I. INTRODUCTION

I. INSURANCE DEFINED A. Risk-distribution arrangement;B. For compensation of damages / loss;C. Entered into by one party as its B;D. Rather than as an incident to another B transaction

II. TYPES OF INSURANCEA. First Party

i. Protects iD a/g loss suffered himself; files claim & receives pmt

ii. Fire, property, life, health & disabilityB. Third Party

i. Protects iD from legal liability to 3rd party as result of iD’s actions; iR pays 3rd party

ii. Ex: liability & auto (1st & 3rd)C. Group v. Individual

i. Individual most commonii. Common HI is group through e’er

III. LINES OF INSURANCEA. Property / Casualty

i. Casualty = liabilityii. Includes med mal, PL, homeowners, multi-

peril, commercial liab / prop, & autoB. Life / Health

i. Health: group & individual coverageii. Often, individual is cheaper than group

IV. TYPES OF iRSA. Stock Companies

i. SH owned; may be publicly traded, e.g. can capital by selling more stock (advantage)

ii. May be pressure to issue dividendsB. Mutual

i. Owned by PHs / iDs; premiums theoretically lower b/c no dividends issued; iRs get surplus

ii. Main goal is for company to remain solventiii. Ex: Med Mal in MS

C. Loyds of London i. Underwriters take small piece of each risk

D. Government i. Ex: Social security, Medicare / Medicaid,

flood / crop insuranceii. In MS, windpool for southern most 6 counties

iii. Argument that NOT true insurance, b/c subsidized by gov’t

E. Note i. Type doesn’t affect policy interpretation

V. F(x)s OF INSURANCEA. In general, protects PH from future loss. How?B. Risk Transfer from comparatively risk averse to less

risk averse / risk-neutral partiesi. Expected Value: Probability * Magnitude of

Loss; risk averse party will pay sum > EV of given risk to transfer

ii. More likely to insure big ticket items

C. Risk Pooling b/c iRs not intrinsically risk-neutrali. By insuring many iDs, can more accurately

predict risk involved, cost of insuranceii. variance in expected losses

1. Larger the pool, less of a risk2. Risk insured must be indep and relatively

homogeneousD. Risk Allocation (Diversification)

i. iRs classify risk posed by iD & price coverage accordingly; iRs have better info than iD

VI. PROBLEMS CAUSED BY IMPERFECT INFOA. Adverse Selection

i. High risk of loss more likely to seek insurance than if facing low risk of loss

ii. Problem if potential PHs have better infoiii. If charging flat rate, iR must premiums; t/f,

lower-risk iDs buy less, which average risk, thereby forcing another in premiums

B. Moral Hazard i. Arose at English CL, where could buy

insurance on anyoneii. iD’s tendency to exercise less care to avoid

insured loss than if loss was uninsuredC. Methods of Addressing Problems

i. Lengthy application / screening processii. Classify iDs by risk & charge accordingly

iii. Experience rate (how many claims?)iv. deductibles, require co-ins & dollar limits so

all losses not fully insuredv. Exclude unusual risks

vi. Coverage limits (pre-existing conditions)vii. Require insurable interest

viii. Insurance warrantyix. Void b/c of misrep

D. Important Questions i. Is policy promoting its f(x)?

ii. Is policy trying to prevent problems?

VII. WARRANTYA. Types

i. Affirmative: fact warranted at time policy madeii. Promissory: “” at ALL times of coverage

B. Breach of Warranty i. CL: strict compliance req

1. Why so strict? If boat sank, couldn’t discover why.

2. If iD breaches warranty void3. If term is rep, must be material

ii. Legislative Approach: NO distinction b/t warranties and rep1. E.g. breach voids ONLY if material

iii. What is material?1. Risk of Loss (majority)

a. Whether risk involved in actual loss irrelevant

2. Contribute to Lossa. Risk misrep a/b actually contributed

to loss

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3. Fraudulent Misrep (fraud req)iv. Today, have exclusions rather than warranties

C. Judicial Methods of Mitigating Harsh Effects i. Treat as rep (iR must prove materiality)

ii. Treat as affirmative (relates to present facts) rather than promissory (future “”)

iii. Contra proferentem: construe ambiguity a/g drafter (Vlastos)

iv. Interpret warranty as satisfied if have substantial compliance w/ terms

D. Vlastos - effect of a breach of warranty; ambiguityi. Building burned; iR denied coverage as

warranty breached b/c janitor not only T; iD argued language was ambiguous

ii. Rule : warranty’s materiality irrelevant; if fact not as warranted, may void policy1. If term is rep, must be material

iii. Ambiguity Test : RPP, in context of entire policy, would honestly differ as to meaning1. Determined @ time K made (affirmative)

iv. Holding : no exclusivity language, t/f warranty was ambiguous; construe in favor of coverage

II. MISREPRESENTATION & CONCEALMENT

I. MISREPRESENTATION A. iD made false or misleading stmt;

i. E.g. rep must be substantially trueii. Intent?

1. Maj: irrelevant, unless opinion or future promise (difficult to prove; premiums)

2. Min: ALWAYS relevantB. That was material;

i. Material?1. Contributed to loss (iDs prefer);2. risk (iRs prefer);

ii. If disclosed, would iR have denied coverage OR premium / coverage?

iii. Objective or Subjective?1. Maj: RP iR2. Min: particular iR affected3. Some: intentional, but immaterial, reps

can void (others: materiality req)iv. Some states define by statutev. In discovery, ask a/b industry standards

C. That induced justifiable reliance;i. Closely related to materiality, e.g. iRs won’t

rely on immaterial reps ii. Prevents voiding if iR knew rep was false

1. If some collusion, can still void2. iR may have duty to investigate,

especially where:a. iD possibly misunderstood Q;b. Agent knows rep is false

D. That caused iR damagei. E.g. wouldn’t have issued policy, paid claim

II. CONCEALMENTA. Common Scenarios

i. Failed to disclose relevant infoii. Didn’t give full A or A at all

B. Rule : iR must prove failure to disclose fact that applicant KNOWS is material

C. Neill i. Home w/ previous fire damage damaged a/g; iD

had not told iR (susceptible to fire, arson, etc.); iD claimed to not remember Q, but signed K.

ii. Issue : false stmt alone void coverage? NO, b/c could be clerical error and iD didn’t read K

iii. Rule : if iD answers truthfully but agent makes misrep, iR can NOT rely UNLESS iD engaged in fraud / collusion w/ agent1. Knowledge imputed to iR absent collusion2. Jury question

iv. Duty to Read?1. NONE2. How can iR avoid problems?

a. Bring other testimony (expensive)v. Fact of signature NOT dispositive (only

probative)vi. BP: if had not been intermediary filling out app,

would have been material misrep, & SJ grantedD. Hypo :

i. If app As truthfully, agent records incorrectly, app points out, agent says “not important”

ii. “Who’s fault is it really?” test appliedE. Post Claim Underwriting

i. Ex: person dies w/ signif LI policy; iR looks through app to find misrep

ii. Should there be a rule a/g? 1. Most policies don’t result in claims2. If must investigate from outset, insurance

costs (still must prove misrep)iii. Relates to incontestability clause in HI

F. HIV i. If don’t screen, have adverse selection; rates

ii. Regs attempt to ensure confidentialityiii. TX & Hawaii don’t allow Q a/b whether tested

1. PP: don’t want to discourage testingiv. Waxse

G. Qs to Ask i. Who filed out app?

ii. Who is to blame?iii. Is stmt more iD’s or agents?iv. Does app know misrep fraudulent?

H. Mackenziei. Stmt on health condition made during app; later

becomes false, doesn’t disclose change; policy req “all As continue to be true and complete”

ii. Issue : duty to disclose change? iii. Rule : if while app processing, condition

changes so that app not true, in FD, should disclose; otherwise, may void or use defense1. Doesn’t req high level of sophistication2. Concealment b/f delivery is material!

iv. Min: no duty unless specifically asked (Siedler)v. Answer :

I. Misrepresentation After Loss i. Ex: after claim filed, iD lies a/b debts

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1. Shows justifiable reliance / materiality, e.g. would have done further investigation

ii. Treated diff, b/c iR didn’t detrimentally rely when entered policy, & may be other exclusion

J. Reasonable Inquiry Rule i. Can NOT void coverage if easily discoverable

III. INSURANCE K FORMATION & MEANING

I. ROLE OF STANDARDIZED FORMSA. Introduction

i. Insurance Ks are Ks of “super-adhesion”1. Take it or leave it; uniform terms2. Why? Reliable loss data from as large of

pool possible; accurate across industryii. Ins Service Office (ISO)

1. Drafts std polices; use to suggest rates, but accused of price fixing

2. Collects / analyzes loss data, gives members info

3. Life & HI NOT members (negotiate coverage)

B. Advantages i. Easier price comparisons for consumers

ii. Pricing / coverage limits only variablesiii. Standardized language precision / clarity;

more consistent / predictable1. Other j(x)s persuasive

iv. Pooling claim data cheaper (economies of scale); premiums

C. Disadvantages i. Difficult to buy custom coverage

ii. Even amendments standardizediii. Anti-competitive effect on substance/priceiv. Discourage innovation

D. Principles of Court Interpretation i. Provided by standard forms

ii. Coverage interpreted broadlyiii. Exclusions “” narrowlyiv. Same terms in diff parts interpreted samev. Terms get ordinary, NOT hyper technical

meaning (when possible)vi. Contra proferentem: ambiguity construed a/g

iR (drafter)1. Limited by R expectations?

E. Vargasi. Aviation ins only covered accidents w/in U.S.

territories; crashed in route to PR; iR denied coverage

ii. Arguments:1. Δ: flight path more risky; policy clear2. Π: endorsement sought b/c intended to fly

that wayiii. Rule : to refute R expectations, iR must show…

1. iD’s expectations UR2. iR’s construction only one that fairly

could be madeiv. Holding : coverage extends to travel “to &

from” locations (RP iD)

v. Note : flawed analysis, b/c didn’t compare $50 in premium to overall premium paid

F. Interpreting Binders i. Binder: provide ins b/f expected policy issue

date; coverage during interim periodii. WTC Properties

1. Coverage on “per occurrence” basis; iD said 2 separate occurrences, e.g. 2 planes; 3 of 4 iR had specimen policy, which did not define occurrence

2. Rule : a. If issue binder based on specimen

form, terms of that form governb. Here, “occurrence” ambiguous

3. Analysis :a. Defined as “series of similar causes”b. E.g. 9/11 was single occurrencec. If ambiguous, use extrinsic evidence

(industry custom not helpful here)4. Held : SJ not proper; need more evidence /

jury determination5. Note : NOT obligated to use contra

proferentem (iD didn’t want too, b/c brings in extrinsic evidence of intent)

G. R Expectations i. When should ct ignore clear policy language?

1. “Honoring R expectations of iD”2. “Vehicle of judge made ins”

ii. Justification?1. iR mislead / misrep policy meaning2. iR can’t deny coverage b/c led on iD3. Unconscionability4. Products liab, e.g. “defective language”

iii. Atwood 1. iD electrician possibly caused death; no

coverage for completed operations2. Rule : honor obj R expectations, even if

technical provisions would negate sucha. Ask: would most iDs pay for?

