Insurance Law

What is "physical loss" in property insurance?

"When the presence of large quantities of asbestos in the air of a building is such as to make the structure uninhabitable and unusable, then there has been a distinct loss to its owner. However, if asbestos is present in components of a structure, but is not in such form or quantity as to make the building unusable, the owner has not suffered a loss.

What is another name for permanent life insurance?

"cash value" or "whole life"

Under CGL, what are the 2 main duties:

(1) duty to defend (2) duty to indemnify

In a property insurance policy, what triggers an "occurrence" in the policy?

Direct physical loss = actual loss or loss of functioning can't just be preventable maintenance (Port Authority of NY and NJ v. Affiliated FM Insurance Co - the insurance did not have to pay for asbestos removal because the airport and WTC were still in use/operating)

What is the timing requirement for an insurable interest (majority rule)

Majority rule is that insurable interest in property must exist at TIME OF LOSS!

Do you have to notify the beneficiary if you change the beneficiary on the life insurance policy?

No

Are attorney fees considered punitive damages?

No (Neal-Petit v. Lahman) In this case, the PP barred punitive damages being paid by an insurance company in a 3rd party auto claim. But the court stated that the atty fees were not considered punitive - so the insurance company had to pay this.

Do you need legal title in order to have insurable interest?

No (ex: mortgage)

If you get divorced, will that automatically change/remove the spouse as beneficiary on a life insurance policy?

No, if you don't go change it - then it stays.

What is another way to prevent moral hazard in property insurance?

§ Co-insurance: prevents moral hazard, wants to underwite the risk at the full value · If you don't insure the property to 80% of the value, the insured is going to bear § With the coinsurance requirement, payment to insured is reduced in proportion to the amount of coverage (which was less than it really needed to be) § The POINT of the coinsurance requirement is to force the insured to fully insure the property OR bear some of the risk (in terms of a proportionately-reduced payout) in the event of a partial loss

What is "physical damage" in property insurance?

"In ordinary parlance and widely accepted definition, physical damage to property means 'a distinct, demonstrable, and physical alteration' of its structure."

What are the 3 exclusions in property insurance?

(1) intrinsic loss (2) concurrent causation (3) increased risks

Interpretation: (1) how should the policy be read? (2) how should insuring agreements be read? (3) how should exclusions be read?

1 - read as a whole 2 - insuring agreement is broadly construed 3 - exclusions are read narrowly

What is actual value? What are the 3 different approaches? What is the approach in TN, which is different from all these other approaches?

3 tests for calculating "actual value": o 1. Market value - aka replacement cost o 2. Replacement cost minus depreciation o 3. Broad evidence rule: value - depreciation, and other relevant factors (In Zochert v. National Farmers Union Property and Casualty Co = they adopted the broad evidence rule; the silos case) In TN: "valued based policy laws" - the measure of recovery is the face amount of the policy, regardless of its actual cash value at the time of the loss

In the sample policy what is the measure of recovery?

Buildings covered under Coverage A or B at replacement cost without deduction for depreciation, subject to the following: [80% coinsurance requirement]."

Under a CGL policy, what counts as damage and property damage?

Damage: pollution - consent order from gov (AY McDonald) Property Damage: loss of use of a laptop that became infected from a virus (Eyeblaster)

What is D&O Liability?

Directors and Officers Liability Insurance?

What are the kind of damages you get from a bad faith breach in an insurance contract? And what legal roots is this derived from?

Economic (contract) and Compensatory/Consequential (tort) *but sometimes punitive can be limited PP - depends on the state; sometimes punitive is limited to fraudulent or oppressive bad faith denial · Contract damages - economic damages are recoverable but they must be within the contemplation of the parties (NO consequential damages) - so it can be difficult or impossible to recover NON-economic damages · Tort damages - damages are not limited to those within contemplation of parties, IF they are proximately caused by insurer's conduct - and punitive damages may be available (consequential + punitive)

Is lead-based paint considered a pollutant and this excluded from overage under the CGL policy?

Yes, (Georgia Farm Bureau Mut. Insurance Co v. Smith)

What is a "boycott" under McCarron Ferguson Act?

§ Boycott: It is the "expansion of the refusal to deal beyond the targeted transaction that gives great coercive force to a commercial boycott" (Hartford Fire Insurance v. California - the Primary Insurers wanted changes to the common CGL form and boycotted all ISO forms, even the ones that had nothing to do with the forms they had problems with)

What is contra proferentem?

