"era'e 0.2 no 'uarantee new employer will offer you t/e same co"era'e or same price 4akes act practically useless General pro-lem you"e 'ot a as a /ealt/ insurer is t/at t/ey /a"e to -e a-le to $o somet3in& to preclu$e a$"erse selectionVot/erwise no one will apply for co"era'e until t/ey 'et sick. +ut courts woul$ say we $ont care as muc/ a-out a$"erse selection for /ealt/ insurance as wit/ t/e so-calle$ $iscretionary insurances like life insurance. HIPPA /as not/in' to $o wit/ pri"ately-purc/ase$ insurance2 like 0a(son. 0a(son v. Forts Insurance Co. (,--," # p.,9< </at /appens w/en insure$ /a$ pre-existin' con$ition #leukemia% s/e $i$nt know a-out? ,epen$s on t/e lan'ua'e of t/e policyVPolicy coul$ say2 essentially2 9we $ont careVour pro/i-ition is -ri'/t-line: Lawsons $oesnt 'o t/at farVsays if you were 9treate$ for a pre-existin' con$ition2: no co"era'e. Ct. #not surprisin'ly% fin$s presupposition t/at treatment means t/ere was some knowle$'e t/at t/e con$ition exists. If insurer wants to preclu$e co"era'e2 it /as to $raft its $ocument -etter. Case si'nifies transition from un$erstan$in' /ealt/ insurance as $iscretionary co"era'e #like life insurance% to "iewin' it as one f t/e means we use to 'uarantee a certain minimum le"el of /ealt/ care in t/e country. Alt/ou'/ t/is "iew is not really state$ anyw/ere2 t/e i$ea t/at /ealt/care is im-ue$ wit/ t/e pu-lic interest un$erlies court $ecisions. ;J

Explanatory B4 ERISA (600! Process not su-stance. ERI0A was $esi'ne$ to pro"i$e uniform fe$eral re'ulation of employee -enefits #Con'ress /a$ in min$ pension -enefits% W:(% ERISA 7#,11 pre-empts state laws re'ulatin' employee -enefits an$ su-stitutes a uniform fe$eral sc/eme. 4an$ates t/at all employees -e treate$ t/e same2 t/at is2 cant 'i"e some employees co"era'e for AI,0 treatment an$ $eny it to ot/er employees Gi"es t/ose co"ere$ a fe$eral cause of action for -reac/ of contract in"ol"in' employee -enefits. Reme$y for $enial of -enefits an$ attorneys fees un$er ERI0AVt/ats a-out it. W:(% ERISA 7#,1 -#% 7#1 $oesnt specify w/at can -e co"ere$ an$ w/at can -e exclu$e$1 it re'ulates process2 not su-stance. /in's 'et cra5y w/en state su%stantive re'ulations are in"ol"e$ #see 5avila%. If t/e core of t/e plaintiffs complaint was $enial of covera&e2 state law claims are pre-empte$& state law claims alle'in' poor 6uality of treatment are not. #Wuantity of treatment pre-empte$& 6uality of treatment not pre-empte$%. @ou can clearly -rin' a state malpractice suit a'ainst a p3ysician6 an$ pro-a-ly okay to impose "icarious lia-ility on t/e H4. for t/e malpractice of a participatin' p/ysician A suit for 9$enial of -enefits: isnt lookin' so /ot. Patients +ills of Ri'/ts woul$ allow for extra-contractual $ama'es. Aotion is t/at H4.s $ont /a"e an incenti"e to pro"i$e -enefits if t/eir only penalty for not pro"i$in' -enefits is t/e payment of t/ose -enefits. +etna 4ealt36 Inc. v. 5avila (G.S. ,--=" # p. !-1 If could 3ave %rou&3t a claim under 21IS+6 t3en state-la( cause of action is completely pre-empted. Plaintiffs were $enie$ co"era'e -y H4.Vt/ey -elie"e wron'lyVan$ 'ot /urt from alternati"es to preferre$ treatment co"ere$ -y Aetna. Claim t/at result was worsene$ me$ical con$ition. Ao cause of action un$er ERI0A. /ere (as a cause of action in exas #H4. must exercise 9or$inary care: in treatment $ecisions. Ps are tryin' to maintain t/at t/eir cause of action un$er exas law /as not -een pre-empte$ -ecause t/ey want more $ama'es t/an simply t/e -enefits t/emsel"es. Court says if t/e case is a-out $enial of -enefits2 t/en its pre-empte$. /e fact t/at plaintiffs alle'e t/e $enial was 9ne'li'ent: $oesnt c/an'e fact of pre-emption. Hol$in'7 ERI0A preempts state-pro"i$e$ cause of action for failure to exercise reasona-le care in co"era'e. Any state-law cause of action t/at 9$uplicates2 supplements2 or supplants: t/e ERI0A ci"il enforcement reme$y conflicts wit/ t/e clear con'ressional intent to make t/e ERI0A reme$y exclusi"e2 an$ is preempte$. C4 C:(-;&-; %:, T,"$1 #2 C#0,"(;, ERI0A says you cant $iscriminate in t/e $enial of -enefitsV-ut t/ats after you"e $eci$e$ w/at -enefits to pro"i$e. .nly co"ers t/in's durin& t/e policy perio$. !or people w/o $e"elope$ con$itions t/at last past t/eir policy perio$ ERI0A is no /elp. /is is a potential pro-lem if an employer is causin' a -ur$en on t/e employers /ealt/ insurance costs. Employer will sayV/ey2 sorry a-out your ki$ney $ialysis nee$s2 -ut t/e insurance company is 'oin' to >ack our rates Q())N for t/is. I cant pay an extra Q())N for it2 an$ I cant ask your co-workers to foot QJN eac/ for your -ill. 0o Im 'oin' to t/row exclusion in our new policy for next year t/at excepts $ialysis treatments. /is is really only a pro-lem wit/ small 'roup policies. ;O

Explanatory </at a-out 9occurrence: policy t/at says 9if you come $own wit/ somet/in' $urin' t/e policy perio$2 well co"er you out in perpetuity:? Insurance companies cant really pre$ict t/at kin$ of t/in'2 so t/ey $ont like it. Alternati"e is national /ealt/ care or state laws man$atin' certain minimum sets of co"era'e in /ealt/ insurance policies. As o"er time t/e minimum sets of co"era'e 'row2 t/e cost of -are--ones /ealt/ insurance policies 'o up an$ small employers can no lon'er affor$ to pro"i$e /ealt/care to t/eir workers.

McFann v. 4.4. Company (1991" # p.! AI,0 case #-ut can t/ink of it wit/ less-c/ar'e$ example of $ialysis% Aot/in' in ERI0A exclu$es employer from c/an'in' t/e terms of t/e policy at t/e expiration of t/e policy1 no one e"er cares a-out t/is unless t/ey /a"e a con$ition t/at will last past t/e expiration of t/e policy. How $o we a$$ress t/is pro-lem?1 no fe$eral statute an$ it woul$ -e /ar$ to $raft one. ERI0A protects a'ainst in$i"i$ual $iscrimination2 A. action in"ol"in' a plan in 'eneral. 24 COST CONTAINMENT (65 ! A4 M(-(;,7 C(", (65 ! Effort -y party w/o /ol$s t/e /ealt/ care $ollar to limit costs incurre$ in pro"i$in' /ealt/ care +efore mana'e$ care t/ere was 9fee-for-ser"ice: insurance Healt/ care financin' an$ /ealt/ care $eli"ery were separate 4ana'e$ /ealt/ care com-ines t/ese ser"ices into one institution #ex. H4.s% wit/ an incenti"e to compare cost of financin' an$ cost of treatment H4.s are or'ani5ations w/ic/ re6uire insure$s to seek treatment from >",2,"",7 >"#0&7,"1 w/o a'ree to a-i$e -y H4.s stan$ar$s for treatment Preferre$ pro"i$ers2 in essence2 a'ree to pro"i$e less care an$ t/us to recei"e less payment. PP.s #Preferre$ Pro"i$er .r'ani5ations% are or'ani5ations like H4.s w/ic/ 'i"es patient a few more options1 if you 'o to a preferre$ pro"i$e$ you 'et eit/er lowers c/ar'es or more -enefits2 +3 you /a"e t/e option to 'o outsi$e wo a$$itional $e"ices use$ -y all of t/e a-o"e7 a. .nly me$ically necessary ser"ices M no payment for experimental treatment #see FuCa%. -. Coor$ination of Co"era'e B4 M,7&'(**+ N,',11("+ S,"0&',1 (65A! ,ont 'et co"era'e for ser"ice2 unless t/e ser"ice is me$ically necessary1 t/is is t/e -i' fi'/t -8t $octors an$ /ealt/ care pro"i$ers FuCa v. Aenefit /rust 0ife Insurance Company (199=" # p.!1; Experimental treatment limitation seems clear an$ t/e $ecision seems correct1 no co"era'e for t/is type of cancer treatment -8c it was clearly consi$ere$ researc/ an$ experimental +ut2 it seems as t/ou'/ t/is ou'/t to -e co"ere$ an$ market s/oul$ /a"e respon$e$ to t/is $esire Almost -y acci$ent a system ot/er t/an pri"ate insurance /as $e"elope$ w/ere t/e 'o"t fun$s experimental treatment /is system -enefits well-connecte$ upper-mi$$le class in$i"i$uals w/o know p/ysicians2 etc. an$ can 9work t/e system: C4 C##"7&-(%&#- #2 C#0,"(;, (622! Gi"en t/e popularity of insurance t/ese $ays2 it is "ery common for t/ere to -e multiple insurance policies t/at will co"er costs1 esp. 'i"en employer pro"i$e$ insurance an$ insurance w/ere primary insure$ can a$$ $epen$ants 4arris Corp. v. 4umana 4ealt3 of F0 (,--1" # p.!,! I'nore 4e$icare w/en lookin' at priority of co"era'e -etween two ot/er parties.

;E

Explanatory <oman files claimV/as t/ree types of co"era'e7 one from /er former work #Harris%2 one from /er /us-an$s work #Humana%2 an$ 4e$icare. Humana /a$ a coor$ination of -enefits pro"ision w/ic/ woul$ come secon$ compare$ to Harris 9non-$uplication: clause #not a 9coor$ination: clause%. 4e$icare /as an 40P #4e$icare secon$ payer% clause2 w/ic/ is secon$ary to policies of current employers #s/e counts as 9current employee: un$er Humana2 not Harris%. 4e$icare an$ Humana C Humana first 4e$icare an$ Harris C 4e$icare first ransiti"e woul$ su''est7 Humana 4e$icare Harris. +ut as per Humana an$ Harris7 Humana is secon$? Is t/ere circularity /ere? Court7 4e$icare secon$ary payer is suppose$ to protect t/e pu-lic an$ not/in' more. In t/is case2 4e$icare /as no interest2 er'o t/e 40P $oes not apply. 40P $oes not prioriti5e contracts "is-a-"is eac/ ot/er #$ont consi$er transiti"e%. 0o Harris pays first.

+ssociated 4ospital Service of P3iladelp3ia v. Pustilni> (19;9" # p.!!-N SGA1.F+/I.' P1.A02M Payment was ma$e after treatment1 after lawsuits2 , 'ets money t/rou'/ settlement Hypo1 Q())N loss2 Q;)N from insurance2 QE)N in settlement Insurance wants reim-ursement an$ , ar'ues no since /e /asnt -een fully compensate$ Ct sai$ insurer 'ets reim-ursement since t/at is w/at contract sai$1 '#-%"('%/(* 1/)"#;(%&# Alternati"e t/eories7 a. Pro-rata approac/1 someone 'ettin' E)* compensation 'i"es E)* in reim-ursement to insurance company #insurer 'ets Q(GN% -. Insurer reco"ers only after insure$ is fully in$emnifie$1 #insurer 'ets Q)% BPro-lem is t/at t/e ; alternati"es are more fair2 -ut muc/ /ar$er to implement How $o you $etermine t/e total amount of losses?1 t/is will -e /ea"ily $ispute$ an$ will force us to a$>u$icate t/e "ery t/in' t/at settlement allows us not to $oK J/(*&%+ A11/"(-', .n'oin' contro"ersy o"er w/at ri'/ts patients s/oul$ /a"e to $eal w8 un$er-pro"ision of care pro"i$e$ -y H4.s1 stum-lin' -lock was ri'/ts patient s/oul$ /a"e to sue for lack of care -ase$ on cost 'roun$s Patients /a"e a ri'/t un$er ERI0A to sue for payment an$ claims for extra-contractual $ama'es are preempte$ -y ERI0A 64 DISABILITY INSURANCE (665! Aot nearly as pre"alent or contro"ersial as /ealt/ insurance1 w/y? /ere are non-$iscretionary forms of $isa-ility -enefits C ex. social security Ao real reason to purc/ase t/is insurance unless you t/ink you will suffer in>uries -eyon$ w/at is co"ere$ -y 00 or workers comp.1 attracti"e for a-o"e a"era'e wa'e earner 0ince t/is is suc/ a low $eman$ for t/is insurance2 anyone applyin' is suspect an$ prices are /i'/ Hi'/ moral /a5ar$ since many in>uries are su->ecti"e #ex. -a$ -ack%1 a'ain2 /i'/er premiums ,eterminin' partial $isa-ility is extremely /ar$1 so2 most policies only co"er total $isa-ility ,ifferent forms of $isa-ility insurance #many pro"i$e -ot/%7 a. O''/>(%&#-(* D&1()&*&%+1 insurance a'ainst ina-ility to perform your >o-1 easy fact 6uestion -. G,-,"(* D&1()&*&%+1 pro"i$es co"era'e if cant $o anyt/in' w/ic/ you are reasona-ly 6ualifie$ 4ost liti'ation is a-out 'eneral $isa-ility1 w/at $oes it mean to -e una-le to en'a'e in any occupation? 4AI.RI @1 if t/ere is a >o- you can $o t/ats not -eneat/ you2 youre not $isa-le$ #i.e.2 youre $isa-le$ if t/ere is no >o- a"aila-le re6uirin' e6ui"alent-A. less or more- e$ucation% 4IA.RI @1 if t/ere is any >o- you can $o #e"en if it re6uires less e$ucation% you are not $isa-le$.

Mossa v. Provident 0ife and Casualty Insurance Company (1999" # p.!!$ rainin'2 salary /istory2 e$ucation2 etc. s/oul$ -e taken into account in $eci$in' w/et/er /e s/oul$ /a"e to work in a lower le"el >o-1 not muc/ of a rule an$ seems like it coul$ -e more -ri'/t-line .l$ Rule7 After full -enefits are pai$ for two years2 $isa-le$ must $emonstrate t/at /e cant $o any 'ainful occupation w/ic/ is reasona-ly expecte$ -8c of e$ucation2 trainin'2 or experience. ;F

Explanatory Insure$ ar'ues t/at t/e e6uation s/oul$ inclu$e reference to t/e salary /istory an$ a compara-le wa'e analysis. Hel$7 Court a'rees t/at ot/er >o-s are suita-le only f t/e compare economically. /e reasona-le expectations of a policy /ol$er are to insure a'ainst not makin' t/e same wa'e. /e fact fin$er can consi$er e"i$ence of t/e pre"ious salary.