3. Reasoning :a. No notice / no endorsement offeredb. 20 yr agent thought was covered, &

exclusion buried in N/A provisions4. Note :

a. Π loses if had reason to knowb. Ct here uses subj test (min)

iv. Atwater 1. Denied coverage b/c no evidence of

forcible entry (combating moral hazard)2. Rule : if unequal bargaining power, K

construed a/g draftera. If major exclusions hidden in

definition §, iD held only to R knowledge of literal ones

3. PP : burden on iR to clearly comm. coverage and exclusions

4. Maj : doctrine requires ambiguity v. Sophisticated iDs treated differently?

1. Yes: can read policy and better understand than lay person (min)

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2. No: treating diff removes uniformity in coverage (maj)

vi. Cts Mandating Coverage1. costs t/f premiums, b/c coverage

extended beyond what iR expected

II. ROLE OF INTERMEDIARIESA. Kinds of Intermediaries

i. Agents: sell ins; most salaried and also rec % of premium; owe duty to both iD and iR1. Exclusive: sale only one iR’s policies2. Independent: contractor w/ multiple iRs

ii. Broker: sophisticated iD hires to buy coverage iii. E’er / Group Ins

1. Some state’s deem e’er agent of HI co.2. H/w, state law may be preempted

B. Elmer Tallant - Actual or Apparent Authorityi. Agent w/ authority to bind coverage tells iD

he’s covered; iR later rejected coverageii. Rule : oral ins K made by agent acting w/in

scope of actual / apparent authority validiii. Rule : undisclosed private limitations on agent’s

authority do not bind unaware 3rd partyiv. Rule : if agent reps several iRs, no K

engendered b/t iD & particular iR until iR designated by agent

v. Held : apparent authority to create agency, t/f iR liable, even though iD unaware of iR’s ID

vi. Notes : 1. iR has claim a/g agent for exceeding

apparent authority (indemnification)2. iR should put “agent can’t bind” in policy;

require bond or error / omission insC. iD’s Claims a/g Agent

i. N Failure to Procure Coverage1. Agent has duty to use R care

a. Failed to explain coverageb. “” procure promised coveragec. “” notify of possible coveraged. Usually need expert to prove breach

2. Causation: must show could have gotten SAME coverage promised elsewhere

3. Damages: would have gotten coverage but for agent’s breach

ii. Breach of K to Procure Coverage1. Agent promised but didn’t

D. Waiver and Estoppel i. When can agent alter coverage?

1. Depends on actions taken / not taken by agent

2. Waiver: voluntary relinquishment of known right

3. Estoppel: iD changes position b/c of some rep / act by iR (detrimental reliance)

ii. Roseth – Estoppel1. Cattle transp accident; agent told iD duty

to minimize loss; sold hurt cattle for a loss2. Maj Rule : estoppel can NOT be used to

get coverage unavailable / non-existent

a. Evidence gets stale; fear of fraudb. No incentive to train agent

3. Min Rule : can, if misrep and R detrimental reliance b/f or at K’s inceptiona. iD may not understand fine printb. Trend, even if misrep post policy

4. Analysis : selling cattle damages5. If using apparent authority, must show

agent implied had authority to alter coverage terms

iii. Disclaiming Agent’s Authority to Alter Policy1. Some cts: enforce limits on agent’s

authority even if iD didn’t read 2. Others: refuse to enforce. Why?

a. If app authority to bind/ alter K, also has app authority to change limits

b. iR cloaking agent w/ such can’t change agency law to relieve liab

3. Others: enforce w/r/t coverage, but not claims processing provisions

III. PP RESTRICTIONS ON K TERMS - INSURABLE INTERESTA. Sample Policy : even if > 1 person has II in prop,

will NOT pay > than…i. (1) amt = to the II; OR

ii. (2) applicable policy limit or insB. Statute : any lawful & substantial econ int in safety

or preservation of subj of ins, free from loss, destruction, & pecuniary damagesi. NY: PH has “subs int engendered by love &

affection” or above interestii. Why require II?

1. MH: kill person or burn down house2. Gambling: mainly in old days

iii. Limits amt collectable to amt of insurable loss or policy limit

C. Maj Rule : must have at time of lossi. Don’t want to give incentive to destroy prop

D. Tests (satisfying one typically enough):i. Legal or Equitable Interest in Prop

1. Ex: fee simple, T, remainderman, but usually NOT an option (Gossett)

ii. K Rights: secured creditor has int in security1. Ex: deed, title, SI, mechanics lien, etc.

iii. Legal Liability: iD has for destroying someone else’s prop or for breach of K to procure ins1. Ex: bailee

iv. Factual Expectancy: expect econ adv if iD prop continues existence (better off); expect econ loss if damaged (worse off)1. Modern test2. NO legal / recognized int req3. Ex: parents by car, child buys ins; child

has no legal int, but factual expectancyE. Gossett - iD should NOT profit from loss

i. iD told agent were legal owner, listed T.D. as mortgage; assigned all int to T.D; house burned

ii. Π: pd premiums and got quit claim deed

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iii. Holding : no deed yet, t/f NO II1. Indemnity: may not gain more through

proceeds than loss suffered2. Prevents gambling & intentional

destruction of prop3. Although made improvements, doesn’t

reach entire house value (equitable int)iv. Court : Does not matter that they paid premiums

1. Profit expectation not enough2. No legal int in continued possession, as

owner could kick out anytime3. H/w, do have II in improvements

F. Note : even if iR knew lacked II, don’t have to prove not covered; but may be req to reimburse premiums

IV. FIRE & PROPERTY INSURANCE

I. POLICY PARTS A. Understanding Policies

i. Know clause providing coverageii. Personal prop defined peril coverage

iii. Things listed as not covered (diff from exclusions)

iv. ACC clause b/f exclusionsB. Standard Homeowner’s Policy

i. Declarations: policy period, coverage, limits, premiums, residence insured

ii. Section 1 1st Party1. Coverage A: Dwelling2. Coverage B: Other Structures (10%

home’s value)3. Coverage C: Personal Property

a. Named peril; may req special endorsement (ring)

b. Limit of 10% or 1K, whichever >4. Coverage D: Loss of Use

iii. Section 2 Liability (see infra)iv. Agreement:

1. Promise to provide coverage2. Definitions

a. “Occurrence,” e.g. prop damage or bodily injury

b. “iD”v. Property Coverage: kinds and int covered

1. Ex: dwelling, other structures, PP, loss of use, debris removal, R repairs, CC theft

vi. Not Labeled Exclusions: limits on coveragevii. Perils Insured A/g

1. Main provision for Coverage’s A & B2. Indicates causes of damages NOT covered3. Req direct physical loss to prop; burden

then shifts to iR to show exclusionviii. Express Limitations on Scope of Coverage

1. Open peril v. named peril2. All risk v. specific risk; don’t cover

freezing pipes, mold, wear & tear, etc.3. Why? Insuring risks, NOT certainties

ix. Exclusions1. Act to limit coverage

2. If one excluded cause contributes to loss, entire loss excluded

3. Ex: law, earth movement, water / flood damage, neglect, war, intentional

x. Conditions1. Insurable interest2. Notice and proof of loss3. Loss settlement: ACV or cost to replace4. Coordination of Coverage / Coinsurance:

if under insure by 20%, recovery limited5. Other Ins and Service Agreement6. Mortgage Clause: pay bank if iD has loan7. Policy Period: policy applies to loss

occurring during period8. Cancellation: if haven’t pd premium, still

require notice (material misrep of fact)9. Subrogation: iR can sue neighbor who has

BBQ and burns down your housea. Collateral source rule NOT applied

C. Types of Policies i. All-risk: cover all-risks of gen sort covered by

policy; if risk not excluded, automatic inclusion1. Modern: open peril

ii. Specific-risk: only cover if risk specified in policy, subject to exclusions1. Modern: named peril

II. TRIGGER & OCCURRENCE ISSUESA. Policy : covers risk of direct loss to specified prop,

caused by any risk not excludedB. “Occurrence”: accident, including continueous /

repeated exposure, resulting during policy period ini. “Bodily injury” OR

ii. “Property damage”C. “Property Damage”: physical injury to OR loss of

use of tangible propertyi. N: Computer hard drive IS tangible

ii. Perils iD A/g: “direct physical loss to prop”D. If loss progressive, which policy triggered?

i. Policy period where loss discovered / should have been discovered (manifestation)1. Danger: iR writes exclusion once notified

ii. “” in which damage first occurred1. Danger: trigger early policy w/ lower limit

iii. All “” any damage actually occurredE. Port Authority of N.Y. and N.J. - wear & tear

i. Π files suit for asbestos contamination a/g iRs w/ 1st party policies

ii. Issue : physical loss or damage?iii. Rule : “distinct, demonstrable, & physical

alteration of structure”1. If cause unnoticeable to naked eye, higher

std, e.g. eliminate f(x) by rendering unsafeiv. Holding :

1. If asbestos makes structure uninhabitable / unusable, owner has suffered distinct loss

2. If in parts of structure, but building not unusable, no such loss suffereda. Economic / utility argument

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v. PP :1. Loss must be fortuitous, i.e accidental /

unexpected2. Ex: purchased w/out K of contamination

III. BUSINESS INTERRUPTION COVERAGEA. Coverage Requirements

i. Damage to covered propertyii. Caused by covered peril

iii. Resulting in necessary BIiv. Causing covered lossv. Occurring during “restoration period” (don’t get

BI coverage forever)1. Sometimes req complete cessation2. Sometimes covered if B shut down by

civil authority, even if no damage3. Peril prevents egress / ingress over prop4. May recover lost net profit + continuing

XPs (payroll & OH)a. Show what making b/f, and that

would have continued post-lossB. Coverage for Lost Earnings – Reade

i. Π’s WTC store destroyed; claims restoration period is time to rebuild entire WTC; iR says time to restore operations at other locations

ii. Issue : period of restoration? Loss of mkt exclusion?

iii. Holding : time to rebuild / replace WTC store at suitable location1. Resume “R-ly equivalent operations” at

“R-ly equivalent location”2. Otherwise, Extended Recovery Period

superfluousiv. Loss of Mkt Exclusion : econ changes d/t

competition, demand shifts, etc.1. NOT bar to loss of ordinary B caused by

physical destruction / other covered perilv. Recovery of Damages ?

1. Lost Π from demand after catastrophe?2. b/c local econ destroyed “”?

C. Contingent Business Interruption Coverage i. Covers risk resulting from loss d/t damage of

uncovered property (ex: suppliers property)ii. Uncovered property typically must be damaged

by peril covered under iD’s policy

IV. GOALS OF EXCLUSIONSA. Combat MHB. Limit adverse selectionC. Avoid catastrophic loss (e.g. correlated covered

losses suffered simultaneously by many PHs)D. Avoid mkt segmentation (e.g. coverage duplication

by diff kinds of policies)

V. INTRINSIC LOSS EXCLUSIONA. If sold on all-risk / open-peril basis, loss typically

must be caused by indep / external force, NOT:i. Inherent characteristic of damaged prop; OR

ii. “” inherent in portion of prop damaged

B. Only cover fortuitous losses caused by external perilC. Chute

i. iD argued coverage for cracking which occurred naturally in her fire opal

ii. Rule : iRs not liable for prop destroyed d/t inherent deficiencies / tendencies, unless these become active / destructive by peril insured a/g1. Not type of thing buy ins for (could buy

ins / warranty from jeweler)iii. Holding : b/c insuring a/g fortuitous &

extraneous events, can’t interpret ultra-literally1. Policy not warranty a/g loss wholly from

inherent susceptibility to dissolution2. Would req express language indicating

“auto deterioration alone” coveredD. Rosen - actual covered, imminent not

i. Policy covered only “actual collapse;” iD said interpret to include “imminent”

ii. Rule : where policy language clear, can NOT rewrite to conform w/ PP or iD’s expectations

iii. Held : unambiguous, t/f imminent not covered1. PP present, but tort liab will counteract

iv. N : why require “actual”?1. Avoid IL coverage (wear & tear; failure to

maintain)2. iR guarding a/g MH (state of disrepair)

v. N: importance of language1. Insure a/g “Risk of loss involving

collapse” imminent covered2. “Direct physical loss” or “Loss caused by

collapse” NOT3. Test: how broad / ambiguous lang?

VI. THE PROBLEM OF CAUSATIONA. Excluding based on cause of loss (“perils iD a/g”);

t/f, two Qs often arise…i. What actually happened?

ii. What if covered loss has > 1 cause, and some causes covered / excluded?

B. Efficient Proximate Cause Rule i. If EPC covered iD covered

ii. Test: most dominate, important, or significant1. FiT not required2. Possible jury Q (good for iD)

iii. Use where ACC clause absent (gap filer)C. Bongen

i. iD’s house destroyed by mudslide caused by construction co’s N; coverage denied b/c earth movement excluded peril; iD said N covered

ii. Rule : apply EPC ONLY where parties have not freely K-ed around it

iii. Held : may expressly deny coverage if damage caused by both covered & excluded risk

iv. Dissent : not consistent w/ R expectations1. “Earth movement caused by nature”

D. Causation Provisions i. Concurrent Causation: no coverage, regardless

of sequence of perils or whether excluded peril merely “indirect” cause of loss

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ii. Ensuing Losses: covered if caused by iD peril & not o/w excluded, even if ensuing iD peril itself caused by uninsured peril1. Ex: wear & tear causing fire2. ACC clause in sample is in exclusion §, so

arguably only applies to exclusions (EPC)E. Liristis - mold damage v. damage by mold

i. Fire in home; water from fire fighting caused damage to roof, leaked mold.1. iR: policy exclusion for mold2. iD: loss not caused by mold, but was mold

ii. Analysis:1. Purpose of exclusion?2. Exclusion appearing in series?

iii. Held : mold damage caused by covered peril covered, losses caused by mold excluded1. Recover losses from mold damage caused

by fire & water used (removal and repair)2. iD must prove causal connection

iv. Why exclude coverage ?1. Some mold extrinsic (damp area)2. Ct likely used PP to find some coverage3. Likely bad rule, b/c will costs, & plain

language says mold not coveredF. Causation in Auto Ins

i. Collision ins covers losses from collision, & excludes certain causes (fire, theft, windstorm)

ii. Comprehensive covers loss other than collisionG. N: in MS, can NOT argue ambiguity or PP, b/c all

policies approved by Ins. Comm’r

VII. KATRINA LITIGATION - ACC CLAUSEA. Leonard - Senter Opinion

i. Policy : Flood exclusion enforceable1. ACC clause ambiguous, b/c doesn’t

exclude diff damage caused by wind, even if concurrent; wind covered, flood not.

