Insurance

Gray v. Zurich Insurance Company

(1966) (Conflicts of Interest - Majority View) - The underlying case is where the plaintiff was sued for committing (2 claims - battery and negligence). The issue is whether the fact that "assaults" are intentional, and therefore excluded from coverage, renders the DTD non-existent. ○ Insurer: we have a conflict of interest (want insured to be found liable for battery bc no coverage) ○ H/R: There is no issue preclusion for mixed claims. Thus, there is no conflict of interest bc the insurer can still subsequently argue that the insured was liable for an intentional tort and avoid liability. → givens incentive for insurer to make full throated argument ○ Abraham notes: ■ In Gray, we know that one set of allegations in underlying tort suit is covered, and one set of allegations isn't covered. ■ In a suit for bodily injury, there's always a possibility for negligence ● Battery suit always contemplates negligence ● What is insurer's argument as to why it shouldn't have to defend? ○ Insurer says the way they want to litigate the case is that they want to win OR find battery-It ostensibly creates a conflict of interest ● The court disagrees with Gray's view ○ The court says the insurer is making incorrect assumption about significance of the finding for battery i. This is about collateral estoppel ii. In the coverage suit, the finding that insured expected harm will bind insured from finding that expected harm is a bad assumption; if you're wrong, you are collaterally estopped ● Court is establishing that a finding in underlying suit will not have collateral estoppel grounds to try to argue that they have no DTD bc underlying suit found battery. ○ This gets rid of incentive to seek a factual finding that is adverse to the insured—because it wouldn't' really matter. ○ In other words, the insurer is still free to file a declaratory judgment suit/coverage suit in order to determine whether there is in fact a duty to defend and duty to indemnify. ○ ROL: An insurance policy excluding coverage for intentional torts does not relieve the insurer of its duty to defend an action that alleges that the insured caused an injury intentionally.

stonewall ins. co. v. asbestos claims management co.

(1995) - manufacturer of gypsum wallboard w/ asbestos in it. Issue is whether something is "expected" or "intended" ○ Issue: occurrence is "defined as an accident or a continuous or repeated exposure to conditions which results during the policy period in personal injury, property damage or advertising liability neither expected nor intended from the standpoint of the insured." Was the harm here expected/intended? ○ H/R: Although the company was aware prior to the inception of many of the policies that they paid for that its products risked asbestosis and other cancer causing diseases, it was highly uncertain as to the number of claims, injuries, likelihood of successful claims, and the amount of loss they were going to sustain. Subjective standard is applied in this case ■ Known loss defense: Insured may not obtain insurance to cover a loss that is known before the policy takes effect. (not related to "intended" or "expected" defense.) ■ Known loss v. intended/expected defense: ● The expected or intended inquiry generally asks merely whether the injury was accidental ● The known loss defense requires consideration of whether at the time the insured bought the policy, the loss was known. a. These may overlap, but are not perfectly related. ○ Court finds that NGC was fully entitled to replace the uncertainty of its exposure with the precision of insurance premiums and leave it to the insurers underwriters to determine appropriate premiums. The trial judge rightly found that it was highly uncertain how many claims NGC would be liable for the amount of losses it would be called upon to pay. ■ Though NGC was aware, prior to the inception of many of the policies, that many of its products risked asbestosis and cancer diseases and had received a large number of claims, it was highly uncertain as to the prospective number of injuries, the number of claims, the likelihood of successful clams, and the mount of ultimate losses it would be called upon to pay. (known loss defense does not apply) ○ Notes: mere negligence in failing to foresee an event does not suffice to chalk you for "expected"

Eyeblasters, Inc. v. Federal Ins. Co.

(2010)—Loss of use=Prop Damage? - computer user sued Eyeblaster, alleging eyeblaster injured his computer, software, and data after he visited an Eyeblaster website. Eyeblaster tendered defense of lawsuit to CGL ins co. Issue: complaint alleges direct injury to the operation of his computer, but it alleges no damage to the hardware itself. Is this physical injury to tangible property? Or loss of use? ○ Holding: The plain meaning of tangible property includes computers (in property damage definition), and the Sefton complaint alleges repeatedly the loss of use of his computer. Within the meaning of property damage. Simple damage from a virus to the software would not be covered but the property damage BECAUSE OF the virus is covered. ○ ROL: A general-liability policy that covers loss of use of tangible property includes coverage for loss of use of a computer due to software issues, even if software is excluded from the policy's definition of tangible property.

The principal of indemnity

-Insured is restored to the same financial or economic condition that existed prior to the loss, depending on the amount and type of insurance purchased. -Insured should not profit from an insurance transaction

What are the four permission to use auto rules?

1) Liberal Rule 2) Minor deviation approach 3) Conservation or strict rule 4) Policy Here

What are exclusions meant to address?

1) adverse selection 2) moral hazard 3) the problem of catastrophic losses 4) market segmentation-avoiding duplication of the coverage provided by different kinds of policies

What are the three basic types of other insurance clauses which regulates how liability is to be divided when multiple coverage exists?

1. Pro-rata = limits the liability of an insurer to a proportion of the total loss a. If other insurance, then they will only pay as followed. The amount provided is a numerator. It is based on proportion 2. Escape = seeks to avoid all liability a. Very rare and frowned upon, they will provide any coverage. As long as there is another insurance available they will not take the coverage 3. Excess = the provision used in the present case, provides that the insurance will only be excess a. If there are other insurance who can pay the cost, we will only pay AFTER they have have paid b. If the amount that is paid already then we will not pay at all

A.Y. McDonald Industries, Inc. v. Insurance Company of North America

1991) - AY McDonald dumped its brass sand in a foundery. They were ordered by the Iowa Dep of trans, and EPA under CERCLA to (1) construct a clay cap over a specified portion of the property; (2) expand groundwater monitoring system; and (3) develop and implement a post closure plan for a period of thirty years. Issues: "does the language 'all sums which the insured shall become legally obligated to pay as damages because of property damage'" include coverage for amounts expended or paid by plaintiff in order to comply with the terms of the government orders? ○ Holding: Court defines damages broadly to include punitive and compensatory damages and those damages are a result of property damage. Some of the damages awarded are going to be preventative. Almost all courts recognize coverage for injunctions under CERCLA. ■ State courts: Majority have found that these costs of cleanup are clearly damages; or have said that damages and legally obligated are ambiguous and therefore must be resolved in favor of coverage. ■ Federal courts: Sharply divided on the question. ○ The court looks at the decisions of other state courts, in addition to federal courts, to come to its conclusion. They hold that the term "damages" in CGL policies is ambiguous because it is susceptible to more than one reasonable interpretation. Damages can be reasonably interpreted to cover any claim asserted against the insured; dictionary definitions (In both laymen's dictionaries and special insurance dictionaries) are similarly broad. In that the term is ambiguous, the court adopts the principle of contra proferentem and chooses the meaning that favors the insured. ○ Insurer sets up a broad set of damages. If you are a policyholder, you have to clear every hurdle before knocking them down. If you are an insurer, all you need is for the policyholder to knock down one hurdle, and then all is lost (insurer won't pay). Insurers' attitude is that policyholders frequently make bullshit claims and want to get money that they don't deserve. ○ Arguments: ■ Insurance Company's Argument—not all sums are equivalent to damages—1) damages are a legal remedy and this is an equitable remedy because of injunction, 2) the costs of complying with the injunction are compensation—Abraham's favorite argument = the order does not say spend money, it says clean the site up ■ Plaintiff's Argument—EPA could clean the site up themselves and then sue for damages (looks a lot like damages)—practical concern is that if the court's discourage the plaintiff's to clean up the site themselves, the EPA will be required to clean-up the sites and then sue (Superfund not large enough for that)

pro rata liability

A clause designed to prevent the insured from collecting more than the actual extent of loss by allowing each policy to pay its share of a loss.

