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INSURANCE LAW 1-13 class notes What is Insurance Griffin Systems v. Washburn -Have to determine if vehicle protection plans (VPP) sold by Griffin constituted insurance policies or sales contracts. -Court lists 4 elements to an insurance policy: 1) contract 2) insurable interest (usually a property interest) insurable interests assumes a loss from the looming peril. 3) consideration = premium 4) assumption of risk by the insurer assumes that there is a peril out there that can be quantified so the insurer can come up with a reasonable premium and provide insurance for the peril. -Court looks to whether VPP can be considered warranty…. NOT here, not producer. the assumption of risk is part of the general scheme to distribute actual losses among a large group of persons bearing similar risks. -Court says warranty addresses defects in the product, whereas insurance addresses damage from outside perils. Pan American v. Aetna Casualty and Surety Co. -PFLO hijacked pan am plane, flew it to Lebanon, then Cairo, then blew up the plane. -Pan Am took out insurance on its planes from 3 different providers. 1) All risk insurers 2) US government 3) London war risk insurer -All risk insurers included exclusions in its policy -Contra Proferentem 1
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Page 1: Insurance Law - McDaniel

INSURANCE LAW

1-13 class notes

What is Insurance

Griffin Systems v. Washburn-Have to determine if vehicle protection plans (VPP) sold by Griffin constituted insurance policies or sales contracts.-Court lists 4 elements to an insurance policy:

1) contract2) insurable interest (usually a property interest) insurable interests assumes a loss from the looming peril.3) consideration = premium4) assumption of risk by the insurer assumes that there is a peril out there that can be quantified so the insurer can come up with a reasonable premium and provide insurance for the peril.

-Court looks to whether VPP can be considered warranty…. NOT here, not producer. the assumption of risk is part of the general scheme to distribute actual losses among a large group of persons bearing similar risks.

-Court says warranty addresses defects in the product, whereas insurance addresses damage from outside perils.

Pan American v. Aetna Casualty and Surety Co.-PFLO hijacked pan am plane, flew it to Lebanon, then Cairo, then blew up the plane.-Pan Am took out insurance on its planes from 3 different providers.

1) All risk insurers 2) US government3) London war risk insurer

-All risk insurers included exclusions in its policy-Contra Proferentem

-terms of a policy are construed in the light least favorable to the insurer.-Insured or other insurance company seeking to avoid having to pay must show a reasonable interpretation under which the initial insurer did not exclude the loss.-The initial (all risk) insurers must demonstrate that an interpretation favoring them is the only reasonable reading of at least one of the relevant terms of exclusion.

St. Paul Mercury Insurance v. Duke-Court held that insured could not be paid for punitive damages because it would be against public policy.-Even though punitive damages were covered by the policy, court would allow insurance payout for them because that would be contrary to public policy.-Shouldn’t be allowed to ascertain insurance for an intentional act which results in punishment being imposed by a court in the form of punitive damages.

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Contract Law in InsuranceRules of Construction1) Formalistic approach-Looks to the 4 corners of the instrument.-If there is nothing ambiguous in the language of the contract, there is nothing to construe.-If there is an ambiguity, the court looks to:

1) intent what did the parties intend2) purpose of the coverage3) expectations of the parties

-If it is still not clear, E.E.-Extrinsic evidence includes

-course of dealings between the parties-business customs and practices

Boeing Company v. AETNA Casualty and Surety Co.-Read the dissent in this case.-Dissent says that “average lay person rule” does not apply to corporations because they have equal bargaining power with the insurance company from which the purchase a policy.

Selected Risks Insurance Co. v. Bruno-Selected Risks issued homeowner’s liability policy to Bruno and his wife.-Brunos’ son got in a fight and killed someone, after which he was sued for wrongful death.-Selected Risks argued it was not bound to cover wrongful death damages due to an exclusion in the policy.-Exclusion coverage does not apply to bodily injury or property damage which is expected or intended by the insured.-Brunos’ argue exclusion is not applicable because Selected Risks never explained it to them causing them to be unaware of it.-Hionis Rule

an insurer cannot rely on an exclusion unless it shows that the insured was aware of the exclusion and that the exclusion’s effect had been explained.

