Insurance Law Outline PDF

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INSURANCE LAW OUTLINE Definitions  SIR (self-insured retention): is reference for self-insurance  Deductible: a scenario where the insurance company says to insured “we will control claim and make decision whether to settle or not settle and we will advance money and then we will recover it from you” o Insurance comp has complete control and then they get the money back  First party coverage/property insurance: is for victims  Third party insurance/casualty insurance: is for tortfeasors o i.e. the passenger sues the driver, the driver is now the third party  Underwriting: what risks the insurer is going to expose themselves too, what they’re covering and what the premiums are, etc. o This is the term/process that predates the policy – we often need to look at intent o What the policy will be and what the premium can be  Interpleader action: when an insurance company doesn’t know who to pay  they file an interpleader complaint  tells the court that insurer wants to give proceeds of the coverage to them  notify all possible claimants and we will let them fight it out in court. o An interpleader is a lawsuit that an insurance company files in court if it is presented with two or more competing life insurance claims  PIP coverage (personal injury protection): driver who causes accident and is injured, goes to his own insurance for first party protection from his own insurance company o Collision insurance/coverage from his own insurance company will cover the damage to his car  Tender: to request coverage from homeowners, auto, life etc.,  Tripartite relationship: between lawyer, the insured, and the insurer. If adversity, lawyer has allegiance to the insured. o See, Parsons where lawyer shared info with insurance company about the insured and therefore breached his fiduciary duty Three General Rules to Remember: 1. Unintentional consequences of otherwise intentional acts MAY be covered a. Objective stnd: you can’t punch someone in the face and claim that you didn’t expect to break his nose; but, if they DIE from that, you may be covered i. Would a reasonable person have expected such a consequence from their action? 2. Insurance companies can only deny coverage if there is a material misrepresentation a. The jury is the one who will decide this b. Would it have made a difference to the issuer of the policy had they known the truth? 3. Insurers DON’T go into bankruptcy they go into receivership

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a. Meaning a receiver is appointed by the holder of a fixed charge to protect and potentially sell the secured asset so their outstanding debt can be repaid. General rules of insurance policy interpretation:  Inquire if policy is consistent with statutory mandate; AND admin rules and regs o If policy term is inconsistent with statutory mandate then the statute will be given greater weight and will prevail  Policy should be liberally construed in favour of the insured so that coverage is afforded to policyholder to the fullest extent that any fair interpretation will allow o BUT, courts will not rewrite policies to find coverage that does not exist o Words of policy should be given their ordinary meaning  Any ambiguity will go in favour of the insured; look to the reasonable expectation of the insured o Interpretations of policy are questions of law for the court o When there is ambiguity so much so that policy is confusing to average policyholder then the test is objectively reasonable expectation of the insured that often results in benefits of coverage never intended from the insurer’s point of view  Burden of proving any limit or exception of the policy is ALWAYS on the carrier, even if they are the defendant. However, the policyholder must always come forward to show evidence of prima facie coverage (existence and issuance of the policy) and then the burden shifts to insurance company to prove exclusion or limitation  Remedy for contractual disputes is: Declaratory judgment: ask the judge to determine what is within the scope of the policy. Declare that there is or there is not coverage The Role of Intermediaries  Producers or intermediaries sell you the policy  Insurance companies do not issue you policies directly, as a general rule they act through intermediaries  Policy holder (insured)  producer (intermediary)  insurance comp (carrier) o Agent  Captive  Independent  Surplus lines broker o Broker  Agent: authorized by insured to bind coverage for the policyholder o To bind = agent has auth to bind insurer to coverage and the agent can actually issue the policy o An agent has binding authority pursuant to contract between agent and insurance company whereby insurance comp grants auth to agent to bind comp to policy o Captive agent: independent contractor; comp will only allow agent to market policies by the one insurance company