4eller v. t3e 2:uita%le 0ife +ssurance Society of t3e Gnited States (19 ;" # p.!=, </en policy $oes say t/at you /a"e to 'et sur'ery2 Ct wont make you1 w/y $i$ t/is case 'et so far? Insurance company pro-a-ly suspecte$ c/eatin'1 since /e is a $octor2 t/ey t/ink /e knew /e was 'ettin' carpal tunnel -efore /e 'ot t/e insurance /ey want to make t/is /ar$ for t/e $octor e"en if t/ey lose 4ay -e a pro-lem of 1,*,'%&0, ,-2#"',$,-%1 "ery -roa$ pro"isions w/ic/ insurers only selecti"ely in"oke Insurers only in"oke t/e clause on people t/ey t/ink are c/eatin' system C e"en if cant pro"e it In fa"or of t/is practice1 t/ose w/o $ont c/eat like keepin' premiums $own -y stoppin' c/eaters A'ainst t/is practice1 sense t/at we expect re'ularity in an insurance companies processes 94 LIABILITY FOR BAD-FAITH BREACH BY INSURER (69 ! </y $oes insurance e"er pay if after a -reac/ t/e reme$y is simply to pay w/at you s/oul$ /a"e pai$? a. Reputation -. Efforts -y policy/ol$ers w/o ri'/ts were $enie$ to not only reco"er payment of policy -ut also conse6uential $ama'es =)-G) years a'o most Cts still sai$ t/at emotional $ama'es were not permitte$ c. Policy /ol$ers trie$ to -rin' tort actions Current Approac/es7 a. In$epen$ent tort #ex. frau$ or intentional infliction of emotional $istress% .R #conse6uential% $ama'es necessary -. ort of -a$-fait/ #in$epen$ent tort not necessary%1 4AI.RI @ R3LE Gi"es insurers a stron' reason to comply wit/ contract ou'/ part is $efinin' -a$-fait/1 an$ t/en w/en $oes puniti"e $ama'e kick in? </en t/reat of compensatory is not enou'/ Extreme e're'ious or malicious -reac/es Possi-le tests for lia-ility #w/at is -a$ fait/?%7 a. A-sence of affirmati"e 'oo$ fait/1 near-fi$uciary $uty #Sil%er&% NA1 law $oesnt a'ree w8 t/is C insurer $oesnt /a"e to -en$ o"er -ackwar$s -. E're'iously wron' co"era'e $enial c. Co"era'e not 92(&"*+ 7,)(%()*,:1 t/is is t/e $ominant test If existence of co"era'e is fairly $e-ata-le2 t/en no extra contractual $ama'es $. BA lot of t/ese cases in"ol"e somet/in' else 'oin' on1 anot/er way in w/ic/ t/e insurer is stickin' it to t/e policy/ol$er1 see Sil%er& #not payin' claim until workmans comp. case was settle$ cause$ many pro-lems in P not -ein' a-le to pay for more sur'eries C no reason as insurance woul$ /a"e 'otten reim-urse$ after comp. case% /is makes it more likely t/at claims t/at mi'/t not -e co"era-le will -e co"ere$ for fear of $ama'es for -a$ fait/ if a >ury fin$s it s/oul$ /a"e -een pai$ B+3 2 t/is is common law applica-le to (st party cases1 ERI0A co"ers ones pro"i$e$ as frin'e -enefits of employment an$ /as somet/in' to say a-out t/ese causes of action 0ee Aotes on =J= C Aature of Cause of Action2 Insurer 4is-e/a"ior Re6uirement. Sil%er& v. C+ 0ife (19;=" - !=$ , refuse$ co"era'e -ecause it was waitin' for workers comp $etermination on status. Insure$ suffere$ lots of ot/er $ama'es as a result of not /a"in' co"era'e t/at /e en$e$ up -ein' entitle$ to2 -ut payment can -e years late Court fin$s t/at t/ere is an implie$ co"enant of 'oo$ fait/ in e"ery policy2 an$ t/at t/ere was -a$ fait/ /ere. Insurer acte$ $ifferently t/an in$ustry custom ;D

Explanatory Court awar$s compensatory $ama'es to co"er $ama'es resultin' from -a$ fait/. ,i$ not awar$ puniti"e $ama'es C must s/ow Yoppression2 frau$2 or malice C intent to "ex2 in>ure2 or annoy2 wit/ conscious $isre'ar$ of insurers ri'/ts Pilot 0ife Insurance Company v. 5edeau? (19 ;" # p.!<$N 21IS+ I' /4IS C.'/2S/ ERI0A pre-empts state laws relatin' to employee -enefits1 +3 2 t/ere is an exception to preemption for laws t/at 9re'ulate insurance: Employer can escape state insurance re'ulations -y self-insurin'1 pro"i$e -enefits on a self-finance$ -asis 0uit for $enial of -enefits an$ -a$ fait/ -reac/1 -ut employer ar'ues t/at t/is state law for -a$ fait/ is not one concerne$ w8 re'ulatin' insurance #it applies to any kin$ of contract% an$ t/us pre-empte$ -y ERI0A B erm of law 9relatin': to employee -enefits really means as lon' as suit relates to employee -enefits Ct a'rees w8 t/is ar'ument so t/is cause is pre-empte$ an$ t/e only reme$y is un$er ERI0A B0cope of t/is $ecision is in effect to say t/at t/ere is -# '(/1, #2 ('%&#- 2#" )(7 2(&%: )",(': #2 (&-1/"(-', >#*&'+ 1/)?,'% %# ERISA1 t/is is "ery si'nificant ryin' to c/an'e t/is $ecision -y amen$in' ERI0A /as -een a /otly $e-ate$ issue as of late ERI0A 'i"es causes of action2 +3 not to 'et extra-contract $ama'es </at a-out suits a'ainst H4. for7 ,enial of treatment1 PRE-E4P E, 4alpractice1 A. PRE-E4P E, #pro"i$in' -enefits ne'li'ently% LIABILITY INSURANCE (6 9! COMMERCIAL GENERAL LIABILITY (CGL! INSURANCE (6 9! Cri- 0/eet. Also 0ee Explanatory on t/is one. Its awesome. General ."er"iew (DG)1 (st stan$ar$ form CGL #Compre/ensi"e General Lia-ility% policy was enacte$1 now 9commercial: /is was ori'inally know as an 9acci$ent: policy1 in (DOO it c/an'e$ to 9#''/"",-',: policy A4 S($>*, CGL P#*&'+ (6 5! Aot really a 9compre/ensi"e: policy anymore 'i"en /ow /efty t/e exclusion section /as 'otten. i. D,'*("(%&#-1 P(;, (6 5! In$icates policy perio$2 specifies limits of lia-ility for co"era'e A M + Aot a claims ma$e policy1 coul$ -e ma$e into one w8 a retroacti"e $ate iiii. C#0,"(;, A< B#7&*+ I-?/"+ (-7 P"#>,"%+ D($(;, (6 A! Insurin' A'reement #so-calle$ 9plain lan'ua'e: policy% (6 A! Almost e"ery p/rase in t/is part /as -een t/e su->ect of liti'ation Aee$s to -e a 9le'al o-li'ation:1 Cud&ment /ol$in' lia-ility? </at a-out settlements? .-li'ation impose$ -y re'ulations? </at a-out -uil$in' a soun$-proof kennel for your $o's to a"oi$ nuisance suit? 4ust -e o-li'ate$ to pay 9(1 7($(;,1:1 so2 o-li'ation to /elp pay for repair of streets in a su-$i"ision $oes not count nor woul$ taxes count 9as $ama'es: are wor$s of limitation. Aot all le'al o-li'ationsV>ust t/ose t/at are $ama'es. 9%ecause of: 9-o$ily in>ury: or 9property $ama'e: 9+ecause of: is -roa$er t/an 9for: C coul$ apply to conse6uential $ama'es. 9-o$ily in>ury: an$ 9property $ama'e: are in 6uotesVterms of art. Insurer /as ri&3t an$ $uty to $efen$1 so2 insure$ can not tell insurer to not $efen$ .nly o-li'ate$ to $efen$ 9suits: an$ insurers may settle any claim or suit =) 54

Explanatory Insurer $eci$es w/et/er to risk its money on its own -e/alf2 so can $eci$e to settle or not to settle. .-li'ation to $efen$ en$s w/en insurance limit is pai$1 only if P takes t/e Q Insurer cant cut an$ run wit/ a Q())N c/eck. Also2 if lia-ility limit of insurer is Q())N2 cant secure a Q;))N settlement an$ run away. o 'et release$ it /as to /a"e a >u$'ment entere$ a'ainst it for Q())N or T or pay Q())N in return for extin'uis/ment of a claim. Insurance only co"ers 9co"era'e territory:1 usually all of 30 or worl$ #-%#(% 9.ccurrence:1 really means anyt/in' t/at /appens acci$entally Continuous acci$ent is sin'le occurrence to pre"ent 9-roken slot mac/ine: pro-lem: w/ere IA0 >ust keeps payin' out. #-%#;% 9/ri&&er of Covera&e:1 in>ury or $ama'e must occur $urin' t/e policy perio$ </ole -o$y of cases on w/at 9$urin': means. #-%#=% Stone(all Case C Wuestion in t/e case a-out w/et/er t/ere is an implie$ 9known loss: $efense to co"erea'e. #-%#=% is IA0Zs attempt to write a 9known loss: $efense in. Exclusions (6 E! #somet/in' like J to O times lon'er in print t/an co"era'e section% ,esi'ne$ to $o one or all of t/e followin' G t/in's7 Guar$ a'ainst a$"erse selection Com-at moral /a5ar$ A"i$ co"erin' correlate$ losses A"oi$ $uplication of co"era'e Expecte$ or Inten$e$ In>ury from t/e stan$point of insure$1 use$ to com-at moral /a5ar$ Contractual Lia-ility Li6uor Lia-ility1 people ownin' -ars /a"e to -uy special insurance #com-at a$"erse% <orkers Comp M Employer Lia-ility1 'et a special policy #com-at a$"erse selection% P#**/%&#- #9,@'*/1&#- 2:% 1 #"ery important% calle$ a-solute pollution exclusion #=OD% Pro-lem is t/at t/is is not a-solutely a-solute1 nee$ to rea$ in $etail Principle $ifference is off-site pollution is co"ere$ #ex. pollution from a pro$uct suc/ as an insulator t/at is toxic% ,efinition of 9pollutant: is so -roa$ it coul$ co"er almost any su-stance t/at causes /arm #ex. to-asco sauce fits $efinition% 0ee Noloms case. Aircraft2 Auto2 or <atercraft1 'ets special policy <ar ,ama'e to Property #9.wne$ Property Exclusion:% How can you -e lia-le for somet/in' you own 1 well2 it can /appen +usiness Risk Exclusions #k2l2m% If you make s/o$$y merc/an$ise2 t/ats a -usiness risk. <e $ont insure you a'ainst t/at2 unless t/e crummy pro$uct causes -o$ily in>ury to people. <ee$o case Recall of Pro$ucts2 <ork2 or Impaire$ Property1 'et special policy 0o-calle$ 9 ylenol exclusion: or t/e 9sister s/ip exclusion: iii. C#0,"(;, B< P,"1#-(* (-7 A70,"%&1&-; I-?/"+ (6A5! /is co"era'e /as -een s/rinkin' o"er time1 almost not/in' is co"ere$ un$er t/is Pro-lem is t/at most t/in's co"ere$ un$er t/is re6uire intentional /arm an$ w/at 'ets taken away in t/e exclusions section is intentional acts. &04 C#-7&%&#-1 (MIV! (6A ! Par. (7 +ankruptcy of insure$ $oes not affect insurers $uties #=EO% Par. ;7 Insure$ /as $uties after loss in or$er to 'et full -enefit of insurance #notice2 cooperation2 testify2 etc.% Insure$ loses co"era'e only if insurer is pre>u$ice$ -y t/e -reac/ of t/ese con$itions =(

Explanatory ". = C no action clause& F C su-ro'ation clause2 etc. D,2&-&%&#-1 (MV! (6AE! F. Impaire$ Property #=ED% D. Insure$ Contract .ccurrence NA1 really means anyt/in' t/at /appens t/at causes an acci$ent Insurers ar'ue it only means acci$ent2 -ut t/is is not t/e case Personal an$ A$"ertisin' In>ury #=F)% Property ,ama'e (F. 0uit1 preclu$es a$ministrati"e procee$in' an$ ot/er t/in's not initiate$ -y a complaint2 even if t/e lia-ility t/at woul$ -e incurre$ -y t/e procee$in' woul$ -e co"ere$. C3oice of la( pro%lems7 Insurance is state law. 0o t/e case law interpretin' t/e pro"isions is all state law2 -ut t/e policies are all -ou'/t -y multi-state corporations. 0o t/e place w/ere t/e tort occurs isnt always t/e state t/at 'o"erns t/e meanin' of t/e policy. Co"era'e suits are -reac/ of co"era'e suitsV>ust -ecause you sue your insurer in state A $oesnt mean its state As law t/at applies. +ut state As law on c3oice of la( $eci$es w/ic/ states laws apply. Gui$elines7 (% If you /a"e some actual relations/ip wit/ t/e state youre suin' in2 you"e 'ot a 'oo$ c/ance at t/e trial >u$'e applyin' /is own law -ecause /e knows t/at an$ $oesnt know ot/er states laws2 ;% .t/erwise2 it will usually -e t/e law of t/e state w/ere you recei"e$ t/e policy2 i.e. your corporate /ea$6uarters #not ,E w/ere youre incorporate$%. /atll -e A@ law a lot of t/e time. B4 T:, I-1/"&-; A;",,$,-% (6E6! i. Meanin& of 85ama&es9 and 8Property 5ama&e9 (! !" /e w/ole works is -ase$ on pollution $ama'e cases #Lo"e Canal% Con'ressional Act2 CERCLA2 #9t/e superfun$:%1 create$ a fun$ for 'o"t to use to clean up sites CERCLA $esi'nate$ 9responsi-le parties: are anyone w/o /as owne$2 operate$2 transporte$ to2 or -asically /a$ anyt/in' to $o wit/ t/e site. Ao real $efenses. CERCLA impose$ strict2 >oint-an$-se"eral2 retroacti"e lia-ility. 0tructure of CERCLA1 'o"t /as Q to clean-up on its own an$ t/en sue past owner2 present owner2 people sen$in' material to t/e site #strict lia-ility stan$ar$2 is >oint an$ se"eral2 an$ is retroacti"e% 0tatute was amen$e$ in (DFJ1 clarifie$ t/at e"eryone is lia-le 0atirically nickname$ RACHEL #Rules Amen$ments Clarifyin' How E"eryone is Lia-le% CERCLA 'i"es EPA = ways to impose lia-ility on responsi-le parties7 #a% Go"t. can clean up site an$ t/en sue responsi-le parties1 cost of response H cleanup costs #looks like $ama'es% #-% Go"t. seeks an or$er from fe$ court $irectin' responsi-le parties to clean up Prior to in>unction2 company can liti'ate $efenses #c% Go"t. issues non->u$icial a$ministrati"e or$er $irectin' responsi-le parties to clean up Insurance takes one look at t/is pro'ram an$ says 9fuckKVwe nee$ to fin$ ways to a"oi$ payin' for t/is.: IA0C.s ne"er anticipate$ payin' t/ese expenses2 so t/ey wrote in a w/ole /ost of 6ualifications an$ exclusions to make a superfun$ claim /ar$er to reco"er on. CaseB '.I. Mc5onald Industries6 Inc. v. Insurance Company of 'ort3 +merica (1991" # p.! = OOSee t3e %elo( point on t3is one.PP +rou'/t in fe$eral Ct2 -ut law 'o"ernin' is 1%(%, *(. -8c contract $i"ersity suit Go"t tells P to clean-up -y sen$in' notice an$ t/reatenin' an or$er or in>unction P ne'otiates a consent or$er specifyin' exactly w/at t/ey /a"e to $o Ps insurers $eny lia-ility an$ raises ; $efenses7 a. Lia-ility incurre$ is not paya-le as 9$ama'es: #'oo$ ar'ument% -. Lia-ility is not incurre$ -8c of property $ama'e #ri$iculous ar'ument% Ct re>ects -ot/ an$ fin$s for P1 acknowle$'es split of aut/ority on $ama'e 6uestion2 -ut /ol$ t/at t/ese are $ama'es un$er t/e policy lan'ua'e =;

