INSURANCE LAWPROFESSOR SKINNER

SUMMER 1999

PART A – IN GENERAL

I.CHAPTER 1 GOVERNMENTAL REGULATION OF INSURANCE

A. State Government Regulation : Purpose of Insurance Regulation.

1. Dictated by social, political and economic values within and without the insurance industry. Kimball "Insurance is a small world that reflects the purposes of the larger world outside it." State this when there is a public policy argument.

Provides security for policy holders and regulation is directed to ensuring continued security. Another purpose is to satisfy the goals of society: democracy, liberty, consumer protection

a)Economic values underlie regulation: free access to market, local protectionism

2.Rationale for Regulation

a)Excessive Competition

b)Inadequate Information Insureds lack easy access as to the solvency of the insurers.

c)Bargaining Power

d)Paternalism Consumers make irrational decisions

e)Social Objectives Due to unacceptable discrimination to promote egalitarian values.

3.What is 'Insurance?'

a)Defined . A contract of insurance is an agreement in which one party (the insurer), in exchange for a consideration (policy premium) provided by the other (the insured), assumes the other parties risk and distributes it across a group of similarly situated persons , each of whose risk has been assumed in a similar transaction.

b)Purchase Protection Plans are extended warranties, not insurance. Griffin Systems, INC v. Ohio Department of Insurance.

(1)Substantially amounting test If the guarantee promises to indemnify for loss or damage to the product outside and unrelated to defects inherent in the product

itself. Differentiate between defects within the product itself v. losses unrelated to the defect.

(2)Doctrine of Implied Warranty if the broad purpose of the contract is for "merchandized protection" and the language of the contract is inconsistent with that purpose, then there is a breach of warranty.

c)Contracts must substantially amount to insurance.

(a)Substantially is a broad umbrella, it's difficult to define what substantially amounting to insurance is. Dissent felt this was really an insurance policy.

(b)Test : Rather than looking at the status of the parties they looked at the contract. Look to the words of the document [DUH]. Is the contract like any other insurance contract? Contract indemnifies insured against various specified risks apart from the risks inherent in the product itself. This was tied closely to the manufacturing of the product and sounded like warranty law.

d)The status determinative appraoch.

(1)Who has control over how well a product is designed? Third parties do not. That's Why we care whether the seller is the manufacturer

(2)Is it reasonable for the state to think this was a contract substantially amounting to an insurance contract

(a)A party can write, sell and agree to indemnify purchasers. Sounds like insurance. But the status determinative test looks at the entity that drafts the contract: Griffin Systems, INC v. Ohio Department of Insurance represents a shift in that thinking. It really is a warranty because it only protects against defects in the product. The court could have gone either way with this. Decisions of appellate courts are policy driven because they have to think about the impact of their decisions. They felt this was not good public policy. They may have invented the test, but it allowed them to decide that, no, this was not insurance.

e)EXAM TIP: remember the substance of the contract test.

4.Two definitional elements

a)Risk of loss to which one party is subject and a shifting of risk to another party. For purpose of statutory regulation. This may not necessarily mean the contract is or is not insurance. See page 13, first full paragraph.

b)Distribution of risk among those similarly situated persons

(1)It is a closer call as to whether there is an insurance contract depending on what is being protected. For example, if a problem arises, will they take care of it as long as you call immediately? Also, did you have to buy this before you could get the product?

(a)Ask What is the purpose of the transaction? What gives it its distinctive character ? Is distribution of the risk peripheral or incidental ?

(b)Truta v. Avis Rent- A- Car Systems, INC. : Collision Damage Waiver contained in auto rental agreement is not insurance for purposes of regulation.

(c)The status determinative test . This case looks a lot more like insurance. The court also looked at the intent of the regulatory statute, status of the parties and substance of the contract, BUT THEY FOCUSED ON THE FACT OF THE TRANSACTION. A third test has cropped up. Collision damage waiver is peripheral to main transaction of selling cars. Held, this is not insurance. This strikes Skinner as odd, they pay $6/dollars a day to indemnify against collision damage. This looks a lot like insurance. Courts will find a way to hold a certain way. Any public policy reasons for this decision? Skinner cannot think of any. There was reliance on interpretation of Insurance Code, so maybe they were backing up the Insurance Department. Courts will give deference to administrative agency, it's almost like a presumption, but not really. Does it meet the test risk and distribution yes, but the court held otherwise.

5.Note on state regulation of Insurers : Normally it is not a difficult task to identify an organization in the business of insurance or to identify a contract of insurance made by such an organization. Governmental regulation is aimed largely at those who are avowedly insurers, and "What is insurance?" for purposes of a given state statute does not seem to confront courts much these days.

6.Brokers do not have a duty to their clients either to investigate whether a company is insolvent or to find out the financial condition of an insurer before placing insurance for their benefit.

a)If a broker has placed insurance with an insurer within his authority the agent’s duty to the client is fulfilled. The state regulatory agency takes care of other.

b)Wilson v. All Service Insurance Corp. Transnational became insolvent while plaintiffs were waiting for the resolution of a claim they had. P's claim All Service had a duty to investigate. The court said, no, they did not.

c)The only remedy they had left was to sue the state.

(1)But note : the government could simply defend on the basis of Governmental Immunity, so there's no remedy for this person. [Note : many states have funds to cover this situation, they charge a fee to insurance companies. Take a look at 42 ALR 5th 199, Skinner wrote this article]

7.Classification of Insurance The ultimate basic classification is simply third party and first party insurance. Third party insurance insures against legal liability for damages to third parties, and first party insurance includes everything else. Insurance is divided into three categories (1 ) Insurance against property and economic losses (all first party examples); (2) Insurance covering personal injuries or diseases (first party) and death; (3) Insurance against liability (all third party). Note: the current trends in auto insurance toward uninsured / un derinsured motorist coverage and toward no- fault insurance reflect a shift from third party to first party coverage.

8.EXAM TIP: Auto and Homeowner’s Insurance may include all three types.

9.Automobile Insurance The traditional automobile policy has been issued within the framework of what has been called the "fault" system. The basic meaning of this is that the insurer will pay (within policy limits) for amounts that the insured is held liable to pay third persons injured by him. Policies expanded to include other types of coverage. A number of states have attempted a large scale revision of the whole compensation scheme by enacting "no- fault" laws, created to remedy the inability of the tort system to rapidly, adequately and fairly compensate victims of automobile accidents. In particular three problems (1) the excessive and needless expense of the tort system; (2) the unfair and inequitable distribution of compensation of accident victims; and (3) the strain placed on the state judicial system by tort legislation.

10. Metz : Not an important case. Insurer of rental cars had a policy that excluded cars rented to others. Universal’s exclusion of auto’s driven by others is void as against public policy. This violated the permissive user statute. Mildly interesting in terms of regulation of insurance.

B.State v. Federal Regulation

1. Insurance is subject to regulation by Congress. South- Eastern Underwriters Association.

2.The McCarran- Ferguson Act

a)δ 2(a) the subject of insurance is subject to the laws of several states

b)δ 2(b) to the extent the states regulate the 'business of insurance' the federal government is preempted from regulation.

(1)The 'business of insurance' is determined, in part, by a three- part test

(a)Does the activity involve the undertaking or spreading of risk?

(b)Does the activity involve an integral part of the insurer - insured relationship?

(c)Is the activity limited to entities within the insurance industry?

c)ERISA: Federal Preemption of state law in employee benefits plans. Ferguson is anti - preemption it protects states rights to regulate insurance. The history of legislation of federal level in favor of preemption under Supremacy Clause, so the Ferguson Act is unusual.

d)Cases interpreting the Act. Blue Cross Blue Shield had a policy offering insured to get drugs from participating pharmacies. It was a cost plus arrangement, Blue cross would reimburse and insured had a $2 co- pay which was the only profit on the drugs. A lot of pharmacies signed up. If insured went to a non- participating pharmacy, the insured would get 75%. These non- participating pharmacies filed an anti - trust suit. Blue cross got a 56, which was reversed on appeal. The Supreme Court held, the Ferguson Act regulates insurance, not insurers . The contract was for the purchase of goods and services. This is odd. This was part of insurance coverage but was a separate contract with pharmacies. This was also a policy decision, they wanted BCBS to be subject to the Ferguson Act. Ask Skinner.

e)Factors when the McCarran- Ferguson act is challenged involve

(1)Is the challenged activity within the 'business of insurance' the Act purports to exempt from federal regulation?

(2)If so, is the federal statute to be applied one that specifically relates to the business of insurance?

(a)If so, then it can override state legislation.

(3)Is the federal statute one that operates to "invalidate, impair, or supercede" a state law enacted for the purpose of regulating insurance?

(4)If it is a federal antitrust statute, does state law regulate the insurer activity?

(5)Is the Sherman Act implicated, because if it is, the Act does not protect the activity?

3.State Objectives

a)Ensuring that consumers are charged fair and reasonable prices for insurance products.

b)Protecting the solvency of insurers.

c)Guaranteeing the availability of coverage to the public.

II.CHAPTER 2 JUDICIAL POLICIES AND INSURANCE CONTRACTS

C.Insurance Law Interpretation the process by which a court determines the meaning that is will give the language used by the parties in a contract.

1.General Guidelines

a)δ 206 Restatement 2 nd The reasonable ordinary meaning is preferred that operates against the party supplying the term. Contra Proferentum.

b)Imprecise Language

(1)Vagueness

(a)Example An Auto Insurance policy limits insurer liability to $20,000 for each occurrence. Insured crosses the median line on a multi - lane interstate highway, hits 1 car in the passing lane, then slides several hundred feet before hitting a second car in the driving lane.

(b)Note: This hypo also raises the issue of Multiple losses for a single cause. Is this one occurrence or multiple occurrences? The majority follows the “cause analysis” the number of occurrences depends on the number of causes. There is only one cause if there was but one proximate, uninterrupted and continuing cause resulting in the damage. If a time interval separates the event, multiple casues might have existed. The minority rule is the “effect” analysis: multiple results constitute multiple casues. If possible, attribute the occurrence to an act of God and then hold the party liable for negligence (if it is a liability policy). The significance of this is the insurer’s liability, which is increased as there are more causes.

(2)Ambiguity of Terms

(a)There may be multiple appropriate meanings.

(3)Ambiguity of Syntax

(a)Imprecision in the structure of the phrases.

(b)Example A medical insurance policy promises to pay for expenses incurred due to "any disease not common to both sexes."

c)Ambiguity of Organization

(1)Policy misleads or fails to inform insured about the nature of the coverage.

d)Ambiguity created by extrinsic information

2.Basic Approaches to Insurance Contract Interpretation pages 39*- 40

a)General Rule of contract construction Intent of the parties. If the "primary purpose " of the parties in making the contract can be ascertained, that purpose is given great weight.

b)Contra Proferentum Construe the contract against the drafter [Note: some courts do this even if the contract is unambiguous, when there is really no need to]. An ambiguous term will be construed against the person who drafted the contract.

c)Unconscionable contract Contracts of adhesion.

(1)Adhesion contracts. "Adhesion contract" is an imprecise term used to describe a document containing non-bargained clauses that are in fine print, complicated and/or exceptionally favorable to the draftsman. Superior bargaining power.

(a)If the court is convinced that: (1) the contract or the clause was not negotiated ; and (2) the draftsman had a gross disparity in bargaining power, the court may refuse to enforce it.

(b)Note : the courts remedy against adhesion contracts through use of the doctrines of waiver, estoppel, recession and reformation.

(2)Unconscionability. A contract that is so one- sided and unfair that as a matter of judicial policy the court will refuse to enforce it. There is procedural and substantive unconscionability. Procedural governs the lack of meaningful choice and substantive governs the contract itself.

d)Doctrine of Reasonable Expectations what is the reasonable expectation of the insured. All terms will be interpreted so that they will have a reasonable, lawful and effective meaning.

(1)Coverage that the insured reasonably believed she was purchasing. Only an inconspicuous, plain and clear manifestation of the company’s intent to exclude coverage will defeat expectation. Some feel that even clear exclusions will not defeat the reasonable objective expectation of a party, but this goes against contract law, so most courts will use an adhesion rationale. See, Steven , infra.

(2)Reasonable expectations can be derived from another source, other than the policy, and can override the policy no matter how clear.

(3)But Note : If the insured clearly understood that no coverage would be provided the insured cannot anticipate coverage under the reasonable expectations doctrine. If a subjective expectation is patently unreasonable under all circumstances, no coverage exists.