Sessions v. Morales-Santana (2017)

A law that discriminates based on biological sex is unconstitutional if it is not substantially related to the accomplishment of an important governmental purpose.

covered peril

A peril or risk covered by an insurance policy. For example, in a property insurance policy, this can include fire, weather damage, or theft. Many policies exclude perils that are caused intentionally, such as setting one's own property on fire.

Zurich American Insurance Co. v. ABM Industries, Inc.

ABM provided janitorial services to the World Trade Center and had office space and janitorial closets and slop sinks located on every floor. At the time of the attack, it employed more than 800 people at the WTC. And they had business interruption coverage from Zurich. The policy covers losses for damage and losses "resulting directly from the necessary interruption of business caused by direct physical loss or damage, not otherwise excluded, to insured property at an insured location." There was also a Contingent Business Interruption Clause which applies to "properties not operated by the Insured." There is a sublimit for Contingent Business Interruption. Issue: What is the scope of the BI provision? ○ Holding: The insurable interest provision of the policy defines the scope of coverage as "the interest of the Insured in all real and personal property including but not limited to property owned, controlled, used, leased, or intended for use by the Insured." The court concludes that the policyholder only needs an insurable interest rather than a property interest. Here, the insurable interest requirement covers common areas, the tenant's premises, and the HVAC system bc they used or intended to use these areas. The District Court's rule disfavors manual labor → "to deny ABM's loss-of-income coverage simply because its income is derived from labor that occurs outside of its cubicles and offices artificially excludes service providers when the contract itself does not limit coverage in such a manner." Contingent Business Coverage refers to third-parties who are unable to supply the insured as a result of property damage. It does not exist when the insured "operates" the premises. ROL: Business-interruption insurance typically covers income lost as a result of damage to property the insured owns, leases, uses, or operates to earn income.

American Home Products v. Liberty Mutual

AHP manufactures DES. AHP seeks a judgment declaring that liberty is obliged to defend and to indemnify AHP in the underlying lawsuits, because regardless of when physical harm became manifest, exposure to the alleged agents of harm occurred during the policy periods, thereby triggering coverage. (argues for exposure trigger) ○ Issue: CGL is written to provide coverage occurrences, which is defined to include "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury...neither expected nor intended form the standpoint of the insured." ○ Holding: occurrence of "personal injury, sickness, or disease is read to mean any point in time at which a finder of fact determines that the effects of exposure to a drug actually resulted in a diagnosable and compensable injury. An injury may occur in this sense upon exposure, at some point in time after exposure but before manifestation of the injury, and at manifestation. → there is an injury in fact trigger (use experts to show when injury occurred) ■ Actual injury trigger rule= bodily injury; must occur within the policy period, but it didn't have to be diagnosable or even evident during policy period ■ The trigger debate: 1. policyholder wants exposure theory bc might be exposure (taking pill) over many years and exposure is easier to determine 2. Insurer wants manifestation theory bc injury will only manifest once (less years of coverage) → almost no court has adopted this trigger

Zochert v. National Farmers Union Property & Casualty Company

Actual Cash Value (ACV) v. Replacement Cost. Under farmowner's policy, providing that loss would be settled on basis of "actual cash value of the property damaged," depreciation was properly deducted in calculating "actual cash value" of damaged silos; policy provided that if amount of insurance was 80% or more of full replacement cost, insurer would "pay the cost of repair or replacement, without deduction for depreciation," but that if amount of insurance was less than 80% of full replacement cost, insurer would "pay the actual cash value of that part of the dwelling damaged," and another provision stated that "Settlement for the property not replaced will be on an actual cash value basis. Actual cash value was involved here! ○ Holding: The court in this case adopted the broad evidence rule which permits the consideration of all evidence an expert would find relevant to a determination of value. ○ ROL: The replacement cost of damaged property covered under an insurance policy must be adjusted to account for deprecation of the damaged property. ■ The farmer only purchased actual cash value coverage, not replacement cost coverage, therefore cannot create replacement cost coverage ■ While depreciation is not the only relevant factor, it is important

Griffitts v. Old Republic Insurance Co.

An intoxicated employee of BNSF Railway Co. rear-ended Griffitts in a BNSF company vehicle. Because the employee had to travel multiple states, BNSF gave him a vehicle to be used for work purposes. While at home, he was only permitted to use it for work and not for personal use. When travelling to and from work sites, there were no official rules, but BNSF did have a policy that workers not use or possess alcohol or drives while operating their vehicles. ○ Holding: When a use has been permitted, it is immaterial how the vehicle was operated. The question is whether Campbell's use (as distinguished from operation) of the vehicle was within the scope of permission given by BNSF and, therefore, covered. Here, because the car was his only means of transportation and he had permission to use it to get to the site, this court says that he had broad, almost unfettered permission to use the company vehicle while he was traveling to, staying near, and working on an out-of-town job site. Since it was permitted to use the vehicle, it is immaterial how he operated it. ■ BNSF's Policy: limits liability for company bc individual broke policy → harder to sue ■ Even apart from permissions, some states preclude coverage of DUIs by common law rule → Abraham: This is terrible. It undermines public policy of coverage for victims ○ ROL: An omnibus clause in an insurance policy covers anyone the insured gives express or implied permission to use the vehicle, even if the user violates rules governing the vehicle's operation.

Subrogation Clause

Any rights the insured had to sue the person who caused the damage are assigned to the insurance company that has already paid the insured for the damages.

Port Authority of NY and NJ v. Affiliated FM Ins. Co

Asbestos in the buildings. But are still functioning. Is Friable - in the air but not enough to be a health hazard yet. ○ Even if not damaged, PHYSICAL LOSS is found if uninhabitable because threat of imminent release. Has to be either DAMAGED or LOSS caused by something physical. Is still physical loss if threatened release. ○ Under New York and New Jersey law, buildings with asbestos in components did not sustain "physical loss or damage" covered by property insurance policies; the asbestos was not in such form or quantity as to make the buildings unusable or uninhabitable, and nothing indicated an imminent threat of asbestos contamination. "'physical loss or damage' could only be found if an imminent threat of asbestos release existed, or actual release of asbestos resulted in contamination of the property so as to nearly eliminate or destroy its function, or render it uninhabitable. The mere presence of asbestos, on the other hand, was not enough trigger coverage." ○ ROL: Physical loss or damage to a property due to asbestos does not occur due to the mere presence of asbestos, or a threat of the release of asbestos, if the structures are still usable and the presence of asbestos has not contaminated the property.