Explanatory (( states a'ree an$ say $ama'es2 = say not $ama'es. Courts $ont want to call one t/in' $ama'es an$ t/e ot/er t/in' not $ama'es #see -elow%.

Issue Re'ar$in' ,ama'es Wuestion /3is (as a ma>e-or-%rea> issue for policy3olders. If t3ey couldnDt (in on t3ese t3in&s %ein& dama&es6 t3ey (ere in %i& trou%le. /3ere (ould t3en %e no (ay for a policy3older to recover. So decision it (as dama&es (as some(3at a&nosticHrulin& t3ese t3in&s (ere dama&es (as somet3in& of a (ait-and-see approac3. a. In>unction ". Cost Reco"ery <eir$ issue is t/at w/en EPA makes a company clean w8 in>unction it $oesnt look like $ama'es2 +3 w/en t/e 'o"t cleans up an$ t/en seeks reim-ursement it $oes. ,o we want to 'i"e incenti"es for companies to /a"e 'o"t clean up an$ reim-urse?1 t/is may un$ermine w/ole CERCLA sc/eme. B0eems -etter for Ct to "iew -ot/ in same way w/et/er it -e for or a'ainst co"era'e -. E6uita-le ". Le'al 0ome ar'ue t/at 'o"ernment is not one /arme$ so its not really $ama'es2 -ut more like restitution. CERLCA cost reco"ery is really a uni6ue t/in' t/at is not restitution or $ama'es1 pro-lem is t/at t/is analysis seems to lea$ to a no co"era'e conclusion.( /us2 Ct stretc/es an$ calls t/is $ama'es anyway c. Cost 4ay Excee$ Property Ralue Aormally2 t/e ceilin' of $ama'es is t/e "alue of t/e property1 CERCLA alters t/e ceilin' an$ can far excee$ t/e "alue of t/e property. $. Cost Reco"ery ". Aatural Resource 9,ama'es: CERCLA uses 9$ama'es: to refer to somet/in' ot/er t/an cost reco"ery1 so insurers also ar'ue t/at lan'ua'e of statute s/ows cost reco"ery isnt paya-le as $ama'es Cts. response to t/at was t/at Con'resss c/oice of terminolo'y $oes not esta-lis/ w/at is $ama'es in le'al context of insurance. F & 4 Construction v. I// 4artford Insurance Company (,--=" p. !9, 0plit of aut/ority as to w/et/er property /ol$er is lia-le for property $ama'e w/en property /as -een $iminis/e$ in "alue -y t/e incorporation of material p/ysically into it2 -ut w/en t/ere /asnt -een any material c/an'e to t/e property. o CGL policy $oesnt say you /a"e to do t/e property $ama'e2 >ust /as to say you /a"e to -e lia-le for it. Construction pins of wron' stren't/ $eli"ere$Vcontractor /a$ to amen$ cap an$ spen$ lots of money to retrofit so property woul$nt collapse. <oun$ up missin' -onus an$ sue$. o /e use of ina$e6uate caps $i$ not constitute p/ysical in>ury. o 3se of a $efecti"e component [ $ama'es until it causes p/ysical in>ury to someone. 9 ickin' time -om-: analo'y inapt. ,oes not e6ual p/ysical in>ury. o CGL not inten$e$ to -e a performance 'uarantee. o Replacement an$ repair more in control of insure$. o /e piles werent touc/e$ -y t/e cap so t/ere was no $ama'e to t/e piles2 t/emsel"es2 only to t/e performance of t/e wel$e$ structures. Ao loss of use of t/e water facility. Loss of use H amount someone must spen$ w/en /e cant stay at /is place. o Ao loss of use /ere C finis/e$ on time. B"&;:% *&-, -etween w/en property is not actually $ama'e$ an$ cases w/ere it is7 more reason to t/ink t/at market forces will control t/e replacement of s/o$$y merc/an$ise. An$ fre6uency of /a"in' to replace s/o$$y merc/an$ise means you arent 'oin' to 'et away wit/ it. .n t/e ot/er /an$2 s/o$$y merc/an$ise causin' p/ysical in>ury is muc/ less fre6uent2 so market forces arent as likely to control it w/ic/ is w/y t/eres a role for t/e court. +ut t/e -ri'/t line worksVits self applyin' w/et/er it makes sense or not # /e 0la$e 9nut cluster wit/ woo$: case is in t/e minority% meanin' you cant preempti"ely fix an$ expect CGL co"era'e.

4easure of reco"ery in restitution is amount of ill-'otten 'aine$. Go"ernments loss is amount of cleanup. 0o or$inary $ifference -etween restitution an$ $ama'es >ust $oesnt exist.

==

Explanatory ii. The Trigger(399) T"&;;," #2 '#0,"(;,1 must -e occurrence of -o$ily in>ury or property $ama'e durin& insurance period 0o t/ere are 6uestions a-out w/en you incurre$ t/e in>ury. /is $urin' t/e policy perio$ is in any non claims-ma$e policy. 0imple E"ent Y,(" 5 Y,(" 2 Y,(" 6 Slip6 fall6 %odily inCury (AI" More AI (infection6 etc" More AI Policy co"erin' year one is t/e #-*+ #-, t/at will co"er t/is in>ury2 t/ou'/ it$ certainly -e possi-le to t/ink a-out it in ot/er terms. A$ministrati"e complicityVless expensi"e2 etc. 3n$er alternati"e rule2 you$ /a"e to in6uire a-out all sorts of a$$itional t/in's #w/at potential lawsuits are out t/ere2 w/at pre"ious in>uries /a"e you suffere$2 etc.%. /is means more complicate$ fact-fin$in' task an$ pro-lem of (70,"1, 1,*,'%&#-. 4ore Complicate$ CasesL Y,("5 Y,(" 2 Y,(" 20 +s%estos e?posure6 AI 2?posure 8in residence9 Manifestation Ha"e to know w/en t/e -o$ily in>ury occurre$1 -8c t/at tri''ers co"era'e. Aot t/e cause2 -ut t/e result is key1 w/en $i$ /e -ecome 9in>ure$: /is is a "ery /ar$ me$ical 6uestion </en you -reat/ as-estos2 t/ere is $ama'e almost imme$iately. </ic/ policies co"er?1 Cts t/at a$$resse$ t/is issue came to $ifferent conclusions 4any Cts say t/ere can -e a multi-year tri''er1 fi-ers cause in>ury e"ery year in w/ic/ t/ey are present Eac/ policy year is tri''er -8c as a matter of fact t/ere is in>ury eac/ year 0ome cts $ont say t/is2 -ut say co"era'e is tri''ere$ -y ,@>#1/", +ut /ere t/ere coul$ -e cases w/ere t/ere is a tri''er w8 no in>ury2 w/ic/ is a mistaken notion. Anot/er misnomer is t/e 9'#-%&-/#/1 %"&;;,":1 $isease causin' process occurs continuously #no pro-lem if actual in>ury continuously2 -ut may lea$ su-se6uent cts to t/ink t/ere is some weir$ rule%. Y,("5 Y,(" 2 Y,(" 20 7aste 5epositMlea>a&eMmi&ration Continued lea>a&e Manifestation 0o leaka'e t/rou'/ year ;)2 -ut all $eposit occurre$ in year ( Analo'ous to as-estos an$ most ct.s use a multi-year tri''er approac/ E"en t/ou'/ coul$ -e conceptually t/ou'/t of as 9slip M fall: 7aste 5epositMlea>a&eMmi&ration +ddDl deposits6 lea>a&e Easier to see /ere /ow e"ery year t/ere is a tri''er Manifestation

@ou can treat cases two or t/ree like ( or like G2 -ut t/ose mi$$le cases ten$ to -e treate$ like G. 4ost courts /a"e a$opte$ multi-year tri''ers. /is >ust means t/at t/e policies are eli&i%le to pro"i$e co"era'e. V("&#/1 T"&;;,"1 U1,7 )+ C#/"%1 (. Actual In>ury in !act #+4P Case%1 soun$ t/eory2 -ut t/e cost of t/is is tremen$ous ;. Continuous1 in>ury occurs e"ery year -8t (st year an$ manifestation =. Exposure somet/in' of a mistaken notion G. 4anifestation1 rarely use$ -8c it make little sense an$ less likely to pro"i$e co"era'e. +ut insurance companies lo"e to try to ar'ue t/is. A-ra/am calls it 9weir$:

=G

Explanatory +merican 4ome Products Corp. v. 0i%erty Mutual Ins. Co. (19 !" # p.!99 ,e-ate o"er w/et/er tri''er s/oul$ -e ,@>#1/", or $(-&2,1%(%&#-1 Ct re>ects -ot/ an$ says it is simply t/e year#s% t/at t/e in>ury occurre$ 4ay -e t/at t/ere is in>ury at year of exposure an$ eac/ year su-se6uent2 -ut t/ere may -e su-stances t/at $o not cause in>ury until years later1 t/is is a 6uestion of fact If t/ere is a new in>ury eac/ year2 eac/ policy is tri''ere$1 multi-year tri''er /is is >ust -ase$ on t/e facts of eac/ particular case 0econ$ Cir. says if t/eres an in>ury2 t3atDs t/e year of tri''er2 re'ar$less of w/et/er $ia'nosa-le or not. In re Silicone Implant Covera&e 0iti&ation (,--!" # p.= Action -y se"eral =4 /i'/-le"el2 excess layer2 occurrence--ase$ policy issuers seekin' clarification of co"era'e on silicone mass tort liti'ation. +etween (DEE an$ (DFJ =4 purc/ase$ si'nificant amounts of occurrence--ase$ insurance for pro$uct lia-ility exposure. /us co"era'e $epen$s on w/en +I occurs an$ pays all claims re'ar$less of w/en $ia'nose$ or treate$. In>ury seen as -ein' $iscrete at moment of implant2 rat/er t/an continuous. Re>ects insurers ar'ument t/at 9tri''er: is fictional moment of cell $ama'e so continuous. Also ar'ue 9en"ironmental pollution.: /is sort of runs a'ainst A-ra/ams 9most courts 'o wit/ \G: explanation& /ere t/e courts $eci$e$ to treat cases \; M \= like \( #w/ic/ $oesnt usually /appen%. </y $i$ t/e policy/ol$er want t/e 9$iscrete moment:? </y $i$ IA0C. want continuous? /ey want to 'et as muc/ $ama'e into t/e years -efore t/eyre 'oin' to -e pro"e$ not to /a"e co"era'e #t/e /ori5ontal pro-lem%. Also2 if all of t/e in>uries from silicone implants are one occurrence2 t/e most 7,7/'%&)*, you /a"e to pay is ei'/t years or one year2 w/ereas if eac/ implant is an occurrence2 t/ere mi'/t -e no real co"era'e -ecause of t/e $e$ucti-le. #w/at went $own?% Consoli$ation is not always fa"ora-le or not fa"ora-le to policy/ol$ersV$epen$s on w/et/er floor "s. ceilin' is -in$in'7 you wont care a-out /a"in' to pay more $e$ucti-les if it means your ceilin' of co"era'e for $ama'e is Q;))4 instea$ of QG)4. 9Consistent wit/ our ('%/(*-&-?/"+ %"&;;," %:,#"+C we /ol$ t/at t/ose insurers on t/e risk at t/e time of implantation are lia-le up to t/e limits of t/eir respecti"e policies for =4s losses arisin' from t/at implantation.: iii. Cov. +llocation +mon& /ri&&ered Parties /is is /ow it 'oes $own w/en t/e court doesnDt run wit/ t/e 0ilicone t/eory. A. E1 it makes a $ifference w/ere you sue C pick place w8 fa"ora-le tri''er .nce we know t/ere is a tri''er2 /ow $o we $etermine w/o pays w/at amount? Ct appeals in 'ort3ern States sai$ to $eci$e as a matter of fact /ow muc/ $ama'e t/ere was in eac/ year Pro-lem is t/at you will almost always ne"er /a"e t/e facts to make suc/ an analysis .ften t/e $ama'e is in$i"isi-le Policy lan'ua'e will usually tell you not/in'

=J

Explanatory !IG3RE A7 GRAPH .! C.RERAGE P3RCHA0E R0. 0340 REC.RERA+LE ;))4


@ou can 'et at t/is wit/ "ertical7 (DE;-E= H Q;))4 eac/ Aot co"ere$ #/o5% -ecause pollution excl. inserte$ in YEG

0/a$e$ not co"ere$ #/o5% ;)4 /ori5ontal (DOO (DE; (DF)

0o you can see /ow t/e policy/ol$er can 'et screwe$ out of co"era'e -y t/e /ori5ontal met/o$. He cant 9fill up: to t/e full extent of t/e lia-ility -ecause of t/e non-reco"era-le s/a$e$ area. 3n$er "ertical co"era'e2 /e coul$ take t/e full -ar from E;-EG2 w/ic/ woul$ allow /im to 9fill up: to a 'reater extent t/an wit/ /ori5ontal.