(4)Restatement 2nd Contracts δ 211 A party (insured) who adheres to the other party's (insurer) standard terms does not assent to a term if the other party has reason to believe that the adhering party WOULD NOT HAVE accepted the agreement if he had known the agreement contained the particular term.

e)Wayfaring fool duty to disclose everything and make sure the provisions of the contract were understood; someone has to read the contract to purchaser and have them initial each page. This protects purchasers against their own ignorance. Even a wayfaring man, though a fool, would not be deceived.

3.Steven v. Fidelity and Casualty Company of New York. P's brought flight insurance. One condition was beyond regularly scheduled air carriers. Agent took him to charter where he chartered a plane that crashed. He was not riding a regularly scheduled air carrier. The intent of the insured was to purchase life insurance for protection for the duration of the trip. A reasonable person would think coverage would apply during the trip, even if the flight were interrupted.

a)The policy talked about alternate grounds but not alternative air . The court still found coverage, which seems odd.

b)The court used ALL FIVE contract interpretation devices in this case.

(1)It was a contract of adhesion . The parties had unequal bargaining power. But, HE BOUGHT THE INSURANCE OUT

OF A VENDING MACHINE! There was no bargaining . The insured was confronted with a “take it or leave it” choice.

(2)Expectation. His expectation was that he would be covered by the trip.

(3)Intent of Parties. General rule of contract interpretation

(4)Contract proferentum. The court construed it against the insured. The court talked about how the purchaser lacks opportunity to discover ambiguous terms, must buy policy before even knowing about terms and had to take what was given.

(5)Wayfaring fool. Page 49, 2nd to last paragraph. There was a duty to disclose everything and make sure the provisions of the contract were understood.

c)The bottom line to this case The court probably did not like this method of marketing insurance and was trying to stop this way of marketing insurance policies.

d)The insurer has a special burden to highlight exclusions which an ordinary insured might not expect to be in a health insurance contract. Ponder v. Blue Cross of Southern California.

(1)Exclusions are subject to strict scrutiny.

(a)Exclusion must be conspicuous must be positioned to attract the reader’s attention.

(b)Exclusion must be expressed in words that are plain and clear Convey the proper meaning.

(i)If the language is not in the vocabulary of the average lay person it is not 'plain and clear.'

(c)It was reasonable to expect a health insurance policy, especially one labeled “A High Option Performance Plan,” to cover the cost of treating any condition which impairs one’s health. There was no reason the insured could suspect that TMJ was not covered. Plaintiff was diagnosed with TMJ and was required to see a physician and have operations. One exclusion was for treatment of TMJ in insurance contract.

(d)Court found this to be a contract of adhesion and invoked reasonable expectations and wayfaring fool is where you'd find the clear and convincing

language. Court was agitated about the policy of Blue Cross, calling the language in the contract a 'River of Words' and 'Dense Pack'

(2)Note: It is impossible to define every term in the contract. There probably is no definition of TMJ.

(3)It is the burden of the insurer to highlight exclusions that the insured would not expect, and only when this happens will the exclusion be upheld assuming the other elements are satisfied as well.

(a)Evil Knievel : He had to have insurance covering an event in Idaho. There was a riot and the owners sued. There was an exclusionary clause and people could not recover. Exclusion clause was upheld. "Finally, a good decision!" There was a single plain meaning to the exclusionary language.

e)Insurance policies are to be construed liberally in favor of recovery, with all ambiguities being resolved in favor of the insured. Foremost Insurance Co. v. Putzier.

(1)D was required to have insurance before he began the operation of the concession stand. He purchased insurance coverage but was never provided with any insurance policy. He has not read any insurance policy purporting to evidence his insurance contract. He simply paid his money and was told he was covered. The D intended to insure his property against loss caused by theft and believed he was insured.

(2)When P accepted a premium it had a duty to provide him with the insurance policy.

(3)The standard : what a reasonable person in the position of the insured would have understood the language to mean. In this case, D was never given a policy at all. He relies on the oral contract made by the agent. They recognize this transaction as creating a patently ambiguous oral contract. The agent did not tell D of any limitations in his coverage.

(4) It is the duty of the insurer to inform the insured of what he is obtaining. When an insurance company accepts a premium without explaining what was being sold, the company does so at the risk of being bound by what a reasonable person in the position of the insured would have understood. He took the money without explaining what was covered.

(5)This case stands for the significant difference between 1 st party and 3 rd party insurance.

Analysis

1.) Does an ambiguity exist?2.) If yes, it must be clarified. The court will prefer the meaning

of the party who has less reason to know. The meaning operating against the drafter or the primary purpose of the parties. Also, the one that favors the public interest.

III.CHAPTER 3 NEGOTIATING THE INSURANCE CONTRACT

D.Insurance Law is a highly specialized form of Contract Law . It favors coverage /inclusion as opposed to exclusion (a much litigated aspect of insurance coverage).

1.Citizens Insurance Co. A homeowner conducted business out of his home. He was a martial arts instructor, and while warming up before class he struck and injured a boy. The insurance company argued it was a business. The court rejected this argument and ruled in favor of coverage because CLASS HAD NOT YET BEGUN. This illustrates the point that it is difficult to draw the line. Courts will go out of their way to hold for the insured.

E.Formalities of Contract Making Steps in the negotiation of individual policies

1.The application made by the prospective insured . Writings made by the insured may later surface as misrepresentations; writings made by insurer may later surface in the form of "waiver and estoppel"

2.A binder . The agent may have the power, or appear to, to bind the insurer immediately upon application to a policy obligation.

3.Insurance company evaluation . The company has an opportunity to check the application and validate it.

4.Issuance of the policy . The "effective date" (day of issuance) is hard to ascertain, but whatever it is, the issuance of the policy means its establishment as an obligation of the insurer. The documents evidence the insurer's obligation.

5.A Skinner acronym DICE(E): Declarations Page , Insuring agreement , Conditions , Exclusions and sometimes, but not often Endorsement .

6.Note: Methods of Marketing Insurance

a)Generally . Insurance is variously solicited or sold by mail, direct sales by employees, through independent agents, brokers or even machines. The legal problems associated with the negotiation and consummation of the insurance transaction center upon the actual authority of the person at the point of contact with the customer.

(1)Property and Liability Insurance . Mostly sold through general insurance agents who has authority to make and modify contracts and to receive notices on behalf of his principle, and may be given authority to settle losses. He typically handles all financial transactions.

(2)Life Insurance . The agent is primarily a salesman. He is paid by a commission on the premiums for policies issued upon applications secured by him. He cannot bind the company on the acceptance of risks or settlement of losses. However, if the insured pays a premium at the time he

submits his application, the agent can issue the binding receipt described in Collister , infra .

(3)Health Insurance . Sold by specializing agents, general insurance agents and by mail .

(4)GROUP- INSURANCE MARKETING. Sold by commissioned agents and brokers with agents selling the most contract and brokers accounting for the most premium dollars.

F.NEGOTIATION AND AGENCY: INSURERS' PROBLEMS

1.Note on Lloyd's of London Generally, insurance contracts are NOT negotiated. They are only negotiated at high levels, such as Lloyd’s of London, who “negotiates everything.”

2.Note also: The actual or apparent authority of the intermediary is often crucial to the resolution of a dispute. Generally speaking, the principle of law of agency applies to Insurance Company's and agents.

3.Doctrine of Agency Washington National Insurance v. Strickland

a)The difference between brokers, agents and soliciting agents.

(1)A general agent. One who has authority to transact all of the business of the principle. He has full power to bind the insurer and "stands in the shoes" of the principle.

(2)A special agent. One who is authorized to act for the principle only in a particular transaction. The most prevalent type is a "soliciting agent." He has no power to bind the insurer, however if he commits fraud, his insurer principle will be liable for that fraud, if perpetrated within the scope of employment.

(a)Note : An insurance agent is anyone authorized, expressly or implicitly, to represent the insurer when dealing with third parties regarding insurance related matters. When the agent makes statements within scope of authority, the insurer is bound. If the agent acts outside of his "actual" authority, the insurer will not be bound unless he had "apparent" authority. Apparent authority results from conduct, which causes a third person to believe that a particular person has authority to represent the principle. Note : It must be shown that the agent did things with permission or acquiescence of insurer.

(3)Independent agent's or broker's are not liable for misrepresentations.

(a)Note: Independent agents may be liable for breach of contract or in tort for the breach of the duty to show reasonable diligence or skill in obtaining insurance.

(b)If there is evidence indicating the agent was a licensed agent for the Insurance CO., then the Insurance Co will be held liable. Factors include designation in the license application, whether the Insurance co. provided the agent with applications, sales literature and instructions, and whether the agent knew persons purchasing insurance would be relying on her representations. If there is such evidence the agent will be designated to be either a soliciting agent (vicarious liability) or a general agent (direct liability).

b)Washington National Insurance v. Strickland . Palmer met with Carol Strickland, 5' 2" tall 180 lbs., to discuss medical insurance. Palmer described plans for medical insurance. She completed a Washington National application, the effective date was 1/15 /1981. Palmer told her the coverage would be effective as of that date and that she would be covered if she had an accident on the way home. Strickland cancelled an application for insurance with another company. Four days later, she fell and broke her ankle. Palmer had no yet submitted her application. Palmer testified he submitted it to Martin, a general agent on 1/22. Washington National declined coverage. Martin testified Palmer could solicit applications, but had no authority to bind Washington National to coverage. The record shows Palmer was a licensed agent for Washington National.

(1)The evidence of fraud Palmer's verbal statement to Strickland that coverage would be effective as of 1/15 and Palmer's handwritten notation on the conditional receipt that coverage was of 1/15. Palmer knew Strickland's height and weight may have required a medical exam before coverage. The liability of the insurer for fraudulent acts of soliciting agents is grounded in the doctrine of Respondeat Superior.

(2)Was this a reasonable decision? Yes. The court talked about dual agents can represent insured and insurer. If that was the case, how would liability be affected? The court would rely on a Respondeat Superior theory to hold agent responsible. Can we have oral contracts of insurance? Surprisingly, Yes.

4.An insurer may be liable in tort for damage resulting from unreasonable delay in passing on an application for insurance, due to the legal obligation to act with reasonable promptness. Talbot v. Country Life Insurance.

a)Note: General Agents may also be liable in tort.

b)Larry Talbot, husband of P, applied for Life Insurance designating P as beneficiary. A first premium was paid and Larry died. D retained the premium. Between the time of the application and his death he was in good health and would have obtained another policy if not for the representations of D. D failed to take action within a reasonable time.

c)One who enters upon an affirmative undertaking to perform a service for another is required to exercise reasonable care in performing it, and be liable for misfeasance if they unreasonably delay. There is a legal obligation to act with reasonable promptness on the application, either by providing the desired coverage or by notifying the applicant of the rejection of the risk.

d)Reasonable? General Rule It is only an offer for a contract of insurance, so why amend contract law? False sense of security. Equitable Estoppel, Reliance. Question, if consideration was paid, the insurer had a duty to perform under the contract, as plaintiff fulfilled the condition precedent to insurer’s performance, prof.

(1)Note: the court ignores what it said on the application thus ignoring established contract principles of law. However, it’s not good public policy to deny people their reasonable expectations. The courts have created this and it amounts to a tort.

5.Parol Contracts

a)An insurance company cannot be bound by an oral agreement of its agent to insure when that agent represents several other companies and has not outwardly indicated his intention to act for the particular company. Maryland Casualty v. JM Foster

(1)A parol K of insurance, made with an insurance agent representing several companies – the company to take the risk not being specified – is not enforceable. If appellant at any time before the loss had, by the slightest act, indicated that he was placing the insurance with Appellee, a different result might have followed.

(2)This was a very close case. The court could not find ANYTHING to pin it on anyone.

b)Note: An insurer who agrees to be represented by a general agent who represents others, they assume the risk resulting from the agent’s decision and the ability of the agent to make selections and cannot deny coverage.

G.Binders

1.A binder had been defined as a temporary or preliminary K of insurance that protects the insured until issuance of a formal policy and generally incorporates the terms of the contemplated policy. Southeastern Colorado Homeless Center v. West.

a)A binder may mean a temporary policy or a contract preliminary to a policy.

b)The term "any policy" is ambiguous. There is no statutory definition of binder or policy. δ 8- 45- 113 includes new policies, the grace period applies to the first premium. It is intended to protect employers as well as employees from lapses in coverage resulting from late payment of premiums, including first premiums for new policies. Construing the statute broadly to include binders will serve that purpose. The ultimate object of compensation insurance is to assure payment of benefits to injured employees. This purpose is served if the statutory requirements for cancellation are applied to binders.

c)Holding "Any policy" in δ 8- 45- 113 includes binders as well as formal policies. Since the premium was paid within the 30- day grace period, coverage did not lapse, and West was entitled to receive benefits under the policy.

d)Note: A binder is preliminary to a policy, it is like a temporary policy. Common sense would tell you they are bound. Just like an insurance contract. It is brought within the statute. It is based on an agents assessment of risk POWER. Soliciting agent cannot modify the terms of the policy. If courts allowed this, they would be re- writing every insurance policy.