-Court says Hionis rule only protects the reasonable expectations of the insured and it is unreasonable to expect that a homeowner’s insurance policy will provide liability for criminal intentional acts.

Lachs v. Fidelity & Casualty Co. of New York-Issue is what the reasonable expectation of the insured is.-Court said that it has to look through the eyes of the average person buying the insurance policy and determine if they think they are covered for the loss suffered.

Krauss v. Manhattan Life Insurance Co.-Insurance co sold policy to a person that did not qualify for it.-Case would be resolved differently is decided under IL law than it would be under NY law.-Court says that it is generally going to apply the law of the situs where the event occurred,

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rather than where the policy was taken out, etc.

American Insurance Association v. John Garamendi, Insurance Commissioner, State of CA-The court holds that federal law does control in this case.-McCarran-Ferguson does not apply to the executive branch.-Court seems to be making a political decision in this case.

Pallozzi v. Allstate Life Insurance Co., 198 F.3d 28-Plaintiffs allege that Allstate refused to issue them a joint life insurance policy on basis of mental disability in violation of the ADA.-Joseph Pallozzi had major depression and agoraphobia; Lori Pallozzi had major depression and borderline personality disorder.-Allstate initially issued the Pallozzis a temporary life insurance policy for $65,000, but cancelled the agreement based on med info provided by Pallozis’ psychiatrist.-3 plaintiff arguments:

1) Title III does regulate the underwriting practices of insurance companies2) Title III’s regulation of insurance underwriting is not barred by McCarran- Ferguson Act because ADA specifically relates to the business of insurance3) district court imposed unjustified pleading burdens in ruling on the motion under FRCP 12(b)(6).

Court agrees with all 3-Application of Title III of ADA to insurance underwriting was not barred by McCarran-Ferguson Act, since ADA specifically related to business of insurance; Title III defined “insurance office” as “public accomodation,” ADA affected matters at core of McCarran-Ferguson Act’s concern, such as relation of insured to insurer and spreading of risk, and any intrusion by ADA on state insurance regulation was not inadvertent.-The prohibition imposed on a place of public accommodation from discriminating against a disabled customer in the enjoyment of its goods and services appears to prohibit an insurance office from discriminatorily refusing to offer its policies to disabled persons, subject to the safe harbor provision of Title IV 501(c).-Factors for determining whether federal law specifically relates to business of insurance, and thus falls outside scope of McCarran-Ferguson Act:

1) whether statute has connection with insurance plans2) whether statute relates to insurance business explicitly3) whether statute effects matters at core of McCarran-Ferguson Act’s concern, 4) purposes of McCarran-Ferguson Act

-Neither the McCarran-Ferguson Act’s language, nor its purpose, requires the federal statute to relate predominantly to insurance. To the contrary, specific detailed references to the insurance industry in proposed legislation will normally achieve the McCarran-Ferguson Act’s objectives, for they will call the proposed legislation to the attention of interested parties, and thereby normally guarantee, should the proposal become law, that Congress will have focused upon its insurance-related effects.-When plaintiff pleads discrimination by insurer in violation of Title III of ADA in underwriting, classifying, or administering of risks, plaintiff has further obligation to plead and prove that insurance practice complained of is not consistent with state law or is being used as “subterfuge to evade the purposes” of Title I and Title III of the ADA.

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-Life insurance applicants’ claim that insurer discriminated against them on basis of their mental disabilities in violation of Title III of ADA by refusing to issue them joint life insurance policy and that insurer’s conduct violated various provisions of NY law stated claim under ADA applicants were not required to plead further that challenged conduct lacked actuarial justification.