§ Contra proferentem - ambiguous provisions construed against the drafter (i.e., insurer) in favor of coverage.

Who can be an insurable interest under a life insurance policy?

· Your own life · Close family relationship · Economic interest (business partner, creditor-debtor)

What is "substantial compliance" when changing a beneficiary or term on your life insurance policy?

(1) an expressed intent to make the change; AND (2) some affirmative step to make the change. (Engelman v. Connecticut General Life Insurance - Husband dies and Wife Ryder becomes owner of policy, she wants to change beneficiary to estate (get nephew off because they had a falling out); policy requires the change "on a form satisfactory to the company"; court found that she had substantial compliance = intent + affirmative action)

What are the 3 common exclusions in a CGL policy?

(a) expected or intended harm (2 cases:NGC products with asbestos, and the boy who lit the trash can on fire) (b) the business risks exclusions (the faulty stucco job case) (c) the pollution exclusion (lead-based paint case)

Does an insurance agent have a duty to advise on policies and insurance law? (2 issues in this case: a duty to advise that son was not reinstated on the umbrella policy? duty to advise on avoidance of liability by not giving his son his car to use?) (Langwith v. American National General Insurance Co)

*changes to totality of circumstances approach for if agent has a special duty Held: "[W]e hold that it is for the fact finder to determine, based on a consideration of all the circumstances, the agreement of the parties with respect to the service to be rendered by the insurance agent and whether that service was performed with the skill and knowledge normally possessed by insurance agents under like circumstances." (the previous standard was if the agent held herself out to be a specialist) Hold: Splits verdict on appeal: o Umbrella exclusion - question of fact, maybe Fitzgerald should have advised o Avoidance liability - Fitzgerald did not have a duty to advise on this · But there was a statute passed 1 year after this case, and they go back to the "sandbutte" approach for specialist

What is the rule from Sun Life Assurance Company of Canada v. Wells Fargo (STOLI case)?

=a life insurance policy procured without an insurable interest is void at the outset; this can outside the 2 year incontestability window o "If a third party without an insurable interest procures or causes an insurance policy to be procured in a way that feigns compliance with the insurable interest requirement, the policy is a cover for a wager on the life of another and violates New Jersey's public policy." Facts: Nancy Bergman has irrecovcable trust which is the owner and beneficiary of the policy, then she assigns the life insurance policy to Wells Fargo (down the line)

Is a D&O policy an occurrence policy or a claims-made policy?

A claims made policy, typically with a retroactive date for occurrence

What is a STOLI?

A stranger owned life insurance

Under a CGL policy, what triggers the coverage? What is the majority approach? What are minority approaches?

An injury in fact (majority approach) Majority = injury in fact: o Focus is on when the disease actually started - it does not have to manifest itself during policy period, only to have started then o Court: "So long as the insured is held liable for an identifiable and compensable injury, sickness, or disease that is shown to have existed during coverage, that liability will be insured against whether or not the injury coincides with exposure or manifestation." Minority: Exposure: § Coverage is triggered if, during the policy period, someone is exposed to the substance that then or later causes illness or injury § So, if someone was exposed to the injury-producing substance while the policy was in force, any later-developing injury is covered Manifestation: § Coverage is triggered if, during the policy period, the illness or injury manifests itself § Illness or injury is manifest when it first is or should be noticed or diagnosed

What is business interruption coverage under a property insurance policy? (6 elements)

BI coverage does not protect against physical loss; rather, it protects against economic loss (usually loss of income) that results from the LOSS OF USE of physical property § BI coverage protects against economic loss that results from the loss of use of physical property where there has been: · 1 - Damage to covered property · 2 - caused by a covered peril · 3 - resulting in a necessary interruption of business · 4 - as a consequence of which there is a covered loss · 5 - that occurs during the period of "restoration" of the business.

What is an intrinsic loss exclusion in property insurance? (2 cases)

Chute v. North River insurance - intrinsic loss when the opal had normal wear and tear because its a sensitive stone Rosen v. State - the repaired decks were not an actual loss because they did not go through an actual collapse, normal wear and tear of the decks is just intrinsic loss that is not covered

What is a bad faith claim in insurance law?

