Insurance Quiz- Chapters 1-3

Insurable Interest: in order to get insurance you must have a _______________________; helps combat moral hazard. o Expectation of _________________ that can be covered by insurance this interest varies according to the type of insurance coverage. Each individual has an _________________ insurable interest in his own life. Parents have insurable interest in their children as do spouses. Business relationships may give rise to insurable interest.

"stick in the game" o monetary loss unlimited

Regulation of "Unfairly Discriminatory" Rates: -The original post-McCarran-Ferguson Act state statutes prohibited "unfairly discriminatory" insurance rates. What are some of the issues that could cause an insurer to charge discriminatory rates?

(-being older can lead to it being more expensive_ -Insurance covers risk. -Not all persons and property present the same risk. -Insurers are not always aware of the full nature of the risk when a policy is applied for and issued. -Certain risks require a higher rate.

Insurance Policy Standardization Today: (1) ________________________________: super bureau that provides pooled data. (2) States now require uniform reporting of insurance stats which are gathered by certain _____________________. (3) States now restrict the use of advisory rates or metrics other than __________________ that could factor into the calculation of rates like overhead, distribution and marketing and profit (4) __________: can get unique policies due to the fact pooling is not a useful (5) _______: not quite all the same polices but very similar

(1) Insurance Services Organization (ISO) (2) statistical agents (3) projected claims (4) Health (5) Life

Insurance K Interpretation: Ambiguities Determining if there is an Ambiguity: (1) ________________ policy as a whole (2) Same terms to be interpreted ______________ (3) Interpreted in light of ____________________ (4) _________ terms should be given effect if possible *Conflicting provision can automatically trigger ___________________

(1) Read (2) consistently (3) apparent purpose (4) All *contra proferentem

Interpreting Insurance Ks- Honoring the Reasonable Expectations of the Insured: i) Courts should honor the objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts (1) Largely _____________ in last decade (2) For reasonable expectations to apply there need not be an ___________________

(1) abandoned (2) ambiguity

Employee Retirement Income Security Act of 1974 (ERISA): - Insurance benefit plans provided as ____________ come under this federal regulation. -ERISA brings to light direct implications for when the employee becomes the ____________ of the insurer. -EXCEPT: Certain plans are preempted, which we will cover more in Chapter 6.

-fringe benefits -legal agent

-The function of insurance is to protect the policyholder in the event of a ____________________. -This function acts through risk _____________, risk _____________, risk ______________ and risk _______________.

-future loss -transfer pooling allocation reduction

There is an exception to misrepresentation if the contestable period has expired ( _______ years)!!

2 years !!

· When insurance companies ask for info they typically go back about _________ years for auto info and ______ years for health. -Not sure this is relevant.

3 5

________________ Action: an action commenced by a citizen of one state against the citizen of another state or against an alien, involving an amount in controversy set by statue, over which a federal court has jurisdiction.

Diversity

How can you ALWAYS beat an insurance company???

Find an ambiguity in the insurance policy!!!

It only matters that _____________ understands how the insurance policy was written!!!

Joe at the muffler shop

Additional Issues in the Law of Misrepresentation: When an insurer investigates an individual or small group policyholder's medical history after the policy has been issued, and in particular after claims are submitted?? -insurers say it helps prevent fraud and therefore, helps keep premiums low.

Post-claim underwriting (-it has long been an issue w/ insurance litigation)

_____________________ - sometimes refused to supply pooling data if rates were not within a certain range.

Rate Bureaus

Sources of Insurance Law The sources of insurance law are: - ? - ?

State law Federal law

Who is the drafter in an insurance issue?

The Insurance Company

Insurance companies act as surrogate regulators- thereby forcing companies to ...?

adopt safer policies

Insurance markets are susceptible to two known market failures: ______________ & ____________

adverse selection moral hazard

Misrepresentation- · A false misrepresentation Must be _____________ for the policy to be void

material

History of Warranties: -Became prominent in 18th century marine insurance. -Shipowners would circulate a statement of the subject of insurance and amount of coverage desired on a slip, and "underwriters" would write on the slip their willingness to insure a portion of the total coverage requested. -Expectation of the parties involved in marine insurance was reflected in the early cases. -Strict compliance does combat ________- the breach of warranty by the policyholder from the outset to defraud the insurer.

moral hazard

The most important elements of insurance regulation is thought to be ____________ regulation.

solvency

Misrepresentation- (i) MATERALITY TEST: Materiality: does the misrepresentation increase the ________________ (below are risk of loss test): a. Majority: central to the coverage provided, that under no circumstances would a ___________________ have issued any policy had an ___________________ been made b. Minority: merely that the fact misrepresented ____________ the insurer's risk & that knowledge of that fact would have been relevant to the issuance, terms of policy c. Restatement: But for the misrepresentation a reasonable insurer in this insurer's position would not have issued the policy or would have issued the policy only under _____________________ terms.