,ifferent Approac/es </at to $o w/en not possi-le to say w/at amount of $ama'e occurre$ as a result of actions8$eposits8etc. in eac/ year #$ama'e in$i"isi-le -y year%. a. H.RIP.A AL #;8=r$s 'o wit/ t/is% (. P"# R(%( #'ort3ern States Supreme Ct and t3e maCority vie(" E6ual amount of co"era'e allocate$ to eac/ tri''ere$ year an$ eac/ insurer pays for eac/ year for w/ic/ /e 'a"e co"era'e ,i"i$e amount of lia-ility -y \ of tri''ere$ years2 allocate e6ual responsi-ility to eac/ year #e"en t/ou'/ $ont know t/at% an$ t/en see if t/ere is co"era'e to up t/e amount of allocation1 if not pay amount of policy limit. ;. P"#>#"%&#- of limits in year to sum of limits in all tri''ere$ years (O ens!"##inois! /us2 a year in w/ic/ QJ)4 in force is allocate$ twice as muc/ responsi-ility as a year w/ere t/ere is only Q;J4 in force -. RER ICAL #(8= 'o wit/ t/is% +&ain6 comes into play (3en dama&e is indivisi%leQ (. N#&-% (-7 S,0,"(* #L.4. France and minority vie(% Eac/ tri''ere$ policy is lia-le in full #up to limits% for policy /ol$ers loss Gi"es policy /ol$er many more ways to reco"er1 insurers $ont like t/is Policy/ol$er can pick w/ate"er year it wants2 an$ t/en keep pickin' until it eit/er pays all its lia-ility /is met/o$ will ne"er -e worse for t/e insure$. Iustifie$ on 'roun$s t/at ol$ policies promise$ to pay 9all sums: t/at policy/ol$er was lia-le to pay $urin' policy perio$. +ut look on our policyV9all sums: is 'one in fa"or of 9t/ose sums: ;. P&'3 O-, Y,(" O-*+ #)eene% Rarely use$ -ut a$opte$ -y an early case1 use$ in CA Rersion of limite$ >oint an$ se"eral1 >ust pick year w8 most co"era'e Insurers ten$ to say2 okay2 sure2 let t/e insure$ pick a year2 -ut s/oul$nt we 'et a ri'/t to contri-ution? 4ost courts say yea/2 -ut insurers are unlikely to 'o for t/is -ecause t/ey $ont want t/eir own ar'ument for allocation use$ a'ainst t/em. Summary Aone of t/ese seems like t/e only plausi-le approac/1 -ut2 Cts $ont allow policy/ol$er to pick Insurers /a"e known a-out -ut not a$$resse$ t/is pro-lem1 Ct still fin$s t/at t/is cant mean t/at >oint an$ se"eral is fair #>ust too 'reat an a$"anta'e for insure$s% =O

Explanatory /eory Pro Rata Ioint an$ 0e"eral #.wens-Illinois% Pick ( @ear only See &rap3 supra for visual depiction. Result Q;;) million QG)) million Q;= million Q;)) million

iv. 'um%er of .ccurrences (=1$" .nly matters w/ere t/ere is per occurrence lia-ility an$ a lar'er a''re'ate limit en$ency is for few occurrences1 most common is (2 ;n$ most common is ; Metropolitan 0ife Insurance v. +etna (,--1" # p. =1$ Alle'e$ -reac/ of $uty -y 4etropolitan to warn of w/at it knew a-out as-estos $ama'e. Is t/at one occurrence2 or is eac/ as-estos claim $istinct? 4atters -ecause Aetna steps in after Q;J4 of lia-ility. 0o 4etropolitan can cap its lia-ility -y 'ettin' t/is t/in' calle$ a 9sin'le occurrence.: In ot/er contexts2 a slew of sin'le occurrences is -a$ news for policy/ol$ers -ecause t/eir $e$ucti-les $epri"e t/em of a lot of w/at t/ey$ ot/erwise 'et. C 0upremes >ust calle$ it t/e way t/ey saw itVone occurrence per in>ury. 0o not result oriente$ /ere2 w/ic/ is more t/e case as time 'oes -y. C4 E@'*/1&#-1 (-7 C#-7&%&#-1 (922! Exclusions only takes away somet/in' t/at /as -een 'i"en1 t/ere can -e exceptions to an exclusion #e"eryone is exclu$e$2 except x1 so x is still co"ere$% i. 2?pected or Intended 4arm 4ost fre6uently use$ $efense -y insurers !rom 9Acci$ent: to 9.ccurrence: .ri'inal CGL policies use$ t/e term 9acci$ent: #connote$ somet/in' /a$ to /appen not on purpose1 -ut t/ere was a $ispute as to w/et/er t/is was a s/ort term e"ent% Result of t/ese cases were inconclusi"e1 le$ to c/an'e -ase$ on market to 9occurrence: lan'ua'e1 acci$ents an$ repeate$ exposure to lon'er term e"ents -,&%:," 9,@>,'%,7 #" &-%,-7,7: from t/e stan$point of t/e insure$ Pre (DFO2 9neit/er expecte$ or inten$e$: limitation was inclu$e$ in $efinition of term insure$ 9occurrence.: #mo"e$ t/ere to /i$e it for merc/an$i5in' reasons%. 4akes IA0C.s ar'uments t/at location of lan'ua'e meant t/e -ur$en of pro"in' fell on insure$ is somew/at spurious. Post (DFO2 t/e 9neit/er expecte$2 etc.: lan'ua'e was mo"e$ into an exclusion Stone(all Insurance Co. v. +s%estos Claims Mana&ement Corp. # p.=,, </o s/oul$ers t/e -ur$en of pro"in' t/e 9expecte$ or inten$e$: lan'ua'e applies or $oesnt apply? ypically2 insure$ -ears -ur$en of pro"in' affirmati"e co"era'e2 an$ insure$ /a$ t/e -ur$en of pro"in' exceptions. As note$ a-o"e2 IA0C.s only cramme$ t/is t/in' in affirmati"e area for merc/anta-ility. Greater issue isV/ow on eart/ is t/e policy/ol$er 'oin' to prove t/at /e $i$nt inten$ or expect somet/in'. How $o you pro"e t/e ne'ati"e? .nly t/in' t/ats 'oin' on /ere is insurer presentin' e"i$ence t/at you did inten$ or expect an$ t/en an e"aluation of t/at. 0u->ecti"e or .->ecti"e est? Policy lan'ua'e su''ests 1/)?,'%&0&%+1 unless you /a"e 9from t/e stan$point of: E"i$ence is o->ecti"e2 -ut test is still su->ecti"e 9</at is intent2 -ut a state of min$?: 4eanin' of 9Expecte$: B,ominant $efinition means (% *,(1% ( :&;: >"#)()&*&%+ #2 :("$ &2 -#% 1/)1%(-%&(* ',"%(&-%+ =E

Explanatory 4inority usin' o->ecti"e test is w/et/er you s/oul$ /a"e known1 a true test for o->ecti"ity is w/et/er t/e reasona-le policy/ol$er woul$ /a"e -een aware </ose Expectation Counts? Aame$ insure$ only acts t/rou'/ emps1 can corp. -e seen to /a"e expectation if emp $oes? 4any Cts use t/e mana'ement complicity re6uirement1 expectation of emp wont preclu$e co"era'e unless mana'ement eit/er knew or /a$ reason to know2 etc. 4ana'ement cant >ust cuts t/emsel"es off from communication or emps $ont communicate1 nee$s to -e a case of excusa-le i'norance 4inority "iew is t/at expectation must -e someone at mana'ement le"el </at 4ust +e Expecte$?

Gni&ard Mutual Insurance Co. v. +r&onaut Insurance Co. (19; " - =, Ni$ expecte$ fire2 -ut not $ama'e to t/e rest of t/e sc/ool He expecte$ some /arm2 >ust not t/e /arm t/at /appene$1 Ct says no co"era'e Parents co"era'e was in$epen$ent to t/at of t/e ki$. Parents are not "icariously lia-le for t/e torts of t/eir c/il$ren. 0o if parents are lia-le to t/e 0c/ool +oar$ in t/is case2 it /as to -e -ecause t/ey committe$ a tort in t/eir own ri'/t. Parents /a"e co"era'e for ne'li'ent $ama'e2 unless t3ey expecte$ or inten$e$ /arm. /ere are two pron'sVacci$ent2 an$ a-sence of intent or expect2 -ut typically treate$ as t/e same. +ut in 3ni'ar$2 court notes t/at t/ere may -e cases w/ere t/ere is no intent or expect2 -ut w/ere t/ere is no co"era'e -ecause act causin' /arm is not 9acci$ental.: NA is not so sure. NAs restaurant intentionally ser"in' foo$ t/at turns out to /a"e e-coli. /e servin& was not acci$ental2 -ut t/at cant mean t/at t/eres no co"era'e. NA says w/at t/e court must really -e tryin' to $o is not $istin'uis/ its intentionality2 -ut rat/er its intentional (ron&fulness. In its -roa$est conception2 t/is case is wron'2 -ut t/ere is a little -it of >urispru$ence $e"elopin' on t/is 6uestion. BM(?#"&%+ "/*,1 if you expect or inten$ some $ama'e2 $ama'e resultin' is exclu$e$ from co"era'e #pro-a-ly an implie$ $e minimus exception% M&-#"&%+ "/*,1 if policy/ol$er expects /arm S2 an$ /arm @ actually occurs2 t/en co"era'e for /arm @ will not -e exclu$e$ #e.'.2 $ama'e to soil "s. 'roun$water& $e minimis "s. lar'e /arm% ,ifficulty /ere is t/at you /a"e a fact 6uestion </o -ears t/e -ur$en of proof? BPolicy/ol$er -ear -ur$en to s/ow in>ury fall in t/e affirmati"e 'rant of co"era'e +3 insurer -ears -ur$en of s/owin' exclusion applies Cts use functional approac/1 not w/ere it appears in policy2 -ut w/at lan'ua'e really means 0eems -etter approac/ is w/o /as -etter access to t/e e"i$ence 4ost Cts say insurer -ears t/e -ur$en of proof 4eanin' of 9Acci$ent: Harm cant -e expecte$ or inten$e$2 +3 neit3er cause nor result can -e expecte$ or inten$e$ BHar$ to see /ow t/is re6uirement can apply across t/e -oar$1 so many t/in's t/at are $one $eli-erately cause uninten$e$ results #ex. $eli-erately ser"e foo$ t/at /appene$ to -e -a$% 4a>ority< '(/1, 7#,1 -#% :(0, %# ), (''&7,-%(* (-7 *#-; (1 ",1/*% &1 /-&-%,-7,7 Nnown Loss ,efense Is t/ere >ustification for t/is?1 w/y not let people -uy co"era'e for loss t/at is alrea$y incurre$ as lon& as insurer >no(s a%out t3e loss? 4G4 Gran$ -ou'/t lia-ility insurance after /otel -urne$ to t/e 'roun$ in t/e F)s. =F

Explanatory E"en t/ou'/ NA says t/is $efense $oesnt make sense2 it exists.

ii. /3e .(ned-Property 2?clusion (.PR" (=!," A"oi$ance of $uplication rationale1 no co"era'e for $ama'e to your own property2 property you rent2 or is in policy/ol$ers care2 custo$y2 or control 4a>im v. Massac3usetts InsurersD Insolvency Fund (199;" # p.=!, Homeowners oil tank leaks1 lar'e expense most $oes not in"ol"e $ama'e to Hs own property Property ins policy co"ers cost to repair t/e property +3 not to excee$ actual market "alue8replacement cost of property #prior to time of contamination2 soil not wort/ muc/ -ut cost of clean up is lar'e%1 try to 'et reco"ery t/rou'/ t/eir lia-ility ins co"era'e Possi-le 0ituations7 a. N# 7($(;, %# %:&"7 >("%+ >"#>,"%+ -#" &1 1/': 7($(;, &$$&-,-% @ou repair. @ou turn to insurer an$ say 9/ey2 I >ust sa"e$ you money C pay me for in"estin' in safety.: Ao2 you $ont 'et t/is. All courts /ol$ .PS applies an$ preclu$es co"era'e #any co"era'e will come un$er property ins policy su->ect to pollution exclusion% -. N# 7($(;, %# %:&"7 >("%+ >"#>,"%+ BUT 7($(;, &1 &$$&-,-% ,ominant rule is t/at .PS applies an$ preclu$es co"era'e #t/reat of $ama'e $oes not e6ual $ama'e to t/ir$ party property% 0ome courts will 'i"e you t/is one. Approac/ may seem to 'i"e an incenti"e not to clean up -ut co"era'e is preclu$e$ anyway if expecte$ or inten$e$ M le'al lia-ility can attac/ if re6uire$ to clean up c. D($(;, %# %:&"7 >("%+ >"#>,"%+ :(1 #''/"",7 (-7 2/"%:," 7($(;, &1 &$$&-,-% /is is t/e 4a>im situation 4a>ority of courts /ol$ .PS #own property exclusion% $oes not totally preclu$e co"era'e of lia-ility .nce some $ama'e to t/ir$ party property occurs2 6uestion is not w/et/er you are co"ere$2 -ut for w/at are you co"ere$ </at a-out t/e cost of cleanin' up t/e owne$ property? BCo"ere$ e"en for cost of cleanin' up owne$ property . HE ES EA HA t/e cleanup is un$ertaken to pre"ent furt/er /arm to alrea$y /arme$ t/ir$ party property an$ not for your own $arn 'oo$. NA says /e $oesnt /a"e any i$ea /ow to apply t/is. </o $etermines t/e purpose of t/e clean up? Aut/ority t/at 'i"es rise to t/e le'al o-li'ation to clean up 0ome type of apportionment sc/eme is create$ T:, S&;-&2&'(-', #2 FG"#/-7.(%,"G (-7 W:# O.-1 I% 3n$er water2 out of si'/t2 takes time to $econtaminate In some states2 common law rules an$ statutes exist statin' t/at 'roun$water is not owne$ property - t/e owner /as ri'/ts of use2 +3 t/e state owns water as parens patrie Policy /ol$ers ar'ue t/at 'i"en suc/ rules w/en 'roun$water is contaminate$1 property owne$ -y a t/ir$ party /as -een $ama'e$1 rule num-er = a-o"e is tri''ere$ A>>#"%&#-$,-% B,%.,,- E@'*/7,7 (-7 N#--E@'*/7,7 L#11,1 /is 6uestion is $ifficult to resol"e1 /ar$ to $etermine /ow muc/ of clean-up is for owne$ an$ non-owne$ property iii. /3e Ausiness 1is> 2?clusion (=!;" a. S'#>, - A. co"era'e for7 iii (. ,ama'e to insure$s pro$uct iv ;. ,ama'e to insure$s work =D