weed v. stone e brick

Breach of K claim and faulty workmanship claim. Weedo (plaintiffs) retained Stone-E-Brick, Inc. (Stone) (defendant) to perform masonry work on their home. The completed masonry work showed signs of faulty workmanship and had to be replaced. ○ Issue is whether the policy indemnifies the insured against damages in an action for breach of contract and faulty workmanship on a project where the damages acclaimed are the cost of correcting the work itself. ○ CGL policy: "on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of...bodily injury..or property damage to which this insurance applies, caused by an occurrence." ■ Court differentiates between tort liability that arises as a result of business operations (i.e. working on a house and homeowner is injured from negligence) and contractual liability that arises as a result of faulty workmanship. ■ The policy excludes coverage for warranty breaches + the policy is not ambiguous = insurance is not required to indemnify the company for repairing its faulty work ○ Holding: the insured is not covered because the damage alleged was only related to the work product/materials of insured.The contractor (in this case) has control the risk of repair or replacement costs through the quality of goods and services he provides but he has much less control when faulty work causes an accidental injury to property or persons where liability can be almost limitless (this second case is what CGL is designed to cover)

Rosen v. State Farm General Insurance Company

COLLAPSE By defining the term "collapse" to mean "actually fallen down or fallen into pieces" in the policy, the defendanteffectively removed any ambiguity. To rewrite this provision in order to remove its limitation to actual collapse would compel the insurer to give more than it promised and would allow the insured to get more than it paid for, thereby denying their freedom to contract as they choose. ○ RULE: ACTUAL collapse provision does NOT cover IMMINENT collapse (Limitation to actual collapse = valid) i. NOTE: There are sue and labor policies in commercial policies, but no equivalent in HO policies → Cost of verifying that loss was imminent was not prohibitive in commercial property insurance ○ Holding: Here we have the court explaining that the term collapse means collapse. And we don't mean imminent of collapse Or the risk of collapse. We mean literally collapse. Insurers don't want to cover "imminent collapse" because they think moral hazard may be at play i. Abraham thinks this is absurd; people don't want to let their houses collapse. Says you'd save money in the long run. He thinks the reason for this exclusion is not in insurance principle, but in practical reasons → There has to be some line drawn between imminent harm and ordinary preventative maintenance. ROL: If language in an insurance policy is unambiguous, the court cannot interpret the language of the policy to conform with the court's notions of sound public policy.

Amex Life Assurance Co. v. Superior Court

Case with AIDS individual. He had someone else come in and take a medical exam and urine test for him. Was granted a life insurance policy. The insurance company didn't react to this until Morales died in 1993. ○ Key: "with minimal effort, Amex could have discovered the fraud even before it issued the policy, but instead it collected the premiums for more than two years until morales died. After the beneficiary filed a claim, amex discovered from information long available that an imposter had taken the information and it denied the claim." ○ H/R: insurance company loses imposter defense bc of incontestability clause i. The incontestability clause "is not a stipulation absolutely to waive all defenses and to condone fraud. On the contrary, it recognizes fraud and all other defense but provides ample time and opportunity within which they may be, but beyond which they may not be established. ii. The clauses are designed to require the insurer to investigate and act with reasonable promptness if it wishes to deny liability on the ground of false representation or warranty by the insured iii. BUT NOTE Imposter defense: when a person applies for the insurance and takes the medical examination, but uses the name of someone else who then dies, no contract ever existed ensuring the life of the person who has died and whose name is stated in the insurance policy. (no meeting of the minds)

Farm Bureau Mutual Insurance Company v. Evans

Cherry bomb thrown out of the back of a vehicle while sitting in it ○ Holding: Mere use of a car is not enough to trigger coverage under this type of automobile-insurance policy. Instead, there must be a causal connection between the use of the car and the injury for which coverage is sought. An injury resulting from the use of an automobile will not be covered if an intervening event caused the injury and this intervening event is not related to ownership of the car. In this case, the Rose automobile was not being used for the purpose contemplated by the Farm Bureau and Farmers automobile-insurance policies. There was no causal connection. ■ Note: If no coverage under auto policy, homeowner's policy should cover → the two are meant to dovetail (not leave any chink in armor) ○ ROL: Liability for an injury caused by an explosive device thrown from the back seat of a parked car is not considered to have arisen from the use of the car and is therefore not covered under an automobile-insurance policy.

Roman Catholic Diocese of Brooklyn v. National Union Fire Insurance Company of Pittsburgh

Church settles a dispute alleging that a priest molested a child several times in various locations, including the church. After the Church incurred $250,000 in liability in a policy year, the insurance company had to pay up to $750,000. National Union argued that each "event" constituted an individual occurrence in a policy year. The Diocese argued that there was just a single occurrence. ○ Holding: An occurrence under the policy is "an accident, including continuous or repeated exposure to substantially the same harmful conditions." A bodily injury is "sickness or disease sustained by a person, including death." NY uses unfortunate events test which required consideration of whether there is a close temporal and spatial relationship between the incidents giving rise to injury or loss, and whether the incidents can be viewed as part of the same causal continuum. → Here, only the parties were the same, but there were different incidents at different times and places. There was one occurrence per year which means that the Diocese must exhaust the deductible for each year, and the damages are allocated between the years pro rata. ○ Dissent: The P alleges that the Diocese negligently hired and supervised a priest. The injury here was the repeated or continuous exposure of the child to the same negligently hired and supervised priest. Under the "unfortunate event" test, this should constitute one occurrence (analogizes asbestos). The hiring was the occurrence. ○ ROL: A minority of courts use an unfortunate-events test to determine whether multiple injurious incidents constitute one occurrence under a commercial general-liability insurance policy.

Contingent Business Interruption Insurance

Covers the risk of suffering economic loss resulting from damage to other's property, such as that of suppliers or customers

Stone Container Corporation V. Hartford Steam Boiler Inspection And Insurance Company

F: one tank for the pulp masher exploded. 80 million loss. Had a boiler and machinery policy limited to accidents from particular objects. Exclusion for explosion losses. Exception to exclusion for loss caused by or resulting from an explosion of an object "of a kind" described below. H/R: Posner refuses to admit extrinsic evidence, even though it is likely he knew nothing about machines (on the face). On that basis, the pulp digester was not a listed machine, therefore, there was no coverage.

Where is imminent collapse not covered?

HO Policy

Heacker v. Safeco Insurance Company of America

Hacked resulting in PTSD and alcoholism. Issue: whether D's homeowner's policy coverage for "bodily injury" includes liability for emotional injury ○ Holding: PTSD and alcoholism are not bodily sicknesses or diseases and are excluded coverage. HARM MUST BE PHYSICAL TO BEGIN WITH (minority of jurisdictions disagree) ■ Reasoning: Umbrella policy covers personal injury arising from defamation or privacy violations. It excludes, however, coverage for personal injury arising from mental abuse. ○ Note: there are mental abuse exclusions in the policies: ■ Appellee Argument that the term "mental abuse" is ambiguous. Court says no; a reasonably prudent insured would discern that mental abuse is mental maltreatment, often resulting in mental or emotional injury. → not a super convincing argument ● ROL: Physical illnesses manifesting from emotional injuries are not covered under insurance policies that cover treatment for bodily injury but exclude coverage for personal injury caused by mental abuse.