(i) risk of loss a. reasonable insurer accurate disclosure b. increased c. substantially different i. Substantially Different: rate,

The Role of Intermediaries: Waiver and Estoppel - These are mechanisms meant to counteract lengthy/complex policies that may be drafted by insurers. - A delineation between the two defenses has been confused over time by some courts in their aim to protect insureds. ** __________________ applies to an insurance policy where an insurer is, or ought to be, aware of its right to defend or rescind, but represents to the insured that coverage is provided; and the insured relies on this representation to his detriment. -Min. approach: where an insurer or agent misrepresents (even innocently) the coverage of an insurance contract or the exclusions therefrom to an insured _______________ OR AT THE ______________ OF THE CONTRACT & the insurer _________________ thereupon to his detriment the insurer is estopped to denying coverage after a loss. **_________________ applies to those situations where a party consciously does not exercise a right that it has. This normally applies against the ____________ but can also apply to the insured. --does not require proof of insured's ____________________.

** Estoppel -before inception reasonably relies ** Waiver -insurer ((An example is where the insurer has the grounds for rescission but through the acts of an agent conveys to the policyholder the voluntary surrender of the right - example - acceptance of premiums).)) -- detrimental reliance

Insurance is not a perfect world. - Transfer of some (but ___________) of the risk faced by the insured. - ______________ will face the risk of some loss - pooling is imperfect. - Risk allocation works but again is not perfect. - Insurers attempt to reduce risk are not ________________ effective or sustained.

- (not all) - Insurers - uniformly

Insurance Contract Interpretation - Plain Meaning = ____________________ - The majority of insurance disputes center on issues of insurance contract interpretation. - A policy of insurance must have such a plain meaning that there is a ____________________ to the terms. - As mentioned in a previous session, one of your most useful tools in attacking an insurance company is to prove that the terms of the insurance policy are __________________. In others words, the common man (Joe at the Muffler Shop) could not understand them. - Known as contra proferentem, if you can satisfactorily prove this, the language is construed against the _____________________ and for ____________________.

- Contra Proferentem - single meaning - ambiguous - drafter (the insurance company) your client.

Insurance Contract Formation: - Virtually all insurance policies are standard-form contracts. - Insurance contracts are contracts of _____________- take it or leave it - the insurance company drafts the language and the insured generally only negotiates the ____________ of coverage. - Standardized contracts have advantages and disadvantages. - Obviously, if all insurers use the same automobile insurance policy, regulation by 50 states and development of coverage is easier. - However, this also means that the take it or leave it standard applies not just to one insurer but to all. Good/bad?

- adhesion amount (a) Either same across all companies or a company specific policy *Reason for this is you must pool the risk and the only way to do that is have large data pools with uniform policies so similar risk can be pooled. - can be both

Authority of Insurance Intermediaries - The type of law we look to for governance of intermediaries is usually the law of _____________. - Agency is a ________________ (someone who is required to act for the benefit of another person on matters within the scope of their relationship Black's Law Dictionary). - As this and other definitions of "agency" suggest, the relationship often arises out of contractual agreements that the agent will act on behalf of the ______________. We then turn to what is actual authority v. apparent authority of an agent. - _____________ authority allows the intermediary to bind the insurer to a contract with an insured. - ________________ authority occurs when the facts of the matter lead a third party to reasonably believe the intermediary has the actual authority of enter into a contract and find the principal. *can bind the insurance company even if they do not have actual authority.

- agency - fiduciary - principal - Actual - Apparent

Combating Threats of Adverse Selection & Moral Hazard - By __________________ insurers can combat adverse selection and moral hazard. - The most useful tool is ____________________ - where insurers investigate the extent of a risk before issuing insurance coverage. - Another method to combat these problems is ____________________ to reduce the risk. - Although neither of these exhaust the insurers' efforts to combat adverse selection and moral hazard, they do assist wrongdoing by individuals who seek financial gain from these acts.