Explanatory v =. ,ama'e to impaire$ property If you want insurance a'ainst t/e risk t/at w/at is yours is faulty2 lia-ility insurance $oes not co"er t/is1 you nee$ some ot/er kin$ of insurance #ex. pro$uct recall insurance% F/-'%&# A-ra/am fin$s t/e rationales unsatisfactory </y $ont people want t/e co"era'e? Policy/ol$ers w/o make 'oo$ pro$ucts $ont want to pay to ensure policy/ol$ers w/o make lousy pro$ucts. 7eedo v. Stone - 2- Aric> (19;9" - =!; a. Policy is not $esi'ne$ to co"er t/e /arm at issue -ut $oes not 'i"e a reason w/y -. A-ra/am says i$ea t/at $ama'e to t/ir$ parties is unpre$icta-le is ri$iculous& may-e court is tryin' to say it is more pre$icta-le to $etermine w/et/er materials will -e $efecti"e as oppose$ to w/et/er t/ir$ party in>ury will result #-ut t/is is still uncon"incin'% c. B4ay-e t/is sc/eme is a function of t/e market7 in 'eneral policy /ol$ers want co"era'e for lia-ility to $ama'e to t/ir$ party -ut $o not want to pay for co"era'e for $efecti"e materials #i% Insure$ is -etter risk -earer wit/ respect to t/e risk t/e pro$uct may -e of low 6uality <8 a $efecti"e pro$uct or faulty work2 some kin$ of replacement occurs M insure$ is in -etter position to $etermine w/et/er8/ow to repair8replace #ii% A-sence of insurance resem-les a commercial warranty to purc/aser of pro$uct . Policy /ol$ers -ear cost of replacin' faulty pro$ucts as a measure of t/eir confi$ence in t/e pro$uct #pro$uct is so 'oo$ $ont nee$ insurance a'ainst it% #iii% A-sence of insurance resem-les a $e$ucti-le A"era'e cost of pro$uct replacement will -e lower t/an $ama'e to t/ir$ party Allocates to insure$ cost of comparati"ely small loss& lar'e losses are insure$ 4ay-e t/is is t/e rationale of 7eedo. ;. Application of Co"era'e ". Exclusion is Clear If pro$uct self $estructs1 no co"era'e if pro$uct self $estructs an$ in>ures someone1 co"era'e T:, P#**/%&#- E@'*/1&#- (99A! CGL was ori'inally acci$ent -ase$2 -ut after (DOO was re"ise$ to occurrence -ase$1 $efine$ as an acci$ent cause$ -y exposure to s/ort term .R lon' term /arm Har$ to come up wit/ somet/in' lon' term an$ in>urious t/at is not pollution Rery 6uickly after t/is re"ision to inclu$e pollution2 insurers reco'ni5e t/at t/ey my -e su->ect to tremen$ous lia-ility1 exclusions start to pop up re6uirin' 91/77,- (-7 (''&7,-%(*G 7&1':(";, En$s up -ein' 6ualifie$ pollution exclusion1 after all t/is time to 'et acci$ent out of t/e policy2 in (DE= t/ey put it -ack inK /in's stay 6uiet until (DF) w/en CERCLA kicks in1 Ct rea$ t/e exclusion in $ifferent ways7 a. A-out ] of Cts lookin' at t/e exclusion sai$ s$%%en means a%rupt -. /e ot/er ] sai$ t/at sudden is am%i&uous c. .t/ers sai$ t/ey cant i'nore insurers statement t/at new exclusion $oes not limit co"era'e1 t/ey will now -e re&ulatory estopped from relyin' on it to $iminis/ co"era'e IA0C.s /a$ >ustifie$ new exclusion in an #impenetra-le% letter to IA0 commissioners sayin' t/e exclusion really $i$nt $o muc/. 0o $on try to claim it $oes muc/ now. 0o w/at were IA0C.s e"en tryin& to $o? <ell2 pro-a-ly2 i$ea is t/at 6uestion of 9expectation or intent: is a $ifficult one to a$>u$icate. 0o lets create a proxy for t/at intent. 0o 9su$$en: is a proxyVmuc/ less likely t/at you know somet/in' is 'oin' to 9'o -oom: as oppose$ to a 'ra$ual $isc/ar'e2 muc/ more likely t/at someone expecte$ it. Insurers reali5e$ t/ey were 'ettin' /ammere$ an$ finally I0. a'rees in (DFJ to 'rant t/e ()1#*/%, >#**/%&#- ,@'*/1&#G)

-.

Explanatory = pat/s to a"oi$ t/e A-solute PEC7 a. /e meanin' of 9pollutant: ,oes t/is mean any 9irritant: or 9contaminant:?1 cant mean to-asco sauce Ao one will apply it literally2 -ut /ow far $own t/at roa$ will t/e Ct 'o 0ome Ct says it only co"ers 9waste:1 seems like a poor rea$in' of t/e lan'ua'e -. </at is a 9$isc/ar'e2 $ispersal2 release2 or escape:? 0eems to co"er anyway a pollutant woul$ cause /arm2 -ut policy/ol$ers still ar'ue t/is point1 t/ey say t/ese wor$s connote mo"ement2 so >ust puttin' somet/in' $own woul$ not -e co"ere$ in t/e exclusion If you put somet/in' in pit wit/ clay linin' t/inkin' it is confine$2 any su-se6uent escape is likely to -e acci$ental. Is a $eposit into a site a 97&1':(";,: etc?1 Cts 'o -ot/ ways Wuestion s/oul$ -e w/et/er t/ere is a reasona-le expectation t/at t/e material woul$ stay in t/e area w/ere it was $isc/ar'e$1 if so2 it seems as t/ou'/ t/ere was no $isc/ar'e until t/e material leaks out of t/e containers 94etap/ysical moment: issue1 e"en w/at appears to ;"(7/(* 7&1':(";, &1 1/77, /e moment t/e $rop actually falls is always 9su$$en:1 most Cts re>ect t/is -ecause t/ere woul$ -e no suc/ t/in' as non-su$$en2 -ut sometimes it 'ets to t/e >ury c. /e rele"ance of t/e /istorical purpose of t/e exclusion Cts will only interpret t/is #a-solute PEC% as insurers way to reme$y $issatisfaction wit/ Cts interpretation of earlier lan'ua'e1 t/is is a poor approac/ since it i'nores t/e lan'ua'e of t/e new exclusion. Actual lan'ua'e is ridiculously preclusi"e of co"era'e. <oul$ ketc/up count? LE00.A1 ne"er 'i"e up1 as a result of en$less lawyerin'2 t/e wor$ su$$en came to mean 'ra$ual 4ostly2 you 'et $ecisions t/at are arri"e$-at first2 an$ t/en t/e court attempts to articulate a rationale. 0o in a non-waste context #car-on monoxi$e2 e.'.% courts 'o -ot/ ways.

+merican States Insurance Co. v. )oloms (199;" # p.==; !urnace at insurers factory leake$ C. o"er time an$ ma$e employees sick. Insurer ar'ues t/at pollution exclusion applies2 since an irritant was release$ Court /ol$s t/at exclusion $oes not apply C purpose of exclusion was to pre"ent en"ironmental pollution2 not e"ery release of an irritant o 4ust /a"e a limit on w/at is exclu$e$ C ot/erwise any su-stance coul$ -e consi$ere$ an irritant C e.'.2 water in some cases Aote7 </at follow are not literally e?clusions of co"era'eVt/ey are limitations of co"era'e. ii. 'otice Conditions Almost all Cts /a"e interprete$ t/ese pro"isions to mean w8in a reasona%le time wo notice re6uirements in most policies7 (. Aotice of occurrence1 9as soon as practica-le: #LE00 CLEAR% ;. Aotice of claim1 9prompt or imme$iate notice: Aotice looks like an effort to make insure$ forfeit co"era'e1 Cts /ate t/is so t/ey com-at w8 ; $e"ices7 @PICAL CA0E1 >ury looks to see if insure$ is tryin' to pull somet/in' or w/et/er t/ey /a$ a 'oo$ reason for $elayin' t/e claim a. R,(1#-()*, N#%&', R,I/&",$,-% (955! Mi&3ty Mid&ets6 Inc. v. Centennial Insurance (19;9" # p.=<< Aotice was timely2 -ut not to ri'/t person1 'i"en to -roker2 not company Policy lan'ua'e says insure$ must 'i"e notice 9as soon as practical:1 "ery fact $ri"en G(

Explanatory Ct says insurer is not entitle$ to a rulin' t/at notice was not 'i"en in a reasona-le time C w/y? a. If it was t/at 'i"in' notice to -roker was enou'/ t/en notice was timely& .R -. <as it t/at D mont/ $elay was reasona-le C/ances are it was t/e latter -ut w/y? How $o we know w/at counts as a 'oo$ reason for $elaye$ notice? BNey /ere is w/en is t/is 'oin' to -e $eci$e$ as a matter of law an$ w/en $oes a >ury 'et to $eci$e w/at is reasona-le?1 >ury /elps policy/ol$er tremen$ously /ere is -etter c/ance t/at -usiness2 as oppose$ to a consumer2 woul$ -e rule$ a'ainst as a matter of law since you /a$ more reason to know t/at notice /a$ to -e timely @ou may not know you /a"e an occurrence1 more leeway /ere BLon'er you wait2 t/e worse off you are ALL t/is case /ol$s is t/at it is a 6uestion of fact for t/e >ury w/et/er notice was timelyV 'i"en wit/in a reasona-le time.

-. P",?/7&', R,I/&",$,-% (95B! 7est Aay 2?ploration v. +IF Specialty +&encies (199-" # p.=<9 !ailure to 'i"e notice is necessary2 -ut not sufficient1 also nee$ pre>u$ice </en is t/is $eci$e$ as a matter of law? 4ore fact $epen$ant 6uestion t/an notice1 less likely to 'et 0I #summary >u$'ment?% Pre>u$ice in w/at re'ar$? a. Con"entional way1 insurer /as $uty to $efen$ an$ lon'er $elay in time w/en insurer can start to $efen$2 t/e more pre>u$ice #"ery fact $epen$ant%& AA,8.R -. ,isappearance of e"i$ence t/at woul$ /a"e /elpe$ s/ow a-sence of co"era'e #t/is case% If you want 0I2 insurer will likely /a"e to point to some actual e"i$ence t/at $isappeare$1 in t/is case2 insurer can actually point to -arrel t/at is 'one Rarely /appens +ur$en of pro"in' pre>u$ice extremely important since in many cases it is impossi-le to pro"e 4any states put it on insurer1 A@ /as 'otten ri$ of pre>u$ice re6uirement so c/oice of law -ecomes "ery important w/en A@ coul$ -e in"ol"e$. 24 CLAIM-MADE OTHER FORMS OF LIABILITY INSURANCE (9 5!

A. Professional Lia-ility Insurance Co"ers lia-ility arisin' out of t/e $eli"ery of ser"ices !or non-professionals2 it is referre$ to as 9Errors an$ .missions: #EM.% insurance ypically written on a '*(&$1-$(7, )(1&11 must %e reported durin& policy period +lstrin v. St. Paul Mercury Insurance (,--," # p.=$$ ,ispute o"er $irectors an$ officers insurance #,M. insurance%. ,oes plain lan'ua'e of exclusions apply? 9Crime or $eli-erate frau$: exclusion7 Ps conten$ cant rea$ pro"ision -roa$ly -ecause t/e policy purports to co"er 9securities claims: an$ exclusions s/oul$ not -e rea$ to o"erri$e an explicit 'rant of co"era'e. Court a'rees t/at if t/e $eli-erate frau$ claim applie$ to securities frau$ claims2 t/ere woul$ -e little or not/in' left to co"er so it cannot -e up/el$. /e reasona-le expectations of t/e purc/aser are a factor. 9Ille'al profit or a$"anta'e: exclusion7 Ney is t/e reme$y t/at t/e plaintiff suin' t/e $irectors is seekin'

G;

Explanatory Pro-lem is not w/et/er or not wron' committe$ in"ol"e$ takin' an ille'al profit or a$"anta'e. +y same reasonin' as a-o"e2 if exception were applie$ to securities frau$ t/ere$ -e not/in' left to co"er. 9Insure$ "s. Insure$: exclusion7 P claims t/at estate suin' is not 9insure$: wit/in policy lan'ua'e. Court a'rees t/at exclusion $oes not apply to action -y representati"e of -ankruptcy estate a'ainst former ,M.s of $e-tor -ecause -ankruptcy estate is separate entity.