Allstate Insurance Company v. Schmidt

Hawaii's chief deputy insurance commissioner (commissioner) ordered the plaintiffs to stop using an applicant's length of driving experience as a basis for rejecting insurance coverage in underwriting. Issue: Does the statute apply to just rates or rates and underwriting? H: If a statute is ambiguous about whether it applies to underwriting or to setting insurance rates, a court should clarify the ambiguity by analyzing every clause, sentence, and word of the statute, as well as the statute's legislative history. Here, the statute applied to underwriting as well as rates,

Defending mixed claims

If a suit alleges some things that are covered and some that are not → there is a duty to defend the whole suit

federal insurance company v. Raytheon company

Insurance company argues that the ERISA action was excluded from coverage under the pending and prior litigation exclusions of the policies because there were overlapping allegations between the ERISA action and an earlier securities lawsuit brought against Raytheon in 1999, before the effective dates of the policies. ○ H/R: The policy requires the allegations in the second complaint find substantial support in the first complaint, ie. That the allegations of the second complaint substantially overlap those of the first. Only with a substantial overlap can the first complaint be said to be a foundation or logical basis for the second. Based also suggests that the appropriate inquiry is whether the second complaint substantially overlaps the first with respect to relevant facts, without regard to whether the firsts complaint substantially overlaps the second.

State Farm Auto Ins. Co. v. Davies

Insured failed to show up at the trial arising out of an accident she was in. She had a story that would have provided a defense and created an issue for the jury. So, the insurer denied coverage on the grounds that she was in material breach of the contract for failing to cooperate. Duty to cooperate attends the duty to defend. Issue: did the breach of the duty to cooperate for the insured prejudice the insurer ○ H/R: Court is worried about a standard requiring an insurance company to prove that a different outcome would have been produced but for the non-cooperating insured. Instead, the court points to a VA case that said a "willful lack of cooperation...[that] was substantial and material and was prejudicial to the company" being the appropriate standard. Court held that the breach was material and that it prejudiced State Farm because the testimony by Turner would have created a jury question. ■ Rule: in an action on the policy when the insurer shows that the insured's willful failure to appear at the original trial deprived the insurer of evidence which would have made a jury issue of the insured's liability and supported a verdict in his or her favor, the insurer has established a reasonable likelihood the result would have been favorable to the insured and has carried its burden of proving prejudice ■ Advantages of the Davies test: More of a rule than a standard; Objective: only requires looking at the lower court record. ○ ROL: The breach of an automobile-liability insurance policy's cooperation clause prejudices the insurer in its defense of an action for damages against the insured.

Comerica, Inc. v. Zurich American Insurance Company

Insured has incurred $21 million liability. Settles with Federal for $14m of $20m of policy limits and releases it from all further liability. Can Comerica pay $6 million and obligate Zurich to owe $1 million? Zurich policy provides for liability only if underlying exhausted "solely by payment of loss . . . by the applicable insurers." ○ Holding: Policyholders thought that Zeig governed and you could pay the difference to access courage, especially since the policy language was ambiguous. But the court said that allowing the insured to cover violated the language of the policy → Zurich did not have to cover ○ Excess insurers can require that the policy limits of the primary insurer be exhausted by the primary insurer's payment before they (excess insurer) pays.

De Smet Farm Mutual Insurance Company Of South Dakota v. Busskohl

Insurer denied coverage because Busskohl had lied (and probably burned his house down bc he had done it before 3 times) Holding: misrepresentations may void a policy if they are intentional, material either to the acceptance of the risk, or the insurer in good faith would not have issued the insurance at the terms given. → material because it would have allowed the company to investigate how much of a risk Busskohl was ROL: A material misrepresentation in an insurance application allows the insurer to rescind the policy

Insurable Interest Rule

Just bc you have a RIGHT to buy something, does not mean you have an Insurable interest

Engelman v. Connecticut General Life Insurance Company

Lady decides she doesn't want her nephew to be the beneficiary. Had her lawyer send a letter complying with the formalities. But the insurer doesn't follow through and there's some funny business with the mail. Sent back a form, but the form never returned. Issue: whether a change of beneficiary in a life insurance policy can be accomplished by substantial compliance with the policy requirements, as opposed to strict compliance, where the policy requires that the change of beneficiary be requested on a form satisfactory to the company. ○ H/R: the court explains that this exception is applied where the insured has done all in his power to comply with the insurance company, but has failed because the policy is beyond his control ■ Proof of intention is not sufficient, but where the intention is manifest and substantial affirmative action has been taken by the insured to effectuate a change of beneficiary the courts generally will make the change effective even though there has not been strict compliance with the terms of the insurance contract. ■ Rule: will apply substantial compliance doctrine where: 1) owner clearly intended to change the beneficiary and to designate the new beneficiary; and 2) the owner has taken substantial affirmative action to effectuate the change in the beneficiary.

Allstate Ins Co. v. Boynton

Luke and Boynton service cars at Sears auto. Luke is driving a car that is in there to be serviced, owned by Xerox. Luke injures Boynton. Is Luke entitled to recover from anyone? ○ Holding: The vehicle was uninsured bc the vehicle's insurance does not cover the occurrence that caused the injured party's damage. But Not entitled to recover from Sears, because it is the employer and workers comp is a substitute for tort. ■ ABE: The court gets it right → UM Coverage insures against the risk that they are liable and can't pay, not that they are not liable ○ RULE: ■ A vehicle is insured only when the insurance in Q is available to the injured P ■ Absent a clear statement of intent from the legislature that it considers the benefits of broader UM coverage to outweigh the detriment, we will not disturb its clear and unambiguous statement that coverage exists only when the insured is legally entitled to recover from the tortfeasor ROL:(1) A vehicle is uninsured under an uninsured-motorist policy if the vehicle's insurance does not cover the occurrence that caused the injured party's damages. (2) Where there is a statutory bar to recovery, the injured party is not legally entitled to recover from an uninsured motor-vehicle

Consequential Damages

May be able to recover for emotional distress from failure to pay the claim, economic damages—incentivizes the insurance company to pay valid claims

State Farm and Casualty Company v. Bongen

Mudslide caused by negligence of Kodiak Electric. Bongen's have an all-risk policy (all causes are covered unless excluded → whenever there is damage, covered unless excluded) ○ Dissents Approach: Efficient Proximate Cause Rule: (followed by minority of Courts) ● I agree that the efficient proximate cause rule comports with the reasonable expectations of the insured. If an insured buys a policy seeking protection from a given peril, the insurer issuing the policy should not be able to avoid coverage because an excluded peril is also present in the chain of causation if the covered peril is the dominant cause of the loss ○ Majority Approach: ● Apply the policy as written → Earth movement exclusion of coverage for loss from earth movement, regardless of the cause and role of natural or external forces was unambiguous in homeowners' insurance policy and encompassed both natural phenomena and human processes; it thus barred coverage for loss from mudslide to which clear cutting of trees for transmission line had contributed ● We can discern no sound policy reason for preventing the enforcement of the earth movement exclusion to which the parties in this case agreed. The earth movement exclusion in the Bongen' policy is enforceable ○ ABE's Approach ■ Someone is driving on the street during an earthquake, which causes car driver to run into house ■ Literally speaking, the ACC applies here as one of the causes was earth movement ■ BUT another cause was a car being thrown into the house ● Not a "CHARACTER RISK OF AN EARTHQUAKE" - VERY STANDARD ○ ROL: Most jurisdictions allow insurers to explicitly preclude coverage if a covered peril and an excluded peril both cause or contribute to a loss.