H.The concept of Insurable Interest Republic Insurance Co. v. Silverton Elevators. This suit was brought by Silverton Elevators and Tidwell to recover under a Fire Policy covering a residential dwelling and household goods. Tidwell was an officer, director and GM of Silverton. Silverton furnished a house to Tidwell, together with insurance on the house and Tidwell's household goods as part of compensation. The agent knew that the goods belonged to Tidwell and that Silverton was carrying the insurance for his benefit. A tornado destroyed the house. Republic defended on the grounds that Silverton had no ownership and therefore no insurable interest. The trial court awarded $3000 to Silverton.

1.The household goods were covered under Silverton's policy.

2.Since the policy clearly purports to cover the household goods the court agrees that the knowledge of Tidwell's ownership of the household goods and the agent's actions were imputed to and binding upon Republic. Issuance of the policy and collection of the premiums with such knowledge operates as a waiver that the named insured have an interest in the property. Republic's policy insured against the destruction of precisely the same household goods identified in its policy and for which it collected its premiums. There was no evidence that its risk was enlarged because the household goods were owned by Tidwell rather than Silverton. THE PORTION OF THE CLAUSE RELATING TO LIMITATION OF LIABILITY TO "THE INTEREST OF THE INSURED" FALLS WITHIN THE CATEGORY OF OWNERSHIP PROVISIONS WHICH MAY BE WAIVED; THE INSURER MAY BE ESTOPPED FROM DENYING LIABILITY TO THE TRUE OWNER ON POLICIES ISSUED IN THE NAMES OF THIRD PARTIES COVERING THE RISKS ON IDENTIFIED PROPERTY WITH FULL KNOWLEDGE BY THE COMPANY THAT THE PROPERTY IS ACTUALLY OWNED BY THE ONE FOR WHOSE BENFIT THE POLICY WAS WRITTEN OR MAINTAINED. When the facts show the true agreement intended and a mutual mistake, or mistake of the agent, in preparing the policy, the intended agreement will be enforced without resort to reformation.

3.Note: The effect here is to allow waiver and estoppel to create a new and different K with respect to the risks covered by the policy.

4.Note also: The general rule is that insurer’s cannot waive or be estopped to assert the insurable interest requirement unless:

a)The insurer is just claiming the value of the interest is less; or

b)Where the agent selling the policy knew there was no insurable interest but issued the policy anyway. This knowledge was imputed and binding on Republic.

5.Plaintiff’s wanted to recover only on the risk assumed by Republic on the policy. The risk was not enlarged because the goods were owned by Tidwell and not Silverton, the named insured.

6.Why is the concept of insurable interest an important thing? As a general rule, an insurable interest is always required. There is a risk people would start dying off, in other words, there would be criminal activity. Also, look at public policy. Business partners would count. Why the concern over household goods? The risk. If I store something valuable of yours in my basement, my insurance company did not contemplate the risk. Here, the argument was not upheld because the insurance company knew about it. The court took a common sense approach, noting that the insurable interest doctrine was not intended to apply to this situation because there was no criminality or risk. Applied waiver, the agent knew and issued the policy anyway. The court imputed the agent’s knowledge on to the insurance company.

a)Purpose of Insurable Interest

(1)Discourage using insurance for wagering ; and

(2)Remove the incentive to destroy the subject matter of insurance, thereby increasing the moral hazard.

(a)Note: If the insured has no interest in the property she has suffered NO LOSS by its destruction. Only when the insured suffers a loss to an insurable interest should the loss be indemnified.

(b)The defense of lack of insurable interest voids the policy.

7.Note the difference between waiver , which is the intentional relinquishment of a known right , equitable estoppel , which is detrimental reliance and involves unfairness , and promissory estoppel , which includes the additional element of a promise . See, Criterion Leasing , infra . This case the court confuses waiver language with estoppel language. The two are often confused.

8.Note On Mistake

a)Mutual Mistake . Generally, the remedies include rescission, reformation or courts will not enforce the contract.

(1)Basic assumption TEST: unexpected, unbargained -for gain on the one hand, and unexpected, unbargained- for loss on the other

(2)Material Effect on the agreed exchange of performances

(3)Risk of Mistake the adversely affected party must not bear the risk of the mistake.

b)Unilateral Mistake . Courts are much less willing to allow rescission because avoidance of the contact would frustrate party expectations. The traditional rule is that avoidance will only be given if where the non- mistaken party knew or had reason to know of the mistake at the time the contract was made. The modern view adds two additional requirements. EITHER

(1)The mistake is such that enforcement would be unconscionable, or

(2)The other party had reason to know of the mistake, or his fault caused the mistake.

I.Waiver, Equitable Estoppel v. Promissory Estoppel

1.δ 90 Restatement Second Promissory Estoppel A party will be estopped from denying liability under promissory estoppel when the party makes a promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance … and injustice can be avoided only by enforcement of the promise. Criterion Leasing Group v. Gulf Coast Plastering & Drywall

a)It was foreseeable to Hartford that Blount would use the certificate of insurance as proof of workers' comp coverage to Criterion. The certificate listed both Criterion and Blount as co-insureds. Hartford's promise to provide coverage induced Gulf Coast to allow Blount to begin working at the job site. Also, the general is required to provide workers' comp coverage for a sub's employees expect when the sub already had coverage.

b)The promise all employees would be covered, except they wanted to know who would be covered. Makes sense, because if they add 100 employees, the risk goes way up. The premium is what counts, not who the employees are. Workers Comp compare A No Fault system where workers are treated like machines. The failure to notify is not considered a big factor by itself. Minor enough for the court to find coverage. Note: this is not a major case.

2.Waiver v. Estoppel

a)Waiver is unilateral, the focus is on the acts of the insurer. Detrimental reliance is not required. Waiver involves an act by one party who has knowledge. It is the intentional relinquishment of a known right. Estoppel involves (1) Actual misrepresentation (usually by agents) and (2) Detrimental reliance, in other words, a change in position . For example, inducing insureds not to obtain other insurance by misrepresenting the validity of existing insurance. Reliance needs only to be reasonable, there does not need to be an intent to deceive.

b)The "usual fact pattern" for waiver the insurer acts in recognition of the validity of the insurance, while knowing that grounds exist upon which the policy can be voided. This is usually implied from the circumstance. The test: if circumstances suggest that the insurer, in fairness, should speak upon learning of the circumstances or situation, a waiver might be applied.

3.Limitations on Waiver and Estoppel

a)Cannot waive a right that exists for a larger public purpose

b)May be met by parol evidence rule

c)Equitable estoppel cannot be used to expand coverage. Promissory is an exception, representations relating to future acts of the promisor.

d)If the injured party knows there is no estoppel

J.The Law of Misrepresentation: An Applicant's Problem in Negotiation: Merchant's Fire Assurance Corp v. Lattimore

1.Person has a duty to communicate all facts within knowledge material to the contract. Plaintiff or her agents knew of the property value. ** Note: waiver cannot be applied if the insurer did not know the facts, they had no duty to investigate.

2.The D claims they are not liable due to the failure of P to disclose the true value of unscheduled personal property she owned.

3.Is the concealment of value sufficient to warrant insurer’s refusal to pay? Insurance Company won. She claims concealment was not MATERIAL therefore it did not effect their risk. There was also a waiver argument. INSURER DID NOT KNOW ALL THE PERTINANT FACTS. Materiality argument that goes to risk. The insurer has NO DUTY TO INVESTIGATE. The ‘insurer knew or should have known argument’ will not work.

K.*****A Note on Materiality Materiality goes to whether insurer knew of the risk.

L.What is materiality Funchess v. United States Life Insurance Co.

1.Decedent died at gunpoint. Two affirmative defenses sought rescission because of misrepresentation of age, 37 stated in the application instead of 47. D claimed the actual age was material because an examination would have been required. Materiality of representation was not proven. There was no showing coverage would have been refused if the truth was told. If the age of the insured was misstated then recovery should be limited to such as the premium would have bought at the proper age.

M.Notes on concealment in Insurance Law

1.Meaning of "concealment" in the normal contract setting an active intentional endeavor to prevent the other party from discovering the truth. This is a form of fraudulent misrepresentation (complete with scienter) so that both recession and damages are remedies available to the aggrieved party. Mere silence with regard to material facts unknown to the other party is characterized as “non- disclosure” which is remedied by rescission in rare circumstances. There must be an obligation for disclosure. See δ 161 Rest. Of Contracts 2 nd for the instances when this obligation arises. Page 108 - 113

2.The Effect of concealment Good faith, unintentional non- disclosure even of a material fact will not avoid the policy. The rationale is that, due to the ease of accessing information, the fact that the insurer did not make additional inquiry implies that the information was not material.

3.Three tests that determine the materiality of undisclosed facts

a)Whether a fact is regarded as material by all similar insurers

b)What a reasonable and prudent insurer would regard as material (objective test)

c)Whether the particular insurer regarded it as material (subjective test)

(1)Look for whether the premiums would have been higher, would not have been made, or would have been made on different terms.

4.To establish concealment and misrepresentation there must be

a)Materiality; and

b)An alteration of the risk

N.Thompson v. Occidental Life Insurance

1.Facts Misrepresentation as to state of a person’s health. Application submitted and he died before the required additional exam. General Rule Materiality of alleged misrepresentation. The insurer has the right to know all that the applicant knows regarding his health. Material misrepresentation or concealment are grounds for rescission and actual intent need not be shown. If applicant had no knowledge, there are no grounds for rescission. The concealment was related to minor matters, would not have effected the decision to issue the policy. He just did not remember or the doctor may not have recorded it. These are questions for the jury.

O.Burdens of proof CA allows material misrepresentations to be explained but in New York they are conclusively presumed. The bottom line is forum shop.

IV.Chapter 4 The Duty of Good Faith and Fair Dealing

P.First Party v. Third Party Insurance

1.First party the contract between the insurer and insured is designed to indemnify the insured for a loss suffered directly by the insured. Example: Property loss (fire to home).

2.Third Party the interests protected are those of third parties injured by the insured's conduct. For example: liability insurance (slip and fall). The insured has an indirect loss, the third party suffers the direct loss.

3.Note : the distinction assists in understanding No- Fault the substitution of first party insurance for tort liability. The victim of tort looks not to the tortfeasors but insurers for reimbursement. First party insurance is compulsory under this No- Fault scheme.

Q.The Origins Third Party Cases: Rest. 2 nd Contracts δ 205 states: every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.

1.Good Faith Performance. Evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of power to specify terms, and interference with or failure to cooperate in the other party’s performance.

2.Good faith in enforcement. The obligation extends to the assertion, settlement and litigation of contract claims and defenses, harassing demands for assurances and performance, rejection of performance for unstated reasons, willful failure to mitigate damages, and abuse of a power to determine compliance or to terminate the contract.

3.Good faith emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party. Bad faith is "arbitrary, reckless, indifferent or intentional disregard of the interests of the person owed a duty." Commercial Insurance v. Liberty Mutual Insurance Co.

4.The insurer who assumes the insured's defense against a third party's claim is in a fiduciary relationship with the insured. Crisci v. Security Insurance Co.

a)For every wrong there is a remedy. Where the breach of contract also constitutes a tort, recovery for mental distress available.

b)There was a fall through a staircase and physical injury. A suit was brought against the owner for negligence in maintaining stairway. Held, breach of the covenant of goof faith and fair dealing in the settlement context constitutes a tort. Liability is imposed against insurer who refuses an offered settlement where the most reasonable manner of disposing of the claim is by accepting settlement. Insurer is liable for the full judgment . For failure to meet the duty to accept reasonable settlement – a duty within the implied covenant of good faith. Because the breach sounded in tort, a broader range of damages is available tort damages allow for full recovery for loss and tort damages are imposed when there is a duty, imposed by law, on one of the parties.

c)Note: the insurer refused to settle within the limits of the policy, despite the fact they knew the jury could have returned a verdict for much more.

d)Note: three fundamental duty of insurers is

(1)Note: these duties go to claims handling third persons as well as the claims of the insured.