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o Independent agent: binding auth from carriers, but will sell multiple kinds of insurance Broker: NOT BINDING Duty of agent or broker: to possess reasonable knowledge of industry or policy or types of products/exclusions in order to procure adequate insurance for the insured The status of the producer is relevant ot whether producer is vicariously liable for insurer’s wrongful discharge and whether the insurer would be vicariously liable for negligence of agent o If it is a captive agent: insurer is liable for errors and omissions of that agent o The broker: no binding authority so the insurer will likely never have to cover them If an independent agent: the insurance company could be liable depending on relationship of the parties Malpractice when producer fails to submit application or makes material mistake or fails to get enough coverage or failure to advise or recommend unique lines of coverage o Your remedy is limited to suing broker; vicarious liability if captive (possibly independent) o

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Liability Insurance A. General Liability Insurance  Sample Policy page 437  The Commercial General Liability (CGL) Policy is successor to Comprehensive General Liability (CGL) Policy  The key phrase is similar to: promises to pay those sums the insured becomes legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence . . . . This insurance applies only to bodily injury or property damage which occurs during the policy period. Who is insured?  Individual – named insured and your spouse  Business/partnership/LLC – your members, partners and their spouses are also insureds  An organization other than a partnership – your executive officers and directors are insured but only with respect to their duties as your officers or directors. Your stockholders (as corresponding to their duties as well)  A trust – your trustees are also insured  Your volunteer workers in the course of business  Toothbrush rule: if party claiming residency has a toothbrush or personal products in that place, they could likely establish residency What is insured?  Bodily injury: bodily injury, sickness or disease sustained by a person, including resulting death at any time

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For emotional distress, we look to see if there are physical manifestations, which in itself can be broadly defined (i.e. depression)  Property damage: includes… o Physical damage to tangible property o Loss of use of tangible property o See, McDonald: property damages will include indemnification for repeated and continuous damages (from environmental problem) or costs to half continuing damages  Prophylactic measures taken to prevent future damage, in the absence of a history of damage are NOT covered o Incorporation doctrine: defective part that is incorporated into another products does not trigger a claim for property damages  i.e. an RV company who puts defective microwaves into RV. If one blows up and RV manufacturer gets sued, this is NOT property damage  Advertising injury: if named insured X is suing for using Y’s property in an ad  Personal injury: o False arrest/detention o Malicious prosecution o Publication that slanders or libels  All of these are triggered by an occurrence: accident, including continuous or repeated exposure to substantially the same harmful conditions How much coverage is available?  Go to the limits of the insurance section to figure out  Subject to SIR (self insured retention) – i.e. 2mil policy with 1mil paid out of pocket by policyholder  Look at amount per occurrence then determine how many occurrences o Three main tests as per Met Life v. Aetna:  An occurrence is determined by the underlying cause of damage – focuses on behaviour of the insured (one occurrence – all died because of negligence of homeowners)  Effect of the accident focuses on the victims (3 people died in pool = three occurrences)  If a single cause and numerous cases are closely linked in time and space = one occurrence. But if cause and its effect are temporally removed, each death is its own occurrence Is the type of injury caused by the insured excluded?  If it was intended/expected from the standpoint of the insured; but remember that unexpected consequences of otherwise intentional actions will be covered o Unigard: subrogation – kid sets fire in school, tries to douse it, fails, school burns. School’s insurance company sues parent’s insurance company. They claim exclusion since setting fire is intentional o