/3oracic Cardiovascular +ssociates6 0td. v. St. Paul Fire & Marine Insurance Company (199=" # =;$ Plaintiff faile$ to purc/ase optional reportin' co"era'e an$ 'ot $enie$. Ao suc/ t/in' as an impossi-ility $efense to late reportin' of claim1 %:&1 &1 %:, %"&;;," #2 '#0,"(;,K In contrast to occurrence co"era'e2 t/e reportin' re6uirement in claims-ma$e co"era'e is t/e tri''er. <e s/oul$ really call t/ese t/in's 9claims and reported #$urin' policy perio$%--ase$: co"era'e. Ct. says t/at insurer can limit its co"era'e -y clear an$ unam-i'uous lan'ua'e. If you $ont like it2 >ust make sure you always /a"e co"era'e. @ou mi'/t nee$ to -uy ri$ers2 etc. to keep t/e win$ow open. i. 5irectors and .fficers 0ia%ility Insurance Co"ers in$i"i$uals for economic loss #not in>ury% Lia-ility 9wron'ful acts:2 -roa$ly $efine$ an$ corporations for lia-ility in in$emnifyin' Insure$s1 $irectors an$ officers /e corporation is t/e in$emnitor 4a>or exclusions ,eri"ati"e suit C alle'ations of mismana'ement 0uits typically %rou&3t -y corporation #s/are/ol$er% to reco"er $ama'es for a -a$ $ecision -y officers an$ $irectors2 an$ t/e officer is insure$. @ou cant in$emnify yourself2 so non-starter /ere. /is is almost always a collusi"e suit Vcorporation is not lo'ically 'oin' to sue its CE.& only reason to sue insurer is to 'et money from insurer. !rau$ an$ knowin' "iolation of law </at you want is co"era'e to settle 6uack suits -rou'/t a'ainst you t/at /appen to mention t/e wor$ 9frau$.: .t/erwise2 w/os 'oin' to -e a corporate $irector. @ou /a"e to rely exclusi"ely on t/e corporation to in$emnify you. 0o insurance system /as to tolerate 6uite a -it of moral /a5ar$. Re'ulatory lia-ility Restitution7 @oure not co"ere$ for t/e cost of 'i"in' -ack money you improperly took. NA - HE0E EA, . +E .RER+R.A, ESCL30I.A0. Co"era'e 0i$e A7 In$i"i$ual 0i$e +7 Corporate In$emnification of In$i"i$ual Aote t/is isnt 'oin' to play in -ankruptcy -8c corp. cant in$emnify. 0i$e C7 #some firms /a"e starte$ offerin' t/is% co"era'e for corp. itself. 3sually not 'i"en. .(ens Cornin& v. 'ational Gnion Fire of Pitts%ur& (,--1" # p.=;, 0ar&er Settlement 1uleHCompany ((it3out side C" only 3as to allocate some settlement portion to itself (3en settlement is lar&er %ecause of uninsured persons (3o (ere sued or may 3ave contri%uted to suit. !acts7 .wens Cornin' #.C% an$ O of its $irectors an$ officers sue$ in a class action lawsuit #LaRalle suit%. Complaint alle'e$ misrepresentation of future lia-ility for as-estos suits. .C /a$ 0i$e + co"era'e #insurance for in$emnifyin' $irectors an$ officers% -ut not 0i$e C co"era'e #insurance a'ainst corporate lia-ility in its own ri'/t for claims arisin' out of wron'ful acts%. .C settles claim for rou'/ly Q()4. After in$emnifyin' its ,irectors an$ .fficers for $efense an$ settlement costs2 .C re6uests reim-ursement from Aational 3nion #for e"eryt/in' less Q;.J mil $e$ucti-le%. Aational $enie$ co"era'e. G=

Explanatory H.L,IAG7 Court foun$ Aational lia-le for co"era'e& case reman$e$ to $etermine if .C was o-li'ate$ to pay some of t/e settlement itself #allocation% #as oppose$ to Aational payin' all costs for in$emnifyin' t/e $irectors& Aational felt t/at .C s/oul$ pay some of t/e settlement costs since it was a name$ $efen$ant an$ no 0i$e C% /(o applica%le rules (3en corporation 3as Side A covera&e %ut not Side C (neit3er is particularly satisfactory" L(";," S,%%*,$,-% R/*,D allows allocation of t/e costs of a settlement 9only w/ere t/e settlement is lar'er -8c of t/e acti"ities of uninsure$ persons w/o were sue$ or persons w/o were not sue$ -ut w/ose actions may /a"e contri-ute$ to t/e suit. o /3e court uses t3is rule in .(ens Cornin&6 and concludes t3at t3e activities of t3e corporation did not ma>e t3e settlement lar&er. o Aot muc/ law a-out exactly /ow you 'o a-out $oin' t/is. R,*(%&0, E@>#1/", R/*,D Allocates a settlement -ase$ on comparin' t/e potential exposure of t/e uninsure$ an$ insure$ $efen$ants if t/e liti'ation /a$ procee$e$ #/ow woul$ t/e >ury /a"e $i"i$e$ it up?% o 'ational Gnion ur&ed adoption of t3is rule %Mc it calls for an ela%orate in:uiry into (3at 3appened in a settlement and (3o really paid for (3at relief. +ecause allocation is a partial exclusion of an insurers lia-ility2 t/e court fa"ors t/e lar'er settlement rule #less e?clusion of lia%ility% in t/e a-sence of clear policy lan'ua'e to t/e contrary. /us2 Aational 3nion lia-le for co"era'e of t/e settlement except to t/e extent t/at uninsure$ claims actually increase$ t/e insurers lia-ility. A**#'(%&#- >"#0&1&#- is now in insurance contracts t/at you /a"e to 'et to'et/er an$ talk a-out it. Its insurers way of sayin'2 t/eres 'oin' to -e allocation2 so $ont take t/e position t/at t/eres not 'oin' to -e allocation. ,oesnt ser"e muc/ use2 +asically a way to >ust smu''le t/e term 9allocation: into t/e policy an$ pre"ent t/e escape t/at occurre$ /ere. #was an escape ri'/t?% A-ra/am notes t/at -ot/ rules are -ase$ on speculation. How $o you pro"e t/e first? <it/ expert testimony on corporate lia-ility liti'ation? LIABILITY INSD DEFENSE & SETTLEMENT (9E9! THE DUTY TO DEFEND AND THE CONSEJUENCES OF BREACH 54 S'#>, #2 %:, D/%+ (9E9! Imprecise lan'ua'e2 so Cts /a"e $e"elope$ prece$ent to $eal w8 t/ese issues TEST1 insurer must $efen$ any claim t/at woul$ -e co"ere$ &2 (**,;(%&#-1 (", >"#0,7 %# ), %"/, erme$ 9potentiality:2 9scope-of-t/e-plea$in's:2 9G corners:2 or 9F corners: #complaint an$ policy% !our a"aila-le courses of action for insurer #$oesnt mean insurer can le'ally c/oose any in 'i"en situation%7 (. ,efen$ uncon$itionally #kin$ of w/at insurer in Bec& ith ' p.(11 $i$ for a w/ile% Horn-ook rule1 if you $o t/is2 you are estopped from denyin& covera&e E"en if somet/in' new materiali5e t/at woul$ /a"e 'i"en you a ri'/t to lay $own con$itions if known on $ate you -e'an $efen$in'. ;. ,efen$ su->ect to a 9reser"ation of ri'/ts: /is entitles you to contest co"era'e later ()ray ' p.(2*% Price of t/is is t/at $efense costs pai$ e"en if it turns out t/e claim isnt co"ere$1 only occasionally reim-ursa-le (B$ss% @ou always alle'e -attery an$ ne'li'ence -ecause t/e ne'li'ence is co"era-le un$er lia-ility co"era'e. 0o Gray says2 its a conflict of interest if we /a"e to $efen$ -ecause were eit/er 'oin' to try to 'et t/e w/ole c/ar'e knocke$ out2 or to ar'ue -attery instea$ of ne'li'ence. Court says2 we $ont t/ink so -ecause outcome of tort case will /a"e no -earin' in action for co"era'e. =. Refuse to $efen$ 3se t/is w/en e"en if suit is won2 co"era'e will -e $enie$ on some -asis 4a>ority Rule If no $uty to $efen$2 no lia-ility GG

Explanatory If $uty -reac/e$2 lia-le for $efense an$ estoppe$ to $eny $uty to in$emnify #)ray2 -ut see B$r%(+ ,i% e rea% this% /is is a penalty2 tryin' to create incenti"e for insurer to $efen$ w/ere its unsure. G. 0eek $eclaratory >u$'ment as to $uties2 per/aps w/ile $efen$in' su->ect to reser"ation #-ee. /ontrose ' p.(19% A$"anta'e is you $ont /a"e to wait for resolution of ori'inal case Montrose1 $uty to $efen$ until 0I in action sayin' you /a"e no $uty Complication </at $oes 9potentially: co"ere$ mean? How implicit #not explicit% in complaint $oes it /a"e to -e? BIn many cases2 real 6uestion is takin' t/e alle'ation as true2 is t/ere $efinitely co"era'e Collateral Estoppel?1 )ray says no #no factual $etermination in un$erlyin' tort suit /as any impact on co"era'e case%2 -utL Aot all Cts are fully committe$ to ;n$ part of ma>ority rule un$er \= E"en a-sent collateral estoppel2 practical conflicts1 may learn info w/ic/ ai$s later assertion of no co"era'e M more $ou-ts a-out co"era'e2 less interest in"estin' in $efense

Aec>(it3 Mac3inery v. /ravelers (19 $" # p.= = Insurer a'ree$ to $efen$ case on compensatory $ama'es -ut not puniti"e $ama'es. Insurer learne$ $urin' trial t/at t/e claim woul$ not -e co"ere$2 -ut continue$ to $efen$ an$ $i$ not reser"e ri'/ts. Insurer t/en stops $efense an$ tries to $eny co"era'e. Insure$ ar'ues t/at insurer is estoppe$ to $eny co"era'e Court /ol$s t/at insurer /as $uty to pay $efense costs an$ cannot $eny co"era'e /ere was an initial $uty to $efen$ -ecause claim was potentially co"ere$. Insurer wai"e$ ri'/ts to $eny co"era'e -y not filin' reser"ation of ri'/ts Insure$ relie$ on $efense an$ was pre>u$ice$ 24 C#-2*&'%1 #2 I-%,",1% (-7 %:, D,2,-1, #2 FM&@,7G C*(&$1 (9B5! 3n$er-in"estment w/ere t/ere are $ou-ts a-out co"era'e1 if insurer only -elie"e t/ey /a"e a ()* c/ance of payin'2 t/ey /a"e little reason to in"est in expensi"e suit #conflict not erase$ -y collateral estoppel rule% </at are t/e options /ere7 (. 4inority1 $uty only to reim-urse if co"ere$ C let policy/ol$er $efen$ #B$r%% Pro-lem is t/at it lea"es policy/ol$er w8out a $efense1 many Cts $ont like t/is i$ea an$ follow t/e approac/ of )ray ;. 4a>ority1 $uty to $efen$ an$ i'nore conflict1 )ray #policy/ol$er left w8 $efense% =. 0ome Cts says t/ere is a $uty to $efen$ -ut allow policy/ol$er option to c/oose in$epen$ent counsel if /e feels conflict of interest or un$er-in"estment 4ake insurer pay2 -ut keep control of counsel w8 policy/ol$er Receipt of a$"erse co"era'e information7 $oes Parsons ' p.(*3sol"e t/e pro-lem C A.K In course of $efen$in' policy/ol$er in tort suit2 insurance company 'ets info t/at woul$ /elp to $efeat co"era'e in su-se6uent suit <e start w8 rule t/at lawyer is policy/ol$ers lawyer an$ /as a $uty of confi$entiality1 +3 2 $oesnt always sol"e t/e pro-lem to say loyalty is to policy/ol$er Ct su''ests t/at sometimes it is -est for lawyer to wit/$raw from case1 t/is is /orri-le for t/e policy/ol$er -8c it alerts insurer t/at may-e t/ere was a conflict an$ t/ey can fin$ a reason to $eny co"era'e 0o2 are we -ack to lettin' insure$ 'et /is own counsel an$ reim-urse1 "ery expensi"eK B4essa'e is t/at you cant fully 'et ri$ of t/ese conflicts1 it is a price of pro"i$in' $efense Fray v. Juric3 Insurance (19$$" # p.=91 Pasted 'otesHMay Ae Some 5uplication of +%ove GJ

Explanatory Insure$ is sue$ for tort t/at may /a"e -een intentional. Insurer $enie$ co"era'e2 an$ insure$ $efen$e$ /imself an$ lost. Insurer ar'ues t/at is /a$ no $uty to $efen$s2 as t/e outcome of t/e case s/ows Court /ol$s t/at t/ere was a $uty to $efen$. Insurer must pay costs of $efense an$ in$emnity Insurer must -ase its $ecision on t/e complaint an$ any potential lia-ility it create2 an$ if t/e complaint is true an$ woul$ -e co"ere$ t/ey must $efen$ If complaint is narrow -ut lia-ility is potentially -roa$er2 insurer must -ase$ on possi-ility of -roa$er lia-ility /ree conflicts of interest Insurer $oes not /a"e incenti"e to in"est resources in case t/at pro-a-ly wont -e co"ere$ Insure$ $oes not /a"e incenti"e to pursue self-$efense claim2 as it will "oi$ co"era'e Insurer $oes not /a"e incenti"e to win suit if it wants to $eny co"era'e in later case C collateral estoppel ar'ument Court re>ects collateral estoppel ar'ument C outcome from un$erlyin' tort case is not $eterminati"e of co"era'e. Insurer is always free to contest co"era'e afterwar$s if it reser"es ri'/ts2 so it /as no incenti"e not to win un$erlyin' tort case o Alternati"es to Fray rule Aot re6uire$ to $efen$ if t/ere is a conflict of interest2 or if lia-ility trial woul$ lea"e co"era'e un$etermine$ C results in muc/ less co"era'e ,etermine co"era'e in a$"ance in $eclaratory >u$'ment

S3os3one First Aan> v. Pacific 2mployers Insurance (,---" # p.=9 F('%1D Employee fire$ from -ank2 files suit for O claims. 0/os/one -e'ins $efense w/ile Pacific in"esti'ates w/et/er it /as a $uty to $efen$2 an$ in t/is time perio$2 0/os/one files a counterclaim. Pacific fin$s t/at ( of t/e O claims falls un$er its policy an$ takes o"er $efense su->ect to a reser"ation of ri'/ts letter statin' t/at it reser"es t/e ri'/t to allocate expenses for $efen$in' unco"ere$ claims an$ prosecutin' counterclaim. Claim is settle$ for small amount -ut $efense -ills are /u'e. Pacific wis/es to allocate2 0/os/one says no. I11/,D Can Pacific allocate an$ reco"er for -ot/ t/e costs attri-uta-le for non-co"ere$ claims un$er t/e policy an$ t/e costs attri-uta-le to a counterclaim? Pacific cant allocate costs attri-uta-le for non-co"ere$ claims wit/out specific policy lan'ua'e #in t/is case t/ey /a"e none%. #<e $ont /a"e t/at in our policy%. Rerify? Pacific can reco"er for costs attri-uta-le for counterclaim. /e allocation an$ reco"ery of costs attri-uta-le to t/e $efense of claims t/at were not co"ere$ -y t/e policy of insurance is not permitte$ un$er <@ law so lon' as one or more of t/e claims alle'e$ is co"ere$ -y t/e insurance policy. o ,uty to $efen$ one claim exten$s to t/e entire suit -rou'/t a'ainst an insure$. An insurer cannot use t/e reser"ation of ri'/ts to c/an'e t/e lan'ua'e of a policy4 o Here2 Pacific $i$ not pro"i$e for allocation in policy. Court t/inks pro-lems will arise if insurer is permitte$ to pick an$ c/oose w/ic/ claims to $efen$7 takes time2 an$ to $efen$ imme$iately it must $efen$ entirely. o !urt/er2 t/ere woul$ -e an a$$e$ -ur$en on insure$ to o-tain separate counsel2 an$ t/is woul$ lea$ to inefficiency. Pacific alle'es t/at t/e ma>ority rule allows allocation an$ reco"ery of non-co"ere$ costs. Howe"er2 A-ra/am notes t/at t/is is not really a ma>ority rule. Auss #CA% limite$ t/e ri'/t of allocation to cases in w/ic/ t/ere was ne"er any $uty to $efen$ t/e unco"ere$ portion of a suit an$ t/e insurer specifically pro"e$ t/e cost of $efen$in' t/e unco"ere$ portion. o + rule emer&in& in some Curisdictions is t3at t3ere is a ri&3t to reim%ursement ((3en suc3 ri&3t is e?pressly reserved %y t3e insurer" (3ere t3e insurer 3as provided a &ratuitous defense6 or done so under t3e rule t3at if any claim alle&ed in t3e complaint is potentially covered6 t3en it must defend all claims6 an$ t3e insurer can specify t3e separate costs. Parsons v. Contin&ent 'ational +merican (19;$" # p.<-! Insure$ lost tort suit $efen$e$ -y insurer. Insurers lawyer /a$ access to confi$ential information from trail t/at in$icate$ t/at t/e lia-ility is not co"ere$. Insure$ ar'ues t/at insurer s/oul$ -e estoppe$ to $eny co"era'e if it is -ase$ on confi$ential information Court fin$s for insure$ C insurer cannot use confi$ential information from trial to $eny co"era'e GO