(a)To pay proceeds

(b)Defend and settle in third party insurance

(c)Implied duty of good faith and fair dealing

5.An insurer who fails to settle within policy limits after it becomes clear that its insured's exposure exceeds those limits is obligated to pay the excess. Betts v. Allstate Insurance Co.

a)Bad faith may not only be implied duty of good faith, but may also be treated as a tort for the purpose of exemplary damages. Substantial evidence will be required.

b)There was a car accident and Allstate refused to pay full amount due. Held, punitive damages are upheld. Allstate committed, not only bad faith, but also fraud, oppression and malice by failing to investigate and refusing to believe P's story in the face of overwhelming evidence to the contrary. They put words in Betts' mouth. The key issue is the attorney incompetence; Allstate had a duty to recommend Betts get separate council. When the $450,000 verdict came in against her, she was made liable and should have gotten separate representation. Their relationship changed because she had a cause of action against Allstate.

6.The insurer must give at least as much consideration to the welfare of the insured as it gives to its own interest. The governing standard is whether a prudent insurer would have accepted the settlement offer if they alone were liable for the entire judgment. There need not be bad faith. The key question is Is it likely the judgment will exceed the settlement offer? Factors like policy limit and non- coverage are not factors, look to whether the insurer had notice that the case would impose enormous liability.

7.The duty of good faith and fair dealing does not run to the injured third party plaintiff. Thus, unless the insured has assigned her bad faith claim to the third party, the third party plaintiff cannot bring a direct cause of action. The insured's cause of action for bad faith refusal to settle is assignable. Murphy v. Allstate Insurance Co. The duty to settle is intended to benefit the insured and not the injured claimant. Third party beneficiary doctrine does not provide a basis for the injured to recover.

a)Note: This is an important case. Murphy was not the insured. The victim was trying to collect under bad faith refusal to settle. Generally, there is no cause of action there. There are two things to do when cannot collect from insured:

(1)Execution . Send sheriff to seize property. Misconstrued, win once then pay.

(2)Garnishment . After the judgment attempt to collect garnishment holding money owed to your judgment debtor and they refuse saying they do not owe money. The garnishment turns into a new lawsuit, a writ of garnishment becomes the complaint and it can be disputed and litigated if you don't believe the employer does not owe.

b)A judgment creditor of an insured may not sue the insurer for breach of the covenant of good faith. An insurer's good faith duty to settle runs in favor of the insured, not to judgment creditors. A personal injury cause of action is not an assignable right.

R.If one party fails to exercise good faith, that failure operates as the non-occurrence of a condition precedent to the other’s duty to perform, which then excuses the first party not acting in bad faith’s nonperformance.

S.To establish bad faith

1.Mere negligence is not enough, you must show gross negligence or reckless disregard (like denying a non- debatable claim, or other attempts to avoid liability).

a)In MI arbitrary, reckless or intentional disregard for the interests of the person owed the duty.

T.The extension First Party Cases

1.In first party claims, the duty to act in good faith and fairly in handling the claim of insured, namely a duty not to withhold payments unreasonably that are due.

2.An Insurance company's failure to settle reasonably a first party claim against it may give rise to a contract action, not a tort. Beck v. Farmers Insurance Exchange

a)P was injured in a hit - n- run. He demanded $20,000 in uninsured motorist coverage from Farmers. After denial, P sued for breach of good faith, alleging a cause of action in both contract and tort. Held , an insurance company's failure to settle reasonably a first party claim against it may give rise to a contract action but not a tort.

b)Note: This is different from a third party claim, where the rational is due to the fiduciary relationship not present in first party insurance claims. For courts where the fiduciary relationship is key in justifying tort damages, these types of first party claims are rejected. In first party claims, there is an adversarial relationship because the insured is suing the insurer and alleging bad faith. There is a compelling reason to treat it like a breach of contract case. The damages are general damages, but the court will award consequential damages that are foreseeable from the breach. Damages in excess MAY BE AWARDED. Policy reasons lead the court to define maximum for performing contract not breaching it. Breach of insurance policy (new tort?) ** Relationships are different but damages can be the same. Public Policy dictates that first party claims should not be denied extra damages in a bad faith cause of action when third parties are so awarded. The bad faith was the delay of payment FOR NO GOOD REASON. In 3 rd party “failure to act in good faith” cases this exposes the insured to a judgment for liability and insurer acts as an agent. In 1 st party there are no trust issues, relief is created by the contract. The award of consequential damages softens the No Tort approach for bad faith actions.

U.Statutory Creation

1.Note: The Unfair Practices Act defines unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.

a)Knowingly …

(1)Misrepresenting pertinent facts

(2)Failing to act reasonably promptly

(3)Failing to adopt reasonable standards for investigating and processing claims

(4)Failing to affirm or deny coverage within a reasonable time

(5)See page 162

b)Unless the statue specifically says differently, courts will say the statute creates a private cause of action. State Farm Mutual Automobile Insurance Co. v. Reeder held , the act is remedial in nature and should be construed liberally. BEWARE OF STATUTES. Note: this is not a major case.

V.The Future

1.The Arise of ERISA

a)The concept of good faith and fair dealing is largely judge- made law with some statutory interventions. The doctrine is also exclusively a matter of State law and preserved by the McCarran-Ferguson Act, supra . ERISA was enacted to serve the purpose of protecting the rights of employees and their beneficiaries in employee benefit plans.

b)If a state law relates to employee benefit plans, it is preempted. The savings clause excepts from the preemption clause laws that regulate insurance. The deemer clause makes clear that a state law that purports to regulate insurance cannot deem an employee benefit plan to be an insurance company.

c)ERISA preempts state law. District of Columbia v. Greater Washington Board of Trade

d)Self –funding. 60% BCBS is self- funded. This is significant in insurance law because it's not insurance it is just an administrative service to client. Contract to underwriter business when there is a premium and risk involved. Both could be considered Employee Benefit Plans, it could be insurance or the company could be self-funded.

e)Note: Argue ERISA preemption this means no state action, no jury, and federal court.

2.Final Note Reverse Bad Faith

a)A duty of good faith is a two- way street, running from insured to insurer and vice versa.

PART B PROPERTY INSURANCE

V.Chapter 5 Presentation of claims

W.Timeliness, Honesty, Filing Suit

1.Failure to notify insurer "as soon as practicable" after discovery of the loss constitutes a breach of a material condition precedent to insurer's liability under its insurance contract. If there are no mitigating circumstances justifying the insured's failure to give timely notice, some courts hold the inured is not entitled to benefits.

a)Notice of loss provisions in contracts. Compliance with the provision is a material condition precedent to coverage. No showing of prejudice is required on the part of the insurer for them to have the defense of non- compliance may be asserted. “As soon as practicable” means reasonable under the circumstances. No precedence says notification of the wrong insurer excuses the delay.

b)Gardner - Denver Co. v. Dic- Underhill Construction held , twenty months after date of theft is unreasonable. Mitigating circumstances may arise if insured lacks, or is incapable of acquiring knowledge of the occurrence, is out of state , or in good faith reasonably believes there is no policy coverage or that the insured was not liable on the main action.

(1)The plaintiff sued the owner of a construction site and the contractor for the value of an air compressor it had leased to defendants and which was presumably stolen from the site. At the time the compressor was stolen, defendants notified American, which issued a policy of builder's risk insurance to the contractor and site owner. D's assumed that American would cover the claim, but nearly two years later American notified defendants that the claim was outside coverage. Within a month after the denial, the contractor filed a claim under its bailees' policy with St. Paul. A few months later, St. Paul denied coverage, D's sued and St. Paul moved for summary judgment on the grounds that defendants failed to comply with the provision of their insurance contract that required notice of any loss "as soon as practicable." Under NY law, compliance with a notice provision is a condition to coverage; absent a valid excuse for the failure to give notice, no coverage exists . The court held that the good faith belief that the loss would be covered by American did not excuse the contractor's failure to notify St. Paul of the loss in a timely manner. Accordingly, the twenty- month delay was unreasonable.

2.There is no requirement that the insurer show prejudice from the insured's delay in bringing the suit. Waiting too long to commence the suit results in an automatic loss of benefits . Schreiber v. Pennsylvania Lumberman's Mutual Insurance Company. The court held that the legislature's mandating that every policy of fire insurance issued in the state contain a contractual limitations clause prevented courts, absent extenuating circumstances not present in that case, from refusing to enforce the provision. (But see , Brakeman , holding that the provision in the contract requiring notice was included at the sole discretion of the insurer, and was in the nature of a contract of adhesion, supra . Therefore, the insurer must prove prejudice. See also , General State Authority v. Planet Insurance , holding that "a provision of this nature” may be extended or waived where the actions of the insurer lead the insured to believe the contractual limitation period will not be enforced).

a)Virtually all courts refuse to enforce the provision if the insurer led the insured to believe that the provision would not be enforced. Thus, under circumstances where the insurer promised to pay the claim, led the insured to believe that the insurer had lengthened the limitations period, or misled the insured about the possibility of settlement, courts have either held that the insurer was estopped to enforce the provision or that the insurer had waived it.

(1)The provision means date of the loss not the date when liability has been denied.

(2)In Closser v. Penn Mutual Fire Insurance , the insured and his wife owned a policy of fire insurance covering their home, which was destroyed by a fire of suspicious origin. While efforts to settle the claim proceeded the insured was indicted for arson, but the charges were dismissed. When the insured attempted to reopen settlement negotiations, the insurer rejected the claim and denied liability. In the meantime, the insurer paid the wife's claim. The insured tried again to renew the negotiations, but this too failed. When the insured sued, the insurer obtained summary judgment on the ground the suit was time barred. On appeal, the court rejected the insured's contention that the contractual limitations were unfair and unreasonable. However, the court concluded the record contained evidence that a factfinder could credit supporting the conclusions that the insured invoked the appraisal procedures of the policy, that the insurer did not deal fairly with the insured in responding to his requests for an appraisal, and that this misled the insured to assume that there was no need to file suit within the policy's time limitations. Accordingly, the court ruled that the grant of summary judgment to the insurer had been erroneous.

b)Note : Plant v. Illinois Employers Insurance of Wausau held , the 12 months limitation on bringing suit on the policy will bar the breach of contract claim, but not a tort claim based on the insurer's duty to act in good faith, as the claim is independent of the insurance policy.

3.Many insurance policies provide that the policy is void if the insured willfully conceals or misrepresents a material fact concerning loss. The issue often occurs in connection with the insurer's defense to coverage based on a claim that the insured willfully misrepresented the facts of the loss in a proof of loss statement.

a)Note : there is a fine line between exaggeration and intentional misrepresentation.

b)In Nagel- Taylor Automotive Supplies v. Aetna , P's were covered for actual business interruption losses on a building which they owned and operated as a nightclub. The relevant provision provided that the insureds would be reimbursed for the amount by which their profits decreased (or losses increased) during the interruption "but not exceeding the reduction in gross earning less charges and expenses which do not necessarily continue during the interruption of business." The limit of liability was $50,000 and in a sworn proof of loss the insureds estimated their loss to be in excess of $100,000. The actual financial records showed a deficit exceeding $17,000 for 8 mo.'s. The insurer's accountant concluded no business interruption loss was suffered. The jury agreed, awarding P $175,000 total damages but nothing for business interruption. The trial court granted a jnov, ruling the insurer had proved the insured committed fraud and false swearing. On appeal, the verdict was reinstated. Although the losses were unreasonably high, the jury could have concluded that the estimate was merely an overstated, good faith estimate of future earnings. Arson has bearing on intent and m.o., but the evidence was circumstantial and for the jury.

(1)This case demonstrates that inherently speculative estimates are difficult to make the basis of a false swearing defense, particularly when made by a non- expert . See , for example, Lykos v. American Home Ins., holding obvious and deliberately inflated statements of loss defeated the claim to proceeds for all other claims. There must be additional factors present before the court will find false swearing.

4.Note: False swearing enables the insurer to recover ALL payments. For protection, insurer should pay them and sue for restitution to avoid a bad faith claim.

5.False statements relevant to other aspects of a claim.

a)A false statement is material if it concerns a subject reasonably relevant to the insurance company's investigation at the time. False sworn answers are material if they might have affected the attitude and action of the insurer, or are calculated to discourage, mislead or deflect the company's investigation in any area relevant to the investigation. Fine v. Bellefonte Underwriters Ins. Co.