2. Weather Condition exclusion ambiguous, b/c can’t read to exclude wind damage at / near time water damage occurred

ii. Coverages / Burden of Proof :1. Coverage A (dwelling) iD: direct

physical loss2. Coverage C (pers. prop) iD: “” caused

by covered peril (windstorm or hail)3. iR: portion of loss w/in water exclusion4. Fact approved by Comm’r does NOT

preclude legal challenge to policy terms5. Maj of damage caused by flood / storm

surge (NOT a slab case)iii. Claims Based on Agent’s Conduct

1. No evidence of N (lacked expert testimony on prof SoC in S. MS)

2. Stmt that flood ins unnecessary was stmt of opinion (no misrep if not fact stmt)a. Based on flood plain datab. Πs aware of exclusion, reliance UR

3. Agent didn’t alter policy termsa. Πs made erroneous inference

B. Leonard – 5th Cir.i. Policy : ct determines if ambiguous, e.g.

susceptible to > 1 R meaning or inconsistent provisions render meaning uncertain1. ACC clause unambiguous, does not

provide coverage for wind occurring concurrently / in sequence w/ water

ii. Three Categories of Damage :1. Damage caused exclusively by wind2. “” by water3. Damage caused by wind concurrently or

in any sequence w/ water4. IDs cannot challenge ins provisions once

the Ins Comm’n has approved them b/c the Legis has granted authority to the Comm’n to approve policy forms.

iii. Exclusive Wind Damage : covered1. E.g., roof damage covered if also water,

unless surge flood inundates same area, whereby “ensuing loss” excluded

2. N: in MS, can K out of EPC3. Disagree w/ Senter on Comm’r Approval

a. Erie Guess: Miss S. Ct. would regard ins reg best left to legis

b. Should have certified Qiv. Exclusive Water Damage : not ambiguous,

includes storm surge1. Definition includes “flood” & “tidal

waves” “whether or not driven by wind”v. Claims based on Agent’s Conduct

1. Reliance UR, b/c rep contradicted policy; agent can only modify ambiguous lang.

2. N Misrep: iD bound by lang giving notice of agent’s limited authoritya. Reliance not R given exclusionb. 3 yr SOL began in 1999, although

no potential suit until 20053. Oral Modification of K: policy integration

provision precludes claima. Estoppel can NOT create coverageb. No meeting of the minds

C. Broussard - Senter Opinioni. iD suffers total loss (slab case); stipulate “direct

physical loss to dwelling” & personal property damaged by windstorm, Katrina

ii. Analysis : if separate wind damage precedes water damage, it’s covered1. iR must pay entire claim, unless prove

some or all loss caused by water2. Expert didn’t help iR (uncertain)

iii. Holding : iR must pay entire claim1. iR inappropriately tried to shifting burden

to iD to allocate damageiv. BF Claim A/g State Farm : lack legitimate /

arguable reason for denying coverage1. Expert couldn’t allocate damages2. Ct: iR knows law, need R investigation

v. Punitives : granted 2.5 mil, b/c conduct reprehensible (not cruel & unusual to impose)1. Reduced to 1 mil

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D. Broussard IIi. No R-ly prompt investigation b/f denied claims

ii. Protocol assigned 100% of damage to flood unless PH could rebut

E. Broussard - 5th Cir. i. No stipulation whether pers. prop destroyed by

covered peril1. iD bears burden to prove caused by wind2. Sufficient proof caused by flood

ii. Reject iR’s shifting burden argument, but don’t state who must allocate damages in slab case

iii. iR had arguable basis to deny at outset1. No malice or G N, b/c gave iD 2K & 2.4K

deductible2. H/w, should not have continued denying

claim for wind (extra-K-ual appropriate)a. Must prove ED

iv. Punitives N/A to N investigation claimF. Corban - Miss. S. Ct.

i. Court : storm surge w/in water / flood exclusionii. Critical Question : when does loss occur?

1. When iD suffers physical damage to prop2. Coverage attaches when loss caused by

covered peril; right can’t be extinguished by successive cause or event

3. When perils act together as indivisible force, coverage for resulting loss excluded

iii. “In any sequence” conflicts w/ provisions suggesting indemnity right vests @ time of loss1. If wind separate / precedes water, covered2. Only indivisible loss excluded by ACC

iv. For Coverages A & B…1. iD direct physical loss2. iR caused by excluded peril

v. S : reject Leonard’s Erie-guess; ACC held N/A to sequentially caused damage, b/c coverage vests when loss actually occurs

G. Why sell two policies separately?i. Stated reason: flood is correlated / catastrophic

loss difficult to accurately predictii. Guarantees litigation over whether flood or

wind; if sold together, wouldn’t have problemiii. Critics suggesting reform

VIII. THE PROBLEM OF INCREASED RISKA. Coverage for iD’s failure to properly protect propB. I : interplay b/t fighting MH, and iD’s legit belief

that even losses caused by N/ carelessness covered?C. N : excluding intentional, NOT N harmD. GR : exclude losses caused by / occurring during

certain gen. described or specifically excluded risk- action

E. Dynasty i. Sprinkler chained in off and evidence of arson;

iR denied coverage; wanted hazard jury instr.ii. Policy : not liab for loss occurring while hazard

by means w/in iD’s K OR control 1. iR: iD controlled key to sprinkler

2. iD: insufficient evidence; not arson, b/c didn’t raise policy limits & improved prop

iii. of Hazard : new use made of prop, or physical condition altered from that when policy written, and new use / alteration iR’s risk1. Typically used in CGL & fire, not HO2. iR bears burden of proving iD risk

iv. Cts don’t like b/c many things risk; mitigate harsh effects by:1. Requiring K AND control;2. Narrowly construing “iD” (not low e’ee);3. Requiring in hazard be substantial in

time and/or magnitude;4. Treating issue as jury question

F. Examples i. Meth lab in T’s apt (not w/in L’s knowledge,

even though in control)ii. Smoking in bed (maj: not subst. in risk in time

and/or magnitude; R expectations?)iii. Spring loaded gun ( hazard)iv. Storing gas for lawnmower (not substantial so

won’t trigeer, unless 47 50-gallon drums)G. Vacant or Unoccupied 8 min

i. Vacant v. Unoccupied?1. Vacant: no one living there / nothing there2. Unoccupied: someone living there, just

gone temporarilyii. Exclusions for…

1. Damage caused by freezing pipes, etc. if prop vacant / unoccupied for X days

2. General exclusion barring coverage if prop vacant / unoccupied > 60 days at loss

IX. MEASURE OF RECOVERY & COINSURANCE A. Measure of Recovery

i. PP: loss recovery should not produce net gain1. PP met by principle of indemnity and iR’s

int in combating MHii. Policy: coverage only to extent of iD’s int, and

only for ACV of damaged prop at time of loss1. Alt: full replacement cost even if > ACV

iii. Zochert - meaning of ACV 1. 2 old silos wind damaged; agreed measure

of recovery was ACVa. iD: Repair Cost -- Deductibleb. iR: “” -- Depreciation

2. Policy : two methods for paying loss…a. Repair / replacement cost w/out

deduction for depreciationb. ACV (defined in co-ins provision)c. Ct: can’t mean same thing

3. Rule : ACV Testsa. FMV: windfall to iD (MH/better off)b. Replacement / Repair cost less

depreciationc. Broad Evidence Rule (ct here / maj)

i) Consider all evidence expert would find relevant

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iv. N: some states req iR to pay limit/max b/c iD pays premiums in reliance on that amt

v. I : homeowner has total loss of home?1. Home ins commonly covers repair costs

for total loss, some auto as wellvi. Express Replacement-Cost Coverage

1. Ins for replacement cost w/out deductions2. If no replacement, only ACV allowed

B. Coinsurance: Conditions / Loss Settlement i. Total loss much less likely than partial, PI

priced per 1K of prop value, & premium rates don’t when more coverage purchased1. Prevent iD from insuring a/g partial only,

e.g. much less than full prop valueii. Policy : if insure for at least 80% of rep cost,

dep NOT deducted; recover lesser of:1. Liab limit;2. Rep cost of part damaged w/ material of

LK & quality for like use;3. Amt actually spent to repair / replace

(can’t pocket proceeds)iii. Policy : if insure for less than 80% of full rep

cost, pay greater of (but not more than limit)…1. ACV; OR2. Portion of cost to repair / replace which

policy limit bears to 80% of replace. costiv. Ex: 75K policy; FMV of 125K; loss of 20K

repair / replacement cost, but ACV of 10K1. Total Ins / 80% of Replacement Cost2. 75K / 100K = .753. .75 * 20K = 15K. iD only recovers 15K

v. A/g, could create MH; t/f, have d., p. 208 (“until actual repair / replacement is complete”)

X. SUBROGATIONA. Prop iR gen. subrogated to iD’s recover rights a/g 3rd

party for prop loss coveredi. N: common in 1st party prop and HI

B. Legal Substitution : subrogated when 1st steps into 2nd party’s shoes & assumes their rights a/g 3rd partyi. Passive: iD sues N party & indemnifies iR

ii. Active: iR sues N party (iR prefers passive b/c iD pays attny fees)

C. Source of Subrogation Rights i. Law: equitable subrogation, e.g. diff from K-

ual, b/c iR only entitled to once iD made whole1. iD doesn’t get windfall; no profit for loss

ii. K: parties agree to itiii. Statuteiv. Policy Language: creates K-ual right to subrog.

D. F(x)s of Subrogation i. Indemnity (iD shouldn’t profit from loss)

ii. Collateral Source Rule (jury not told Π has collateral source for pmts)

iii. Allocate financial responsibility to 3rd party who caused loss1. Prevents innocent iD’s rates from

E. Subrogation & Settlement

i. I : If iD settles w/ 3rd party after lost but b/f claim paid, does iR still owe iD?1. NO, b/c iD interfered w/ iR’s right2. In reality, iR pays iD b/f suit resolved

ii. GR : iD’s interference w/ iR’s subrogation rights after suffering loss VOIDS coverage1. Exception: 3rd not released from subrog.

liab if 3rd had notice of iR’s right2. If iR’s attny, ALWAYS give notice to TF

of subrogation agreementF. Great Northern Oil – defeating subrogation

i. iD has 3 yr all-risk policy, w/ BI coverage; enter construction K w/ 3rd party sub & release from liab; crane accident causes BI loss

ii. Policy : “iD shall do nothing after loss to prejudice [subrog.] rights

iii. I : does iD’s interference preclude coverage?1. iR: iD got better price for job / sub got

free liab ins; risk not contemplated2. iD: all risk, iR could K to prevent iD from

K-ing that interfere w/ subrog. rightsiv. Ct : release o.k., iR could prohibit such in K

1. PP: o.k., b/c parties dealing at arms lengthv. N : Pre-loss release seen in parking garage / coat

checkG. Ways to Defeat Subrogation

i. iD settles w/ TF after loss, but b/f ins pmtii. iD settles w/ TF after pmt under policy (notice)

iii. K to release TF b/f policy issued

XI. LIMITED INTERESTS / MORTGAGES A. Mortgages

i. Lender wants prop insured b/c of SIii. Effect: lender becomes add’l insured party

1. If prop destroyed, iR pays mortgagee up to outstanding debt owed by iD

2. Debt extinguished, remaining coverage paid to iD

iii. GR: if iD breaches policy obligations (warranty), under specific circum., coverage denial does NOT apply to mortgagee1. Ex:

B. Althauser - iD commits act voiding coveragei. Coverage voided to material misrep; iD stops

paying bank not, b/c debt fully satisfiedii. Effect of Misrep :

1. iR pays mortgagee, even though denied iD’s claim

2. iD: debt extinguished, no foreclosure right3. iR: subrogated right to foreclose, b/c iD

hasn’t paid loans since fireiii. Held : by paying off bank, iR steps into bank’s

shoes, t/f have subrogated right to forecloseC. Hypo: H commits arson, W is cosigner on mortgage;

W covered?i. Exclusion for intentional loss

ii. Even if iD innocent, NO coverage1. Too difficult to prove fraud2. Some cts cover on PP grounds

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D. Hypo: mortgagor wants to use proceeds to rebuild, not pay off mortgagei. If int rates , bank should demand loan pmt

ii. Look to mortgage; o/w, most cts say pay bank, but others say if iD can pay then give them $