- allocating risks - underwriting - charging a higher premium

Policy Form Regulation (continued): - When we examine policies issued to provide property/casualty coverage, the most common policy form restricts an insurer's grounds for __________________ or ___________________ and require a ____________________ to policyholders when they are allowed to cancel or non-renew. - Policies must also meet minimum "_______________" standards - Flesch scoring uses word/sentence length to ensure the policy can be read by the _________________. - States often have various other form requirements - required coverage to prohibitions on certain ___________________ and even __________________ provisions. - Insurance policies are contracts of adhesion!!!!

- cancellation or non-renewal minimum notice - "readability" standards average person - Joe at the Muffler Shop - exclusions arbitration

Discriminatory Rates: - In order to combat issues like adverse selection, moral hazard and poor risks, insurers charge ________________ for the same coverage. - Even if an insurer had a monopoly on a particular market, it would have to classify the risks or face an unraveling of its risk pool. - This benefits insureds as well by reducing rates if they are in a ______________ pool. - It can also result in certain insureds reducing their risks as well. How? - The study of risks by insurers is expensive and is not static. - However, because rate discrimination can implicate a broad array of costs, ___________________ plays an important role.

- different rates - less-risky - regulation

Role of Intermediaries -In recent times, insurers have begun to sell coverage online. (connie said do not do this!!!) - These online sales are called ___________________ - they can often offer lower rates and are attractive to some consumers. - These consumers must however decide for themselves what insurance they need and which policy will meet that need. - Because most insurance buyers are uneducated or unsure of their needs, purchase of insurance through intermediaries will likely continue for some time. -Just as there are different types of insurance policies, there are different classes of insurance intermediaries who may be referred to as ______________. -Intermediaries fall into to two classes - ______________ and _____________.

- direct writers -producers -brokers and agents

Basics of Insurance: - In addition to the differences between organizational type of insurance companies, there are distinct types - called __________ - of insurance products. - ___________/______________ insures your property and protects you from liability for loss caused by accidents. For example, ________________________ pays when you have an accident for the damage to another person or property. It can also cover the loss to your home or business as well as injury to a guest on that property. - _______________ insurance covers the insured in the event of death or illness. ______________ insurance also falls under this branch. - Not all insurance companies provide all lines of insurance.

- lines - Property/casualty automobile coverage - Life/health Disability

- __________________ is the risk that an insured or beneficiary will purposely destroy the subject matter insured. For example, property or a person. -In 18th century England, you could purchase insurance on strangers as a form of gambling. This was outlawed when it became apparent there was an incentive to cause the death of the insured. -This is also the reason you must have ___________________ in property like a home or automobile to carry insurance. -Like adverse selection, moral hazard has its foundation in the disconnect of information given by an applicant and received by the insurance company.

- moral hazard - insurable interest

Development of Insurance Policy Standardization: - The majority of standardized insurance policies occur in the ____________________ lines (i.e., automobile, homeowners). - Developed out of the need for reliable statistics and data upon which to base amount of ________________. - Insurers sell the same standard-form coverage and thus capture benefits of data ____________. - Public receives enhanced _____________ from insurers but at the cost of less price competition and loss of product differentiation. - Most P/C policies today are drafted by the _________________________. - Insurers also report loss data in a ___________________ format.

- property/casualty - premiums - pooling - financial stability - Insurance Service Organization (ISO) - standardized

Intermediaries' Duties to Policyholders - An insured relies on an intermediary on a variety of issues related to ___________________ of insurance coverage. - This means that the intermediary should have special expertise with respect to insurance as well as understand the customers' needs. - Intermediaries are licensed by the __________________ department in the state(s) where they sell coverage. - Just like attorneys, intermediaries can lose their license for _________________, and often carry _______________ insurance.

- purchase - state insurance - misconduct malpractice

Binders & Policyholder Assent to Standardized Forms: - For the most part, insureds do not typically agree to their insurance policies at they time of purchase. Rather, they receive the actual policy form several weeks after ___________ or ___________ for coverage. - Instead, for customers who need immediate coverage, the insurer and its agents often execute a _____________. - This obligates the insurer to provide coverage if ...? Example: One of the most famous cases concerning a binder was a situation involving the World Trade Center. WTC purchased $3.5 billion in coverage per occurrence of property insurance in the summer of 2001. The final policy had not been issued on 9/11. -The question that arose was whether there was one or more occurrences when the WTC sustained devastating damage on 9/11. -The binder defined occurrence as "All losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur." The fact that there was more than one policy in question was confusing. Also, one of the policies did not define "occurrence", which was seen as ambiguous. Lastly, this loss was so unthinkable that public policy appears to have played a part in the ultimate decision. -Ultimately, on remand, a jury decided there were two occurrences and claims were paid to the WTC owner of $4.55 billion.