McIntosh v. State Farm Mutual Automobile Insurance Co., 488 N.W.2d 476 (1992)-Insured sought declaration that she was entitled to uninsured motorist and no-fault benefits for injuries occurring when she was shot by 3rd party while driving.-Insured who was injured when shot by 3rd person while driving her automobile was not entitled to uninsured motorist coverage shooting was not an “accident” when viewed from perspective of tort-feasor.-“Accident” under uninsured motorist coverage is to be viewed from perspective of tort-feasor.-Insured’s no-fault coverage extended to injuries she sustained when she was shot by 3rd party while driving.-For purpose of no-fault/economic loss benefits coverage, term “accident” is to be understood from perspective of injured victim.-Uninsured motorist policy states “the bodily injury must be caused by accident arising out of the operation, maintenance, or use of an uninsured motor vehicle.”-When used in the context of security for tort liability an “accident” should be considered from the point of view of the person causing the harm uninsured motorist coverage more closely corresponds to security for tort liability than it does to basic reparations benefits (which should be viewed from victim’s perspective).-Under uninsured motorist policy, the victim is compensated for what the liability carrier would have paid had the uninsured motorist had insurance.-No-fault benefits are paid “for bodily injury to an insured, caused by accident resulting from the maintenance or use of a motor vehicle as a vehicle.”-Would there be a different result if this case did not take place in a “no-fault” state?-Doesn’t seem like the cars really have much to do with the injury suffered so why is automobile insurance involved?

-Reasonable expectation of the insured the insured was in the car when injured so it is reasonable for her to expect to be covered by her auto insurance.

Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987)-ERISA is federal regulation of retirement benefit plans, disability plans, etc. (anything that deals with employment really).-Employee brought suit against insurance co that issued his employer’s group insurance policy for breach of contract and tort claims.-Plaintiff injured his back in activity related to employment-Dedeaux sought permanent benefits but Pilot Life terminated them after 2 years.-Issue:

-Whether ERISA preempts state common law tort and contract actions assertingimproper processing of a claim for benefits under an insured employee benefitplan?

-Holding:

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-state lawsuit asserting improper processing of claim for benefits under ERISA-regulated plan was preempted by federal law where state common law cause of action did not regulate insurance, within meaning of saving clause in ERISApreemption provision, and there was clear expression of congressional intent thatERISA’s civil enforcement scheme be exclusive.

-MS common law of bad faith does not regulate insurance, within meaning of saving clause in ERISA preemption provision, where law could not be said to effect spreading of policyholder risk, did constitute integral part of policy relationship between insurer and insured, and was not limited to entities within insurance industry.-3 criteria to determine whether a practice falls “under the business of insurance” for purposes of the McCarran-Ferguson Act:

1) whether the practice has the effect of transferring or spreading a policyholder’s risk;2) whether the practice is an integral part of the policy relationship between the insurer and insured;3) whether the practice is limited to entities within the insurance industry.

Contract Issues in Insurance Law-Important that 1st premium is at least tendered, even if not accepted by the insurance agent.

Gulf Insurance Co. v. Grisham-Crucial fact here is that insured is buying insurance policy from a plane salesman, not an insurance agent.-Court rules no coverage-Agency issues arise due to fact that plane salesman is not an agent of the insurance company whose policy he purported to take out for the insured.-Why doesn't the statute of frauds preclude parol evidence?

-Could the contract be performed within 1 year?-The K was with the insurance company while all the conversations testified to in court were between the insured and the salesman (parol evidence rule only applies to statements between the parties to the contract).

World Trade Center Case-Issue

-Was 9/11 a single occurrence or multiple occurrences?-Court rules single occurrence

Glainer v. Time Insurance Co.-Time is essentially arguing there is no K because no delivery occurred.-Look to top of pg 300 for 6 necessary elements of insurance K.-Court considers what the reasonable expectations of the parties are.