Ryan v. Tickle

Owned different funeral homes and were in business together. Two men insure each other with apparent intent to use the money to buy out the rest of business. ○ H/R: The heir of an insured decedent does not have standing to bring a lawsuit challenging an insurance-policy beneficiary's insurable interest in the life of the insured decedent. ○ Abraham ■ Ryan is much better off with Tickle dead than alive (debatable) ■ What argument can you make that supports the validity of this arrangement? ● The business is more valuable with the life of the other partner ● It can't be that you are getting a net gain, but you are being compensated for the loss of your business partner ○ i,e. the deceased added something to the business ■ Insurable interest: must exist at the time the policy is issued ■ Standing Issue: The only person who can assert an insurable interest claim is the insurer ● More states are letting the executors of estates sue here; if this is the case, the insurance company will do an interpleader and give money to court to decide. ○ Form Matters: If you have a legitimate interest, insurable interest will not get in your way, just have to find the right form to pursue it

Shoshone First Bank v. Pacific Employers Insurance Company

Pacific agreed to defend the defendants in actions for bodily injury, property damage, personal injury, and advertising injury caused by an occurrence during the policy period. The defendants were sued by a former director who was terminated by the defendants during the policy period. This director's complaint alleged five causes of action, including invasion of privacy. Pacific agreed to defend the defendants but reserved its rights pending an investigation of its rights and obligations regarding the complaint. Pacific sued the defendants seeking recovery for the portion of costs it expended defending the uncovered causes of action and asserting the counterclaim. ○ Holding: Court holds that the allocation and recovery of the costs attributable to the defense of claims that were not covered by the policy of insurance is not permitted under Wyoming law so long as one or more of the claims alleged is covered by the insurance policy. ■ Court holds that unless an agreement to the contrary is found in the policy, the insurer is liable for all of the costs of defending the action. ○ Note: Not clear that this is the minority view. Many courts have not ruled, and many others have agreed with this rule (Restatement says no recoupment)

Silberg v. California Life Insurance Co.

Plaintiff purchased a health insurance policy with the defendant with an exclusion for payment from workman comp. The insurance company refused to pay plaintiffs claim until the workman comp. suit was settled. When he got some money from workman's comp., they refused to pay anything because he had gotten some money. Issue: Did the defendant breach the covenant of good faith? ○ Holding: Yes, they did breach the duty of good faith. ■ Withholding payment until workman comp. suit is likely against custom of the industry ■ Liable for physical and mental distress damages—pre-ERISA ■ Pay out more than what the policy was worth to incentivize insurance companies to behave correctly ■ The clause involving the exception was ambiguous, therefore, must be read against the drafter ○ Note: this court seems to say that the absence of good faith is what is wrong ● Threat of bad faith liability probably leads to some insurers paying out settlements that otherwise would not have triggered coverage ○ Abraham: "insurance against the chance that you might not fully be insured"

McGann v. H&H Music Co.

Pre ACA case that held against a man with AIDS' claim that he was discriminated against under §501. ○ Holding: The court noted that the statute doesn't permit individual discrimination. But what the plaintiff's complaint shows is simply that the company adjusted the insurance coverage of all employees. There's the additional underlying issue of future medical coverage outside the policy is not a vested right; it's not promised as yet. "ERISA does not broadly prevent an employer from "discriminating" in the creation, alteration or termination of employee benfits plans; thus, evidence of such intentional discrimination cannot alone sustain a claim under section 510" Notes: i. Primary holding: employers have almost complete freedom to change the terms of their group plan due to cost concerns. ii. Still good law, especially bc the ACA does not require large group and self insured (this company was self insured) employers to provide essential health benefits. ROL: An employer does not discriminate under the Employee Retirement Income Security Act by modifying a group health plan to limit the lifetime benefit for a specific illness after receiving information that an employee has been diagnosed with the illness.

World Trade Center Properties, L.L.C. v. Hartford Fire Insurance

Property insurance issued by multiple companies under a binder that entitled the WTC to $3.5 billion per occurrence. The question was whether there was one occurrence or two. -Holding: For most of the insurance companies, it was decided that there was only one occurrence due to the reference to a sample contract by WilProp which said that occurrence was any damage attributable to "one cause or to one series of similar causes." However, for Travelers, their form was left without a definition for occurrence. Therefore, it was decided that there were two occurrences (oops).

Associated Hospital. Service of Philly v. Pustilnik

Pustilnik (defendant) was injured when he was struck by a SEPTA subway car in Philadelphia, Pennsylvania. Medical bills for Pustilnik's treatment totaled $30,200.87. Pustilnik was given a credit of $18,960.18. What type of subrogation test to use? Holding: Pustilnik must pay back the insurer off the top of the settlement based on the insurer's right to subrogation. ■ Incorrect Alternative: trial court's method of giving the insurer only the percentage of settlement/total recovery (proportion of settlement to total loss): ■ There is no way to know what the total loss would have been ■ In practice, for large expenditures, health insurers are apprised of the case developments, participate in settlement, and assert their subrogation rights ■ In practice, for small expenditures, health insurers don't both to recover ○ Managed Care—What happens when you have a tort cause claim and insurance? ■ Suppose: insured suffers $100,000 in damages. Health insurer pays her $20,000, settles with tortfeasor for $60,000. ● Off the top (pustilnik)—insured reimburses insurer $20,000 ● Pro rata: insured reimburses insurer $12,000 ● Make whole: insured reimburses insurer $0.

Gossett v. Farmers Ins. Co. of Washington

Real estate transactions. Based on facts, looks like they couldn't get permanent financing. So instead of buying using financing, Trusty Deed buys the property, with idea that when They get permanent financing Gossetts to buy. Before this could happen - FIRE. They purchase homeowners insurance while they just have a license to work on the house from the owner. They have not obtained the financing to purchase the house. · Abraham notes that if you're contracted to purchase the house, then you have a property right in the house such that if it burns down, you're the one liable for the purchase price, so insurance would be a real help there. → The court holds that they had an insurable interest when they were under contract, but lost it as soon as Trusty Deed purchased. Trusty Deed has no obligations to the Gossetts. There is no legal obligation here. (Abraham: they have "a hope") ○ Held: No coverage because there is no legal relationship between the property and the Gossetts at this point - did not actually buy the house when financing fell through. Just live there. ■ Said there was moral hazard because there was no insurable interest - need contract to buy house for an insurable interest. Oral agreement? ■ Maybe insurable interest as to the improvements made, but that won't change outcome here. ■ KEY: they needed to put something in the record that satisfies one of the interests