Comes from a mix of contract and tort law A bad faith claim - if you breach and act in bad faith and deny coverage because you just don't want to pay, there can be extra damages

What are 2 unique features about D&O policies?

Defense costs paid under the policy count against the policy limits D&O Policy usually does not contain a duty to defend

What is contingent business interruption coverage?

Expands traditional BI coverage to protect against risk of economic loss arising not from damage to insured's own covered property, but from damage to property belonging to someone else (e.g., suppliers) · CBI - Protects insured against losses resulting from direct losses to someone else's property caused by a peril that would have been covered by the insured's policy, IF it was the insured's property that was damaged

What is an "expected or intended harm" under a CGL policy? What is a common defense that CGL insurance providers will use in relation to an expected or intended harm? What is the majority approach courts use in determining if something is a expected or intended harm?

Expected or intended harm - knowledge of an actual loss, just because you are aware of a "risk" does not mean you know of an expected harm (Stonewall Insurance Co v. asbestos claims Management Corp) - "ordinary negligence does not constitute an intention to cause damage, and a calculated risk does not amount to an expectation of damage" Known Loss Defense: the insured may not obtain insurance to cover a loss that is known before the policy takes effect § Majority of courts use a subjective test in determining whether an insured "expects" or "intends" a loss

Stone Container Corp v. Hartford Steam Boiler: How did the court interpret "explosions" and "of a kind"?

Facts: There is an exclusion to explosions. But there is an exceptions to the exclusion: "Explosions of a kind" are covered under the policy. Both were interpreted as the ordinary plain meaning -of a kind was interpreted as one of the categories of machines, so "pulp digester" was not of a kind Use Definitions

What is the "ensuing loss" doctrine?

From Russel v. NG Insurance case (the the faulty workmanship and mold case) It applies "only when there is significant attenuation between the direct result of a workmanship defect and the ultimate loss for which coverage is sought, usually due to an independent or fortuitous intervening cause" Ensuing loss = "when an excluded cause of loss, such as an earthquake or earth movement brings about a covered loss, such as fire, a property insurance policy may cover the ensuing loss

What happens if a warranty is ambiguous?

If ambiguous - contra proferentem: construe in favor of the insured (Vlastos v. Summit Marine and Fire Insurance Co - janitor case, the warranty was ambiguous so we construe in favor of the insured; she warranted that a janitor lived on the third floor, but NOT that he was the only person who occupied the 3rd floor)

In TN can you insure against punitive damages?

In TN you CAN insure against punitive damages. In Tennessee, it is not against public policy to insure against punitive damages (see, e.g., Lazenby v. Universal Underwriters Ins. Co., 383 S.W.2d 1 (Tenn. 1964))

What is considered your business/property for purposes of the normal Business Interruption coverage?

It can be defined in your insurance policy. In Zurick American Insurance v. ABM - a covered loss was considered: covered loss or damage to "real and personal property, including but not limited to property owned, controlled, used, leased, or intended for use by the Insured" [Insurable Interest provision] And the BI insured against: caused by direct physical loss or damage, not otherwise excluded, to insured property at an insured location" And here, the court found that the maintenance service "used" the entire WTC - so they got BI for the whole WTC

What is an "increased risk" exclusion under a property insurance? Give the case example.

Langill v. Vermont Mutual Insurance Co. = the house was "vacant" as defined under the statute and house is not covered if vacant for more than 60 days

Can estoppel be used to create coverage under an insurance policy (MAJORITY view and MINORITY)? In other words, there is no coverage in the actual insurance policy but the agent says something that makes the person think that there is coverage?

Majority - Estoppel can NOT be used to create coverage for a risk that isn't covered by the policy or that is expressly excluded; in other words, estoppel cannot be used to create coverage that doesn't exist under the policy Minority (South Dakota follows this) - Estoppel must occur *before or *at inception of policy; Estoppel can be used to prevent insurer from denying coverage, even if that coverage might be outside the terms of the policy

What is the MAJORITY approach for if a representation is "material"? What is the MINORITY approach? What is the TENNESSEE standard? What is the RESTATEMENT approach?

Majority - increased the risk of loss (that is, if it makes the risk assumed greater than the insurer thought it was). Something is material if insurer would not have assumed this risk if it had been told the truth. (In some states, includes situations where insurer would not have assumed the risk on the terms it did.) TN follows. Minority - actually contributed to the loss (ex: skydiving) TN - the misrepresentation or warranty is made with actual intent to deceive, or the matter represented increases the risk of loss. Restatement - a reasonable insurer in this insurer's position would not have issued the policy or would have issued the policy only under substantially different terms.