-Was it reasonable for the insured to believed he was covered?Kramer v. Metropolitan Insurance Co.-Kramer seeks to recover accidental death policy covering her and her husband.-Metropolitan refused to pay because 1) policy never delivered and 2) 1st premium not paid in accordance with terms.

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-Policy was to be paid by direct deductions from the Kramer’s checking account.-When policy was delivered, 1st payment was to be supposed to be paid in cash.-Kramer offered to pay first premium in cash but Duffey (metropolitan agent) wouldn’t accept.-Delivery of policy is not really necessary for it to be effective more determinative than delivery is whether the policy was issued.-It is also to determine whether the first premium was tendered (offered) by the insured.-It is uncontested that there was no actual deliver, so have to determine if there was constructive delivery.

Grace Periods-Grace periods typically come into play in life insurance policies.

-They will tell you premium is due on a specific day and not later and then give you something like a 30 day period.-Problem is that if you die before you pay, you are off to the races, but if you don’tdie and the 31st day comes, they will offer you a new policy so the provisions fromthe first policy have to run again (provisions such as a 2 year suicide provision).-There is a difference between a policy being reinstated and a new policy being issued. when policy is reinstated, premiums will often be increased as compensation for allowing the time-limited provisions to run from the time of the initial policy.

Policy Cancellation-Policy can be rescinded for

1) non-payment of premium2) material misrepresentation3) insured has not complied with terms of the policy ex. We will insure you unless you get another speeding ticket

-Notice of Intention not to Renew-Different than cancellation-TN requires 30 days written notice of intention not to renew and requires the insurance co to give a reason for not renewing.

WHEDA v. Verex Assurance-Case concerns mortgage insurance. -2 types of mortgage insurance.-FHA insurance

-Insures the ultimate holder of the mortgage against losses, to a degree, in the event of default.

-Verex wants to rescind mortgage insurance policy court said they couldn’t -Court said that Verex could not rescind under common law definition of rescission they asserted because that would make the statutory proceedings insurance companies are required to follow superfluous.-Think of 3 terms

1) cancellation2) rescission3) non-renewal

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-Generally, insurance co cannot cancel life and health policy, but they can decide not to renew at their whim.-Generally, insurance co can cancel automobile insurance policy for not complying with conditions in the policy.

Insurable Interest-Insurable interest in 5 categories:

1) when the insured possesses legal title to the property insured, whether vested or contingent, defensible or indefeasible;2) when he has an equitable title to the property, of whatever kind and however acquired;3) when he possesses a qualified property or possessory right, such as that of a bailee;4) when he has mere possession or right of possession;5) when he has neither possession of the property, nor other legal interest in it, but may suffer, from its destruction, the loss of a legal right (a legal liability right).

Tublitz v. Glen Falls Insurance-Tublitz had executory contract to have a building demolished.-The building burns down before demolished and court says insurance co still has to pay.

Prohibition Against Other InsuranceBurgess v. North Carolina Farm Bureau Mutual Insurance Co.-NCFBMI issued Burgess home owners insurance policy covering home and contents for $32,000.-At same time Burgess took out this policy, there was already an existing policy on the home and contents -Burgess did not have a written endorsement permitting dual coverage so denial allowed.

Warranty-Assume there is a warranty -What type of warranties might be in a life insurance policy

-Insured may warrant that they will not take part in dangerous activities such as sky diving.

Misrepresentation-There are different types of misrepresentation

1) fraudulent2) innocent3) reckless not innocent but not fraudulent.

-How is company going to try to get out of policy based on misrepresentation of insured?-Innocent misrepresentation is not going to get insurance co off the hook from paying.-Insurance companies typically use reckless misrepresentations to cancel policies and will try to rely on them to deny coverage.