E. N: always check state regs for blanket inclusions / exclusions, w/o/r/t policy language

V. LIFE INSURANCEI. INTRODUCTION

A. Types of LI i. Term Life (pure insurance)

1. Can obtain w/ right to renew @ certain premium (more expensive)

2. As age , premium ii. Permanent

1. Whole Life: term + savings/invest featurea. Cash value w/ time, ins portion of

face value b. Can cash in, borrow a/gc. Benefit if die younger; tax deferral

2. Universal: more competitive rates; can change premiums, etc.a. More flexible = more expensive

3. Variableiii. Credit Insurance: if die b/f pay debts, iR paysiv. Convertible (from term to whole)

1. WL more expensive, young can’t afford2. Policy allows converting term to whole

v. Annuities: insure a/g risk of living too long1. Ex: Δs offer in lieu of lump sum2. Benefit if live longer

vi. Long Term Care InsuranceB. Sample Policy

i. Declarations Page1. Named iD2. CQV: person whose life measures K’s

duration3. Beneficiary4. Policy date5. Face amt / right to renew w/ premiums

ii. Premium Structure1. Pmt & lapse of coverage for non-pmt2. Scheduled premium, p. 310

iii. Contract, p. 3121. Promise to pay on death of iD2. Incontestability: once policy in effect for

period specified, can’t void for misrep3. Suicide: 1 yr period to combat MH

iv. Ownership of the Policy: can transfer or assign1. Assign: creditor paid proceeds2. Transfer: transferee can rename

beneficiaryv. Payment of Premiums

1. 31 day grace period2. If die in 1st week of 1 yr policy, pro rata

refund3. Dividends: share to extent have surplus

vi. Beneficiaries (naming and changing)1. Typically named in application2. Owner may change by sending request to

home office; takes effect day signedvii. Settlement Options: how beneficiary paid (lump

sum or annuity)viii. Application:

1. Dangerous activity, military, flying, etc.2. Agent may take pmt, issue binder…

II. THE APPLICATION & BINDERSA. Purpose of App

i. Assess risk & make sure applicant insurableii. AS & MH

iii. N: app to approval time much longer than approval to policy issue

B. Binder : issued @ app after iD pays 1st premiumi. Approval Binder: covered from date of app IF

app approved BEFORE loss1. Prob: no coverage from binder to approval2. N: iR can still deny coverage if notified of

death b/f approval, & not approving appii. Conditional “”: coverage from date of app if

assured of insurability (med exam)1. Coverage attaches date pass exam2. Policy approval after exam irrelevant

iii. Unconditional “”: coverage exists until policy issued or rejection notice given (uncommon)1. Coverage provided immediately

iv. N: some states attach coverage one premium pdC. Gaunt v. John Hancock

i. Π applied, took med exam, pd 1st premium, but died b/f final approval; iR denied coverage

ii. Policy : IF 1. & 2. met, coverage as of Part B1. Satisfaction of insurability2. Approval b/f death

iii. I : died b/f approval... covered?iv. R : if pay premiums & pass other conditions

precedent, immediate coverage, despite final approval of risk

v. Court : iR taking premium w/ no coverage (bad)1. Policy misleading, b/c suggests covered

when notvi. In Future : either don’t issue binder or don’t take

premiums w/ applicationD. Accidental Death

i. Pay proceeds if death accidental, e.g. iD dies as result of accidental bodily injury

ii. NOT payable if death “contributed to by disease / bodily or mental infirmity”

iii. Multiple causation issues (similar to ACC)1. “Directly & independently” 2. Ex: iD falls, hospital, staph infection, die

iv. Why double indemnity? Complete inability to prepare.

III. INSURABLE INTEREST

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A. Defined : w/ LI & HI, exists when beneficiary, by either pecuniary relation or blood / marriage, R-ly expects benefit from iD’s continued life

B. Age old req that LI policy owner have an insurable interest in life of iD (MH, wagering, etc.)

C. CQV : term used to refer to iD (“one who lives”)i. IF owner CQV, II & beneficiary needs none

(except for TX)1. Hence, owner may name anyone as benif

ii. IF owner NOT CQV, owner AND beneficiary must have II1. Ex: W is owner and beneficiary is CQV

H’s enemyD. Scenarios

i. N: some states define by statuteii. Family: parents / children, spouse / spouse = II

1. GPs / GC more remote2. Aunt / niece or nephew = NO II, unless

financial dependencyiii. Econ or Financial:

1. Law firm / rainmaker (key man) = II2. B partners or joint ventures = II3. E’er / low level e’ee = likely NO II

iv. Debtor / Creditor: amt of debt typically II1. Lack II if LI value grossly disproportion

to debt amt; policy null & void2. KIM: in prop ins, need II at time of loss

(w/ LI, @ policy issue date)E. Ryan v. Tickle -

i. B partners w/ joint LI policies; R’s estate claims T lacks II, or wager b/y proceeds > B interest

ii. I : who has standing to argue lack of II?iii. R : ONLY iR

1. BUT … if show MH in fact, use statute allowing CQV to sue proceeds recipient

iv. PP : per se rule promotes judicial efficiency, in that trial on II not necessary1. Beneficiary typically not part of CQV’s

death, so PP of II not been violated2. In rare cases o/w, other rules (statutes) can

preclude recovery

IV. CHANGE OF BENEFICIARYA. Owner can change while iD still living or w/in 60

days after iD’s death, if just b/f death, iD not owneri. Relatively straightforward

ii. Effective day a written request is signed IF iR receives acceptable written request

B. I : full or only subst. compliance w/ formalities?i. Everything not completed, but some evidence

owner wants to changeii. Fact intensive inquiry

C. R : owner must have…i. Intended to change beneficiary; AND

ii. Taken subst. affirm. action to effectuate changeD. In Practice : once iR aware of dispute b/t 2 putative

ben, should file Interpleader & pay proceeds to courti. iR: if already paid, argue unjust enrichment

E. Engleman v. Connecticut – Substantial Compliance

i. Steps not fully followed; dispute as to faultii. R : change effectuated by following policy

procedure, unless subst. compliance, e.g…1. Clear intention; AND2. Subst. affirmative action (letter)

iii. PP : 1. Want to protect named beneficiary2. H/w, policy’s technical req shouldn’t

override clear intentions of iDiv. A : dated, signed, & witnessed letter properly

referenced policy # & name (all req info)v. N: holding letter 22 months would change

result, as owner may have changed mindF. Divorce Decrees

i. Controls in many states, w/o/r/t policy langii. iR should ask for copy of final decree to avoid

double pmt

V. TRANSFER OF OWNERSHIP / ASSIGNMENTA. Assignee : right to proceeds (collateral security)

i. Usually expires when debt expiresii. If notified, iR pays assignee upon iD’s death

(beats out beneficiary!)B. Transferee : “” borrow a/g $ value & change

beneficiary (includes naming self as beneficiary)i. Need written proof / notice to iR

ii. No owner assumes premium pmtsC. I : do II rules govern assignment as well?D. R : if trans legit at outset, owner who is also CQV

can assign to person w/out IIi. If sham from outset void ab initio (invalid

from the beginning)E. Grigsby v. Russell - II

i. Patient needs $ for op, sold policy to Dr. (transfer)

ii. I : II required? iii. R : NO.iv. PP : LI similar to other prop assets / investments

& should be treated similarly1. Limiting transferability policy’s value

v. N: Could name MD beneficiary; diff is owner continues paying premiums & can change benif

F. Viatical or Accelerated Benefits i. Benefits for terminally ill PHs during last yrs

ii. Policy value w/ age, so iRs ok w/ this, w/ uncertainty deduced from policy value

VI. MURDERING THE CQVA. GR : if beneficiary murdered, proceeds contingent

beneficiary or estatei. Murdering beneficiary deems CQV predeceased

ii. Rule comes from…1. Slayer statute; AND2. CL

B. State Mutual Life Assurance v. Hampton i. W acquitted of murdering H; wants proceeds,

argues policy says “convicted”1. Statute: precludes recovery if kill iD2. Why? Shouldn’t benefit from wrongdoing

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ii. Arguments:1. W: guilt issue litigated & decided (issue

preclusion)2. Counter: children next in line did not have

chance to litigate issue iii. R : Under CL, criminal acquittal leaves issues

open for resolution in civil proceeding1. Diff std: beyond R doubt v. POE2. Diff parties involved (fairness / DP)3. Sufficient intent?

a. N: events 4Cable to cause deathb. Gross N amting to reckless behaviorc. Insane?d. Self defense: “intentionally &

unlawful” not unlawful e. Suspicion: Interpleader good idea

iv. N : some states have statutes precluding not only beneficiaries recovery, but also their estate1. Ex: kill W, then commit suicide

C. Common Disaster Problem i. If iD & beneficiary die together, who gets

proceeds? Beneficiary, only if lives longer.ii. If die simul, where should proceeds to go?

1. PP : protect heirs2. Model Uniform Simultaneous Death Act

a. 1940: if can’t prove who died 1st, dist prop as if each survived other

b. 1993: if no clear/convincing evidenc indiv survived other by 120 hrs, indiv deemed predeceased b/f other

VII. LIMITATIONS OF RISKA. Any limitations on coverage in LI policies are NOT

subject to incontestability clausei. Accidental death is “coverage” issue

1. Beneficiary has BoP2. Might get double indemnity (50K for any

death but 100K if accidental)ii. Suicide is “exclusion” issue

B. Silverstein – accidental means / accidental deathi. iD fell, caused milk can to fall on abdomen,

later died; unknown ulcer at impact spotii. iR denied accidental death benefits

iii. Coverage : death “caused directly & indep of all other causes by accidental means”

iv. NOT Covered : death “caused wholly or partly by disease or bodily or mental infirmity or med or surgical trtmt t/f”

v. I : was death result of accident to the exclusion of other cause?

vi. Court : Covered; if all that was req to deny was prove one commingling clause, to easy1. Language v. R expectations2. Condition must be considered disease in

“common speech of men”vii. Test :

1. Death unexpected from iD’s standpoint?a. Y accidentalb. N not accidental

2. If caused by both, was accident dominant cause of death (EPC)?a. N: may be hard to prove

C. Accidental v. Non-Accidental i. CQV shot accidental

ii. Car accident, die in surgery accidentaliii. Heart attack caused by wreck gray area

1. iR: underlying causeiv. Drunk driving more 4cable, likely not

accident (iD: not intended)v. Commit crime some policies specifically

excludevi. Unintentional drug overdose j(x) & policy

VIII. INCONTESTABILITYA. GR : can NOT deny coverage after 2 yrs, despite

fraud, misrep, concealment, or breach of warrantyi. Bars iR from raising defenses after iD’s death

when response would be difficult 1. “Post-loss underwriting,” e.g. iR should

investigate @ app / discover fraud earlyii. S: SoL like effect on some issues

B. Purpose : gives iD/beneficiary assurance that coverage exists & beneficiary protectedi. N: NOT in HI, b/c iD still alive

C. Amex Life Assurance v Superior Court i. iD w/ HIV sent someone to take exam; iR

refused pmt b/c fraudulently obtained coverageii. Arguments :

1. iR: imposter defense, e.g. never had K w/ iD b/c imposter gave blood

2. Ct: only available where imposter is iD; K b/t iD & iR (meeting of minds)

iii. R : only exception is policy void ab initioiv. A : iD faithfully paid premiums for 2 years

1. Fraud easily discoverable here (main focus)

v. CA Legis Response : if imposture present at any stage, void ab initio

D. Incontestable (generally)? i. GR: if discoverable, subj to clause

ii. Coverage v. validity (subject to clause)1. Clearly, can raise any exclusion, or that

doesn’t come w/in coverage2. Validity of policy, h/w, IS

iii. Void ab initio v. voidable (subject to clause)1. Ex: plot to kill CQV so bad void ab initio2. Ex: lying on app voidable (not so bad)

iv. Exceptions v. Conditions (subject to clause)1. iR often tries wording as exclusion to beat

incontestability2. Ex: condition that you are in good health

v. pre-existing condition exclusion v. Not Discoverable v. Discoverable (subj to)

1. Test may be too broad, e.g. make too much subj to clause

E. Incontestable (specific)? i. Fraud, e.g. purposefully lying

1. YES, goes to validity, voidable)

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ii. Misrepresentation - YES iii. Breach of warranty - YESiv. Concealment, e.g. know something iR deems

important - YESv. Premiums Not Paid - NO, goes to coverage

vi. Insurable Interest - NO, void ab initio1. Min: YES

vii. Policy Purchased w/ Intent to Murder CQV - NO, void ab initio

viii. Eligibility for Group Insurance - j(x) split1. Ex: condition that must be full time e’ee2. Arg a/g: rates, b/c more investigation

ix. Condition requiring iD to be in good health -Yx. No coverage under disability insurance for pre-

existing conditions - j(x) split

IX. N ACTIONS A/G iRA. Mauroner v. Mass. Indemnity and LI - Delay

i. Suicide 3 weeks b/f 2 yr suicide exclusion; iR unduly delayed coverage, t/f barring recovery

ii. I : N delay in issuing policy?iii. R : iRs liable for N delay if causes coverage

exclusioniv. H : if error didn’t occur /was corrected quickly,

more likely than not exclusion would not applyB. N: Proximate Cause

i. Some j(x)s would have found Δ’s N NOT PC of injury above (Δ argued suicide was sole cause)

ii. In future, iRs may simply promise less timely app processing to avoid duty

X. ANALYSIS FRAMEWORKA. Begin w/ policy; primary provisions are…

i. Transferring ownershipii. Making assignments

iii. Changing beneficiaryiv. Suicide clause (1 or 2 years)v. Incontestability clause (generally 2 years)

vi. Insurable interest requirementvii. Accidental death (double indemnity)

B. Contract Arguments i. Language of binder ambiguous so that date of

app should be same as date of issue1. Incontestability clause2. Suicide clause

VI. HEALTH INSURANCE

I. HEALTH INSURANCE REFORM A. Access to Healthcare

i. If more w/ access, more w/ ins; h/w, not necessarily true, if insured but can’t see Dr.1. access, demand, price, premium2. ability to pay, cost for everyone else

ii. Est. 43-48 mil Amr. uninsured. Who?1. Poor ineligible for Medicaid2. Unemployed3. Young people

B. Cost : dramatically , a/b 2.4 trillion in 2007

i. 17% GDP; 7.9K per personii. Annual premium for family of 4 = 12.7K

iii. “” single person = 4.7KC. Quality

i. Infant mortality rate worst in developed worldii. Life expectancy lagging behind many countries

D. HI Characteristics i. Is access right/entitlement, or like any other

consumer good?ii. Unlike other ins, covers small, routine,

expected Liii. Private and public providersiv. If iD, will consume much more than if paying

out-of-pocket, e.g. co-pay & deductiblesE. CRS Report on Reform

i. Ban a/g exclusion for pre-existing conditionii. Mandates indiv buy coverage. Why?