Gossett v. Farmer: Did the people have an insurable interest in their house?

No because they deeded away the house to the mortgage company. They only had an insurable interest in the "improvements"

Under a CGL policy, is mental illness considered a "bodily injury" under the policy?

No, mental illness or addition is not bodily injury o Court: "The district court here correctly concluded: 'Physical manifestations of emotional distress or other related emotional harm may offer insight into the severity or extent of the emotional trauma suffered, but, absent some physical, bodily harm, such physical manifestations arise out of and are directly caused by purely emotional injury, which is clearly excluded from coverage.'" o Court: "PTSD and alcoholism are NOT bodily sicknesses or diseases and are excluded from coverage." (Haecker v. Safeco - where the emotional distress, PTSD, and alcoholism from the disparaging letter is not considered bodily injury)

Who has standing to contest the insurable interest in a life insurance plan?

Only the insurer has standing to contest the insurable interest (and normally in the contestability window) Ryan v Tickle - two business partners took out life insurance policies on each other to (so they could buy each other out of the business if someone died); widow of Ryan tried to contest - but she did not have standing o Court: "[O]nly an insurer has standing to complain of a lack of insurable interest and that the heirs of the insured may not proceed on such cause of action against the designated beneficiary."

What property insurance covers the property when the purchasers bought the house but the closing has not happened yet?

Paramount Fire Insurance Co v. Aetna Casualty and Surety Co = double insurances, indemnity theory - purchasers' insurance has to pay bc the purchasers paid the full purchase price INDEMNITY PRINCIPLE

What does the National Association of Insurance Commissioners (NAIC) do?

Performs 3 primary functions: o 1 - Promote uniformity among insurance laws, including licensing of brokers and agents (e.g., promulgates model laws) o 2 - Facilitate cooperation among the states o 3 - Provide services to regulators and consumers

What is the measure of recovery in property insurance?

Principle of indemnity - insurance should COMPENSATE for a loss actually suffered, not produce a windfall Which is typically the "ACTUAL VALUE"

Can the SEC regulate variable annuities or is this barred/preempted by state law via the McCarron Ferguson Act?

SEC can regulate variable annuities because the annuities do NOT relate to the "business of insurance."

What are the 3 cases that explain concurrent causation?

State Farm Fire and Casualty Company v. Bongen - the transmission line and mudslide case; not covered because the mudslide caused the destruction and that is excluded in the policy; the insurance policy contracts around the "efficient proximate cause" doctrine and that is allowed (MAJORITY!!!!!) Russel v NG Insurance Co = the mold from the faulty workmanship is NOT covered, because this was not an ensuing loss Broussard State Farm and Fire Casualty = burden of proof in causation, the P has the burden to show that the loss was covered by one of the concurrent (P had to establish the house was destroyed by the windstorm (AKA Hurricane))

If a misrepresentation was made, who has the burden to show that it was material?

The insurance company

What happens if an imposter takes the physical exam on a life insurance policy?

The insurance has to discover this in the incontestability window. This is still an insurable interest in the insured, so cannot be void ab initio. (Amex Life Assurance v. Superior Ct - man with HIV had imposter take his physical; the insurance had a duty to discover this in the incontestability window)

What is a "Limited Interest" in property insurance?

The insurance will pay the mortgagee if the insureds have a mortgage on the house. § Northwest Farm Bureae Insurance Co v. Althauser (1988) = insurance can recover from the insured because of a misrepresentation in the policy, but still pay the mortgage companies

Vargas v Insurance: the airplane crash case. Who bears the burden for interpretation? What was the result in this case?

The insurer bears a heavy burden of proof, for it must establish that the words and expressions used on the insurance policy not only are susceptible of the construction sought by the insured but that it is the only construction which may fairly be placed on them § (1) that it would be unreasonable for the average man reading the policy to construe it as the insured does, AND § (2) that its own construction was the only one that fairly could be placed on the policy Hold: This is ambiguous and INA did not prove its interpretation was the only reasonable one.

Allstate Insurance v. Schmidt: The Hawaii discriminatory regulation case. What did this case hold?