Unigard Mutual Insurance Company v. Argonaut Insurance Company

Setting the fire doesn't count as an accident, so child isn't covered ■ But parents didn't expect or intend for him to burn the school, so they're covered ● Severability of insurance - just because one party isn't' covered doesn't mean the rest aren't. As the child's attorney, you can argue that he intended to burn the trash but not the school It can still be accidental if you did not intent to do a secondary effect

Georgia farm bureau mut. ins. co. v. smith

Smith's daughter ingested lead based paint in Smith's house which he rented from Bobby Chupp. Chupp had CGL insurance. Pollution is defined as bodily injury [from actual, alleged or threatened discharge... release or escape of pollutants at or from any premises.. Rented or loaned to any insured] Holding: Georgia, however, has applied these clauses outside the context of environmental pollution. They also do not require the pollutant to be explicitly named in the policy. Thus, while whether this std. Policy covers lead has never been addressed, under the Reed framework, it is covered and thus excluded. ■ Note: despite the split between different jurisdictions, no court would always apply the exclusion literally (hot sauce is not a pollutant → but some courts are more strict) ROL: Jurisdictions are split on whether pollution-exclusion clauses apply to all pollutants or only those considered traditional environmental pollutants.

Misrepresentation

Test: The misrepresentation must be MATERIAL and the insurance company must have REASONABLY RELIED on the misrepresentation for providing coverage in order for it to void the policy (no scienter requirement). Elements (RLLI §7): False statement of fact Material Relied on by insurer Usually, the misrepresentation is in an application for insurance Make a statement that is a false and material and a policy is issued then the insurer is subject to deny grounds on the fact that they lied on material information

Langill v. Vermont Mutual Ins. Co

This policy excluded coverage if the property was vacant for more than 60 days. Tenants resided in the property for 12 years but moved out in February 1999. After the tenants vacated the property, Langill's husband worked to refurbish the property. While Langill's husband was refurbishing the property, the doors of the property were kept locked, and utilities and heating oil were maintained. While refurbishing the property, Langill's husband kept items such as tools, a mattress, and a radio in the property. Langill's husband worked on the property daily and would occasionally socialize in the property with friends or spend the night there. ○ Holding: Contra preferentum isn't available to define vacant because the policy is mandated by statute, so courts are stuck pouring some content into the question of degree. Of course this is a question of degree: there are not two reasonable meanings of vacant; just one ambiguous. Here, vacant means "without sustained human presence in the property" (harsh? - Abe: how is this guy supposed to know that? Trap for the unwary). ■ Predictability is focus in insurance context for presence (consistency) 1. Trap for unwary → contact your agent ■ Outcome seems a little harsh - many courts might go the other way. b. ROL: Property will be considered vacant for purposes of an insurance-policy vacancy exclusion even if a nonresident makes regular, brief visits to the property.

exhaustion

Where coverage under an excess-insurance policy requires that the insured exhaust the limit of its primary-insurance policy, an insured who has settled a claim for less than the primary-policy limit cannot meet the exhaustion requirement and obtain coverage under the excess-insurance policy by paying the difference between the settlement amount and the primary-policy limit.

St Paul Fire & Marine Insurance. Co. v. Smith

William has DUI, and Ins. gets his parents to sign a named-driver exclusion, excluding William. Insurer argued that the designated driver exclusion in its automobile liability insurance policy did not violate the public policy or the state's mandatory insurance statute when son of insured crashed the car and could not use the parents' policy limits bc of exclusion. ○ Takeaway: the named driver exclusion is valid in spite of public policy pressure to cover all drivers so that victims can be compensated. ○ WHY: The named driver exclusion allows the parents to get coverage that otherwise might be prohibitively expensive—if they had to cover William, they would have had to pay significantly higher prices. And it deters them from allowing the car to William. doesn't violate public policy ■ Public Policy: 1. Cheap insurance (better overall) 2. Incentive to keep poor drivers off the road. ■ Note: Some states may carry out a statute to hold that there is always at least one policy available. The courts get what is going on—at the margin they will rule in favor of coverage to protect the victim. ○ Notes from book: ■ Minimum coverage is established by statute. Generally it's 20/40/5 (bodily injury liability coverage per person injured and per accident no matter how many persons are injured plus a specified minimum for property damage liability) ■ There is a tension between declaring exclusions invalid and promoting insurance in the long run. If you destroy the possibility of having exclusions like this, in the long run fewer insurers will be willing to sell coverage to drivers who are otherwise perfectly acceptable risks, such as william's parents, on the groundthat the insurers will be unable to avoid covering William if he gets his hands on the insured vehicle. ○ ROL: A named-driver exclusion in an automobile-liability insurance policy does not violate public policy.

anti-concurrent causation clause

a loss caused by a combination of covered and excluded causes of losses will not be covered.

Vacancy Exclusion in a HO policy

absence of a sustained presence of a resident

Business Interruption Insurance

an insurance that protects companies during the period necessary to restore property damaged by an insured peril. Coverage pays for lost income and other expenses related to recovery. 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) which occurs during the period of restoration of the business

Carriers v. American

carriers (P) and american (D) had other insurance clauses in their policies and disputed which one was applicable (both policies claimed to be excess policies). · ROL: Where two different insurance policies issued by two different insurers have dueling other-insurance clauses that would, if read together, deny coverage to the insured, the insurers should bear the loss together. ■ Basically comes down to a contribution claim from other ins. Co. and other insurance provisions in both.Court says that it won't bother with piecing through semantics. Instead, it says the insurance companies must share in the costs. 1. The method of sharing is via the minority rule prorate up to the limits of the lower policy is better acc to the court.. 2. Explains that majority rule of pro rata equally up to limits in each policy is not equitable and has "no social utility" because it would encourage bigger policy insurers to not expand coverage.

Roseth v. St. Paul Property & Liability Ins. Co

case about the transportation of the cattle. Eleven cattle were killed and 2 were missing after the accident. Insured called insurance company regarding insurance policy that protected against livestock mortality only. It excluded coverage of any animal able to walk from the conveyance or able to walk after unloading therefrom. Insured was told that he had an all-risk policy that would cover the injured calves. Then disposition of the surviving calves by auction to abide by minimizing loss duty. 8,865 net difference before accident vs. auction. Insurer only paid for 14 of the calves, not those who were auctioned. H/R: court refuses to apply the doctrine of equitable estoppel → No clear and convincing evidence that the misrepresentation or concealment of material fact occurred prior to contracting. Can't use estoppel following contract formation i. Majority rule: provides that estoppel is not available to bring within the coverage of a policy those risks not covered by its terms or expressly excluded by the policy.