1. Burdening public at large2. Combating AS: can’t ban PEC exclusion

unless public buys ins. IMPORTANT.

II. ACCESS TO CAREA. Labor shortage caused competition through e’ers

offering group HIB. Advantage to Employer Based Coverage

i. E’er & e’ee get tax benefit (deduct premiums as B XP; not GI for e’ee)

ii. Administrative cost savingsiii. AS

C. Today, private ins coupled w/ gov’t programs (Medicare, Medicaid, and VA)

III. PRE-EXISTING CONDITIONS LIMITATIONSA. I : if change jobs, lose coverage b/c of exclusion?

i. Why enacted HIPAA, e.g. don’t want to lock e’ee into job when unhappy

B. Three Parts to Exclusion i. Defined:

1. Afflictions for which iD was diagnosed & received trtmt

2. Symptoms for which R iD would have sought diagnosis or trtmt

ii. Look Back Period: typically 6 months to 2 yrs1. If longer, ct may view UR

iii. Exclusion Period: some purport to exclude coverage forever

C. Risk Limited by HIPAA i. Health Ins Portability Act of 1996

1. New e’er/iR NOT req to provide same coverage as old e’er/iR

2. BUT, any PEC limitations must comply w/ HIPAA

ii. R : PEC must relate to condition for which med advice, trtmt or diagnosis rec’d / recommended1. Look back period = 6 months2. Exclusion period < or = 1 yr w/ credit for

previous coverage, unless 63 day gapa. 63 days to get new job!

iii. Addresses some problems, but not all…D. Lawson v. Fortis - PEC limitation

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i. Child sick, on 7th Dad app for policy cover himself & child, not mother; takes child to ER, diagnosed w/ RTI

ii. Policy effective on 9th; 14th diagnosed w/ canceriii. Policy : exclusion for PEC, e.g. “sickness,

injury, disease or physical condition for which med advice / trtmt rec / rec’d w/in last 5 years1. Sickness: illness, disease, or condition

diagnosed / treated while policy in forceiv. Arguments :

1. iR: child had cancer, rec’d trtmt for it prior to effective date

2. iD: ambiguous; could mean supra or req diagnosis of condition b/f can excludea. Trtmt “for” RTI, not cancer, until

after policy effectiveb. “Subjectively aware” std

v. H : subjective testvi. N : smells like AS problem (bought same day

child went to ER)E. Other Was to Avoid PEC Coverage

i. Ask series of health Qsii. Insurability req

iii. More obj std not requiring actual K of condition

IV. COST CONTAINMENTA. Fee-For-Services / Indemnity Approach

i. iR financing f(x) separate from Dr. & hospital service deliver f(x)

ii. H/w, cost began to d/t…1. Improvement in quality of care2. access

iii. Also, no effective controls on consumptioniv. As costs , prices . Move from fee-for-

services to managed care…B. Managed Care

i. Cluster of devices integrating finance & delivery f(x)s of ins to fight “ex post MH, where consume more healthcare than if not iD

ii. HMO’s: iDs must get all care from specified Drs. & hospitals e’ed by or under K w/ HMO1. Incentive min trtmt

iii. PPO’s: iD chooses, but lower deductible & co-ins if Dr.s / hospitals w/in PPO network 1. Co-pay every time go to Dr. or R(x)

iv. Pre-authorization: gives iD assurance costs incurred covered

v. Limiting coverage to medically necessary…C. Medically Necessary Services - Fuja

i. Cancer patient wanted experimental operation; policy req trtmt be medically necessary

ii. Policy : not “” if furnished in connection w/ medical research or not authorized by HCFA1. iD: “” for survival; lang overbroad, could

apply to any procedure if in med articleiii. H : NOT overbroad or ambiguous

1. Should form committee for determination, would prevent duel of experts

2. May exclude for trtmt w/ uncertain med efficacy subj to ongoing research

iv. N : Why not cover experimental trtmt?1. Expensive / not guaranteed to work2. Fed gov’t or drug co’s should fund3. Avoids litigation over definition4. Most wouldn’t pay more for coverage

V. COORDINATION OF COVERAGEA. I : when covered by multiple triggered policies, who

pays 1st? Must look to Other Ins / CoC clausei. Purpose: prevent MH of being over-insured

B. R : if two clauses don’t coordinate, & no statute controls, ct ignores language & picks default rulei. Ok, even if arbitrary, so long as known & clear

ii. Ex: if HI policy covers e’ee, it’s primaryiii. Ex: whichever policy has oldest b-day primaryiv. Ex: “” iD w/ earlier b-day in yr, primary

C. Pro Rata : if other coverage, only pay our limit in relation to total coverage availablei. Most common in prop & liab ins (doesn’t work

in HI b/c no limits)ii. Ex: Policy 1 20K limit, policy 2 30K limit,

Policy 3 50K limit; 50K loss1. Policy 1 = (20/100) * 50K = 10K2. Policy 2 = (30/100) * 50K = 15K3. Policy 3 = (50/100 * 50 = 25K

iii. N: only works b/c all 3 pro-rataD. Excess Clause (secondary): if other coverage,

exhaust that 1st

E. Escape “”: if other coverage, this policy provides none (min don’t like, won’t give effect)

F. Battle of the Clauses i. Pro-Rata vs. Excess / Escape

1. Maj: policy w/ pro rata must pay in full; no other primary coverage to pro rate

2. Min: knockout rule, e.g. clauses mutually repugnant, t/f impose default rule

ii. Excess vs. Escape1. Enforce excess, e.g. excess primary,

escape secondary.2. Enforce escape, e.g. never comes into

effect b/c other ins exists3. Knock out rule, supra

G. Determining Coordination of Coverage i. Governing State Law or Reg

1. Ex: std mortgage clause req w/ FI in MS2. Ex: e’ee’s policy primary, but spouse’s

secondary if covered by diff policy as e’eeii. K Provisions: work only if coordinate

iii. Judicial Coordination…H. Harris v. Humana

i. Harris paid 780K, seeks from Humana based on Medicare Secondary Payer Statute, e.g. policy based on current employment status primary to Medicare1. Double damages a/g primary iR refusing2. Harris secondary to Medicare; Humana

primaryii. Arguments:

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1. Harris: statute reorders priority b/t priv iR; Humana pays b/f Medicare, & Harris pays after, t/f Humana must be primary

2. Humana: does NOT address priority b/t private iRs; CI merely to make Medicare secondary to private iRs in certain circum

iii. Court : agree w/ Humana; Harris primary

VI. SUBROGATIONA. Equitable (absent K language)

i. PP: prevent unjust enrichment of iD Π who o/w might get double recovery (iR & TF)

ii. BUT, if iD has NOT been “made whole,” no need for doctrine, as no UE

iii. Common Fund Rule: iR must pay fair share of iD’s attny fees1. Ex: Π’s attny creates fund benefiting iD &

iR; iR must pay fair share (significant)2. I: to what extent must health iR pay

B. K-ual Subrogation (based on policy provisions)i. iR Ks out of made-whole rule; get top priority

ii. Also, K out of common fund ruleC. Anti-Subrogation Statutes

i. Prohibit (sometimes until iD made whole)ii. Alter trad’l collateral source rule, so iD may not

recover tort damages if already rec’d from iR1. PP: cost of liab ins by transferring risk

of health care costs to 1st party iRsiii. Prohibit until iD fully compensated; req iR to

pay proportional share of attny fees iv. As matter of CL, some j(x)s strike provisions

K-ing out of made whole / common fund rulesD. Pustilnik

i. iD injured by SEPTA, settles; iR wants 19K subrogation, although can’t prove pd for iD

ii. I : if iD not fully compensated by settlement, what is iR’s subrogation right?

iii. H : Full Subrogation1. O/w, iD gets windfall (offend equity /

unjust enrichment)2. H/w, iR still must pay attny fees / XP

VII. CGL STANDARD POLICY

I. SAMPLE CGL POLICY A. Declarations Page

i. Policy period (usually 1 or 3 years)ii. Limit of ins (each occurrence, aggregate)

1. Sep limit for products / completed opsiii. Retroactive date: signif in claims made or

occurrence based coverageiv. Endorsements

B. Coverage A: Bodily Injury / Property Damage i. Insuring Agreement:

1. Pay $ iD becomes legally obligated to pay as damages;

2. B/c of “bodily injury” or “prop damage;”3. To which ins applies4. Duty to defend any suit seeking damages

a. iR has right to settleb. Duty ends when limit used up

5. Ins applies to bodily injury / prop damage only if…a. 1.b.(1): caused by occurrence in

“coverage territory;” ANDb. 1.b.(2): occurs during policy periodc. 1.b.(3): NO coverage for known Ls

6. “Occurrence”: accident, including continuous/repeated exposures to subst. same gen harmful conditions a. Abrupt not req

ii. Exclusions1. (a): Expected or Intended (self-defense /

protection of prop exception)2. (f): Pollution3. (j): Owned Prop4. (k-n): B Risk5. Auto or watercraft damage6. War7. Liquor liability

C. Coverage B : Personal & Advertising Injury i. Ex: sued for defamation

ii. Insuring Agreement: malicious prosecution, slander, libel, copyright

iii. Exclusions1. iD knew would violate other’s rights &

inflict personal / advertising injury2. iD published knowing false3. Arises out of criminal act

D. Section II: Who is an iD ?i. E’ee w/in employment scope or performing

duties related to conduct of e’er’s Bii. N: broader than just “scope of employment”

E. Section III: Limits i. Per occurrence; occurrence based coverage

ii. Retroactive dateiii. N: also contained in Declarations

F. Section IV: Conditions i. Timely notice of occurrence, claim, or suit

ii. Duty to cooperate, i.e. be at deposition/trialiii. Why? So iR can begin investigation at once

G. 4. Other Insurance / CoC 1. Primary or Excess: if we are excess, no

duty to defend (primary iR assumes duty)2. Method of Sharing: equal parts if all other

iRs do; if not, pro-rata by limita. Unlike PI, more layers, cheaper ins

becomes; don’t want to unfairly allocate to iR w/ higher limits

3. Non-renewal H. 8. Transfer of Rights / Subrogation I. Section V: Definitions

i. Accidents / Occurrenceii. Pollutants

iii. Prop Damage: physical injury to tangible propiv. Suit: trad’l civil proceeding where Π suing Δ;

also includes arbitration proceeding

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II. THE INSURING AGREEMENTA. “Damages” & “Prop Damage ” - A.Y. McDonald Ind.

i. iD manuf brass valves, caused contamination; EPA had admin proceeding, iD consented to cleanup; sought recovery from iR

ii. I : are cleanup costs / civil penalties “damages?” 1. “B/c of prop damage?”2. During policy period?3. Duty to defend?

iii. iR: not damages, b/c not civil lawsuitiv. R : response / cleanup costs compensatory for

injury to prop & t/f covered by std CGL policyv. Analysis :

1. If sued by EPA, clearly damages2. iD: policy ambiguous / contra proferentem3. Others: “damages” means $ damages in

legal as opposed to equitable claimvi. PP : shouldn’t discourage cooperation w/ EPA

vii. Court : maj have found coverage; R expectations1. Ambiguous terms interpreted broadly2. Meant to restore prop, so clearly fit “b/c

of prop damage” requirementviii. During Policy Period?

1. Required to trigger policy; what if some intended to prevent future pollution?a. iD/PP: if not covered, won’t try to

prevent in futureb. Lang: “b/c of” covers all damages,

even if not “for” prop damage2. Maj: coverage for preventative measures,

IF some past pollutionix. Duty to Defend ?