- purchase or application - binder - there is a loss before the policy is issued.

Insurance Regulation - To make insurance coverage available to most people, the insurance department established ________________. - In Arkansas, one such action is the _________________ pool, which allows drivers to obtain coverage when the regular market may not be available (excessive violations). - ______ insurers participate in the Assigned Pool and receive a percentage of the drivers to cover. - The _______________________ of each state charges "dues" from licensed insurers to assist insureds if an insurance company becomes insolvent. - The U.S. federal government also has established federal insurance programs for ____________ and ______________.

- residual markets - Assigned Risk - All - Guaranty Association - flood and earthquake

Policy Form Regulation (continued): -The line of insurance can also dictate the ___________ and _________________ of policy form regulation as insurance terms can be the subject of legislative actions that promulgate state laws. - _____________ insurance markets often have mandated benefits. -Life annuities, disability and long-term care coverage are distinctive in their own way. -This policy form regulation caused the NAIC to develop the Interstate Insurance Product Regulation Commission, which formed an interstate compact and allows member insurers to sell ______________________ products without going through the state regulatory process.

- type and degree -Health -IPRC approved

Allocation of Regulatory Powers: Government legislation, like the Sherman Anti-Trust Act, made it clear that certain federal laws were not applicable to insurance. -Most states established insurance departments and vested them with varying powers-- what is an issue with this? - So in 1871, the National Association of Insurance Commissioners (NAIC) was formed to encourage _______________ among states and to promote ____________ regulation. -The NAIC still exists and drafts _________ from time to time. However, these are "suggestions" to state insurance regulators and the NAIC does not have authority to regulate ___________________.

- you have 50 different states doing their own things and so there is no uniformity. - cooperation uniform -Model Rules individual state laws

General Principles of Contract Law: Insurance law is comprised of several branches of the law. -_____________________ law governs the "deal" and development of the policy. -___________ law plays a major role and damages for breach and the remedies more closely match _________ law than contract law. -Business associations are impacted when addressing agents, agencies and company structure. -Conflict of laws can be involved when the location of the damage is different than the state in which the policy is issued.

-Contract law governs the "deal" and development of the policy. -Tort

-________________ occurs when insurers spread the risk through underwriting and premium rating - if your client is a poor risk because of what is insured or his past performance, this is discovered through underwriting and the premiums charged accordingly. -One of the purposes of this is to provide ____________ to insureds. An example is ....?

-Risk allocation -incentives ... a higher charge for smokers, or drivers who have many accidents. ... smoke detectors can decrease fire insurance

-Insurance companies employ ______________ who are constantly evaluating the risks insured.

-actuaries

-Just as in the purchase of items like an automobile, home, computer and other goods, consumers are usually umeducated about insurance. -Even for some business owners/managers determining what insurance is needed; what the policy covers or excludes; and what company should be used, is outside of their understanding. -For this reason, most insurance is purchased through _________________________________. -Intermediaries assess the prospective customer's ______________________ and help secure insurance to cover that customer's needs.

-an intermediary (salesperson or entity) -exposure to risk

-Adverse selection takes place at the time, applicants _________________. -The applicant knows his risk of a covered loss better than the insurance company. -If the applicant is truthful, the insurance company calculates the correct rate. However, if the applicant is __________________, the inevitable increased risk translates into ___________ and ____________ claims resulting in higher premiums for all. -Insurance is not "money from ____________ - it costs everyone"! -The remedy for adverse selection can be _____________ - what does this do? *Basically there is a ______________ with adverse selection.

-apply for insurance -not truthful more and higher - heaven - rescission - the revocation, cancellation, or repeal of a law, order, or agreement. Parties may rescind if they are the victims of a vitiating factor, such as misrepresentation, mistake, duress, or undue influence. Rescission is the unwinding of a transaction. *material misrepresentation

Public Policy & Insurance - In addition to the plain meaning provisions of insurance policies, most states employ the doctrine of public policy as a _______________ when deciding a case. - Insurance contracts can implicate a range of potential public policies. - Public policies are also embodied in ________ law and can arise from general justice. - An example is awarding ___________________ as the result of punitive damages in a driving while impaired action.

-balancing test -state -attorney fees Neal-Pettit v. Lahman R:An insurance policy may cover attorney fees awarded solely in conjunction with punitive damages, even in jurisdictions where public policy prohibits insuring against punitive damages. Should you be able to insure yourself against purposeful wrongdoing?

-Insurers reduce risk and the _______ of insurance as well. -As surrogate regulators, insurers require insureds to have __________ policies. An example is a police department - training new officers, dash/body cameras.