(1)The insured's coverage was voided because the insured made false statements under oath when responding to the insurer's questions during the investigation of the claim. The insured obtained a policy of fire insurance on three buildings rented for commercial uses in NY. The buildings had a single heating system that employed a single boiler. The insured desired to convert the buildings to residential use; as part of his plan to encourage tenants to leave, he told a building superintendent to set the heat timer so that the boiler would not operate until a subfreezing temperature was reached. During the winter a fire occurred, destroying three buildings. The building's sprinkler system did not operate due to blockage that the trial court found was caused by ice in the pipes; the trial court found that had the sprinklers functioned normally, the fire could have been controlled. The trial court entered judgment for insured. It found the insured had testified falsely in sworn examination, however his statements were not material to the loss. On appeal, this was reversed on the ground that the insured violated the false swearing provision of the policy, therefore voiding coverage. Coverage can be voided due to insurer's deliberate misrepresentations made when the insurer was investigating a plausible theory based on available facts and the insurer's questions were material to the investigation.

b)The purpose of the oath is so insurer can get facts to see whether there needs to be an investigation or to determine liability.

c)Note the different standard of "materiality" when the false statement occurs on an application, as opposed to "false swearing" on post loss investigations.

VI.Chapter 6 Potential Defenses By The Insurer [Note: This is an important chapter]

X.That there is no contract

1.Illegal because of lack of insurable interest. In order to recover there MUST be insurable interest.

a)Two basic theories

(1)Legally enforceable right theory . Requires the insured have some valid and recognizable property right in the subject matter.

(2)Factual Expectations. Based on the notion that the insured must suffer some actual (perhaps substantial?) loss or detriment from the damage, loss or destruction to the insured property, and maintain some gain, benefit or advantage from its continued existence . The advantage or benefit must be morally certain. (The idea that total elimination of risk can have perverse effects is known as moral hazard). See Understanding Insurance Law Chapter 4.

b)The starting point is that if there is no legal or equitable interest title there is no insurable interest. Silberman v. Royal Insurance Company.

c)The general rule . A person has an insurable interest in the subject matter insured where he has such a relation or concern in such subject matter that he will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction, termination or injury by happening of the event insured against. G.M. Battery & Boat Company v. L.K.N. Corp.

(1)It is not necessary that the interest would be such that the event insured against would necessarily subject the insured to loss. It is sufficient that it might do so although a person has no legal or equitable title and no possession or right to it, yet he has an insurable interest if it is primarily charged with a debtor obligation for which he is secondarily liable.

(2)If there is an unexercised option the optionholder has an insurable interest if there is potential for loss in the destruction of the subject matter.

(3)The material circumstance in determining insurable interest is not title, but possibility of loss.

(a)Note : The court pointed out that it will make every effort to find insurable interest , and to sustain coverage when there is any substantial

possibility that the insured will suffer loss from the destruction of the property. This is consistent with the rest of the course. The language is profit from continued possession and economic loss from destruction ,

d)Any limited or qualified interest equitable right or expectation of advantage is sufficient. See Hunter v. State Farm , holding that P had an insurable interest when the conveyance to her children was intended to create a life estate in her. The court imposed a constructive trust to prevent the unjust enrichment.

(1)Note : there is the possibility of fraud here, it was probably NOT their intent to recover the property and keep a life estate. This was probably her lawyer's idea.

(2)Note also that anytime knowledge is given to the agent you should argue estoppel as Hunter informed State Farm of her new residence and the possibility of a conveyance in the property may have been evident.

e)The existence of an executory contract for demolition of a building does not deprive the owner of an insurable interest in the property. See , Tublitz v. Gless Falls Insurance , where P's building was scheduled for demolition but was destroyed before it started. Any number of factors could change the scheduled demolition. The court indicated that if demolition had started then there would be no insurable interest.

(1)Note : It is hard to know when demolition work can be considered to have begun.

Y.That there is no contract

1.There is no coverage of the claimant (the personal nature of the insurance contract).

a)A church conveyed property to P, who retained an option to purchase if P no longer performed religious services there. There was a provision in the contract that assignment shall not be valid except with the consent of D. The policy required that assignment would be valid only with insurer’s consent. The provision was also legislatively mandated. D had not given consent so there was no insurable interest. D was not estopped because he inspected the premises and was aware of the sale. A fire insurance policy is a personal contract of indemnity, and is on the insured's interest in the property not on the property itself. The church's only remaining interest was the option to repurchase, but was too far removed from a tangible interest in the property. Note, that there was a condition precedent to the option and the contingency, however remote , could have occurred. The party who purchased had no rights under the policy.

(1)Note 1 the church's lawyer seems responsible for this .

Z.That there is no coverage of the risk

1.Because the loss was not established by required evidence (evidentiary conditions)

a)Evidence that there were no visible marks of forcible entry as required in the insurance policy. Cochran v. Mutual Insurance.

(1)Note : the court could have reached a different result if the contract was unconscionable, ambiguous, or not literally enforced if it was not an inside job.

2.How Coverage is Defined in Property Insurance

a)Specific designation of risks with additional coverage available for other risks. The insured has the burden of proving that the insured event has occurred – that a specifically designated risk (fire) was the cause of the loss.

b)All Risks or all physical loss. This has the advantage to the insured of merely requiring proof of the casualty, with the burden shifting to the company to affect an escape via an applicable exclusion.

c)Pan American The issues were (1) Do carriers have the burden of binging “hi- jacking” w/in the scope of the named exclusions and if so, (2) Can hi- jacking be equated with war, riot, etc.? Insurers had the burden of proving that the proximate cause of the loss of the 747 was within one of the terms of the exclusions. The task is difficult because exclusions will be given the interpretation most beneficial to the insured. Pan American began with the prima facie case they are covered. Insurer must prove they are not. Specifically, they must demonstrate that an interpretation favoring them is the only reasonable reading of at least one of the excluded terms. Contra Proferentum has special meaning here, when the insurer fails to use apt words to exclude a known risk. The evidence here indicated insurer’s knew hi- jacking was a real threat. Defendant’s argued it was not the proximate cause of the loss. The mechanical test, which the court applied, looks to the cause nearest the loss. This rule is adumbrated by the maxim contra proferentum if the insurer desires to have more remote causes determine the scope of the exclusion, they should draft the language to effectuate that intent. The mechanical loss was the hijackers, not the crisis in the Middle East.

3.Because the insured event has not occurred (herein, such matters as proximate causation , "exclusions", "exceptions", etc.)

a)The mechanical test of Pan American, above.

b)Within the contemplation of the parties and Reasonably Forseeable test?? Bird. Policy had no express language to cover damage by explosion. There was a fire causing multiple explosions, the last one damaged plaintiff’s boat. Was the damage causing the loss too reote so as to preclude recovery for the loss? Yes. The court looked only to the causes within the parties contemplation. Common sense tells us where to stop. The fire was so remote at all times that there was never direct exposure , only indirect exposure. Reasonable, probable prudent foresight? Fire must reach the thing insured or come within such proximity to it that damage, indirect or direct, is within the compass of reasonable probability. Only then is there proximate cause and within the parties contemplation.

c)Sets other causes in motion test. Graham v. Public Employees . The immediate physical cause analysis is no longer appropriate and should be discarded. We have defined proximate cause as that cause which, in natural and continuous sequence, unbroken by any new, independent cause, produced the event, and without which the event would not have occurred. Where a peril specifically insured against sets other causes in motion, which in unbroken sequence produces the result for which recovery is sought, the insured peril is the proximate cause. Not necessarily the last act and without a need to look to the parties intent. Bird , infra , would have come out differently.

d)Note: if the cause can also be attributed to negligence, you can apply the concurrent causation doctrine and find coverage. Example, something is excluded but the cause of the loss is somebody’s negligence. Both are concurrent causes, and there is coverage.

e)Look at pages 255- 57

f)Coastal Plains . To inform the jury adequately that insured has the burden of proving the loss and not something else, the court only needs to define the excluded term in its generally accepted meaning and emphasize they have to prove the loss happened another way (by theft - - not excluded) and not the excluded way (mysterious disappearance).

4.Implied exceptions (hostile fires, etc.)

a)Engel. The Hostile fire doctrine states that when a fire is intentionally started and remains confined to the place it was intended it will be characterized as friendly. This court says that common sense tells us that when an insured buys a fire insurance policy which covers “all losses” or damage to fire, his expectation is that it will cover all unintentional losses regardless of the nature of the fire. A fire which causes damage by burning for a greater length of time than intended is no less uncontrolled merely because it burns at an unusual rate. Note, the court could have also used unconscionability, ambiguity, reasonable expectations and the fact that insurer could have made these fires specifically excluded.

AA. That insured has breached conditions of policy

1.Warranties and similar conditions (to be distinguished from coverage conditions if possible)

a)The insurance contract contains conditions to the insurer's obligations. If the condition to the insured's duty is not satisfied, the insurer need not perform. In other words, the insurer's nonperformance is excused.

b)Breach of Warranty defined. Warranty refers to a statement or promise by the insured which if untrue** or unfulfilled provides the insurer with a defense to a claim for coverage. The insured agrees certain acts will be or have been done, and the validity of the insurance contract depends upon the fulfillment of these acts. The potentially harsh effects have been mitigated through judicial decisions and statutes.

2.A representation will be treated as a warranty if two requirements are met

a)The representation or promise must be included in the contract

(1)Note: it can be attached

b)The contract must show that the parties intended the rights of the insured to depend on the truth or fulfillment of the representation or promise.

(1)There must be some clear indication that the parties intentions are predicated on the truth or fulfillment of the statement or promise.

3.Two kinds of descriptions of the risk on which the underwriter must rely

a)Descriptions within the policy where the descriptions need to be literally true , regardless of their materiality

b)Descriptions outside the policy where the insurance was valid unless the incorrect description was substantial and material

4.A warranty must be strictly satisfied if the insured is to have coverage. Violin v. Fireman's Fund Insurance. The insurer waived its power to rescind the contract by issuing the policy with knowledge the insured has fraudulently misrepresented a material fact on the application. Insurer elected to provide the policy anyway.

5.The essence of a warranty is that it is intended as an absolute condition to coverage. Thus, an insured cannot avoid the effect of its breach by claiming the matter warranted was not material to the risk. A warranty is binding regardless of materiality, it is conclusively presumed. In contrast, a misrepresentation does not give the insurer grounds for voiding the contract as long as the representation is substantially true .

a)Example . Applicant states her health is good. If the court construes this statement as a representation it will not invalidate the contract unless fraudulently made. If the statement is a warranty, the incorrectness will wholly void the policy.

6.Important Distinction Affirmative Warranty v. Promissory warranty

a)A warranty is a statement, description or undertaking on the part of the insured, appearing in the policy or incorporated therein, relating to the risk insured against. They are one of two types:

(1)Affirmative asserts the existence of a fact at the time the policy is entered into, and appears on the face of the policy, or attached.

(2)Promissory is an absolute undertaking by the insured that certain facts or conditions relating to the risk will continue and appears on the face of the policy, or attached.

(3)Example. Description of a house in a policy of insurance as “occupied by” the insured is merely a description and not an agreement the insured continue to occupy it. Reid v. Harbuare Mutual.

7.Important Rule Breach of warranty does not require proof of materiality and the burden is on the insured .

8.Where parties with equal bargaining power expressly agree that certain circumstances are absolute prerequisites to the insurer's obligation to perform, the fairest result is to enforce the agreement.

a)Example. In American Home Assurance v. Harvey's Wagon Wheel , the court held that the automatic sprinkler endorsement was the essence of the contract. It was specifically bargained for and brought to the attention of the insured, and the part that had a system installed was not damaged by fire. Law and Equity require an unambiguous policy provision be enforced .

(1)Note : this case is an anomaly!

9.MCLA 500.2835 Losses An insurer shall not base a defense under the terms of a fire insurance policy permitted to be used in this state, upon a breach of warranty or condition occurring before loss, unless the breach exists at the time of the loss or contributes to the loss or to the amount of the loss.

a)Sprinkler system must have been operative at the time of the fire. This statute narrows down the situations where a B/W defense can be used. On different facts What if the application was signed and policy issued when sprinkler system was not operating? Insurance Co. might have said they breached the warranty because we discovered at the date they warranted an operative sprinkler system, so policy is voided.

10. Analysis

a)First distinguish between whether the clause is a warrant or representation. If a representation, the insurers are under an obligation to show the provision was material to the risk insured against. A representation is not part of the contract, but collateral. Warranty need not be material to deny coverage.

(1)Vlastos. Policy warranted the 3 rd floor was occupied as a “Janitor’s residence.” After finding that this was a warranty, the court concluded that in light of the probable intent, and viewed in the context of the whole policy, it is difficult to say this warranted that the 3 rd floor was the sole residence. The provision was ambiguous. The policy could have easily stated that the 3 rd floor was solely occupied by the janitor. The insurer contended the purpose was to ensure that a higher risk tenant would not occupy the third floor. Because the insurer had not informed the insured of this, it was not reasonable to expect the insured to understand this to be the purpose of the warranty. The insured had a reasonable understanding of the ambiguous clause.

b)Then between a warrany and a condition precedent. Page 284.

c)Good section in book on page 285- 88.