1. “Any suit:” maj finds coverage for admin proceedings (ambiguous language)

2. Imp, b/c often as much $ as indemnityB. Coverage Triggers - American Home Products

i. Facts : iD’s drugs caused injuries years after exposure & after policy periods had ended

ii. I : what triggers coverage where Πs take drug & later develop disease?

iii. Arguments :1. iD: exposure2. iR: manifest3. Ct: iD must prove cause & result occurred

during policy period; actual injury most consistent w/ policy language

iv. Exposure Trigger: when Π exposed, e.g. R(x) ingested or prop polluted (iD friendly)1. Pros: consistent w/ iD’s expectations, easy

to apply, avoid manifes trigger problems2. Cons: every exposure does not injury,

inconsistent w/ lang (unless immediate injury)

3. N: may trigger many policies / more coverage, but earlier policies w/ < limits

v. Manifestation “”: when injury manifests or symptoms should have put iD on notice (obj)1. iR friendly

2. Pros: easily applied?, likely triggers only 1 policy (avoids CoC issues)

3. Cons: inconsistent w/ R expectations?, iRs will exclude as soon as disease / injury becomes known (asbestos)

4. N : likely triggers later policies w/ higher limits, but only 1 policy, so less coverage

vi. Actual Injury “”: when actual injury occurred, whether manifest or not1. Pro: consistent w/ policy2. Cons: difficult to prove on case-by-case

basis (1000s); experts in each case3. N : triggers later policy w/ higher limits,

but may trigger multiple if continuous vii. Continuous “”: from time of exposure to manif

(lots of coverage)1. Each yr in which actual injury occurs 2. “” exposure occurs3. Allocation by iR’s “time on the risk”

a. Potential prob if coverage low @ beginning

b. Allocation by “Limits” as alternativeC. Allocation of Coverage – Types of Coverage

i. Damages as proven: how much prop damage caused in each of 15 years1. Difficult / expensive

ii. Pro rata by limits: add up coverage, calc frac for each yr, allocate coverage based on frac1. Prob: arbitrary in uninsured years;

allocates more damage to iRs w/ > limits (raw deal)

2. N : for no coverage period, use limit of immediately following period of coveragea. iD must pay out of pocket b/c un-iD

iii. Pro rata by time on risk (maj): even amt of damages allocated to each yr triggered1. Allocates horizontally; excess iR like, b/c

flattens coverage out, & makes primary iR pay most

2. iD pays damages in years bareiv. J&S: iD can pick iR, collect total amt, iRs sort

out contributionv. J&S, where iD may pick 1 year: select which

policy, but just one (vertical)1. Highest limit, most favorable terms

vi. See examplesvii. B/c complicated & cts want to avoid, may look

for trigger that wouldn’t trigger multiple years1. May be worth departing from language

viii. In re Silicone Implant Ins Coverage Litigation 1. Excess iRs argue occurrence based

policies not triggered on implant; said no injury during coverage period, & pro rata by time shouldn’t be used

2. R : cellular injury can trigger, and where continuing injury arises from discrete originating event, only policy on risk @ time of event is triggereda. Ex: chemical spill or oil leak b. If no such event, prorata time on risk

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c. Avoids allocation of coverage issueD. # of Occurrences - Metro Life v. Aetna

i. GR: prop or bodily injury must be caused by occurrence

ii. Facts : Πs suing iD for N failure to warn1. iD: only 1 occurrence (pay 1 deductible &

collect)2. Excess iR: each exposure occurrence

(exhaust primary coverage)iii. H : each Π’s initial exposure to asbestos, not

iD’s failure to warniv. Tests :

1. # of causes: maj (iD’s stdpt)2. “” effects: min (victim’s standpoint)3. “” events triggering liab

a. Immediate event; last link in causal chain (really cause test version)

v. Court : applying event test, asbestos exposure was last link in causal chain1. Aggregation of claims based on similar

conduct?vi. What is batch clause effect (similar to unifying

directive in “occurrence” def)1. Ct: may aggregate claims if Πs exposed at

same place at approx same timevii. Many (including sample) have per occurrence

& aggregate limitviii. N: iRs typically want to focus on iD’s conduct

E. Insurance Problem Framework i. 1st Is the iD w/in CGL coverage?

1. iR legally obligated to pay sums as damages (trad’l suit?)

2. B/c of prop damage / bodily injury (tort)a. Coverage territoryb. During policy period (trigger)

3. Caused by occurrence (p. 479, accident)ii. iD bears burden of proving above. If does,

COVERED!iii. 2nd Exclusions (iR has burden)…

III. EXCLUSIONS & CONDITIONSA. Expected or Intended Harm

i. GR : to fight MH, exclusion from or limitation on liab coverage for harm that is…1. “Expected or intended;” OR2. Arising out of act committed w/ “intent to

cause loss”ii. I : Expected v. Intended?

1. iR: plain meaning, e.g. two are differenta. If intent, must expectb. If expect, may / may not intend

2. Ct: agrees w/ iRiii. What Does “Expected” Mean?

1. Damage might occur or is foreseeable2. “” likely to occur3. High or substantial probability will occur,

practically certain to occuriv. What Must be Expected?

1. Any harm / damage (too broad)

2. Gen type / degree / severity of harm (maj)3. Exactly same harm (too narrow)

v. Whose Expectation?1. Hypo: e’er sued on for vicarious liab of

low-level e’ee2. I : e’er covered, even if e’ee expected?

a. Maj: e’ee likely not owed duty to defend or indemnify (if clear)

b. As for corp, maj: did not expect3. N: w/ molestation, e’ee cannot say didn’t

intend (separate for e’er)vi. Stonewall Ins v. Asbestos - expectation defined

1. iD w/ CGL policy sued2. iR : iD bears BoP

a. Ct: iR must prove exclusion; must use clear & explicit lang

b. Percy: BoP matters when expectation long time ago

3. iR : should apply obj std to exclusiona. Ct: policy lang says o/w; obj too

broad, would exclude Nb. Determined at time engaged in

conduct4. H: L must be practically certain; here,

only K of riskvii. Known L Rule : iD may NOT get ins to cover L

known b/f policy takes effect1. Section I, 1.b.(3), 1.c. & 1.d., p. 4662. Applies to 3rd party liab ins3. What must be known?

a. Courts splitb. LH of success & amt of damages

i) Loss?ii) Probability of liab?

iii) Certainty of liab?4. Alt: iR asks sufficient Qs, given misrep &

concealment defensesviii. Unigard – Application of Known Loss Rule

1. Student set garbage can on fire; parent’s HO policy had 3rd party coverage, but expected / intended L exclusion

2. Policy : must be accident3. I : accidental means v. results4. R : deliberate act not accident, unless some

add’l unexpected, indep, & unforeseen happening occurs bringing a/b resulta. Percy: covers a lot of N

5. iR for School : intentional act of 1 iD can not be imputed to others to excludea. Ct: accident for parents, not boyb. Percy: confusing exclusions

ix. I : What must be intended?1. Min: intentional conduct w/ 4cable results2. Maj: conduct + intent to cause some

damage of same general type3. “” exact type

B. Owned Prop Exclusion i. GR : exclude damages for prop owned by iD

under a liab policyii. Purpose: covered under 1st party ins

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1. MH: would be no incentive to prevent2. May put iD in better position (but likely

not b/c of PI limits)iii. (j): if damage to OWN property, file under 1st

party prop ins, NOT the CGL policy (e.g. HO)iv. Categories of Potential Cases

1. Only owned prop damaged, no threat to other prop (almost all: exclusion applies)

2. Only owned prop damaged, but damage to other prop imminenta. Maj: exclusion appliesb. Min: cost of preventing damage to

other prop recoverable3. Damage to owned prop & other prop

a. Maj: recovery not comp barred, but cost solely to remedy iD prop excluded

v. Hakim v. Massachusetts1. Pollution migrated from iD’s prop;

pollution exclusion in HOs, so use liab ins2. iR : no coverage to remediate iD’s prop 3. iD : measures taken to prevent further dam4. Maj : exclusion does NOT relieve iR of all

liab, e.g. remediation / cleanup5. Answer : coverage for cleanup costs

incurred to remediate or prevent further migration of contaminants to waterways

vi. Other Issues1. How do you allocate costs?2. Who owns groundwater? At CL, no one,

so argue NOT owned prop3. Preventing “future” damages? Occurrenc

policy won’t cover if not in policy period4. Are all forced cleanups to protect 3rd

parties, e.g. “b/c of injury” to others?C. Business Risk Exclusions

i. GR: if work causes damages to other prop, exclusion does NOT apply1. Ex: apply stucko, falls on someone

ii. Prop damage to following excluded, b/c liab not for bad workmanship (get construction bond)1. (k): product2. (l): work (service)3. (m): impaired prop: not injured, iD’s

product or work has been incorporateda. Ex: funny smelling tape on coolerb. Ex: grounded plane d/t defective tirec. Ex: tire manuf NOT covered for this

4. (n): recall of product / sistership exclusiona. Sistership: exclude costs of recalling

certain products or workb. Why? iD can better self insure

iii. Weedo1. Π K-ed w/ iD to pour stucco; shitty job2. Policy: “to which this ins applies”3. Answer : not covered for all prop damage,

but only for that provided by the policy a. Exclusions restrict & shape coverage

o/w afforded (don’t create)4. H : faulty workmanship liab triggers BRX

5. BRX Effect : faulty workmanship accident not covered, but workmanship is

D. Pollution Exclusion (f) i. History of Exclusion (see slides)

1. Pre-1966: coverage for “accident,” w/ many interpreting to include pollution

2. 1966: coverage for “occurrence,” w/ some finding coverage for LT, gradual exposure, even if discharge intended, b/c ultimate L not expected / intended

3. 1970: endorsement to std CGL policy, w/ exception if accidental / sudden

4. 1973: endorsement made an exclusiona. Some cts held “sudden” ambiguous

& meant “abrupt” ii. 1986: Absolute Pollution Exclusion: (f)(1)

1. Actual, alleged, or threatened;2. Discharge, dispersal, seepage, migration,

release or escape of “pollutants;”3. At/from premises you own/rent

iii. N: hesitation to apply exclusion in contexts other than envir pollution; others apply regardless of nature if policy unambiguous

iv. ASI v. Koloms1. Faulty furnace leaked carbon monoxide2. I : pollution exclusion bar coverage for

carbon monoxide poisoning?3. H : applies only to trad’l envir pollution

injuries, e.g. not case sub judicea. Not ambiguous, but overbroad

E. Notice Requirements i. Overview

1. iD must give notice of what?a. Occurrence: accident -> damage that

may lead to later suit (most policies)b. Claim or suit

2. When? “As soon as practicable”a. R notice approach, case-by-case

3. To whom? iR or agent (sample says iR)4. What form? Written (look to lang)5. Why not give? Think premiums will

ii. Mighty Midgets 1. 21 yr old informed agent, who didn’t tell

iD need to notify iR; iR argued no notice2. R : R-ness determined case-by-case

a. Conduct & reps by iR & agentsb. Experience & expertise of iD

3. H : iD made GF effort / honest mistake4. Compare : like coverage by estoppel, e.g.

coverage was possiblea. Also, N misrep under apparent

authority so that iR vicariously liabb. Claims req agent having authority

iii. West Bay Exploration – notice prejudice rule 1. West admittedly w/held notice; iRs denied

d/t material prejudice2. BoP : cts split, but maj says iR

a. Ability to deny materially impaired?b. No opp to propose cheaper cleanup?

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3. What constitutes prejudice? Materially impairs defense or coverage denial.a. Not req to prove “but for” b. Generally fact Q…

4. Ct : prejudice as matter of law5. N : NY does NOT recognize rule (just

prove untimely)iv. Is an iD Ever Excused?

1. Sued & didn’t know2. iR notified by other source, e.g. news

IV. CLAIMS-MADE LIAB INSA. Percy : has some financial advantage

i. W/ prof mal prac, longer litigation time, harder for iR to predict costs

ii. Want data from most recent yr, h/w data not complete, so go back further1. Loss development: how much of loss

occurs in early years?2. More mediation, technology, tort reform

today, e.g. more pmt into early years3. Trend data, calc expect L in current year

iii. Claims Made: amt of time over which must predict the variables ( variance, premiums)

B. Occurrence Based : insures a/g injury/damage during policy period, even if suit brought lateri. Prof mal prac claim may not manifest until yrs

after expired, t/f exposure time or “tail” createdii. Tail: time lapse b/t act date & date claim made

iii. I : can’t calc premium for risk w/ any certaintyiv. I : when iD switches iRs, CoC?