-cost -internal

Group Insurance: -Another intermediary in the insurance industry is the _____________. -Health, life, disability, and long term care coverages are often provided as __________________ by employers and play an important role in attracting employees to a particular company. -In the field of group insurance, it is the _____ who selects the insurance provider, negotiates the terms of the coverage and facilitates payment of premiums. -Employers often pay a portion of the _____________ as well or ______ premiums deducted from employees paychecks. -Group insurance can also be issued through _____________ in an organization.

-employer -fringe benefits -employers -premiums remit(s) -membership

Liability for Bad Faith Breach: -Insurance policies are contracts and therefore subject to ordinary contract law damages- the amount necessary to place the insured in the position they would have been in had the insurer not breached - benefits owed under the policy. -A policyholder is entitled to _____________ damages as a result of the insurer's breach-- recovery in the amount necessary to place them in the position the insured ___________________ if the insurer had not breach the policy. ---Usually this would be the ________ owed under the terms of the policy. -However, ___________ damages are also available. These fall under tort law and can be very expensive for the insurer. -It takes more than just a simple mistake to claim bad faith breach - was the insurer _________ that it was acting unreasonably or did they _____________________ this risk.

-expectation --would have been in ---benefits -consequential -attorney's fees -aware recklessly disregard

-Risk pooling is the insurance function where the insurer transforms risks into a _______________ set of obligations. -This is known in the insurance industry as the __________________. -The more risks of a certain type that are covered, the less the ________________.

-highly predictable -Law of Large Numbers -collective risk

Honoring the Reasonable Expectations of the Insured: - In addition to contra proferentem, another method used by plaintiff's counsel is to honor the reasonable expectations of the insured. -This is based on the _________________ of most insureds, and the superior position of insurance companies. - One prominent case was Atwater Creamery Company v. W. National Insurance Company, Minnesota, 1985. -This case involved a creamery that had a burglary. The insurance policy required there to be evidence of forcible entry, which was not found at the point of the burglar's entrance. Therefore, Western National denied the claim. The question arose as to whether an ambiguity in the policy required in the application of reasonable expectations. - This doctrine has been largely abandoned in the last few decades and courts are known to vary widely.

-lack of sophistication

History: -After the Civil War, industrialization increased along with the accompanying injuries in factories, on railroads, and other forms of transportation. Tort liability became a serious threat. In the 1880s, _______________ insurance was introduced. -The 20th century saw enormous growth in all forms of insurance in the United States. -Largest growth was perhaps in the 20th century with the introduction of _____________________ insurance, which was first introduced as a fringe benefit. In 1932, nonprofit organizations called Blue Cross or Blue Shield offered the first health plans. These plans were successful because the members bargained with hospitals and physicians for discounts in exchange for increased volume and prompt payments. -Automobile, malpractice, homeowner's and other types of insurance followed. -All of these products were meant to protect against _________.

-liability -health -risk

Solvency Regulation: Insurance differs from some things we buy b/c we pay for the product immediately and receive only a promise to receive a benefit if we suffer a future covered loss. -This promise is only as good as the insurer being able to ____________ at the time of the loss. -For this reason, regulation of the solvency of an insurer takes on many forms and types of tests. A few of these are __________ conduct; ____________; and rating.

-make financially good -market financial

Group Insurance: -Some of the advantages of group insurance are that the ___________ are reduced so coverage can be offered at a lower cost. -Administration is handled by _________ or a _______ again reducing the cost to the insurer. -Group insurance improves policyholder shopping because the employer screens different carriers and plans to find options that provide favorable combinations of ______ and _______. -Other advantages include reduction in ______________ and employees can pay their premiums using ___________.

-marketing costs -employers third party - price and coverage -adverse selection pre-tax dollars

What is insurance? -A ____________ is a situation involving a chance of loss or no loss, but no chance of gain. For example, your home burns or it does not - this risk is insurable. The risk is considered normal by underwriters and insured under standard rates. -This shifting of risk compensates one party for damages by ____________________ with another party.

-pure risk The opposite of pure risk in this example would be arson. -entering into a contract

Insurance Regulation: -Insurance is one of the most heavily regulated industries in the U.S. The regulation is complex. -Because of imperfections in the market, heavier regulation is needed. -Insurance also affects third-parties who are affected by these losses. -The prevalence of market failures can be addressed by _____ and providing insurers with improved information but it is costly and imperfect because you have to do the research and hire someone to gather data). -However, we must consider the significance of underlying market failure, effectiveness of regulation in addressing that failure and the costs associated with implementing and complying with regulatory strategy.