Grigsby v. Russell

established the legal distinction between what are known as stranger-originated life-insurance polices and life settlement. wanted money for surgical operation. Agreed to have a guy buy the policy. The new guy would pay premiums. Had no II. ○ Held: Given that the initial purpose for the policy was valid interest in life insurance rather than a wager, this is valid. Says that it is invalid if the purpose FROM THE BEGINNING was to sell - moral hazard. If buy for intended purpose, and THEN circumstances arise where sell it, still valid ○ KSA Takeaway: Doctrinally/background: if there are ways to assign and get around restrictions by changing beneficiary, then why not allow this most straightforward way to transfer? ■ Treated as valuable asset, inevitably going to be exchanged as such. ■ Abraham: ● Assignment/sale=owner → another owner ○ Often you can't sell unless the owner and CQV are the same person ○ So usually you are the owner and CQV and you're selling it to someone ● The underlying policy is driven by individuals seeking to liquidate their policies ● The third party purchaser must be an independent and unrelated party ○ Cant have moral hazard ○ But of course there is always going to be hazard in this sort of situation ○ You can't buy a LIP on your own life with the intent to thereafter sell it. ■ Holmes: you have LI policy, it's property, an asset. So you can assign it ● Beneficiaries don't need notice of it being assigned. ● BLL: owner must have insurable interest at the time of purchase; but the subsequent assignee does not need it if the assignor is also the CQV ● ROL: The holder of an insurance policy on the holder's own life may assign the policy to an individual having no insurable interest in the holder's life for consideration, giving the individual assignee, rather than the personal representatives of the holder's estate, the right to collect the proceeds of the policy.

Plain meaning rule (majority rule)

if a policy provision has a clear/plain meaning/single meaning, extrinsic evidence outside the possible is not acceptable -- What is not admissible is anything outside the policy

Omnibus clause

insurance clause which covers all drivers who are members of the insured's household and any person who is not a member but is permitted to drive the insured's car

active subrogation

insurer pays the insured and sues the third-party

what does collision mean in an automobile insurance policy?

insures against damage to the insured vehicle caused by the upset of the vehicle or by its impact with another vehicle or object

what does comprehensive mean in an automobile insurance policy?

insures against the causes excluded from the definition of collision - fire, windstorm, theft, breakage of glass, vandalism, and flood

Chute v. North River Insurance Company

intrinsic loss. Chute had a fire opal valued at $2,000. While the policy was in force, the opal developed a crack. It was due to a defect. Ordinary language of the policy: "risk of loss or damage" (Abe: means "all perils") ○ Note: Problem of intrinsic loss is Abraham's invention. But no one else seems to find attractive. ○ Holding: It didn't suffer loss or damage from something operating on it from the outside. It was just something inherent in the Opal that didn't crack. In effect the court is saying that the policy covers NOT all loss BUT all risk of loss from peril—ie something operating from the outside. ○ Suppose that somebody dropped the opal and it had no detectable crack in it, but after the drop, it was detectable i. Is this covered? - Depends by whether it was caused by the force imparted to it by dropping it or whether it dropping simply exposed the crack as it already existed. ○ Other language in this opinion which is unfortunate: i. "but the purpose of the policy is to secure an indemnity against accidents which may happen, not againstevents which must happen" 1. Thinks that this language taken literally can be interpreted as denying coverage for something that is retrospectively certain to crack 2. The question is whether it's being bound to crack is an intrinsic feature of the opal or from some external force; not whether it was bound to happen! 3. This is often quoted to say that you can't insure for things that are non-fortuitious a. There's no exclusion for things that are inevitable to happen—you can't know this before, nor can you after; "I don't know what inevitable means" → don't overread ○ ROL: A policyholder cannot recover for damages arising only from an inherent defect or tendency in an insured property and not from an extraneous and fortuitous cause.

Beckwith Machinery Company v. Travelers Indemnity Company

machinery (tractor scrapers) sold to a third party were defective and the purchaser sued for breach of warranty which resulted in property damage from "down time, decrease in market value, and subs damages in performance of certain contractual obligations." Insurer vacillated on whether the underlying claims were subject to coverage under the policy. They started defending and then abruptly stopped. ○ H/R: Duty to defend obligation arises whenever allegations against the insured state a claim which is potentially within the scope of the policy's coverage, even if such allegation are "groundless, false or fraudulent." It is well settled that an insurer's obligation to defend is separate and distinct form its duty to indemnify; the insurer's duty to defend is broader than its obligation to indemnify the insured. However, once a third party raised allegations against an insured which potentially fall within the coverage period, the insurer is obligated to defend its insured fully until it can confine the possibility of recovery to claims outside the coverage of the policy. → Therefore, it is clear that where a claim potentially may become one which is within the scope of the policy, the insurer's refusal to defend at the outset of the dispute is a decision it makes at its own peril. ■ An insurer, by assuming the defense of an action against the insured, is thereafter estopped to claim that the loss resulting to the insured from an adverse judgment [or settlement] in such action is not within the coverage of the policy or to assert against the insured some other defense existing at the time of the accident. → Insurance companies should have made a reservation of rights. ○ Because Beckwith detrimentally relied on Traveler's policy for indemnification, Travelers is estopped fromdenying coverage. ● Abraham notes: Legal uncertainty following refusal to defend: ○ Question of whether policy covers "x" set of clear facts ○ The duty to defend rises and falls with indemnity and liability for defense ○ Takeaway: duty to defend is not always broader than duty to indemnify! In this situation, the duty to defend is exactly proportional to the duty to indemnify ● ROL: When an insurer assumes the defense of an insured without notifying the insured that it is reserving its right, the insurer is estopped from later denying coverage because the claim is not covered.

Binders

obligates the insurer to provide coverage if there is a loss before the insurer issues a policy. Binders are usually temporary and incomplete contracts, intended to be replaced by the terms of the actual policy once it is issued. It is considered a contract and is necessary because individuals put themselves in a position that they need coverage at that moment. For example, buying a car will require insurance at the moment that a car is taken out of the dealership.

Expectation Damages

put the policyholder in the place that they would have been if the insurance company had not breached the policy in the first place

Actual Cash Value

replacement cost - depreciation (normally lower than cost of replacing)

Crisci v. Security Insurance of New Haven

slip and fall plaintiff wins against lessor (after insurer failed to settle for policy limit), which leads to lessor suffering from indigency and mental health issues allegedly as a result of the insurer's failure to settle the case. ○ H/R: "in determining whether an insurer has given consideration to the interest of the insured, the test is whether a prudent insurer without policy limits would have accepted the settlement offer. → Liability based on an implied covenant exists whenever the insurer refuses to settle in an appropriate case and that liability may exist when the insurer unwarrantedly refuses an offered settlement where the most reasonable manner of disposing of the claim is by accepting the settlement. Liability is imposed not for a bad faith breach of the contract but for failure to meet the duty to accept reasonable settlements, a duty included within the implied covenant of good faith and fair dealing. ○ Doubts about coverage and recoupment of indemnity - Suppose the insurer recognizes that an offer is reasonable, but has doubts about its coverage responsibly. Some courts have held that the insurer may take these doubts into account. In effect, these courts have adopted a subjective bad-faith rule ○ ROL: Every insurance policy contract contains an implied covenant of good faith and fair dealing which requires an insurer to consider the best interests of the insured at least as much as it considers its own interests, and to accept a settlement offer made within its policy limits if there is a great risk of recovery beyond the policy limits.