C. Claims Based : insures a/g claims made during policy period (curbs above problems, & CoC)i. Claim: date iD reports incident/injury to iR

1. Must occur on or b/f retroactive date2. Notice to iR during policy term, or w/in

specified time thereafterii. Imp when leave job; does ex-e’er maintain, or

do you need coverage for tail?1. May have to defend yourself2. If OB to CM, ensure retroactive date is

last day of occurrence policy3. If switch CM iRs, may be totally exposed

for acts in old iR’s years (big prob)D. Thoracic

i. iD w/ CM mal prac sued during policy period, but not served summons until after expired

ii. I : must claim be reported b/f policy expires?1. iD: should apply notice prejudice rule2. iR: could have bought tail endorsement

iii. Court : YES; notice prejudice rule N/Aiv. Impossibility Doctrine : iD could not have given

notice, b/c had no K of claim1. Doesn’t work here

E. Pros of CM Coverage i. Shorter tail; easier L / premium predictions

ii. No I over manifestation / exposure triggers; allocation problems (only 1 yr triggered)

F. Cons of CM Coverage

i. Confusing, e.g. when is claim made?ii. Req tail/extended reporting endorsement (best

to cover SoL)iii. Potential gap in coverage (OB to CM)iv. Threat of non-renewal

VIII. LIAB INS: DEFENSE & SETTLEMENT

I. DUTY TO DEFEND & CONSEQUENCES OF BREACHA. Overview

i. GR: duty to defend broader than “” indemnify1. Arises even when claims lack merit / friv; 2. Ins a/g litigation, NOT just liability

ii. “Any suit” to which ins applies1. Suit v. claim may be imp2. 4 Corners: look @ 4 corners of

complaint / policy; if facts T, covered claim?a. Also, iR aware of extrinsic facts

(potentiality rule)?b. Entire suit, or only covered claims?

3. Often, unclear, e.g. N or IT?4. Or, iR wants to assert exclusion/condition,

but unclear whether court will allow.a. iR may defend, seek indemnity b. H/w, causes conflict of interest

5. Rules diff for potentially & mixed claimsiii. Ends when policy limit used up in jdmt/settle

1. Some new policies allow lump sum pmt, t/f terminating duty

iv. Appeal: if Π appeals, Y; if Δ appeals jdmt w/in limits, iR’s discretion, unless K-ed for1. Jdmt > limit, no per se rule, but R-ness

(chance of success / iD’s econ well being)B. Scope of the Duty

i. Four / Eight Corners Ruleii. Beckwith – iR Assuming Coverage w/o RoR

1. iD sued for bad tractors; iR defended actual, denied punitive; eventually w/drewa. Percy: no damage to prop / BRX

2. I : duty to defend?3. R : if unclear, iR may protect itself w/ RoR

which fairly informs iD of its positiona. If don’t, & no DJ, iR later precluded

from denying coverage (maj/waiver)4. iD’s Remedy :

a. Defense costsb. Cost of settlement (estopped)

C. Mixed Claims & Conflicts of Interest i. Mixed Claim: series of allegations, some w/in

potentiality test, some notii. Gray - Self Defense; Refuse to Defend

1. iD sued for intentional assault, notifies iR of self-defense; deny coverage & defense

2. iR : complaint alleged IT; would create CoI, e.g. N (iD) v. IT (iR)

3. GR : must defend suit potentially seeking damages w/in coverage

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4. H : b/c of potentiality of covered jdmt, & liab for such w/in indemnification, duty manifest at outset; R expectationsa. PP: Indiv, NOT corporate clientb. If want to later contest coverage,

must defend potentiality claimsiii. iR’s Options

1. Beckwith: defend unconditionally, can’t deny coverage

2. Gray: refuse; if was duty, can’t deny3. Assume defense; RoR and/or DJ4. If sure will win coverage I, may only

provide token defenseiv. Potentially a Claim?

1. Gray: duty arises if facts alleged create possibility, even if asserted claim not

2. Burd: if CoI or defense won’t resolve coverage, no duty; h/w, must reimburse defense costs if must indemnify

v. Duty Ends When…1. Used up limit2. A/g PP3. CoI

D. Remedies for Breach of Duty to Defend i. Typically, may seek…

1. Attny’s fees & costs from defense2. Jdmt w/in limits on covered claim3. Excess jdmt (uncommon w/ good /

vigorous defense)4. Attny’s fees in action a/g iR, if BF5. ED damages, if BF6. Punitives (extra-contractual / BF)7. Settlement w/in limits when complaint

alleges covered claims?a. Maj: iR must pay entire settlement

even if some (or all) not covered8. Estopped from denying coverage (maj)

ii. Shoshone 1. 4 claims (3 out, 1 in); iR defends, settles,

seeks costs for defending non-covered claims & counterclaims

2. I : iR entitled to reimbursement for defending non-covered claims?

3. H : NO. Other cts have awarded (based on unjust enrichment). Can allocate costs of prosecuting counterclaim to iD.a. Plain language (“any suit”)b. PP: one suit, one set of attnys

4. Maj : may assume only covered / potentiala. Can req iD reimburse non-coveredb. WY diff, req defense of entire suit

E. Conflict of Interest i. Defense attny reps iD, but iR pays

1. Highest duty owed iD2. If conflict arises, w/draw or inform iR

(h/w, red flag to iR to investigate)ii. Parsons

1. iD sued for battery, iR assumes defense; attny finds out not insane, t/f IT; reject settlement, b/c knew not covered

2. I : estoppel when iR’s defense based on confidential info obtained in orig action?

3. iD arg : waiver, b/c abused A/C privilege4. Rule : attny owes undivided fidelity to iD,

t/f cannot reveal info to iR that may be detrimental to iD in later action

iii. Moeller - outlines duty to defend1. Ex e’ee sued old firm for defamation &

breach of employment K; counterclaim2. All Ps covered under liab policy; iR

defends under RoR, file DJ that only responsible for defamation claim

3. Also, iR says Π never gave notice of counterclaim, so no indemnity

4. Ct : iR should not have defended these claims; under RoR, special oblig arises

5. CoI :a. Token defense: iR not motivated to

settle low or treat iD’s int as ownb. Multiple theories of recovery, steer

toward un-covered claim c. Confidential / privileged info

6. R : don’t assume defense of claims outside of coverage; give iD option to hire attny

iv. Maddox1. Bar fight, e’er’s iR assumed defense of

e’er, but Q-ed duty to defend e’ee, who claimed self-defense; TJ granted SJ for e’er (suggested not w/in scope)

2. H/w, jury rejected e’ee’s self defense argument; wanted reimbursement for fees & indemnity; BD advises iR no duty, b/c no accident, no iD, & expected/intended

3. E’ee sued iR, settled; mal prac a/g BD4. MS SC : no mal prac

a. No reason to think BD’s conduct caused jury finding IT, not N

II. DUTY TO SETTLEA. Overview

i. Settlement: duty to defend & privilege to settleii. Policy: we may investigate & settle any claim

or suit at our discretion 1. Impliedly denies iD the right to refuse or

demand settlement2. Duty stems from implied covenant of GF

& FD, not policyiii. Tests:

1. R-offer (maj): whether iR under policy w/out limits would accept offera. Prob: BoP on R-ness? Typically iD.b. Very difficult to predict value of

case or settlement2. BF (min): higher BoP for iD3. SL (no ct): iR liable any time reject

settlement w/in limitsa. Pro: settlement incentive, easy app

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4. Prima Facie SL (WV): iR BoP by clear & convincing E that failure to settle based on R & subst. grounds

B. Crisci i. iD has 10K limit; iR defends, settlement for

10K, will only pay 3K, wanted to investigate; jury renders 100K verdict (iD insolvent)

ii. R : if iR unwarrantedly refuses to settle where is most R manner to dispose of claim, iR liable1. If want to gamble, must be willing to

absorb Ls from failure to settleiii. A : expert told iR 50/50 chance of 100K+ jdmtiv. I : extra contractual damages for ED?

1. NO (maj): easy to fake; hard to prove; gen not avail in K cases

2. YES (Crisci): excess jdmt way over limit would freak most people out (R to expect); treat as tort

C. Would SL Change iR’s Decisions? i. 1M limit, 200K offer, claimed 2M damages

ii. 15% chance of liability: 200K EV Riii. 6% chance: 120K EV NOT Riv. If SL for refusing to settle, iR will pay for

above-limit jdmts in both 1 and 2. Will this cause iR to settle in case #2?1. Shouldn’t in theory, but may in gray area2. Eventually, will be liab for excess jdmt,

even if R in rejecting offer ( premium)

III. RELATIONS B/T PRIMARY & EXCESS iRsA. Overview

i. Bs buy coverage in layers1. 1st Layer Primary2. 2nd Layer Excess

ii. Two Types of Excess1. Follow Form: ins above primary limits

according to same terms as primary2. Umbrella: fill gaps in primary, e.g. drops

down if not covered by orig primary insiii. Excess has subrogated right to iD’s int, if iD

has claim a/g primary (equitable)iv. But… if primary & iD agree to deny, NO

subrogation intv. Issues :

1. Excess’s duty to settle owed to primary2. Possibility excess will drop down

B. Duty to Settle - Comm Un. Ass. Co’s v. Safewayi. Excess iR claimed Δ had duty to settle w/in

limits (e.g. bellow excess iR’s trigger)ii. R : iR liab if breached implied covenant of GF

& FD by UR-ly denying settlementiii. H : NO dutyiv. I : should excess iR pay defense costs?

1. Maj: no; others: pro rata application2. iR’s response: policy lang excluding such

C. Drop-Down Liability i. Two Types: follow form & umbrella

ii. Mission Nat’l Ins. Co.

1. Π claimed excess iR must assume primary coverage when primary went bankrupt

2. I : “covered” v. “recoverable”3. R :

a. “Collectible” or “recoverable” covers if uncollectible/unrecoverable

b. “Covered” or “not covered” covers only if terms don’t cover

4. H : a. Liab for ultimate NL > primary limit

for each O primary coveredb. “” > amt recoverable under primary

5. N: iD bears risk of primary’s insolvencyD. Check beginning of 4/6 for explanation of

previous case

IX. AUTOMOBILE INSURANCE

I. SAMPLE POLICYA. Declarations Page

i. Vehicles iD (critical)1. Type of coverage for each &

corresponding premium…a. Liabilityb. Uninsured Motoristc. Collisiond. Comprehensive

2. Different deductiblesii. Named iD

B. Definitions i. iD:

1. New spouse / deceased / grace period2. You, family member, any other person

“occupying” covered vehicleii. Family member: related by blood, resident of

HHiii. Occupying: imp under UM coverageiv. Covered auto: vehicle shown in Declarations

1. Grace period for newly acquired auto2. Temporary use auto

C. Coverage A - Liability i. We will pay damages for bodily injury / prop

damage, for which any iD becomes legally resp, b/c of an auto accident1. Duty to settle / defend: same as CGL2. For each coverage, defines “iD”

a. Family membersb. Person loan car too (CoC/OI)

D. Exclusions i. Intentional Conduct

ii. Owned or Transported Propertyiii. Use During Course of Employmentiv. Taxi Cabv. Servicing, Storing, or Parking (valet)

vi. For Business (unless private passenger car, e.g. driving to deposition)

vii. Using Vehicle W/out R Belief iD Entitled To1. Did they have R belief had permission?2. Unlicensed?

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viii. Fewer than Four Wheels / Mainly for Off Road1. Exception: non-owned golf cart

ix. Any Owned Car or Regularly Made Available or Owned by Any Family Member

E. Limit of Liability i. State mandated, eg…

1. 25K per person 2. 50K per accident3. 25K for property damage

ii. Anti-stacking languageF. Other Insurance Clause

i. Ex: driving friends car, covered under 2 policiesii. Pay portion compared to all applicable limits

(pro rata)iii. Makes owner of vehicle involved wreck’s

policy primaryG. Other Coverages

i. Medical Pmts: don’t need if have good HIii. Part C: UM

1. Doesn’t cover prop damage 2. See definition of uninsured vehicle

iii. “” D: Prop Damage to Auto: Collision & Comp1. 1st party2. Collision: upset or impact w/ another auto

a. Specific exclusions

II. LIABILITY INSURANCEA. Scope of Compulsory Ins Req

i. Financial Responsibility Statutes: req car ins1. Aids victims of accidents2. iRs prohibited from selling lower amts

ii. Penalty? How enforced?1. Secondary offense (1K fine)2. BL: lots of un-iD in MS, so coverage XP3. See recent bill passed to enforcement

iii. St. Paul v. Smith - Named Driver Exclusion1. Parents iD; child w/ DUI excluded2. I : does exclusion violate PP?3. iD : exclusion does not protect victims

a. Child had permission, statute t/f mandates coverage

b. Ins card has named exclusions4. H : exclusion not a/g PP, b/c legis created

limited exception to mandatory ins laws5. Business Exclusion in SF v. Smith?

a. Goes to entire class of personsb. This one more specific, t/f coverage

excluded in far less casesiv. Tringali

1. Coverage for liab caused by accident not precluded where deliberately drove into Π

2. Interpreted “accident” broadly, e.g. “unexpected from victim’s PoV”

3. Likely minority todayv. Household / Family Exclusion

1. Excludes liab coverage if family member injured in accident caused by iD

2. Fight fraudulent collusion once intra-family tort immunity abolished

B. Omnibus Clause (not in sample policy)

i. Framework:1. Permission?2. Scope of permission exceeded?

ii. Express v. Implied Permission1. Can one can have permission based on

repeated behavior or understanding?iii. Curtis v. State Farm

1. iD’s unlicensed daughter took car, let friend drive; older sister knew

2. I : was third permittee an “iD” as defined by policy’s omnibus clause?

3. Permission can be implied if iD…a. Knew driving, didn’t object;b. Course of conduct;c. Evidence iD knew let friends drive