BB.That Insured has breached conditions of the policy

1.Reporting conditions

a)When the value- reporting clause is breached liability is not avoided but limited.

b)General Rule an insured who is delinquent on its reports is limited on the amount of coverage to the amount shown on the last report filed prior to the loss. Midwest claimed this was a technical breach that did not (1) contribute to the loss, or (2) increase the risk.

2.Common policy conditions suspending coverage

a)Increase of the hazard

(1)Can be express (warranty) or implied

(2)Rules before non liability will be found

(a)The insured's knowledge or constructive knowledge is required

(b)The insured's mere control is not by itself sufficient to eliminate coverage.

(c)The increase of hazard must constitute a substantial change of circumstances materially increasing the risk.

(d)Examples . Smoking in bed will not suspend coverage, neither will storing small amounts of gas in one's garage. However, storing 40 gals. in garage during gas shortage will suspend coverage. Putting warning sign that house is protected by spring guns increases risk of loss because fire fighters reluctant to enter, and cutting off fuel supplies to a MI home does as well.

(e)Bottom line common sense judgment of what is a normal, expected use of property, the necessity of the risky conduct and the extent to which increase of loss is enhanced.

b)Vacancy or unoccupancy

(1)Vacant means entirely empty (i.e. lack of inanimate objects) and unoccupied means the lack of habitual presence of human beings (i.e. lack of animate objects). The presence of these terms in a contract creates no ambiguity.

c)Other insurance

CC.That insured obtained the issuance of the policy by concealment or misrepresentation

1.See Chapter 3 δ C, Merchant's Fire v. Lattimore

DD.That the policy has been cancelled with or without cause

1.General Rule An agent cannot revive a properly cancelled policy through mere representation that the policy is still in effect. This is based on a finding that the agent lacks actual authority to bind the insurer, otherwise the policy may be held to be reinstated.

2.Mid- Century v. Norgard . Norgard had several cars and an agent falsely told him he would be covered until sometime in mid- July. The premium had been returned and coverage cancelled. The insured here knew and could not reasonably believe he was covered. The mere oral representations by an agent could revive the policy. Note, however, that an attempt to collect on a NSF’s check has been deemed to be inconsistent with an attempt to cancel and insurer was held to have waived notice of cancellation.

VII.Chapter 7 Payment of Claims

EE.Introduction. The duty to pay proceeds is the most important duty of the insurer. The source of the duty is grounded in contract, the insurer promises to pay proceeds if a loss within coverage occurs. This duty is discharged by a number of events such as the failure to take reasonable steps to avoid the loss (note: the avoidable consequences doctrine does not apply directly because at the time of the loss the insurer has not breached, the underlying policy of the doctrine, however, applies) and the insured can only recover for a fortuitous loss. Taking reasonable steps to limit the loss is also a condition to coverage . But note, coverage will not be forfeited unless the insurer is prejudiced.

FF.Measure of Recovery

1.Valuation

a)see pages 570- 74 in Understanding Insurance Law

b)Determining Actual Cash Value means either

(1)Market Value , or

(a)Insurance companies expect to absorb economic fluctuation not unanticipated alterations that unexpectedly increase the value of property.

(2)Titus v. West American Insurance Plaintiff fixed up a mustang, which was stolen. The policy had a clause stating that the limit of the company’s liability for loss shall not exceed cash value. The policy did not define cash value. The court used the market value because there is a readily determinable market value for autos and value adequately compensates the insured and reflects his reasonable expectations. The special improvements doubled the value of the car, and plaintiff could not reasonably expect to receive full value for the additions. The court distinguished increased risks due to market conditions as opposed to unanticipated risks. Insurer has NO DUTY to ask whether this was an ordinary vehicle. This was an experienced mechanic who knew universal insurance practices and average consumers have no such expectations that they do not need to bring this to the insurers attention. Misstating the vehicle was a material misrepresenta tion that altered the risk.

(3)Replacement cost or

(a)When dealing with RE the strict rule that market value is an exclusive measure of damages does not apply. There is not a broad market, so you can bring in other measures for evaluating value. Also, use FRV, the ability of the property to earn through usage.

(4)Broad Evidence Rule where any evidence tending to establish ACV is considered.

(a)McAnarney v. Newark Firs Ins. CO In 1920 a building was burned by fire. Plaintiff claimed the value of the building was $60,000. The court refused to receive proof that, inter alia, the prohibition lowered the value of the building. In real estate, if

market value were the rule, property for which there was no market would have no value. The court looked beyond the policy, and did not agree with the plaintiff that replacement less depreciation was good enough. In order to effectuate indemnity, the trier of fact should look at all the circumstances that would logically tend to a correct estimate of the loss.

(5) Where there is no market and replacement is unrealistic, the broad evidence rule is virtually compelled.

2.Co- Insurance

a)Defined . A property insurance clause which provides a formula for loss - sharing between insurer and insured.

GG.Arbitration

1.Appraisers can only determine questions of fact not law.

2.An arbitration or appraisal award may be vacated when the arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.

a)Safeco Insurance v. Sharma Insured and Insurer could not agree on the value of 36 paintings so insured requested an appraisal. The insured claims they exceeded the scope of their powers by stating they were not convinced by a preponderance that the paintings were ‘Rembrandts.’ She presented evidence that they were antiques. The factual issue before the arbiters was the value and not their nature. The insurer is free to litigate the insured made a misrepresentation, but it is beyond the scope of an appraisal.

3.Every presumption favors the arbitrator’s award.

HH.Apportionment among partial interests

1.Co- tenants

a)Unless the insured has an obligation to insure, or equitable considerations are present, the proceeds of a policy issued to and paid for by the named insured on his separate insurable interest are not subject to the claims of others who also have an interest in the property covered by the policy. See Russell v. Williams , where the court held, a fire policy must specify the interest of the insured when he is not the absolute owner. The policy at issue did not cover Plaintiff's interest because P separated from her husband, left him in full possession, the policy was obtained by him and she had no knowledge of the policy. Mr. Mouser purchased with his separate funds fire insurance payable to himself alone , evidencing intent to protect only his interest in the property.

b)Note: a fire policy is a personal contract indemnifying the insured against loss resulting from the destruction of or damage to his interest in that property.

2.Mortgagor- mortgagee

a)In a mortgagee- subrogation context, destruction of the mortgage by the mortgagee defeats the mortgagee's right to recover from the insurance company. By accepting the deed, P discharged the Bateses of their debt and wiped out her insurable interest as well. Her claim against the insurance co. could rise no higher than her claim against the Bateses. When that claim expired, her insurable interest and rights under the policy did also.

b)As a secured party, the mortgagee has a definite interest in the preservation of the property. This interest supplies the mortgagee with an insurable interest in the property under two theories:

(1)Mortgagor/Mortgagee Union Clause proceeds payable but mortgagee is subject to mortgagor’s defenses

(2)Standard Mortgage Clause

(a)Note: Open Mortgage Clause Rights are derivative of rights of the mortgagor.

c)Once the mortgagee’s debt has been satisfied and the insured’s property is destroyed, the mortgagee has suffered no damage and cannot recover because its interest has been satisfied. Otherwise, this would be a windfall.

d)The mortgagor is not entitled to protection in a mortgagee- only type insurance policy. If the policy does not name the mortgagors or create any rights in them.

e)Where there are loss payees in an insurance policy pursuant to an open mortgage clause their right to recover is contingent upon, and purely derivative of the right of the mortgagor to recover from the insurer. Mortgagee cannot recover if insured is barred in the open form.

3.Vendor- purchaser

a)The key question is when does the risk of loss shift to the buyer? The scenario is the person who does not bear the risk of loss has insurance but the other party does not.

b)Grain Processing v. Continental GPC contracted to sell grain to Glenmore. The barge was destroyed. The policy issued to GPC covered this loss. Continental refused coverage to both, claiming GPC had no insurable interest at the time the accident occurred and that Glenmore was not an insured party even though they had an insurable interest. Held, Paragraph 17 of the policy manifested an intent to cover a consignee with an insurable interest in the property. Continental accepted a premium to provide coverage for the precise type of loss that occurred.

4.Seller- buyer of goods

a)Seller and buyer had an executory contract for a house. The house burned down. Buyer went ahead with the transaction thinking the seller was to give him the insurance proceeds. Seller maintains the policy is a personal policy. Buyer says the insurance is to indemnify for damage and seller would be unjustly enriched if allowed to keep the proceeds. Held , at the time of the fire, seller as legal owner , held the property in trust for buyer and as security for payment of the purchase price. Buyer held equitable title. Seller sustained no loss, but buyers did.

(1)Note: the general rule is that seller is entitled to recoup the premiums he paid before crediting the proceeds against

the purchase obligation .

b)Buyer had agreement to sell her house. Sellers procured insurance covering improvements and payable only to sellers. A clause extending to purchasers was explicitly rejected. Purchasers got insurance from Aetna. Sellers assigned all their rights under their policy to purchasers. Paramount claims the buyers incurred no loss from the fire and that Aetna is liable. The rule is that where the buyers have their own insurance policy they do not collect from the seller’s insurance policy if they pay full purchase price. Absent insurance, it is only equitable to give buyers the proceeds. Further, sellers did not originally intend to protect the buyers Paramount v. Aetna Casualty.

5.Bailor- baliee

a)Some policies of insurance are procured by bailees to cover only the property of their bailor customers, but generally bailees cover their own property as well. Many policies continue to use the language “in trust and on commission.” The expression means that the goods or property are in the custody of the insured. The language most widely misinterpreted is “for which the insured is liable” “legally liable” etc. The majority rule is that such language refers to the responsibility of the bailee to account for property and that such phrase is merely descriptive of the property covered by the policy.

II.Subrogation

1.Subrogation puts the insurer in the place of the insured with respect to any claim the insured has against a third party for causing the loss. The insurer is required to have paid its insured under the policy. The insurer gets no greater rights. The loss is charged to the negligently or willfully acting third party. In a sense, the principle of unjust enrichment is involved; if the insurer pays the insured and makes her whole, then the third party is in a position to extricate himself without economic loss unless the law intervenes to give an insurer a right to recover what it pays the insured.

2.Two general rules

a)There is no subrogation against an insured, and

b)The insurer will not be recognized to have subrogation rights if it “volunteers” payment to the insured. “Equity does not aid a volunteer.”

3.Frost v. Porter Insurer claims that to the extent of the benefits it paid to plaintiff, it was entitled to any damages he might recover for medical expenses from third party defendant. Subrogation is an equitable adjustment of rights that operates when a creditor or victim of loss is entitled to recover from two sources, one who bears primary legal responsibility. Insurer is entitled to share the benefit of any rights of recovery the insured may have against a tortfeasor for the same loss covered. This is a case of implied subrogation, to prevent a windfall. Courts have not recognized implied rights in the area of personal insurance. In the absence of a subrogation agreement, an insurer that has paid medical or hospital expense benefits has no right to share in the proceeds of the insured’s recovery.

4.Man bought son a chemistry set. He burned the house down. There is no evidence the insurance company had been actionably damaged by breach of duty to supervise son. The insurance co. has no subrogation rights against the co- tenant of its policy holder. The law considers the tenant as the co- insured of the landlord absent the express agreement between them to the contrary. The company should not be able to shift such loss to an occupying tenant even if the latter negligently caused it. This would shift the insurable risk. Sutton v. Jondahl.

VIII.Chapter 8 Methods of marketing

JJ.More details on the negotiation of contracts insuring the person; and on the function of agents

1.The philosophy behind most of the decisions is the insurer’s desire to delay coverage until after it has had an opportunity to evaluate the risk, while simultaneously emotionally binding the applicant at time of application by securing payment of part of the first premium. The determining factor is whether consideration has been paid.

2.Collister. Insured paid two months premium payment and was given a conditional receipt but died before he took the required physical. Temporary contracts of insurance pending issuance of the formal policy are well known. The courts will say either the language was ambiguous, the insurance company drafted the language so if they intended something different the could have added it using clear language, an ordinary person paying a premium and receiving a return receipt would have thought he was covered. It would be unconscionable to allow insurer to escape coverage. It can be immune fro coverage while getting the benefit of the money. The payment marks the beginning of performance, which generally occurs after the contract has been made. Insurer must establish by clear and convincing evidence that the agent told insured he was paying money but won’t be covered until successful completion of medical exam. **Insurer should have told. Insured has no duty to read the policy due to the adhesionary nature of insurance contracts.