-regulation

-A _____________ party is indifferent when the two risk have the same expected value. -Most of our clients whether individuals or businesses are generally _______________.

-risk neutral -risk-averse

State Insurance Regulation: -After McCarran-Ferguson Act, every state enacted legislation intended to ensure that insurance was regulated by ________________. -One aspect is the requirement that state insurance departments assure that insurance __________ are not excessive, inadequate, or unfairly discriminatory.. (so insurance companies have to ______ to raise their rates.) · Insurance commissioners were given authority to regulate other unfair or deceptive practices & respond to complaints (have ____________ power BUT NOT _________________ power) -These laws have grown substantially in the last 80+ years and continue to grow. -Each state has an office that regulates insurance. AR? (some states have different titles) -These departments are headed by a ________________ (also may have another title). -__________ was appointed 24th AR Insurance Commissioner by past Governor Asa Hutchinson. He had a background in government as well as Worker's Comp insurance.

-state law -rates (ask permission) · (have mediation power BUT NOT resolution power) -AR= Arkansas Insurance Department -commissioner - Alan Mclain

_______________: higher risk people seek the insurance thereby driving lower risk individuals out b/c of pricing (charge both high & lower risk customers the same rate yet lower risk bears higher risk extra cost)

Adverse Selection -You have an applicant for insurance who selects against the insurance company. They have a history that makes them not a good applicant... they mess up the risk assessment when they are not truthful (raises premiums for everyone).

Mandatory Policy Forms: Would a return to mandatory policy forms reduce the "red tape"?

How will insurance companies make money if they all write the same coverage? There would be no competition.

History: -Insurance is now pervasive in the United States and other first world countries. -There are private insurance carriers and the government has its own insurance programs such as ________________ and ________________. - Principal sellers are ____________ and _____________ companies -Stockholders own ____________ companies. Policyholders own ___________ companies. -Most companies sell types of coverage in _________ category. For example, life/health/disability. However, larger companies do sell several ___________.

Social Security and Medicare -stock and mutual -stock mutual -one lines

Market Conduct Regulation?? - Still another type of insurance regulation involves how an insurer _____________ itself in the market. - Market conduct regulation covers an insurer's ________________ and _______________ of products as well as ________________ of claims. - In addition to in-house examination of these areas, insurance regulators require insurers to complete an annual ________________________, which includes date on claims payment rates, speed of payment, policy cancellations and non-renewals - this is not publicly available. - If you have a client that you believe is the subject of a "slow pay" on his/her claims, where can you go to determine an insurer's policies? -Consumers are able to file complaints with the insurance department for review of an insurer's actions.

Where the insurance commissioner and the department, get up close and personal with each insurance company. They ask how does each company conduct itself in the market. -conducts - marketing and distribution resolution - Market Conduct Annual Statement - online somewhere.. Connie says to ask them if you are at the discovery process.

Insurer's Liability- Should an insurer be held vicariously liable for the acts of an agent? Why or Why not?

Yes because they have to train their agents to be prepared for all situations and they have to be trained to advise the client on what to do in certain situations. However, there are agents that cross the line sometimes. (example: like the guy who didn't want to embarrass the fat woman by asking her if she was pregnant.)

Discriminatory Rates: Allstate Insurance Company v. Schmidt R: If a statute is ambiguous as to whether it applies to underwriting or to setting insurance rates, a court should give effect to ___________________ to clarify the ambiguity. What insurance principal is the bottom line here?

all parts of the statute Public Policy

Companies can combat both adverse selection and moral hazard by ______________. -Risk _________________: setting premium in portion to the ________________ posed by a category of insureds, in an attempt to combat adverse selection & moral hazard - done in _______________.

allocating risk -allocation degree of risk -underwriting

Sources of Insurance Law -Each state has a department responsible for oversight of the insurance function -- usually called the Insurance Department and run by the Commissioner of Insurance, who may be ___________________ or ____________ - in Arkansas the Insurance Department is run by the Commissioner of Insurance, who is _______________________. Alan McClain is the current Commission in the State of Arkansas. -However, the foundation of insurance law in the United States is the McCarran-Ferguson Act, which affirmed and safeguarded the importance of regulating the business of insurance.