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The court said it was an intentional act so the kid was excluded from coverage. BUT the parent’s negligence is still covered  Counter argument – kid didn’t intend to burn school, it was an unforeseeable consequence that should have been covered o Test for expected/unexpected consequence of intentional act:  Harleysville v. Garrita: X mom’s dating G’s dad – G hated her – put her stuff on porch. X & G started fighting – G stabbed X more than once and killed him  Test: did the insured subjectively intend the consequences of the product? o If conduct was particularly reprehensible then the insured’s intent, presumed as a matter of law (no need for jury) to have subjectively intended the result! Includes:  Assault with deadly weapon  Child abuse  Spousal abuse  Environmental dumping o Conduct not particularly reprehensible if the injury inflicted was an inherently probable consequence of the conduct, we presume that consequence was foreseeable (breaking Xs teeth after punch) o If extent of injuries is an improbable result of the conduct, (dies from punch) exclusion applies only if the insured intends the result (which never happens)  Note: a conviction is binding at the trial court level is there is a level of intent (so negligence is not binding)  Note 2: common sense approach: you cannot simply label something as negligent in order to force insurance to kick in (i.e. “negligent rape”). We look to actual gist of case to see if there really is negligence Contractual liability: if you breach a contract and are liable, it is NOT covered o Exception: insured contract: if tenant agrees to indemnify a LL for liability arising out of use of the premises. Thus, when LL gets sued  he sues tenant  GCL will still cover tenant. Same with contractor/GC situation Liquor liability: not covered except for when you are not in the business of selling alcohol (does not include company party with alcohol) Workers compensation: not covered Employer liability: you will not be covered if you are liable for employment discrim for ex Business risk exclusion: Weedo o If mason builds wall and bricks fall out, mason is not covered by insurance to repair the bricks, BUT if brick hits someone’s car, yes coverage. o Burden is on the insurer to prove this, and exclude insured from coverage. Recall of products/pollution/aircraft or watercraft less than 26 feet long are all not covered 

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If all covered, likely indemnification UNLESS a condition has been violated:  Insured must provide notice of a claim within reasonable time o Late notice defense: insurer has burden of proving breach of notice requirement o Test for notice: you need to prove that insurer was actually prejudiced – proven via of delay materially impairs the ability of insurer to contest its liability to insured or a third party (maybe outcome would have been different otherwise)  Bankruptcy: if insured goes bankrupt, insurance company is still obligated to pay and defend the insured  Alternate insurance policies Continuous and repeated exposure trigger:  Theories/tests for determining when coverage is triggered: o General rule: injury occurs when it manifests itself o Exposure theory: actual exposure to the substance causing damage  insurance provider only on the hook until exposure came about o Manifestation theory: the date that the condition became or should have become known  insurance carrier liable from that point. o Injury in fact: time of the actual injury  even if not actually manifested at the time of the injury. Insurance carrier liable from that point o Continuous trigger theory: places insurers on the hook from exposure all the way to discovery of the injury  The various carriers (if there are more than one) share these obligations by usually litigating against each other Claims made policies:  Unlike occurrence based policies (where insurer steps in at manifestation during policy period), in a claims made policy the insurer has duty to defend and indemnify when the claim is made during the policy period  Never follow a CMP with an OBP. o OBP gives you prospective coverage and CBP gives you retroactive coverage? o If you do, then you should buyout the tail on all new claims that occur prior to X  Most errors and omissions policies are CBP. These only cover wrongful acts – i.e. legal malpractice or wrongful acts of directors and officers of a corporation Disputes between insured and insurer will resolve by declaratory judgment complaints  Damages: defense of underlying action; indemnity or payment of reasonable settlement; fees incurred to prosecute DJ action; and any extra contractual damages (occurs where there is bad faith – i.e. denial of benefits) if you prove bad faith then you can recover these extracontractual Key Points:  Bankruptcy or insolvency of the insured or the insured’s estate will not relieve insurer of obligations  Notice:

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You must see to it that insurer is notified as soon as practicable of an occurrence or an offense which may result in a claim o If a claim is made or suit is brought against any insured you must: immediately record the specifics of the claim or suit and the date received; and, notify us as soon as practicable (written notice of the claim) o Duties:  Immediately send insurer copies of any demands, notice, summonses or legal papers received in connection with claim or suit  Authorize insurer to obtain records and other info  Cooperate with insurer in investigation or settlement of the claim or defense against the suit and  Assist insurer upon request in the enforcement of any right against any person or org which may be liable to the insured because injury or damage to which the insurance may also apply o No insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation or incur any expense other than for first aid, without insurer’s consent Other insurance: o If other valid and collectible insurance is available to the insured for loss that is covered by this insurer their obligations are limited as follows:  Primary insurance: this insurance is primary except when excess insurance applies. So, the obligations are not changed unless the other insurance is also a primary insurance, in which case they will share with all other insurance whereby each contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first  Excess insurance: this insurance is excess over:  Any fire; additional property; or auto  If insurance is excess, then we have no duty to insured to defend against that suit. If no other insurance defends then we will undertake to do so, but will be entitled to the insured’s rights against all those other insurers The general aggregate limit and product completed operations hazard: o The general aggregate limit is the most the insurer will pay for damages under Coverage A because of bodily injury or property damage and damages under Coverage B— Personal and Advertising Injury because of an offense and expenses under Coverage C— Medical Payment. The only circumstances in which the general aggregate limit does not apply is to damages because of bodily injury or property damage arising out of the products-completed operations hazard. o Products completed operational aggregate: apply only to the following bodily injury or property damage:  Occurs away from the named insured's premises and  Arises out of the named insured's products ("your product") that are no longer in the named insured's possession or  Arises out of the named insured's work ("your work") that has been completed o So, the products-completed operations aggregate limit applies independently of the general aggregate limit. Damages paid under the general aggregate limit do not reduce the products-completed operations aggregate limit and vice versa. Consequently, under the CGL policy, an insurer's total liability or exposure in a policy period is the sum of the two aggregate limits. o

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1. Sample CGL Policy  Sample CGL Policy pg. 437 - 454 2. The Insurance Agreement: a. The meaning of “damages” “property damage” and “bodily injury”  Damages include all losses (punitive and compensatory)  Nearly all state courts have considered and concluded that response or cleanup costs incurred under env protection statutes are covered by language identical to this one. Usually viewed under the ordinary meaning of “Damages”. BUT most federal courts deny this coverage. o Some circuits look at response costs as either restitutionary where the gov seeks reimbursement, or injunctive where the responsible party is ordered to clean up the site AY McDonald Ind., Inc. v. Ins. Comp. of North Am. 1991  CERCLA – Comprehensive Environmental Response, Compensation and Liability Act of 1980 (clean-up of hazardous waste deposit site) Facts: A.Y. McDonald would dump brass residue and sand on the foundry site which contained lead. Entered a consent order with the Environmental Protection Agency (EPA) under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA. Under the consent order, A.Y. McDonald was required to remediate environmental damages caused by brass manufacture. Due to these remedial actions, A.Y. McDonald incurred ongoing expenses. A.Y. McDonald filed a petition, seeking a declaration that the costs associated with remediation and a civil penalty assessed against A.Y. McDonald would be covered by A.Y. McDonald’s comprehensive general-liability (CGL) insurance policies with Defendant. A.Y. McDonald’s CGL policies required the defendants to cover “all sums which the insured shall become legally obligated to pay as damages because of . . . property damage.” Issue: Whether the response costs and civil penalty incurred by A.Y. McDonald were covered under the CGL policies? Holding: the term “damages” is ambiguous and its ordinary meaning is too broad and all inclusive. We have determined damages to include punitive as well as compensatory damages  Gov mandated response costs under CERCLA are damages within the meaning of the CGL policies  Damages includes all losses (punitive and compensatory) b. The Trigger and Allocation of Coverage  The “injury-in-fact” approach is the proper construction  The plain language demands that the insured prove the cause of the occurrence (Accident or exposure) that the result occurred during the policy period American Home Products Corp v. Liberty Mutual Ins. Comp. 1983 Facts: P AHP is comp that manufactures drugs, foods and household products and is the D in 54 products liability suits arising from manufacture of 6 pharmaceuticals. D provided AHP with insurance from 1944-

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1976 and has refused to assume AHP’s burden of defense or to indemnify AHP in tho...