The statute applied to both rate-setting and underwriting (issuing policies). Statute interpretation = every word means something

What happens if an insurance agent writes down the information wrong even though the agent orally stated the information correctly?

Then that is on the agent/insurance company - they have to eat that loss. General Rule: "It is a well-settled proposition that where the facts have been truthfully stated by an insured to the soliciting agent, but by fraud, negligence, or mistake, the facts are misstated in the application to the insurer, the insurer cannot rely on the misstatements in avoidance of liability, if the agent was acting within his real or apparent authority, and there is no fraud or collusion on the part of the insured."

What are the Notice Conditions to an insurance company under a CGL policy? Who has the burden of proof to show prejudice?

This cannot prejudice the insurance company. · Per the court, "[p]rejudice will be found where the (1) delay 'materially' impairs an insurer's ability to contest its liability to an insured OR (2) the liability of the insured to a third party." · Significant majority of states put the burden of proof on the insurer to show prejudice from the failure to comply with notice requirements in the policy

What is the "efficient proximate cause" doctrine? I think this is a minority approach.

When multiple causes of loss are independently responsible - EPC = the "dominant" or "most important" contributing cause of the loss

For subrogation, does the *timing* for the release of liability matter?

Yes I gave the release after the loss - so I prejudiced/destroyed the insurance, so I voided my coverage -BUT if the 3rd party had NOTICE - then, release is not effective against insurer. So, insurers routinely put potentially responsible parties on notice I gave the release before the loss - then you did not void the policy § Great North Oil Co v. St Paul Fire and Marine Insurance - interfering with subrogation; here, this exculpatory contact was allowed because it was released BEFORE the loss

Can state law preempt a federal law that would impact insurance law? (FHA case)

Yes o M-F Act section 2b provides that state law regulates the business of insurance UNLESS a federal law that would "invalidate, impair, or supersede" the state law "specifically relates" to the business of insurance FHA - does not specifically relate to insurance

Does a government consent order under CERCLA trigger CGL coverage for damage from the pollution?

Yes, CGL will cover cleanup once a government action has been filed. BUT clean-up before pollution or official government order will NOT be covered by CGL policy. (AY McDonald Industries v. Insurance Co of North America)

Can an insurance policy be assigned to a person even though that person has no insurable interest?

Yes, because an insurance policy is like a property interest (Grigsby v. Russell - assigned his life insurance policy to his doctor so that he could get surgery) o "[L]ife insurance has become in our days one of the best recognized forms of investment and self-compelled saving. So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property. . . . To deny the right to sell except to persons having such an interest is to diminish appreciably the value of the contract in the owner's hands."

Can life insurance be assigned?

Yes, but the assignee is still not the owner the assignee will take over the beneficiary, but then the beneficiary gets the excess Only the OWNER can change the beneficiaries

Is faulty workmanship considered a business risk exlcusion?

Yes, this would be excluded from CGL coverage. Weedo v. Stone-E-Brick: where the faulty stucco workmanship damaged the exterior of a home; the CGL does not cover this because this is a business risk

What do you do if you want to change the beneficiary on your life insurance?

You have to comply with the process or a court could find substantial compliance

For disability insurance, you stop getting disability payments if you can engage in "any gainful occupation." What is "any gainful occupation"? (a MAJORITY approach)

any gainful occupation in which you might reasonably be expected to engage because of education, training, or experience o "[T]his Court construes the plain meaning of the entire 'other occupation' provision to permit the factfinder to consider plaintiff's salary history, as well as a wage analysis of other available occupations, in order to determine in what other 'gainful occupation ... [plaintiff] might reasonably be expected to engage because of [his] education, training or experience'." a fact-intensive approach based on language in the contract (o Compare with Tschida (dancer case) - the language was a little different: "engaging in each and every occupation for wage or profit for which he is reasonably qualified" (a more narrow)

Agents have ________________ authority to bind over an insurance company, even when the agent is acting ____________ the scope of their authority (Elmer Tallant Agency v. Bailey Wood Products).

apparent, outside

What legal authority do "first party" and "third party" bad faith claims fall under in TN law?

first party - statute (TCA 56-7-105) third party - common law (National Service Fire Ins. Co v. Williams)

In life insurance, the insurable interest must exist at the __________________ of the policy.

inception

What is the basic conclusion of the McCarran-Ferguson Act?