Explanatory +ase$ in fi$uciary relations/ip owe$ -y lawyer to insure$ C et/ics rules re6uire t/at /e cannot /arm primary clients interests2 an$ s/oul$ wit/$raw /imself from case. Lawyers "iolation is a wai"er of insurers ri'/ts to $eny co"era'e SETTLEMENT (550! Policy lan'ua'e pro"i$es t/e insurer w8 t/e option to settle6 './ duty Case law /as $e"elope$ to su''est t/ere is ( 7/%+ %# 1,%%*, .:,- #22," &1 ",(1#-()*, #22," &1 ",(1#-()*, .:,- (- &-1/",7 ./ -# >#*&'+ *&$&%1 .#/*7 ('',>% %:, #22," #Crisi% 0uppose Q()N policy limit& QDN offer2 Q;))N potential lia-ility a. E* c/ance of lia-ility C expecte$ "alue H Q(GN C t/erefore2 offer is reasona-le an$ insurer will normally accept if t/ey follow t/e rule Crisi says t/ere is a $uty to accept1 insurer is also /el$ lia-le in tort for /arm cause$ in re>ectin' t/e offer Insurer must 'i"e consi$eration appropriate to pro-a-ility -. =* c/ance of lia-ility C expecte$ "alue H QON C offer is not reasona-le an$ insure$ s/oul$ re>ect BActin' reasona-ly is w/at some-o$y lia-le w8out limits woul$ $o c. If t/ere is strict lia-ility2 insurer pays for a-o"e-limits >u$'ment in -ot/ a an$ - C w/y wont t/is affect insurers reaction in -? 0till 'oin' to re>ect offers not wort/ takin' +a$ fait/ may -e present2 -ut is not re6uire$1 only a minority of >uris$ictions /a"e a -a$ fait/ re6uirement Crisci v. Security Insurance of 'e( 4aven (19$;" # p.<1 ,i4 was in>ure$ w/en a stair -roke in t/e apartment -uil$in' owne$ -y P2 an$ t/e ,i4s sue$ for $ama'es2 muc/ of it claimin' t/at 4rs. ,i4s psyc/osis occurre$ as a result of t/e acci$ent. P /a$ Q()k of CGL co"era'e wit/ ,2 wit/ a policy t/at (% -oun$ , -y a $uty to $efen$ an$ ;% 'a"e , t/e ri'/t to settle if reasona-le terms were offere$. ,i4s offerin' to settle for aroun$ Q()k #expecte$ lia-ility if 'uilty H Q())N% o , refuse$ to settle for more t/an Q=k2 -ecause 9'oin' for t/e 'ol$: C re>ects offers of Q()N an$ QDN o Ao settlement occurre$2 P foun$ lia-le for Q()(N. Court7 Goo$ fait/ implies t/at -ot/ parties to t/e policy will refrain from $oin' anyt/in' to in>ure t/e ot/ers ri'/ts2 an$ t/us insurers are re6uire$ to accept reasona-le offers as t/ou'/ no policy limits exist. Insurer /a$ a $uty to accept t/e reasona-le offer an$ is lia-le for t/e -alance of t/e >u$'ment. Also awar$s emotional $istress $ama'es. 54 P"&$("+ 014 E@',11 D/%+ %# S,%%*, (55A! Companies -uy insurance in layers. Pure 2?cess Covera&e1 purely excess co"era'e o"er t/e primary 8Gm%rella9 Covera&e1 com-ines pure excess an$ some primary /e 92#**#.-2#"$: i$ea1 /i'/er le"el excess will >ust follow t/e form8terms of lower le"el policy -y reference /eres first le"el excess2 secon$ le"el excess2 etc.

Commercial Gnion +ssurance Companies v. Safe(ay Stores6 Inc (19 -" # p.<== Ct reiterates Crisci rule1 primary insurer must accept reasona-le settlement offers BCt t/en a$$s t/at t/ere is anot/er rule t/at primary insurer also o(es t3is same duty to an e?cess insurer1 stan$s in t/e s/oes of a policy/ol$er #e6uita-le su-ro'ation% Primary insurer /as same $uty to settle a claim to excess insurer t/at it woul$ /a"e to t/e policy/ol$er. 03PP.0E policy/ol$er /as a $e$ucti-le #sometimes referre$ to as a 9self-insure$ retention:% C first layer may t/en -ecome (st layer excess #$oesnt matter w/at you call it% B.ffer to settle -elow inception le"el of (st le"el of co"era'e1 policy/ol$er /as no $uty to accept an$ protect insure$ at /i'/er le"el GE

Explanatory Ao $uty -8c no possi-ility of su-ro'ation1 cant /a"e ri'/ts a'ainst yourself </at you -uy w/en you -uy excess insurance is t/e ri'/t to re>ect reasona-le offers of settlement an$ risk t/e excess insurers money -y not settlin' a claim wit/in t/e amount of t/e self-insure$ retention. In t/is case2 self-insure$ layer is in t/e mi$$le of primary an$ (st excess 0ame reasonin' applies an$ policy/ol$er cant /a"e $uty to yourself C no o-li'ation to accept Aote no real reason for t/is2 usually t/e company >ust cant fill t/at layer of co"era'e. /is is >ust t/e $efault rule1 if excess want $uty to accept reasona-le offer2 t/ey can contract for it

24 P"&$("+ 014 E@',11 D"#>-D#.- L&()&*&%+ Mission 'ational Insurance Company v. 5u>e /ransportation Company (19 $" # p.<,, Insurers in one or more layers is insol"ent Is policy/ol$er fully insure$ wit/ /i'/er le"el $roppin' $own or is /e self-insure$? BCt says it $epen$s on lan'ua'e in policy7 (. Hi'/er layer not responsi-le if it pro"i$es co"era'e only 9)+ ",(1#- #2 >(+$,-%: ;. +ut if it says w/ene"er a lower le"el is 9-#% '#**,'%&)*,:2 t/en t/ere is responsi-ility Almost all policies say only $rop $own if payment /is will -e a c/eaper policy2 of course. BLesson of -ot/ cases1 t/ese are lar'e commercial policies an$ Ct is >ust lookin' for appropriate $efault rule AUTO INSURANCE (52A! SAMPLE POLICY (52E! Cri- 0/eet Auto insurance is really a com-ination of multiple forms of insurance Cts are most pro-insure$ in auto insurance Rele"ant Parts #startin' on J;F% ,eclaration 0/eet ,efinitions #J;D% Aote A(2 A; #you% M ! #family mem-er% P("% A - L&()&*&%+ C#0,"(;, (560! +ack to 9acci$ent: -ase$ co"era'e as oppose$ to 9occurrence: /is is a plain lan'ua'e policy ,uty to $efen$ "ery similar to CGL policy Insurance for any auto or trailer1 $ri"in' ot/er cars means you are co"ere$ .mni-us co"era'e1 co"era'e continues w/en ot/ers $ri"e your car +(7 /is is t/e 9,.C: co"era'e #co"ers w/en you $ri"e ot/er cars% +;7 Co"ers ot/ers w/o /a"e permission to use your car Exclusions #J=)% Ao co"era'e for 9intentional: #knowle$'e of su-stantial certainty % Exclusion F7 $oesnt apply to people w8out reasona-le -elief of permission to use car P("% B - M,7&'(* P(+$,-%1 (562! Amount typically small #Q;)))%Vno fault co"era'e2 typically for someone wit/out me$ical co"era'e w/o $oesnt want to sue for a small in>ury P("% C - U-&-1/",7 M#%#"&1% C#0,"(;, (566! Co"ers w/at /appens if you are /it an$8or in>ure$ -y someone w/o cannot pay you. E"en co"ers /it an$ run "e/icles #must -e e"i$ence you were /it -y anot/er "e/icle%

GF

Explanatory ,oesnt co"er car t/at 9-lin$s: you wit/ /ea$li'/t2 causes you to $ri"e into tree2 an$ t/en $ri"es off. Aot co"ere$ -ecause of moral /a5ar$ pro-lemV/ar$ to $istin'uis/ le'itimate claim from inci$ent w/ere you >ust ran into a tree. Limits of Lia-ility #J=G% Attempts to $eal wit/ t/e stackin' pro-lem. P("% D - C#0,"(;, 2#" D($(;, %# Y#/" A/%# #$ont worry a-out t/is% Collision an$ compre/ensi"e co"era'e Limit of lia-ility is actual cas/ "alue P("% E - D/%&,1 A2%," A''&7,-% #2 L#11 (56E! Aotice an$ cooperation P("% F - G,-,"(* P"#0&1&#-1 (56B! Acci$ent #not t/e in>ury% must occur $urin' policy perio$1 t/is is t/e tri''er

LIABILITY COVERAGE (595! S'#>, #2 C#$>/*1#"+ I-1/"(-', R,I/&",$,-%1 H 0tren't/ of t/e Rictim Protection Goal 4ost states /a"e man$atory insurance statutes to furt/er t/is 'oal2 not to protect $ri"ers a'ainst lia-ility St. Paul Fire & Insurance v. Smit3 (,--!" # p.<=1 Allan M Iune 0mit/ a$$ son <illiam as co"ere$ $ri"er to policy. o 0t. Paul fin$s out <ill /as /ost of $ri"in' infractions #inclu$in' ; ,3Is% o Remo"es <ill from policy an$ re6uires parents to si'n 9name$ $ri"er exclusion: meanin' 0t. Paul not lia-le for acci$ent w/ile <ill is $ri"in'. o <ill /a$ /is own auto lia-ility policy issue$ -y Ralor O mont/s later <ill cras/es /is $a$s car into anot/er "e/icle2 killin' e"eryone. o Rer$ict in lawsuit file$ a'ainst <ill an$ parents estates for QJ million. Ralor pays out Q;)N to eac/ P estate. Ralor an$ ,s 'o after 0t. Paul7 conten$ 9name$ $ri"er exclusion: "iolates pu-lic policy. Hol$in'7 o Illinois statutes man$ate t/at lia-ility insurance policy must co"er t/e name$ insure$ an$ 9any ot/er person usin' t/e "e/icle wit/ t/e name$ insure$s permission.: o +ut le'islature create$ a limite$ exception to man$atory insurance laws un$er w/ic/ t/is exclusion falls. o Pu-lic policy supports up/ol$in' name$ $ri"er exclusion. Allows $ri"ers w/o /appen to /a"e a family mem-er w/os a terri-le $ri"er to o-tain insurance at an affor$a-le rate. .t/erwise2 t/e $ri"er mi'/t not -uy as muc/ insurance or simply 'o uninsure$. ,E0IGAA E, ,RIRER PR.RI0I.A </y woul$ t/ere e"er -e any 6uestion t/at t/e $esi'nate$ $ri"er pro"ision woul$ -e "ali$? Auto insurance is t/e only form of co"era'e t/at is man$atory #two-rationales% .-"ious reason7 we $ont want people w/o lia-le to face financial ruin. /e most common way to face financial ruin is as an auto-owner. Aot e"eryone is a $octor2 or /omeowner2 etc. Paternalistic. RIC I4 PR. EC I.A 4. IRE7 If people $ont /a"e t/is insurance2 t/en "ictims wont /a"e any source of reco"ery. /is moti"e $oes not exist to t/e same $e'ree2 if it exists at all2 wit/ respect to t/e ot/er forms of insurance stu$ie$ in t/is class. If $esi'nate$ $ri"er exemption is allowe$2 t/en in>ure$ parties wont /a"e any reco"ery. If you look at t/is case wit/ an awareness of t/e pu-lic policy2 t/en you see t/eres 'oin' to -e a real reluctance to enforce t/em. /ese t/in's were in"ali$ -ecause it woul$ mean ot/erwise t/at anyone wit/ a really -a$ $ri"er li"in' in /is /ouse/ol$ woul$ /a"e to pay more for /is own insuranceVre'ar$less of /is own $ri"in' recor$. /ats a -a$ t/in'. Guy mi'/t not -uy as muc/ insurance or 'o nake$. 0o t/e insurance pro"ision pro-a-ly /a$ a rational >ustification2 it >ust $oesnt carry t/e $ay. .n pa'e JGO2 court /el$ in s6ui- t/at 'uy was insure$ w/en /e use$ /is car as a -atterin' ram. </y? 0o t/at t/e "ictim coul$ 'et some compensation. GD