3.Note: Insurance industry likes a premium because

a)It evidences a commitment to go with that insurer

b)You’d have litigation on whether consideration has been paid

4.Retaining the premium and failing to reject constitutes an acceptance of applicant’s offer. Delay in acting on the application along with keeping the premium is inconsistent with no coverage.

5.Note also: rejection terminates the contract but some courts held the money must also be returned.

KK.Thomas . Conditional receipt stated clearly and unambiguously it would expire in 30 days. The court held the contract expired by its own terms.

1.A conditional binder creates an immediate contract of coverage conditional upon the applicant’s insurability, meaning the coverage does not exist until the insurer is satisfied that the risk is acceptable. (Note: this is ordinarily a medical exam in Life Insurance). If the applicant passes the exam, but dies before the paperwork is processed the beneficiaries are covered. If the applicant dies before taking the exam, no proceeds need to be paid. The preserves the right to deny coverage for a loss occurring prior to the issuance of a formal policy on the ground the risk was uninsurable. The insurer will pay for a loss occurring prior to the issuance of the policy if in the normal course of things they would have issued the policy. Remember: BAD FAITH EXCUSES NONOCCURRRENCE OF A CONDITION PRECEDENT.

2.Note: More often than not these will be upheld, this case is the minority. Ask Skinner.

3. If the insurer acts in bad faith this is considered a material breach that excuses insured’s nonperformance of a condition precedent. A condition precedent to insurer’s non- liability is good faith determination that applicant met insurer’s standards of insurability. Rohde v. Mass Mutual.

IX.Chapter 9 Potential Defenses by the Insurer

LL.No contract for failure to meet conditions precedent

1.Delivery of policy (delivery in good health)

a)If no premium has been paid, the insurer has no duty to perform Expectations of the insured are unreasonable when they know they have not paid the premium.

b)Insurer will win only if the insured knew he was in good health.

2.Payment of premiums

MM.Illegal for lack of insurable interest people have an insurable interest in their own lives. As far as interests in other people’s lives, there is a presumption of an insurable interest the stronger the blood ties there are. This is the majority rule. The minority of jurisdictions follows the pecuniary interest test, whereby there must be some advantage or benefit from the continued existence of the insured, or some detriment to their demise.

NN.No coverage of particular persons because of status qualifications

1.Incontestability clauses

a)These clauses only defeat claims made on or after the policy. Any defenses going to coverage are not incontestable. For example, material misrepresentations may act to void the policy. Or, the court will find that the policy is still in effect, but will strike the clause.

OO.No coverage of the particular loss claimed

1.No occurrence within the time limits of the policy

2.Semantic questions

a)What is “disability”

b)What is accident or occurrence?

(1)An accident is defined as an event that is unusual or unexpected by the person to whom it happens.

c)What is accidental means?

(1)The first question to answer is: Was the cause of the loss accidental?

(a)Causal analysis looks to the cause

(i)Remember that coverage exists only for fortuitous and unintended events. Even if this is not expressly stated in the policy, it will be implied by the courts.

(ii)If there is no accident as to the cause, there is none in the result. There is either an accident throughout, or no accident at all. This is the majority view. The minority view that is gaining majority is that an accident is an accident whether as to the means or the result.

(2)If there is an accident, did it act to produce the loss?

(a)The Concurrent Causation Test

(i)If there are concurrent causes, then look to see whether tine of the causes is too remote in time, and therefore will not be considered the proximate cause.

(ii)If the accidental cause is not too remote, then is it a substantial factor in producing the loss? If not too remote and substantial, then the loss will be considered accidental and covered.

(b)The Mechanical Test

(i)Just looks to the last act causing the loss

(c)The Efficient, prime, moving cause

(i)Whether there was but one uninterrupted and continuous cause that set the other causes in motion.

(3)If there was no accident then was it intentional?

(a)Remember: fortuitous means accidental. This protects against moral hazards and is good public policy. The issue in these cases is whether the act causing the loss was intentional or accidental?

(b)Example. Insured’s death after an overdose of heroine was intention. It was the natural and proximate consequence of knowingly ingesting heroine. Note: these cases can easily go the other way. What about smoking pot?

(c)The analysis turns on the three tests, infra .

X.Chapter 10 Rights to the proceeds

PP.Substantial compliance in change of beneficiary procedures is enough to make the change effective.

1.Occidental Life v. Row decedent had done everything to change the beneficiary. Also, if he had lived he would have done everything to comply. The rule of substantial compliance is designed to implement the policyowner's intent and there was no doubt as to decedent 's wishes. But see, Manhattan Life v. Barnes, where decedent's daughter's claimed he changed the beneficiary form 22 months prior to his death. The court held there was no evidence indicating he was incapacitated during this time or that anything prevented him from completing the change. He could have done more. He could have had a change of heart. The two cases read together suggest that mere intent is not enough to accomplish the change, you need something more the insured must make a substantial effort to effectuate the change.

2.Two big differences

a)He sent in the form

b)Length of time

3.Every reasonable effort under the circumstances. Modifies substantial performance /compliance—this is more like strict compliance.

QQ.If the policy holder complies the change is effective even though the change is made without knowledge or consent of the new beneficiary. The rule of substantial compliance is grounded in Equity to carry out the intent of the party. Should intent or formal requirements control? Note, however, that mere intent is not enough – there must be something more.

RR.If the beneficiary kills the insured and thereby disqualified, the insurer still must pay any remaining primary beneficiaries, or if there are none to designate a contingent beneficiary. Lee

SS.Lee v. State Farms. Contingent beneficiary issue. His wife was the primary beneficiary and she shot and killed him Her estate says they should have priority over contingent beneficiary. Was intent of insured her estate says they should have priority over contingent beneficiary.

TT. Three Concepts

1.Payment of pro rata fees common fund doctrine

a)Personal injury litigation is where the substantially arises. Question – Am I asserting claim against P or D? Depending on the subrogation clause you might have a claim of medical exp. Against tortfeasor or against recover of plaintiff. These clauses are legal. Settlement can be all pain and suffering. Contract language can create a lien on that even though judgment does not. Common fund makes subrogee share the costs. Plaintiff and insurer dip into it. Insurer /Subrogee has to pay for share of costs of litigation.

UU.In re Estate of Scott . Made whole doctrine. Erisa argument FMC v. Holiday Supreme Court case preempting Penn. Anti- subrogation case Only state law interfering with operation of employee benefit plan is gone. Preemption provisions of ERISA are very broad.

VV.Blue Cross and Blue Shield of Kansas v. Riverside Hospital . Non- duplication of benefits. Coordination case. Auto insurer suing blue cross claiming BC was primary payer. Does it make a difference she wasn’t the insured.

XI.Chapter 11 Life Insurance for Business purposes, Special Problems

WW.Debtor - Creditor Relationship

1.Wells v. John Hancock Mutual. Assigned the policy three times using it as security for loans. Insured had a duty to notify assignee of lapse of coverage but no duty to advise them there were prior assignments. It was part of there regular course of business, as was keeping track of payments.

XX.Rights of Assignee vis- à- vis beneficiary (the insurable interest resurfaces)

1.Most courts allow free assignability of insurance policies, but a minority will invalidate a policy assigned to someone without an insurable interest in the life of the insured. If a policy is assigned ALL of the rights are transferred to someone else. Even under the majority view, if the assignment was part of a plan to obtain a wager, the assignment will be invalid.

2.The law is well established that only the insurer can raise the objection of want of an insurable interest therefore heirs of the insured have no cause of action against the designated beneficiary. Widow had no standing, only the insurer can raise that as a defense**. Ryan v. Tickle.

3.Knowledge concerning the legal status of the policy is the duty of the insured. Policy lapsed, etc.

YY. Employer - employee relationship (keyperson insurance)

ZZ.Funding buy- sell agreements

1.Buy- sell agreements are contractual arrangements made by partners or by the shareholders in closely held corporations regarding the disposition to be made of the ownership interest of the partner or shareholder in the business entity upon such person's death. The reason's for these is to prevent the deceased's proprietary interest from going to unwelcome outsiders, thereby destroying the essential personalized nature of the small business entity; and to provide an agreeable and predetermined formula for compensating the spouse who has been bound to yield to the business interest which would have passed to him/her.

PART D Liability Insurance

XII.Chapter 12 – Presentation of Claims and Filing Suit

AAA. Notice Requirements for liability claims

1.All policies have a timeliness clause “as soon as practicable” etc. If you think you have a loss, send a notice. Insured did not think they had liability, so they did not notify. They avoided the firefighter’s rule because the building violations were discovered. Gross negligence often avoids bars to suit, so there was liability. Good faith reasonable belief

2. It is essential that the insured give notice to the proper party, meaning the notice must reach the insurer or insurer's authorized agent. If the insured gives notice to the wrong person, including an unauthorized broker, the notice requirement is not met. Insured has a duty to investigate potential liability given they knew the facts, i.e. that there were building violations, etc. Security Mutual v. Acker- Fitzsimons

BBB.Actions against liability insurers

1.Ambiguous clauses that do not state the injury must occur during the policy period will be construed in favor of insured. Products liability and a claims made policy or an occurrence policy. Here it extends to occurrences during the policy. When you make the claim. Claims made – The malpractice could have occurred before the policy but if you have the policy you are covered. Occurrence must be made when you have the policy. The injury occurred after the policy period. Focus on the occurrence of the injury When the product injured the plaintiff, not the date of the manufacturer. The occurrence was not defined, so there was an ambiguity. ** See if the operative word has been defined and if not, attack it as unclear. Back to reasonable expectations One would expect coverage during the policy period. If it was design, rather than built, you would still have to say there was coverage. Evanston v. International Manufacturing.

2.The effect of a direct action statute is to give the injured third party an independent cause of action against the insurer. A few courts have refused to give these statutes extraterritorial effect. See Marchlik v. Coronet Insurance, statute not upheld as against public policy of forum state.

XIII.Chapter 13 Potential Defenses By Insurer

CCC.No Coverage

1.Intentional or Willful Acts

a)The insured must have both intended the act and to cause injury or damage

b)Puchucki rejects tort law's forseeability rule. This was an intentional acts exclusion. Review of all three rules. Court followed the majority rule.

(1)**General Intent . Need an intentional act and some intent to cause injury. Did that really happen here? This is more like horseplay Majority.

(2)Probable consequences of act . If they applied the “probable consequences of act” test, what result? Insured probably would have won. Subjective element to this test. Minority.

(3)Specific Intent . Insured would win here. Note: most exclusions would be gone here. This provides the broadest coverage, no insurer wins here. The specific intent to not only injure but cause the particular type of injury.

(4)EXAM NOTE: No analysis is complete without discussing all three – Skinner

(a)Analysis is life insurance

(i)Whether the death producing event was an accident? (Was it unforeseen and unexpected)

(ii)If yes, did the accident cause the death?

(a)Multiple causes – was the accident too remote to be labeled a “cause?”

(b)Was the accident the dominant cause? If not too remote and dominant, the disease should not prevent coverage. Note, this is most consistent with reasonable expectations.

(5)Tools stored in garage and used in business. There is a business exception. Not tough to overcome, law is in favor of the insured. A lot of cars drive their cars in their business. Auto insurance has a business exclusion. It is not difficult to overcome. You must really be over the line.

c)Andover . Termination of insured prof was not willful, although it sure sounded like it. A violation is willful if the employer knew or showed reckless disregard for the matter. Willfulness cannot be inferred from recklessness, which means they were negligent, not intentional. Intentional Act exclusion exclusions must state clearly what items are to be excluded. There is a high standard already on insurance contracts. Courts love to find ambiguity, because these are drafted against the insurer. Exclusions are a step further, public policy argument is especially strong here.

2.A lady was sexually harassed and then fired. Creative settlement agreement was made. She agreed to settle. Insurer had no duty to defend, this type of wrongful conduct is always intentional. Compare to Andover , supra . Policy or compensation – What’s better?

3.Olsen . More than one cause of a loss (see the St. Helen’s case). Car crosses a median and hits two different cars. The policy is such that there must be coverage for so many dollars per person and per accident. Is there two occurrences or one? If two, then coverage is doubled. Note, this is an important distinction. Efficient proximate cause analysis, the cause nearest the injury. Here, court uses the cause theory like proximate cause.

4.No Occurrence

5.No loss within the meaning of the policy. But- for the pursuit the occasion would not have occurred. He wouldn’t have been excluded if it was a recreational game. He was clearly there to make money.

6.Not "arising out of" use of automobile. Use did not arise out of the use or operation of an automobile. Page 646.

DDD.Problems with "permitted" drivers

1.Omnibus Clauses . Liability insurance often designated at least one insured by name and others by description. There are public policy reasons for broadening coverage to minimize the risk someone will be injured by a financially irresponsible person. Omnibus coverage wil be "read into" the policy.