insurance is not subject to anti-trust laws

Insurer is given a ________ _________ to accept ____________________ settlement offers - by making it responsible for ______________________ of acting unreasonably, courts and legislatures give insurers an ____________________ to act reasonably and in good faith

legal duty reasonable consequences incentive

The principle of indemnity helps combat ___________ ________________.

moral hazard

What is the difference between an affirmative warranty and a promissory warranty?

o Affirmative warranty - looked at the time the contract was entered into o Promissory warranty - one extending into the future (insurance company prefers this one)

What is a "continuous exposure clause" in a CGL policy for occurrences?

o Continuous exposure clause = "all such exposure to or events resulting from substantially the same general conditions during the policy shall be deemed one occurrence"

When courts find that there is coverage for pollution under a CGL policy, what do they limit the coverage to?

o Court: even when courts do find coverage, they typically only permit reimbursement for costs necessary to prevent damage to the unowned property, as oppsoed to costs that are incurred merely to remediate the damage to the owned property (Hakin v. Mass. Ins. Insolvency - don't want to convert 3rd party CGL into a 1st party insurance)

Under the majority approach in CGL policies, how do we determine how many "occurrences" there are? (Majority view)

o Majority = causation test - focus on the cause of the underlying harm

Under the CGL policies, what are the 2 minority views for the number of "occurrences"?

o Minority = unfortunate events test - focuses on the connection among the incidents o Per the court, "the unfortunate event test requires consideration of "whether there is a (1) close temporal and spatial relationship between the incidents giving rise to injury or loss, AND (2) whether the incidents can be viewed as part of the same causal continuum, without intervening agents or factors" o Minority = effects test (largely abandoned) - focuses on the effects of a legal violation, resulting in each injured person or item of damaged property being treatedas a separate occurence

What do states have the authority to do under the McCarran Ferguson Act?

o Set standards to ensure solvency (reserves, investment limitations) o Regulate rates (assure that rates are NOT "excessive, inadequate, or unfairly discriminatory") o License companies - and agents o Approve (and sometimes promulgate) policy forms or provisions o Provide for oversight by inspecting companies' records o Regulate consumer practices (e.g., deceptive marketing)

In our SAMPLE CGL policy what does the "business risks exclusion" apply to?

o k - Damage to Your Product o l - Damage to Your Work o m - Damage to Impaired Property or Property Not Physically Injured (that arises out of defects in your product or your work) o n - Recall of Products, Work or Impaired Property

What is "physical injury" under a lot of CGL policies?

physical injury (destruction) or loss of use (for which not physically injured)

What is the first virtue of any insurer?

solvency

What are 3 ways that state's regulate insurance?

solvency regulations excessive rate regulations discriminatory rate setting regulations

If there is no insurable interest the policy is:

void ab initio

How should ambiguous provisions be read? And what does ambiguous mean?

§ * Ambiguous provisions construed against the drafter (i.e., insurer) - this principle of policy interpretation is called "contra proferentem." The effect is that ambiguous provisions are construed in FAVOR of coverage. § "Ambiguous" - reasonably capable of being read with more than one meaning

Under CERLA (Comprehensive Environmental Response, Compensation, and Liability Act of 1980), what are 3 actions the government can take for pollution clean up?

§ 1 - Government pays to have site cleaned up, then sues PRP to recover costs § 2 - Government gets injunction ordering PRP to cleanup the site § 3 - Government issues administrative order PRP must comply with or be fined

What is an incontestability period in a life insurance policy? But what is a defense that can be raised at any point?

§ Insurance has a certain number of years to contest the policy § Insurance company has a duty to investigate *but lack of insurable interest is void ab initio and can be raised as a defense at any point

What is the minority view for insurance contract interpretation? They do this in California.

§ Minority View = honoring the reasonable expectations of the insured

What is the difference between a warranty and a representation?

§ Warranty - materiality didn't matter, this was at common law · Warranties were automatiically deemed material § Representation - materiality matters · In contrast, to deny coverage for a misrepresentation the law requires that the misrepresentation be a MATERIAL one, or be fraudulently made

What is a danger for insurance companies in "occurrence" policies of CGL?

· "Long-tail" exposure happens under OCCURRENCE policies, which cover harm that occurred during the policy period even if the harm is not manifested until after the policy term · Policy promises to pay "those sums the insured becomes legally obligated to pay as damages, because of bodily injury or property damage, caused by an occurrence" - and the bodily injury or property damage "occurs during the policy period"

What is commercial general liability insurance? How is it triggered?