appointed by the governor elected appointed by the governor

History: -In the 4th century B.C. Demosthenes' writing tells of Greeks loaning money on ships and cargoes with the loans being repaid only if the ships were not lost. This practice was called ________________. -Late in the 17th century, marine insurance was transacted at a gathering place called Lloyd's Coffee House. This was the forerunner of Lloyd's of London, which is still in existence. This was the site of the early development of insurance after the great ___________. -As people accumulated wealth and "things" they wanted to protect, fire insurance came into being. - ______________ and __________ insurance were the initial two lines of coverage sold.

bottomry fire Marine and fire

Stone Container Corporation v. Hartford Steam Boiler Inspection and Insurance Company R: Where an insurance policy is ambiguous, the insured is not entitled to a judgment in its favor before the insurance company has had an opportunity to _______________________.

clarify the ambiguity

Insurance policies are at their simplest ___________. The law of ______ is just one branch that goes into the insurance industry and legal issues involving the business of insurance.

contracts contracts

It is the fact that insurance policies are contracts of ______________________ that provides your ability to challenge the terms under the theory of contra proferentem - construed against the drafter.

contracts of adhesion

Anthem Health Plans of Maine v. Superintendent of Insurance R: Some states regulate insurance rates to ensure rates are neither _________________ for consumers nor ______________ for insurers' financial integrity.

excessive inadequate

Insurance is one method of bearing the risk by shifting the ________________ and _____________.

expense and responsibility

Policy Form Regulation: - Regulation of insurance policy language dates back to before McCarran-Ferguson. -Modern form regulation is found in two categories: i) Regulators in many states are empowered to review policy forms to determine whether they are ___________, __________________, _________________, contrary to ____________________ or some combination of these. ii) Regulators have ____________________ to disapprove of policy terms, but may be hesitant to invoke ___________________. iii) Regulators review filed policy forms to ensure they comply with __________________, which vary significantly by states.

i) unfair, ambiguous, unreasonable, contrary to public policy ii) broad discretion broad discretion iii) various state rules

The Role of Intermediaries: --Been a shift to purchase insurance direct from the ________________ as it reduces cost to the insured by cutting out the middle-man.

insurance companies

Law of Misrepresentation: In some cases, the primary difference between misrepresentation and concealment is that concealment involves the policyholder's _________________ to disclose material information.

intentional failure

Insurance Precautions to Adverse Selection & Moral Hazard: Concealment: USUALLY REQUIRES __________________ TO DISCLOSE A KNOWN MATERIAL FACT o Insurer must prove a failure to __________________ that the applicant knows is material in order to void a policy on the ground of concealment - Exception: marine insurance where obligation to disclosure tends to prevail o Insurance companies combat this issue by ______________________ on application which reduces affirmative misrepresentation

intentional failure o disclose a fact o asking detailed questions

If the representation made by the policyholder is untrue or misleading and ________ to the risk, and such representation is relied upon by the insurer in issuing the policy, the insurer can use ____________________ as grounds for avoidance of the policy at any time. -The exception is if policy has become _____________- read the policy for a contestable or time limit on certain defenses clause.

material material misrepresentation -incontestable

Neill v. Nationwide Mutual Fire Insurance Company R: An insurer cannot avoid liability where an applicant truthfully makes statements to a soliciting agent who ____________ those facts on the application by fraud, negligence, or mistake, even if the applicant ___________________ the application prior to signing it.

misstates did not read o However a person is required to know what they sign is true & accurate. -Here there is no evidence the agent even asked them the question

Solvency: --Solvency requirements on all insurance companies to prevent them from making risky investments & to be sure they can _______________. This involves regular and detailed review of insurance companies' __________________-. -- A company found lacking may be _________ or have its license __________.

pay their dues financial records --fined revoked

Contra Proferentem is based on the _________ rule. An insurance policy is reasonably susceptible to only a ___________, ___________ ______________. -If an insurance policy can be interpreted in two or more ways in the context of a specific dispute, the policy is deemed ___________ and construed against the ____________.

plain meaning single, plain meaning -ambiguous drafter

Insurance Intermediaries- Brokers and agents may be principally compensated through commissions on _________________ - usually a simple percentage calculation. In some cases, compensation is based on a ______________.

policyholder premiums salary

Roseth v. St. Paul Property & Liability Insurance Company R: Equitable estoppel is only available to an insured to prevent an insurance company from denying coverage if the actions constituting estoppel occurred _____________, or ________________, the policy. R: For estoppel to apply representations must be made at ______________ of contract.

prior to at the start of inception

Warranties: R: Statements by an insured in an application for ________________ insurance are deemed to be warranties not representations which differs from ________ insurance applications

property life

Vlastos v. Sumitomo Marine & Fire Insurance Company R: Ambiguous language in a warranty clause in an insurance policy, must be interpreted in favor of _________________.