2. Issues turn on whether the person had a reasonable belief he could drive the car or on whether the person had permission .

3.Three different approaches (Exam)

a)Liberal or initial permission approach broadens the class of insured

(1)As long as the driver had initial permission the resulting use does not matter

b)Conservative approach strictly construed

(1)Any use violating geographical restrictions, time or use limitations is not covered

c)Minor deviation rule Middle of the road approach

(1)If the use is not a gross deviation of the terms upon which permission was granted, the use is covered even if it was deviant

(a)Deviant uses are less tolerated in business contexts

(b)If a limitation exists on the ability of the person to give permission there is no coverage. Example: you sold your car.

(2)The permittee's permitee problem

(a)In MI, this is called the “chain of permission.”

(b)Most of these cases turn on the scope of the implied permission. If granting permission to third parties is expressly prohibited (it probably will not be, ex, Joe, can I use your car? Ya, not Ya, but don't lend it out) there will be no coverage unless the insured gave implied consent.

(c)Curtis v. State Farm . Daughter took parents car without their knowledge. The other children had permission to use the car, and saw the car in use but said nothing. The girl gave the car to someone else to drive and there was an accident. The question was whether the driver had implied permission to drive? The first permittee's did not know the driver would be in the car let alone drive and there was no coverage. The daughter did not have the permission to give the car to the driver.

(d)Note: these are fact - driven cases. You could argue because they saw him driving, there was implied consent. It is the general policy to find coverage. Here, the “scintilla” of evidence was too remote.

(3)Universal Underwriters Insurance v. Taylor , the omnibus clause requires coverage when permission has been granted to a driver who causes injury. Here the driver went out for a test drive at a car lot and stole the car. The fact he lied about his name, etc. to get the car was no crime exception because the purpose of giving the driver the car was to sell it to him, and his identity was irrelevant in giving him this permission. This was a liberal rule. Even though use exceeded the scope of permission. If the strict test was applied, as soon as the test drive was over, the car must be returned. Under the minor deviation rule, a couple of hours late the car is still covered.

4.The family Exclusion problem Third party liability

a)Compulsory libility insurance legislation embodies a public policy that innocent victims of the negligent operation of motor vehclies should be compensated for their injuries. The household exclusion violates public policy created by compulsory liability insurance laws. State Farm v. Schwartz

EEE.The policy has been cancelled or rescinded

1.An automobile liability insurer has a duty both to the insured and to the public to conduct a reasonable investigation of insurability within a reasonable time after issuance of the policy. This can be characterized as tort or quasi- contract. The duty runs to the potential victims of the insured and if this is breached cannot defeat recovery from the injured person. Barrerra v. State Farm. After pedestrian was injured, Insurance company tried to rescind the claim based on misrepresentation of the insured 1 1/2 years earlier. Note: Insurer had a claim for misrepresenta tion nevertheless. Tort Action. Plaintiff argued estoppel, there must have been reliance, they argued they relied on being insured.

2.The right to cancel is not absolute. Good faith and fair dealing will be read into the contract. Good faith and fair dealing is an expression of public policy. They argued the clause let them cancel at any time. Spindle

v. Traveller's Insurance .

XIV.Chapter 14 Special Litigation Problems

FFF.The insurer's duty to defend

1. Insurer's cannot use third party pleadings as a shield to avoid the duty to defend. Fitzpatrick.

GGG.The duty to defend is higher than the duty to indemnify.

HHH.The insurer's duty to negotiate and effect settlements

1.Insurer sent policy limit to injured insured who rejected the settlement. Insurer refused to defend based on a clause in the policy. The court held they must defend based on the insured's reasonable expectations. The clause was new language. In order for the insurance co to be relieved, the tendered for settlements language must be highlighted in the policy by means of conspicuous print to give clear notice to the insured.

Review

Chapter 1 Governmental regulation

Extended warrantiesWhat is insuranceInsurance is heavily regulated; looks like a contract and decide whether this is an insurance contract or notStatus determinative not substance of contractCDW closer call (looked a lot like insurance)Risk of loss; shift of risk; among similarly situated persons

Chapter 2 Basic approaches to contract interpretation 39- 40**In the order of conservative to strict

IntentContra proferentum

Find an ambiguity; ?? then construe against insurerAdhesion are unconscionable which allows the court to reform the contract

Reasonable Expectations; no need to find an ambiguity; in favor of coverage based on partied RE.Wayfaring fool; insured always wins. Implies the insurer has a duty to make sure the applicant understands the coverage.Overly complex language that is difficult to read. If you change a policy and there is a change the insurer is required to put it in large type, bold face, red ink.Use all five approaches and make the point that under any analysis—we win.

Chapter 3 The few that are negotiated but most are not.

Know how a binder is treatedConditional receipt cases and how those are treated

The condition is usually meeting the qualifications of insurance (PHYSICAL EXAM)Don’t worry about agentsHow long does insurance company have to act on the application with reasonable promptness and either notify you that you have been rejected or provide the coverage.

Oral contracts of insurance – an agent may make a statement that you are covered and an oral contract of insurance is valid. The agent’s promise could be taken as an oral contract of insurance.What is an insurable interest?

Legal/equitable interestFactual expectancy

Promissory estoppel can extend coverage, not equitable estoppel because it is the future act not existing fact. It is different because the promise is an affirmative act that causes the reliance. Criterion Leasing.Misrepresentation – Is there coverage when there is a misrepresenta tion by the applicant. Applicant has the duty to tell the truth, the risk is increased. There is a materiality aspect, if it is not material then the coverage will be extended. Ask Would it have made a difference, would that have caused the insurer to deny coverage? If no, they cannot deny coverage.

Chapter 4 First party v. Third party: very important to know this. Auto No- Fault policy is best example. First party coverage benefits are provided directly to the insured. Automatically, without regard to fault.The nature of the first party case is it is the insured claim. Third party deals with claims of others. Liability coverage is where the insured gets sued and the insurance com. Has a duty to defend and pay proceeds. Like two policies rolled into one. Also, in homeowner’s situations as well.Your insurance co. fails to settle and you have a verdict that goes way beyond the coverage. The test in Crisci whether a prudent insurer would have accepted the offer? Generates bad faith lawsuits. The ROL in Bett’s is the fiduciary relationship, beyond meeting reasonable expectations of coverage. If you are Ins. Co. side these are tough to deal with. In first party cases, there are no fiduciary relationship. You are an adversary, where there is no fiduciary duty. It is a breach of contract action.

Chapter 5 Presentation of claimsA couple of rules:

Insured notified the wrong insurance company. Even though they had a good faith belief, a 20 delay is not a good enough excuse. You notify all insurance company’s. Forget the SOL cases.Most Insurance policies have a 1 year limit.Business interruption cases. Property was grossly overvalued. There is a difficulty inherent in estimating future profits. **

Chapter 6 Potential Defenses

**Insurable Interest page 207 talks about the legal theories. Legally enforceable right theory – legal title /s t rict view. Factual Expectations – actual loss or detriment from the destruction of the property. DeWitt case cited in GM battery phrases the rule differently – pecuniary benefit or advantage or pecuniary loss from its destruction. Here you don’t need legal title.Hunter Case was a good case on this. Another phrase other than pecuniary loss is equitable interest. Life estate.Christ Gospel. Option to repurchase. Ruled against them. Courts will not stretch the FE doctrine not that far.Proximity of the risk – the canal boat was damaged. Was the peril insured against w/in the range of probable expectation. Palsgraff -

type of analysis damage w/in the compass of reasonable probability. (here it was 1000 feet, what if it was 500 feet??).Pan American – introduced the cause nearest the loss. Does hi-jacking relate to war, etc. The cause nearest the loss. Contra proferentum. One of three very important rules on the issue of whether there is coverage of the risk ** especially when there is more than one cause.Mt St. Helens’ Efficient proximate cause. What caused the damage is the basic question? Earth movement so they want to argue the cause nearest the loss (Ins Co.). New rule in that jurisdiction – the efficient prox. Cause that sets into motion, not necessarily the last event. ** Most common rule, not as strict.Garvey – concurrent proximate cause – more than one that are independent of each other. Concurrence of different causes it is the efficient one that sets the one in motion that is it. Not the same set of facts, the causes have to be truly independent of each other, and one must set the other in motion.Breached conditions of the policy – sprinkler system case. The violin case – false statement in the application. The difference between a misrepresentation and a warranty – warranties relate to potential causes whereas a misrepresentation relates to the causes itself. In the wording, A situation that will continue into the future vs. a representation on the date. B/w does not require any proof of materiality. If it is a misrepresenta tion they must prove it is material. It was stated as a warranty but it was ambiguous construed against the insurer even though it was a warranty. (Janitor)Harvey’s Wagon Wheel A warranty situation, the insured warranted the sprinkler system would be working at all times. Insured lost, these were breached warranties, and the warranty was the essence of the policy.

Chapter 7Chapter 8

Methods of marketingConditional Receipt – a temporary K or truly conditional? Collister Case. They found Unconscionability, Adhesion, RE was mentioned. ** Insurer accepts the premium and fails to return it. It is not a temp contract but truly conditional receipt if they don’t take the money.

Chapter 9 – Insurable interest cases in Life insurance. Most cases hold that a pecuniary interest is required and not solely based on a blood relationship.Errata case – Hemophiliac and dbl indemnity provision. Could argue efficient proximate cause or cause nearest the loss. Are these independent causes? Yes, but the fall did not cause the hemophilia but set it in motion. ******Exclusions especially intentional acts –Valley dental. She accidentally cut him and insurer said it’s not accidental. No accident in the means there is none in the result. He died accidentally from the wound but no accident in the means – the cutting; you could argue this was accidental.

Chapter 10 –Forget the right to proceeds or whatever.Remember strict compliance v. Substantial compliance. Must be substantially complied with is the general rule. Make every reasonable effort. The every reasonable effort rule in effecting the change.

Subrogation Chapter 11

Only the insurer can raise the defense of lack of insurable interest. Widow of deceased fun

Chapter 13All three chapters on potential defenses are importantIntentional acts exclusion. Whether it’s intentional. Was there an intent to strike the other’s body with the pin.Forget Andover and sex. HarassmentOlsen case ** 2 cars. What is the cause? Is the striking of two cars a single occurrence or more than one. One proximate uninterrupted cause that resulted in the injury. Some use the each impact. Important because they were trying to get the double clause. If it is interrupted argue not one cause.Permitee cases are important. Trying to find implied permission. A chain of permission type- theory, If there is a break in the chain it stops. There wouldn’t be coverage. Rule favors insured.Theft case – keeps car for 15 days. Whether he was a permissive user? Most have a statute. Three rules that cover this situation. The initial permission rule (as long as you had it initiall). The minor deviation rule. Strict or convergent theory, says permission seizes once you have gone outside the scope of the permission. A reasonable test drive means 15 minutes, not days so there would be no coverage under this test.Spinder bad faith claim is significant – right of insurer to cancel is not absolute – duty of good faith.

Chapter 14 – duty to defend Fitzpatrick and grossDuty to defend, complaint did not plead facts. Whether the insurer can get out of duty to defend by tendering policy limits. Duty to defend is higher than to indemnify.

Chapter 15Staking and other insuraceExcess/Escape /Pro rata and relationship between thosePage 780, excess clause preference. Escape are less favored than excess or pro rata. Carrier’s insurance page 785 – three clauses. Good case for learning this stuff. They followed each insurer should pay ½ up to the policy limits and then any excess should be paid by the greater policy. This is becoming more popular.

Final Exam Checklist

1. Purpose of regulation2. Insurance Defined

a. Substance of the contract test v. Status determinative testb. Two definitional elements

3. Contract Interpretationa. Imprecise Language

i. Vagueii. Ambiguous

b. Basic approachesi. Adhesion

ii. Unconscionableiii. Contra Proferentumiv. Reasonable expectationsv. Wayfaring Fool

c. Exclusionsi. Plain, conspicuous, duty to highlight

d. Oral contracts – upheld, apply basic approaches and look for premium paid

4. Negotiating the Insurance Contracta. Agents

i. Generalii. Soliciting

iii. Independentb. Reasonable promptness (liability in tort)c. Multiple Insurance company’s represented by agentd. Binders

i. Definitione. Insurable Interest

i. Waiver, Estoppel can deny the defense of no II if insurer has FULL KNOWLEDGE, has issued the policy and collected the premiums.

ii. Importance off. Misrepresentation and Concealment

i. Must be material and go to the risk, i.e., alter it.ii. Would coverage have been refused if the truth was told?