Explanatory T:, O$-&)/1 C*(/1, (59A! Curtis v. State Farm Mutual +utomo%ile Insurance Company (19;9" N .M'IAGS +'5 5.C C0+GS2S (<=;" Issue o"er omni-us #ot/er $ri"ers insure$ un$er your policy C I! reasona-le -elief of permission% an$ ,.C clauses #your co"er un$er your policy w/en $ri"in' ot/er cars%1 /ow muc/ aut/ority nee$s to -e 'i"en to $ri"e? Permission to $ri"e can -e express or implie$ </o /as aut/ority to 'i"e permission -eyon$ name$ insure$? Can a permittee &ive permission?1 Cts /ol$ = $ifferent "iews /ere7 a. L&),"(*1 all people $own t/e c/ain are insure$ #permission runs wit/ t/e keys% -. M#7,"(%,1 look at w/at was actually implie$ c. S%"&'%1 must /a"e expressly or implie$ly 'i"en permission Court 3ere says you can 'o two le"els $own t/e c/ain2 -ut t/ats it #NA C I $ont know (3y you cant 'o furt/er $own%. o Courts arent cra5yVall a reflection of /ow stron' t/e interest in 0&'%&$ >"#%,'%&#- is. </at is t/e scope of permission once you 'et it? A'ain2 Cts /ol$ $ifferent "iews /ere ran'in' from li-eral to strict. #If you /a"e permission to 'o to t/e $ru' store2 -ut instea$ take a $ay trip.% 0ample Policy1 asks not w/et/er permission2 -ut w/et/er $ri"in' w8 reasona-le -elief you /a$ permission C policy lan'ua'e mattersK In t/is case2 can <allace really t/ink /e coul$ 'et permission from a (Gyr.ol$? 4ay-e court was -arkin' up t/e wron' tree. Relati"es of 9name$ insure$: are insure$ as wellVso may-e t/ey can "ali$ly 'i"e permission. Has not/in' to $o wit/ w/at parents t/ou'/t. ,e-ora/ woul$ -e co"ere$ e"en if s/e was a ki$2 not license$2 $ri"in' at = in t/e mornin' wit/out permission. Ao 6uestion -ut t/at ,e-ora/ woul$ -e consi$ere$ 9insure$.: FU1,G #2 ( V,:&'*, (566! Farm Aureau Mutual Insurance Co. v. 2vans (19 1" # p.<!! N 8GS2 .F V24IC029 I'/21P12/+/I.'S Insure$ t/rew a c/erry -om- out of a car .l$ policies sai$ co"era'e came out of owners/ip2 operation2 an$ maintenance of "e/icle o$ay it is less clear -8c it says 9acci$ent: only1 6uestion is w/et/er t/is c/erry -om- $ri"e--y arose out of or flowe$ from t/e /1, #2 %:, 0,:&'*,? C Ct says yes Wuestion as to w/et/er it was a mere coinci$ence t/at t/ey were usin' t/e car Ar'ue$ t/at t/ey were in t/e car -ecause it was a s/elter an$ t/at t/ats a use of t/e car so t/at is a causal relation. Aot clear w/et/er t/is is 'oo$ law t/ere /as -een a sli'/t tren$ away from "ictim protection N#%&', & C##>,"(%&#- C#-7&%&#-1 (55 ! State Farm v. 5avies (19 !" # p.<<$ N P12LG5IC2 1G02 F.1 5G/I /. C..P21+/2 !ailure to cooperate must pre>u$ice in or$er to "oi$ co"era'e If you totally screw o"er your insurer an$ keep it from reco"erin' money2 youre 'oin' to lose your co"era'e. Ney 6uestion is pre>u$ice in w/at respect7 a. 0ome impact on $efense -. 0u-stantial an$ material impact #matter of $e'ree% ,oesnt /a"e to -e t/e t/in' t/at lost t/e case. c. 4ust s/ow t/ere woul$ /a"e -een $ifferent result1 almost impossi-le to pro"e /is case /elps $efine su-stantial1 .:,%:," +#/ '(- ;,% %# %:, ?/"+ #" -#% &1 1/)1%(-%&(* In t/is case2 policy/ol$er 'a"e insurer information a-out acci$ent t/at conflicte$ wit/ testimony of P an$ t/en $isappeare$ so insurer /a$ to $efen$ case in a-sence of ,. Insurer sai$ it was su-stantially pre>u$ice$ -y a-sence of ,. RA 0upremes say /eyVwas t/e a-sence of , t/e $ifference -etween J)

Explanatory 'oin' to t/e >ury or not. If presence of testimony woul$ /a"e ma$e out a >ury 6uestion2 -ut instea$ t/ere was a $irecte$ "er$ict2 t/en t/ats pre>u$ice. Miller v. S3u&art (19 ," # p.<$, !ailure to cooperate must pre>u$ice in or$er to "oi$ co"era'e If you totally screw o"er your insurer an$ keep it from reco"erin' money2 youre 'oin' to lose your co"era'e. Ney 6uestion is pre>u$ice in w/at respect7 $. 0ome impact on $efense e. 0u-stantial an$ material impact #matter of $e'ree% ,oesnt /a"e to -e t/e t/in' t/at lost t/e case. f. 4ust s/ow t/ere woul$ /a"e -een $ifferent result1 almost impossi-le to pro"e /is case /elps $efine su-stantial1 .:,%:," +#/ '(- ;,% %# %:, ?/"+ #" -#% &1 1/)1%(-%&(* In t/is case2 policy/ol$er 'a"e insurer information a-out acci$ent t/at conflicte$ wit/ testimony of P an$ t/en $isappeare$ so insurer /a$ to $efen$ case in a-sence of ,. Insurer sai$ it was su-stantially pre>u$ice$ -y a-sence of ,. RA 0upremes say /eyVwas t/e a-sence of , t/e $ifference -etween 'oin' to t/e >ury or not. If presence of testimony woul$ /a"e ma$e out a >ury 6uestion2 -ut instea$ t/ere was a $irecte$ "er$ict2 t/en t/ats pre>u$ice. O%:," I-1/"(-', C*(/1,1 (5 A! .ften multiple co"era'e1 your insurance an$ insurance of car you are $ri"in' 4ost policies say owners insurance policy is primary1 coul$ -e t/e ot/er way2 -ut as lon' as we /a"e a $efault rule we a"oi$ liti'ation ypes of ot/er insurance clauses7 Pro Rata1 pays proportion of t/e loss Excess1 pays only after ot/er policy /as pai$ its limits Escape1 $oes not pay at all if t/ere is ot/er insurance 51% C*(/1, Excess Pro Rata Excess Escape Escape Escape 2-7 C*(/1, Pro Rata Pro Rata Excess Excess Escape Pro Rata C#-1&1%,-%H 0ometimes @es Ao Ao 0ometimes 0ometimes

Resol"in' Conflicts Rea$ clauses to a"oi$ conflict I'nore conflictin' clauses2 pro rata -y limits #-am0!1eston D#'%"&-,% /is is still t/e ma>ority rule Carriers is t/e up an$ comin' rule1 apportion e6ually up to limits of smaller policy

CarriersD v. +merican Policy3oldersD (19;9" # p.<$; ,ri"er wit/ /is own insurance lease$ "e/icles t/at were insure$ -y lessor. Eac/ policy /a$ an excess ot/er insurance clause. Court applie$ pro-rata split up to policy limits of lower policy2 t/en ot/er policy pai$ t/e rest. Court re>ecte$ se"eral ot/er met/o$s of allocation C use policy lan'ua'e2 not un$erstan$in' -etween parties2 to $etermine t/e allocation. If lan'ua'e is mutually repu'nant2 court can i'nore it apply its own rule UNINSURED MOTORIST COVERAGE (5E5! Insures you a'ainst risk you will -e in>ure$ -y uninsure$ motorist from w/om you coul$ not reco"er a >u$'ment 4ost policies also co"er un$erinsure$ motorists #policy pays t/e $ifference -8t t/e amount of ins t/e un$erinsure$ motorist /as an$ t/e amount le'ally re6uire$ -y t/e state statute%

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Explanatory W:# &1 (- U-&-1/",7 M#%#"&1%H (. Ao lia-ility insurance #$espite t/e fact t/at t/e state may re6uire it% -ne"er purc/ase$ it or may not /a"e renewe$ t/e insurance ;. Aoynton1 w/at $oes 34 co"er? 4ust -e in>ure$ -y an 9uninsure$: "e/icle Ao insurance co"erin' $ri"er a'ainst lia-ility to you in t/is case #insurance not a"aila-le to co"er you in a certain situation - i.e. intentional in>ury or anot/er exclusion is applica-le% Party w/o purc/ases uninsure$ motorist co"era'e must -e le'ally entitle$ to reco"er Le'ally entitle$ means $ont /a"e to 'o to >u$'ment to tri''er ri'/ts& can make an ins claim an$ s/ow you are le'ally entitle$ to reco"er -y pro"in' in your ins claim t/e tort claim #, is t/e ins co in t/e tort claim% BLia-ility insurer only lia-le for w/at t/e uninsure$ motorist woul$ /a"e -een lia-le #i.e. if uninsure$ motorist was immune from lia-ility #workers comp%1 you are not entitle$ to reco"er% @ou are not purc/asin' insurance a'ainst t/e risk t/at someone else isnt lia-le -ut t/at someone else may not /a"e insurance W:(% D# S%(%/%,1 S(+H (. E"eryone w/o -uys statutory minimum lia-ility ins must purc/ase uninsure$ motorist co"era'e .R ;. E"eryone w/o -uys statutory minimum must -e presente$ wit/ t/e option of purc/asin' uninsure$ motorist co"era'e 0ome Cts /a"e -een aske$ to "oi$ uninsure$ motorist co"era'e as inconsistent w8t/e statute +llstate v. Aoyton (19 $" # p.< 1 4ec/anic was in>ure$ w/ile workin' on a car t/at -elon'e$ to anot/er company an$ was $ri"en -y /is coworker. 4ec/anic sue$ co-worker -ut /is policy woul$ not co"er2 so /e seeks uninsure$ motorist co"era'e from /is own insurer. Court /ol$s t/at t/is is an uninsure$ "e/icle2 since t/e $ri"ers policy $i$ not co"er t/e inci$ent. Howe"er2 t/ere is a statutory -ar to reco"ery C workers compensation law will not allow reco"ery for in>ury at work. Court /ol$s t/at uninsure$ motorist co"era'e is not responsi-le for co"erin' t/is 'ap in co"era'e2 since insure$ is not le'ally entitle$ to a reco"ery. Simpson v. Farmers Insurance Company (19;9" - p.< Policy limits on 34 exclusions re6uirin' 9p/ysical contact: for /it an$ run "e/icles Hit an$ run "e/icles Run wit/out /it "e/icles1 p/antom /ea$li'/ts pro-lem BCt says t/ese are a'ainst pu-lic policy How can you in"ali$ate exclusion from statute t/at only pro"i$es for uninsure$ motorist co"era'e1 statute ne"er says 34 /as to co"er /it an$ run2 >ust nee$ to /a"e 34K BA-ra/am says rea$ t/e policy -ut remem-er your client may /a"e ri'/ts at "ariance w8policy pro"isions #reasona-le expectations $octrine2 prior case law construin' policy as am-i'uous% /aft v. Cer(on>a (19 1" - p. <9! Can 34 co"era'e can -e 9stacke$?1 #stack limits of lia-ility of t/e policies% I-%,"->#*&'+ 1%('3&-; - How is permission $etermine$? Look at clauses of t/e policy& #p.JO=% an$ w/et/er t/ey are consistent #if conflict2 can -e i'nore$ un$er 0am% 7eston% Access to two sources of co"era'e may -e contemplate$ I-%"(->#*&'+ 1%('3&-; #one policy C ; cars co"ere$ un$er it%1 /istorically2 courts /el$ permitte$ Policies may -e am-i'uous #insurers rewrote to make clear& p. JO= - Limit of lia-ility a#(%% 0ome courts say re'ar$less of am-i'uity - if t/ere are two premiums pai$1 co"era'e is 'reater2 since you pai$ twice2 can stack #A-ra/am says t/is is ri$iculous -8c t/e 6uestion is w/at you pai$ twice for& if you -ou'/t premiums for no stackin' re'ar$less of w/et/er t/ere are two2 you pai$ a lower premium% J;

Explanatory A-ra/am says nee$ to $etermine w/et/er you pai$ for stackin' in t/e premium

MEDICAL PAYMENTS (SEE POLICY! 0tarte$ w/en lia-ility ins an$ /ealt/ ins not as per"asi"e& so t/is pro"i$es minimal me$ical ins o$ay seems like a $uplicate$ waste2 -ut it is t/e "e/icle for t/e ra$ical expansion of co"era'e into Yno fault AUTO NO-FAULT (5B ! #-een politically stalle$ for ;) years -y plaintiffs lawyers% Ao !ault #.Connell an$ Neeton% #JDF% Auto liti'ation is cum-ersome an$ expensi"e1 so a-olis/ tort lia-ility #as in workers comp% Cant -e $one on a t/ir$ party -asis2 so a-olis/ tort lia-ility an$ su-stitute insurance #so e"eryone in>ure$ in an auto acci$ent will /a"e a source of co"era'e% - t/is /as ne"er -een enacte$ anyw/ere #pure no fault% Real Ao !ault #a$opte$ in (O states% #JDD% (. Mandatory purc3ase of personal inCury protection (8PIP9" # amount varies Insurin' $ri"er2 passen'ers2 pe$estrians A'ainst me$ical costs an$ lost wa'es !or in>uries arisin' out of operation or use of "e/icle E"eryt/in' -ut pain an$ sufferin'& no one -uys t/is in first party ins

;. 0imited a%olition of tort lia%ility </en can an$ w/en cant you sue? @our own PIP insurance co"ers you (st2 -ut I! youre in a situation w/ere you are allow to sue2 you can -rin' suit to co"er t/e rest of your in>uries Aee$ to pass a t/res/ol$ to warrant a suin' in tort C two types7 a. 4onetary t/res/ol$s1 "ary a lot -. Rer-al t/res/ol$s1 usually means 9serious in>ury: #more t/an soft tissue% B ra$e off is automatic compensation for ri'/t to co"er pain an$ sufferin' ; explanations7 (. 4ore serious in>uries are more $eser"in' of pain an$ sufferin' 4ore serious in>ury means more ne'li'ent -e/a"ior in causin' t/e acci$ent an$ more $eser"in' someone is for -ein' punis/e$ for t/is sort of $ri"in' +ut really2 t/reat of lia-ility isnt 'oin' to furt/er $eter someone w/o isnt afrai$ of -ein' /urt t/emsel"es ;. Practical politics1 plaintiffs -ar is powerful ake small cases out of system2 -ut lea"e t/e -i' one to 'i"e lawyers work 9A$$-on: Ao-!ault #O))%

THE 2NDARY M8T - RESIDUAL M8T MECHANISMS ( 05! ,o we nee$ to know any of t/is? Resi$ual 4arket 4ec/anisms are $e"ices t/at states use to ensure t/e people nee$in' insurance 'et in e"en w/en pri"ate insurers wont 'i"e it too t/em1 = kin$s7 a. A11&;-,7 R&13 P##*1 Person is assi'ne$ to a commercial insurer in state #companies 'et t/em in proportion to t/eir market s/are% -. N#&-% U-7,"."&%&-; A11#'&(%&#-1 0ame t/in'2 -ut t/is is an association of insurers #separate le'al entity from insurance co.%1 still 'et /it in proportion to t/eir market s/are% c. S%(%, R,&-1/"(-', F('&*&%+ J=

Explanatory Eac/ insurer /as to accept all comers2 -ut you can pass on a certain amount of people to state B /ese = kin$s are all le'ally $istinct2 -ut economically i$entical1 insurers -ear t/e cost of su-si$y to /i'/ risk policy/ol$ers 'i"en 9artificially: low premiums </en t/e pool runs at a loss2 insurance companies -ear loss an$ recoup costs as cre$it a'ainst premium taxes1 so2 all taxpayers pay for really poor $ri"ers

FUTURE OF INSURANCE (. ;. =. G. J. Glo-ali5ation Centrali5ation an$ Consoli$ation Re"olution of t/e Auto2 Population 0prawl Likely to create new met/o$s of insurin' 4ana'e$ Heat/ Care Increasin' 0/are of Commercial 0elf-insurance

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