4. P : “operation/use w/ permission of named iD or spouse & w/in scope of permission”a. Diff b/t “iD” & “named iD”

5. iD : mother blind, daughters had permissisi as 1st party permittees, she gave to friend

6. H : can’t stretch implied permission so far7. What a/b parents? Could argue sisters

had enough authority to give.iv. Scope of Permission

1. Liberal Rule: permission is permission2. Maj: if only minor deviation, covered3. Conservative Rule: if any deviation, no

coveragev. N: DOC Clauses iD covered when “driving

other cars”1. Excluded:

a. Using car w/out R belief “iD” canb. Other cars owned by iD

2. OI clause: owner’s policy primary (maj)C. “Use” of the Vehicle - FB v. Evans

i. M-80 thrown from parked auto while rainingii. P : liab must arise from “ownership, mtnc, use”

iii. I : use?iv. R (maj): must have causal nexus b/t use of

vehicle & injury; e.g. natural / R incident or conseq of use of vehicle, though not foreseen?1. PC2. Nexus (broader): “normal ownership,

mtnc, use”a. Gillespie: road rage satisfied test

3. Transportation F(x)v. H : under nexus test, use of vehicle did NOT

causally contribute to injuriesvi. N : under sample, iR argues NOT accident

vii. Framework :1. Accident?

a. NO likely excluded2. Bodily injury “expected or intended?”

a. YES likely excluded D. Notice & Cooperation Conditions

i. ALL policies req iD to notify iR of any claim or suit, & cooperate in investigation / defense

ii. I : scope of iD’s duty & consequences of breachiii. Types of Non-Cooperation

1. Failure to appear22

2. “” A interrogatories3. Lying on stand4. Collusion

iv. iR must show non-cooperation was material & prejudicial

v. Diff Approaches as to BoP:1. Maj iR bears2. Min iD bears

vi. SF v. Davies - effect of breach 1. Δ failed to show at trial; iR disclaimed

liab, said Π should recover from her iR2. I : prejudice to iR?

a. SF: per se rule b. Gieco: subst. LH / impact (nebulous)c. Ct: would have created jury issue,

e.g. gotten past SJd. “But for” rule: jury would have

found for iR3. H : iD’s appearance would have created

jury issue; iR uses prior stmt as proof4. N : holding does not encourage iRs to find

iD where Π has strong case; t/f, some cts favor iRs who have made GF effort

vii. Miller v. Shugart - settling w/out consent1. Insured owner & driver settled w/ Π for

twice policy limit, recovering from iR2. I: non-cooperation?

a. If settle b/f give iR notice, YES, policy voidable

3. R : in suit a/g iR, Π jdmt creditor must demonstrate R-ness of settlement

4. H : NO breach of duty to cooperatea. 1 car wreck, typically driver’s faultb. Injuries disfiguring / permanent

5. iR’s Options:a. Ask Π to stay case until coverage

resolved (delay not in Π’s int)b. If settle, write RoR so if win DJ,

indemnity from iD6. iR: this is unjust enrichment!

E. Other Insurance Clauses i. CoC inconsistent w/ each other (find in policy)

ii. Sample: if coverage arises for vehicle not owned by iD, this policy is excess

iii. Excess v. Excess1. Knockout rule (mutually repugnant)

a. Pro rata by limits: unfair, b/c pmts not proportional to coverage

b. Pro rata by premiums (complex, only fair if policies identical)

c. Evenly, until lower policy limit met2. Functional rule: compare policies (battle

of language) 3. Owner’s primary, driver’s secondary4. Interpretative: oldest policy primary

iv. Carriers v. American - excess v. excess1. I : how apportion L b/t two primary?2. R : using knockout rule, both primary; will

not enforce either, so must split coverage

a. Pro rate equally up to limits of lower policy; no discrim a/g policy where iR agreed to cover L

3. PP : clauses meant to prevent fraudulent claims by over insuring

v. Framework:1. Start w/ policies OI/CoC clauses2. Does state law regulate method of

coordination, or provide default rule?

III. COLLISION & COMP COVERAGE: 1st PARTY INSA. Overview

i. Policy:1. Direct & accidental L, to covered auto,

minus applicable deductible2. We will pay for L…

a. Other than collision (comp), if provided in policy

b. Collision, “”3. Collision : upset of covered auto, or impact

w/ vehicle or object, w/ exclusions…a. Missile or falling objectb. Fire, theft, larcenyc. Explosiond. Windstorm, hail, water, floode. Mischief, vandalismf. Contact w/ bird or animal (in theory,

beyond driver control)g. Breakage of glass

4. Comp : iR a/g many Ls collision doesn’t, e.g. fire, EQ, windstorm, theft, & animals

5. S: deductible w/ collision, to prevent MHii. Limited to iD vehicle & other vehicles driven

by iD w/ permission of the owneriii. Payable if damage b/c of specified cause; N by

iD or other operator irrelevantiv. NOT MEANT TO OVERLAP

B. Common Issues : i. Recovery for inherent diminished value?

1. iD: show resale for less; most don’t drive till die, but plan to resale

2. iR: not purpose of insii. Demand OEM parts to repair?

1. Most policies silent, h/w, may buy coverage for premium

2. Sample: “other prop of LK / quality”C. Roth v. Amica Ins

i. iD: non-OEM parts caused inherent value; parts inferior & unsafe

ii. H: doesn’t matterD. Does L Fall Under One Policy or Another?

i. Matters when iD has only one form; cts interpret broadly to find coverage

ii. Allison v. Iowa 1. Truck on bridge that collapses; iD only

has comp, iR argues was collision2. Arguments :

a. iR: vehicle upset, collided w/ groundb. Ct: no, b/c no driver controlc. Policy: “w/ another object or auto”

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3. H : no collision, loss coverediii. Tests Pointing to Collision (look to policy 1st):

1. Vehicle being operated? 2. L caused by operational risk?3. Vehicle op subst. contributing cause?

iv. Why provide separate coverage? 1. Bad neighborhood, want theft ins, comp2. If get in wreck, car not valuable, don’t

need collision3. Rarely drive, no need for collision4. Different deductibles5. Neither, if wealthy, or car shitty

v. Rodemich v. SF1. Q whether driver w/ only comp hit animal

or ran off road avoidinga. iD: I heard thump; covered by compb. iR: collision, t/f no coverage

2. iD : almost hitting should be covereda. Counter: plain lang says “colliding”

(sample says contact!)b. PP: prevent abuse of avoid hitting

animal defensec. Maj: agree w/ iD

3. H : remand to jury

IV. UM COVERAGEA. Can Recover When…

i. Vehicle causing damage un/under insured1. No policy2. Policy, but exclusion applies

a. Boyton: iR denies coverage3. iR insolvent

ii. iD legally entitled to recover damages from TFiii. iR has all available defenses of TF (e.g. WC)iv. See policy, p. 689

B. Effect : i. As passenger, may have UM coverage under

your policy OR driver’s policyii. N: bodily injury includes lost wages, etc.; but

don’t get prop damageiii. N: arbitration clause to avoid jury, h/w, only on

“legally entitled to damages” issueC. Boynton - Legally Entitled to Recover From

i. Auto shop e’ee injured by leased vehicle driven by another e’ee1. E’er dismissed, b/c of WC immunity2. Can’t sue lessee under state law3. Must sue e’ee, who has “conduct of B”

exclusion; t/f, w/in UM coverageii. I : legally entitled to recover from?

iii. H : NO.iv. PP : purpose is to ensure someone bears loss

1. Broad: look at fault, e.g. could sue under substantive law

2. Narrow: not a/b where party immune, but where TF can’t pay

v. N : don’t have to sue TF & win jury verdictD. Hit & Run “Physical Contact” Clause

i. “Physical contact” w/ vehicle required; can NOT recover for “miss & run” or phantom HL

ii. Arguments:1. Clause void as a/g PP2. Disinterested Witness Statute: fights MH3. Plain language

iii. N: start analysis w/ statutes, b/c some states forbid contact requirement

iv. Simpson v. Farmers1. Π forced to swerve, injured, sought

recovery under UM coverage2. I : physical contact req?

a. iR: prevents fraud & collusion in single car accidents

b. iD: contact alone won’t necessarily prevent collusion

3. H : b/c req of actual physical contact is over & under inclusive, void as a/g PP

E. Language Prohibiting Stacking i. Inter-Policy: > 1 policy, both w/ UM coverage

1. Look to OI clauseii. Intra-Policy “”: 1 policy insures multiple autos

1. Look to limit of liability2. Justifications:

a. Ambiguity (contra proferentem)b. R expectations (double premium)c. UM statute requires stacking

3. N: NO ambiguity in sample, p. 690a. NO stacking; recover up to highest

limit in both; coverage for non-owned vehicle is excess

b. Pro rata by limitsiii. Taft v. Cerwonka

1. Daughter killed in accident w/ UM; dad wanted to stack UM coverages for each auto on 1 policy

2. Here, w/in intra policy realm…3. Intra R : “limit in declaration” (clearly

prohibits stacking)a. iD: ambiguity / R expectations / PPb. Ct: paying two premiums, should be

able to stack, & statute languagec. iR: not unfairly charging 2, paying

for in riskiv. N : Fleet of Vehicles

1. Ex: 70 cars, 50K limit of liab for UM2. Can’t stack here, b/c no R expectations3. Some j(x)s distinguish b/t iDs, e.g. class 1

(named iD/family) & class 2 (borrow car / passenger)a. Class 1: pay premiumsb. Class 2: just got lucky

X. BAD FAITH

I. INTRODUCTIONA. Strategic Considerations

i. Bargaining power: claim’s settlement value ii. Jury sympathy toward iD

B. Silberg

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i. T worked for L for rent; injured on job; health iR denied coverage b/c potential WC coverage1. Π continually changing MDs / hospitals;

trouble for no pmt/ credit; forced move2. Nervous breakdown

ii. iR : claim outside coverage (generally, must prove coverage b/f BF)

iii. Framework :1. Coverage at issue?2. Claim covered?3. Claim excluded?

iv. H : exclusion for “L paid by WC” ambiguous; iR should pay remaining XP1. Coverage clause granted coverage

excluded by exclusion clausev. BF : YES, b/c WC coverage questionable;

could pay, then file lien1. Trade custom persuasive, not conclusive2. N v. BF iR have R basis for denying?

vi. Punitives : no; iR did not engage in oppression, fraud or malice1. N: no clear trade custom helps iR avoid

II. LIABILITY FOR BAD FAITH A. N/A merely b/c iD covered but denied; o/w, would

increase premiums for everyoneB. Justification for BF

i. In 3rd party ins, iR has fiduciary duty (not as much at risk in 1st party)

ii. Deter iRs from denying valid claimsiii. Counter: premiums

C. What Type of Claim ?i. K

ii. Independent tort , i.e. IIED, fraud (usually)iii. Tort of BF (dominant approach)

D. What Triggers Liability ? i. N + (gross N, reckless disregard)

ii. Coverage NOT “fairly debatable”iii. Directed verdict rule: if R minds could differ,

iR must have been R in denying1. Counter: judges do for procedural adv.

iv. Other egregious behavior (e.g. force low settlement on iD in dire straits; hire cheap atty)

E. BoP ? i. More probable than not / PPE (MS)

ii. Substantial evidenceiii. Clear & convincing

F. Recoverable Damages ?i. Actual: econ & non-econ, including ED

1. iD: “bought ins to avoid ED”ii. Punitive: punish / teach lesson

G. When Are Punitives Available ? i. iR not always subj to punitives w/ BF

ii. Instead, must show BF + 1. Intent to vex, injure, or annoy (iR knows

in the wrong)2. Fraud, malice, or oppression3. “Evil hand is guiding the evil result”

iii. N : must look at original reason denied claim

H. Analysis Framework :i. Does j(x) recognize BF claim?

ii. What is std?1. Compensatory?2. Punitives?

III. STATE FARM v. GRIMESA. Claim for damage to vehicle after theft; deny b/c…

i. iD seldom drove car ii. Car had mechanical problems

iii. iD had maxed out credit cardsiv. Exterior not damaged, no evidence towedv. iD was hobbyist mechanic

vi. Not awakened by theft (sleeping pills)vii. Word on the street: “it was inside job”

B. iR : TC’s refusal to grant iD DV indicates arguable basis to deny.

C. Ct : jury verdict should stand absent compelling grounds for reversal.

i. Denial based on complete lack of evidenceii. No arguable / legit basis to deny claim

(punitive std here, but not most j(x)s)iii. iR acted w/ gross N/reckless disregard of iD’s

rights (3rd tier!)D. N: Campbell limited punitives to less than 10 times

compensatory awardIV. UNITED AMERICAN INS. CO. v. MERRILL

A. LI policy; iR tried to void based on misrep, but iD told truth; beneficiary forced to borrow for funeral / night job at casino (conceded R-ness of 520K fees)

B. H : iRs bound by agents actions w/in scope of apparent authority w/o/r/t policy’s actual terms.

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