· "Third party" insurance - protects the insured against potential tort liability to others · Coverage is not triggered by loss to the insured's property or health, but by liability that the insured might have for injury to someone else's person or property

3 Steps to McCarron Ferguson Act application:

· (1) the business of insurance is exempt from the reach of the federal antitrust laws · (2) except that these antitrust laws are applicable "to the extent that such business is not regulated by State law" · (3) regardless of state regulation, McCarran-Ferguson does not render the Sherman Act inapplicable to "any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation" o They can engage in price-fixing, but they can't do boycott or coercion

What is the "business of insurance"?

· 1 - Whether the practice has the effect of transferring or spreading a policyholder's risk · 2 - Whether the practice is an integral part of the policy relationship between the insurer and the insured · 3 - Whether the practice is limited to entities within the insurance industry (the parties normally involved in "cooperative ratemaking")

What is a binder in insurance law?

· Black's Law Dictionary - "A written memorandum of the important terms of contract of insurance which gives temporary protection to insured pending investigation of risk by insurance company or until a formal policy is issued."

Silberg v. California - the man's foot went through a washing machine and he got workers comp and was denied insurance coverage. What kind of damages did he get? What do you have to SHOW to get these damages? How are the breach of bad faith claims decided?

· Compensatory (did get)- failing to act in good faith o "[T]he evidence shows as a matter of law that defendant breached the covenant of good faith and fair dealing implied in every insurance contract by its failure to make payments under the policy and that, therefore, it was liable for the physical and mental distress proximately caused by its conduct." · Punitive (did NOT get)- you have to show evil intent (fraud, oppression) o Insurer "must be guilty of oppression, fraud or malice" - must act with intent to "vex, injure or annoy, or with a conscious disregard" of insured's rights Matter of Law

What is a first party bad faith claim? What is a third party bad faith claim?

· First party bad faith claim - Arises from insurer's actions regarding insured's claim for benefits allegedly due to the insured under the policy · Third party bad faith claim - Arises from insurer's actions regarding claim made by a third party against an insured who is covered by liability policy

What is special about the application and post-application period in a life insurance policy? (Gaunt v. John Hancock)

· Hold: Life Insurance Effective even though not officially approved, contra proferentem, reasonable expectations of the insured · Contra proferentem or reasonable expectations of insured? o Court: "[F]or the ordinary applicant who has paid his first premium and has successfully passed his physical examination, would not by the remotest chance understand the clause as leaving him uncovered until the insurer at its leisure approved the risk; he would assume that he was getting immediate coverage for his money."

What is the difference between a misrepresentation and non-disclosure?

· Misrepresentation - usually an affirmative misstatement by insured · Non-disclosure - insured's failure to disclose, without being asked known facts that insurer would regard as material to the risk (scienter) o Have to show fraudulent intent (by not telling) o A little higher of a burden

What are the different sections of the McCarran-Ferguson Act? Sec 1 Sec 2a Sec 2b Sec 3a Sec 3b

· Sec. 1 - Sets out policy favoring STATE regulation of insurance, and provides that Congress's silence shall not be construed as a barrier to state regulation · Sec. 2.a. - The "business of insurance" and those who engaged in it shall be regulated and taxed by the STATES · Sec. 2.b. - Contains 2 key points: o 1 - Congressional legislation does NOT preempt state regulation or taxation of insurance UNLESS the federal legislation "specifically relates to the business of insurance" o 2 - BUT, federal antitrust regulations (i.e., Sherman Act, Clayton Act, FTC Act) DO apply to "business of insurance" to the extent that "such business is not regulated by state law" · Sec. 3.a. (not in Text) - Suspended application of federal antitrust laws until June 30, 1948 (to give time for states to impose regulations, if they hadn't already done so) · Sec. 3.b. - Provided that specific named provisions of Sherman Antitrust Act DO apply, regardless of what states do or don't do (i.e., "agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation")

What does subrogation mean?

· Subrogation - a legal substitution o This means that insurer has rights ONLY to the extent that the insured did - AND that any defenses that could have been used against insured can be used against insurer o This also means that insurer ordinarily can NOT be subrogated against its own insured (you don't have rights to recover against yourself; plus, allowing this would negate the shifting of the risk to the insurer) (a matter of law)