providing insurance coverage

Simply stated, insurance is a mechanism for contractually shifting burdens of a number of ____________ by pooling them.

pure risks

Vargas v. Insurance Company of North America (INA) R: An ambiguous provision in an insurance policy should be construed in favor of the insurer if the insurer can establish that its interpretation is the only _______________ and _________ construction of the provision. Ct. Held: The court held that an ambiguous insurance-policy provision will be construed in favor of the insured unless the insurer can establish that a reasonable person could not interpret the insurance policy in the same way as the insured, and that the insurer's interpretation of the policy is the only possible interpretation.

reasonable and fair

Zacarias v. Allstate Insurance Company R: Courts construe insurance contracts against the insurer and consistent with the insured's _________________ ONLY IF unclear, overly complicated, or written to trap unwary consumers.

reasonable expectations

The Relationship Between State Form Review v. Judicial Regulation of Insurance: As we saw in previous chapters, many judicial doctrines of insurance - reasonable expectations rule, contra proferentem and public policy restrictions on coverage terms-- envision a role for the courts to play in regulating insurance policies. -- Judicial Opinions typically either scrutinize the ______________________ of policy language without mention of regulatory review, or else completely _____________ any role for courts to play in scrutinizing the fairness of particular policy terms.

reasonableness disclaim

Risk _________________ - insurers have an incentive to reduce risk - one mechanism was the development of seat belts/airbags.

reduction

Law of Misrepresentation: A _____________________ is any statement, oral or written, expresses or implied, made by the policyholder to the insurer which forms at least part of the basis on which the insurer decides to enter the contract of insurance. -This does not become a part of the insurance contract unless it is ______________ into the written document.

representation -expressly incorporated

A client is ______________ when he would prefer the larger risk of suffering a small risk to the smaller risk of suffering a large loss, which can be multiplied.

risk averse

_____________- lowers average cost of premiums. -- by insuring a large number of insureds posing similar and independent risk, insurers can transform these risks into a high predictable set of obligations.

risk pooling

-Risk transfer involves the transmission from a generally ________________ policyholder to an _______________.

risk-averse insurer

Policyholder Assent to Standardized Forms- R: Assent to the policy usually occurs through ____________ there is no requirement for you to sign and mail in the signed policy copy

silence

__________________ are the most important sources of insurance law.

state governments

Sources of Insurance Law: -Although some aspects of insurance law and regulation are at the federal level, insurance is predominantly a matter of ______________. -Just as state laws differ, so do insurance laws from state to state. Over time, many efforts have been launched to reduce the differences, insurance disputes often implicate conflict of laws questions. For example, you are a resident of Arkansas and insure your vehicle in Arkansas but have an accident in Texas. Which law governs?

state law -Arkansas

Regulation of warranties is largely a product of _____________ law. -The result has been a collapse of the distinction between warranties and representations. -Consequently, insurers must rely on the contract law of _______ and seek the usual contract remedies like rescission.

state statutory -misrepresentations

DeSmet Farm Mutual Insurance Company of SD v. Busskohl R: It is settled law in this jurisdiction that a misrepresentation as to a material matter in an application for insurance, even absent a showing of an intent to deceive, renders the policy _____________, because an insurer is entitled to rely on the _______________ of the answers given.

voidable truthfulness

The Law of __________________. - It should be clear that insurers employ various tools to combat adverse selection and moral hazard. - The first, and probably most important, is to gather information from the applicant and use that to investigate, underwrite and develop a rate for coverage. - Important legal issues can arise if that information is inaccurate. - Insurers also attempt to combat this risk through insurance ___________________ (an assurance by one party that the other party may rely on a certain representation of fact). - These strictly _________________ whenever information provided by the applicant was inaccurate - to any degree.

warranties limit coverage

Elements of Misrepresentation: · (1) An insured is required to ___________________ all questions on application · (2) Insurance company can void a K if it would not have issued the policy had it known the _____________ and that these facts were _____________ to the acceptance to the risk (reliance) o Remedy is _____________

· (1) answer truthfully · (2) true facts material o recission

Warranty- Modern Approaches: trend to soften the blunt of warranties by --> · (1) treat them as _______________ · (2) construe them against the ____________ · (3) construe the warrant to ONLY related to _____________ facts NOT future facts (i.e. only need be complied w/ at time of ______________) · (4) interpret warranty as ______ if there was substantial compliance

· (1) representations · (2) drafter · (3) present (contracting) · (4) met