Guant v. John Hancock Mutual Life Ins. Co

suit to recover on life insurance plan. The CQV was killed on a train to find work in Alaska. The premium had been paid and the application submitted, as well as a successful doctor's visit which determined him to be insurable. Additionally, the lower court held that he would have been insured but for his death. Just had not been officially approved (when does policy start) ○ Holding: the court holds that he was insured as of the completion of the application "part B." ○ Reasoning: People often inclined to drop out of life ins. To overcome this, insurance companies accept check (first premium) with application → It does greater violence to make the insurance "in force" only from the date of "approval"; for 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. ○ Abraham notes: ■ The rule in this case only applies where you've paid a premium!!! ■ BLL: when a premium is paid with a life insurance application, there is insurance as of any satisfaction date specified in the application if the satisfaction conditions are satisfied. ○ Generally, courts tend to say now that if the insurance company takes premium, then the life insurance is temporarily applied until rejection/acceptance. ● Timeline - if you don't pay premium, get insurance at approval. If you do, get it at Part B [satisfaction of insurability - here Docs. Appointment] (get something for your money) ● ROL: In some circumstances, a life-insurance policy can be effective if an applicant satisfies the application requirements but dies before the insurance company approves the application.

Moral Hazard

tendency of insured party to exercise less care when insured. Results from informational discrepancies bc the premium estimation is based on an uninsured person Solution: insurers tyro to combat w/ policy provisions Insurance is less likely to lead to moral hazard when individuals do not have substantial control over loss-producing behavior or when money cannot fully compensate for the loss The fear of a premium increase in the event of a crash is evidence that it is working Some types of policies are more prone to M.H. than others (ex. Health insurance probably does not affect the policyholder's incentive to stay healthy)

passive subrogation

the insured sues the third-party and reimburses the insurer out of its recovery from the third-party

Burden of Persuasion

the responsibility to convince the fact finder of the truth of the defense.

burden of production

the responsibility to introduce initial evidence to support a defense

How to know whether an automobile insurance covers?

there must be a causal connection between the use of the car and the injury for which coverage is sought.

Vlastos v. Sumitomo Marine & Fire Insurance Company

when the insurer was gathering information during application process, insured warranted that the third floor of a building was a janitor's residence. When the building burned down, the insurance company denied coverage on the grounds that the third floor was also a massage parlor and therefore it was a misrepresentation. - Holding: the warranty was ambiguous, so can be construed to mean that a janitor lived on the third floor, but not that that was the sole use of the third floor. (Ie applies contra proferentum) - ROL: if a warranty in an insurance policy is ambiguous, the warranty should be construed against the insurer and in favor of insurance coverage

Possible tests for liability

whether or not the coverage was fairly debatable? When reasonable people can disagree; denying is not bad faith. There is no requiring to prove of subjectively

Substantial Compliance Rule

■ Where the intention is manifest and substantial affirmative action has been taken to effectuate a change of beneficiary the courts generally will make the change effective even thought there has not been strict compliance

United Labor Life Co. v. Pireno

○ Sued a health insurer, after it refused to fully cover its policyholders' receipt of chiropractic treatment from Pireno, ULL had concluded that some of P's treatment did not meet these standards ○ SC concluded that the act did not preclude P's antitrust claim because the alleged conspiracy did not constitute "the business of insurance" within the meaning of the Act. ○ As for the criteria below the court found: ■ The peer review practice did not have the effect of spreading or transferring risk because it "is logically and unconnected to the temporally unconnected to the transfer of risk accomplished by ULL's insurance polices ■ The peer-review practice was not an integral part of the policy relationship, in part because it involved an arrangement between the insurer and third parties not engaged in the business of insurance ■ Peer review process was clearly not limited to entities within the insurance industry given that it relied on independent volunteer chiropractic ○ Three criteria to determine whether business of insurance: ■ Whether the practice has the effect of transferring or spreading a policyholder's risk; ■ Whether the practice is an integral part of the policy relationship between the insurer and the insured; ■ Whether the practice is limited to entities within the insurance industry. What constitutes "regulation" by the states? o The state must have a statute creating authority to regulate the activity in question, and the regulation must be more than mere pretense

Inconstestability Clause

● BLL: incontestability depends on whether a fact represented is in existence or not at the time the policy is issued "discoverability." ● These clauses create a contractual statute of limitations on certain defenses of the insurer. Primarily these are in reference to misstatements of the insured that eventuate in defenses of fraud, misrepresentation, concealment, or breach of warranty. ○ These clauses purposes are twofold: 1) provide insured with assurance that once the period of contestability (usually 2 years) has passed, his coverage is firm and his beneficiaries are protected. 2) these clauses adjust the balance of advantage that would strongly favor the insurer if it were permitted to raise misstatement defenses after the insured's death made it impossible for him to respond to them.

Great Northern v. St. Paul Fire

● Does the insured lose coverage by releasing a third-party from liability before that party causes the insured to suffer an otherwise-insured loss, when the policy only prohibits interference with subrogation right after loss? (building contract - Great northern signs exculpatory contract with Litwin saying that any construction damages would be non-recoverable by Great Northern. This is a common construction provision. When Great Northern seeks compensation from the insurer, The insurer says: hey! You've interfered with our subrogation rights! You've relieved Litwin of any liability and now we cant recover!) ■ Insured's argument: There's no common law doctrine that precludes a policyholder from saying Litwin is alleviated from liability before the loss occurred. ■ Note: There are all kinds of exculpatory contracts that mitigates ability to sue for loss people don't even know about (lowers costs) ○ Holding: Only cannot interfere with subrogation after loss. The insurer needed to write it into the policy, and they did not (and have not since). Great Northern was covered ■ Note: this holding and rule might cause the cost of insurance might increase ■ Abraham examples: dry cleaner has an exculpatory clause on the back of your cleaning ticket, and this would interfere with subrogation rights of your homeowner's insurance for personal property. ○ ROL: If an insured releases a contractor from liability for causing a loss, the insured is not precluded from pursuing recovery under its insurance policy for that loss, even though the exculpatory clause defeated the insurer's subrogation rights against the contractor.

Broussard v. State Farm and Casualty

● Hurricane Katrina Case. The general fact is that HO policies don't provide flood insurance for historical reasons: the view that floods were too correlated (You get the insurance from FEMA). Actual problem in this case is one that doesn't arise very often, but will arise in a correlated way whenever there are hurricanes that are so powerful that they cause evacuation of coastal property ■ Typically with hurricanes what happens is, some damage is caused by wind, and the remainder is caused by flood ● Or all of it is caused by wind ● Or all of it is caused by flood ● Or caused by both (one excluded and one covered) ● Anti-concurrent causation clause could be applicable here; but we don't have eyewitness testimony ○ Majority reading of ACCC: If some damage from wind, and then wind, the majority ACCC will apply only after the flood sets in. so coverage vests where there is covered loss. It cant be divested because of the later floods. ■ Minority reading of some ACCC: once there is flood, there is no coverage anymore. ○ ROL: Once an insurance company advances evidence to prove that a peril is excluded from coverage by a policy exclusion, the burden does not shift back to the insured to prove that the peril was not excluded.

Four types of coverage provided by automobile insurance

● Liability ● Medical payments/broader personal injury protection - covers medical expenses for you and your passengers (came about at a time when health insurance was less usual) ● Uninsured motorists ● Property damage

Punitive Damages

● if the insurance company "vexes, harasses, or annoys" the insured (Silberg) ○ Note: THIS REQUIRES LESS THAN BAD FAITH