Concealment Involving Different Types of Insurance Policies

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King v. Allstate Insurance Co.-King takes out insurance policy from Allstate on yacht binder for $100,000 of temporary coverage.-King’s yacht sank the day before the temporary coverage ended.-Allstate denied coverage based on misrepresentations made by King -Court said that Allstate could only deny coverage based on an intentional misrepresentation because that is the standard they established in the contract.-Whether the applicable law required that denial of coverage be based on any misrepresentation, even absent intent, was immaterial because Allstate held itself to a higher standard in the policy.Causation and the Concept of Accident

Marshall Produce Co. v. St. Paul Fire and Marine Insurance Co.-Proximate cause sets in motion the events that cause the injury.-Causation is important in insurance in order to determine if the loss is covered and if there is a single loss or multiple losses. Smoke did dmg, not fire

Problem 4 pg 486-There was an entire loss.-Is the loss a direct result of the fire or the ordinance? -Fire is the proximate cause; but for the fire there would have been no loss.

Problem 5 pg 487-Seems like insurance co would have to pay. had the employee not acted negligently there would have been no injury.

Predominant Cause

Problem 4 pg 496-

Burr v. Commercial Travelers Mutual Accident Association-Decedent got in a wreck in a snow storm. Got out of the car to shovel snow out from in under the car. Falls on his shovel and dies.-Had accidental death benefit covering losses that were direct and proximate result of and which were caused solely and exclusively by external, violent and accidental means.1) accidental death2) death by accidental means3) accidental results4) accident

Hairston v. Liberty National Life Ins.-Court says it will no longer distinguish between “accidental means” and “accidental results”(d) Preexisting Conditions and The Concepts of Fortuity and AccidentHill v. Mutual Benefit Life Insurance Co.

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-Court says that even if there is a preexisting condition, if the accident that triggers the death is the sole cause of death being triggered, the insurance company will be held liab

-Insured under 3 duties in event of a loss(property damage)1) protect property from further damage;2) make reasonable repairs to stop ongoing damage;3) keeps records of the reasonable damages to submit to the company.

-Failure to mitigate will reduce the amount the insured is entitled as a result of the damage.-Failure to mitigate gives the insurance company a basis to deny coverage.

Assignment and the Property Insurance ContractChrist Gospel Temple v. Liberty Mutual Co.-In May, 1968, Westminster Presbyterian Church (Westminster) purchased a fire insurance policy on a building it owned.-Court says there was not a valid assignment of the insurance policy and therefore Christ Gospel was not covered by the policy.-Court also denies coverage to Presbyterian Church of Harrisburg because, due to the conveyance, they no longer had an insurable interest in the property.-Plaintiffs lawyer could have argued that interest attaches to the real property and that the risk had not shifted, so since insurance company received the premiums and could not show that the risk shifted, it should not be off the hook.

basically, the insured should argue that it was within their reasonable expectations to be covered under the assignment of the policy. insurance company is going to argue contract, contract, contract prohibition of assignment clause.

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The Innocent Co-Insured ProblemKulubis v. Texas Farm Bureau Underwriters Insurance Company-Betty and John Kulubis bought a home owners insurance policy on their mobile home from Texas Farm.-Both Betty and John were named insureds on the policy.-Betty filed for divorce in 1982 and when John was served with the papers he burned the mobile home and subsequently killed himself.-Jones v. Fidelity and Guaranty Insurance Co.

-Co-insureds under an insurance policy covering jointly owned property acquire joint rights and obligations under the policy.-Therefore, the illegal acts of one of the co-insureds prevent recovery by the otherco-insured.-Public Policy rationale a wrongdoer should not benefit from his wrongdoing.

-Hoyt v. New Hampshire Fire Insurance Co.-Test that should be applied is what a reasonable person would have understood the fire insurance policy to mean.-Public Policy requires that an innocent co-insured be permitted to recover based upon the insured’s reasonable expectations and not punishing the innocent victimfor the wrongs of another.

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-Holding:-The more enlightened reasoning dictates that the illegal destruction of jointly owned property by one co-insured shall not bar recovery under an insurance policy by an innocent co-insured.-Because the property was a gift, Betty was the owner of ½ interest in the mobile home and personal property destroyed by her husband and she is entitled to recover ½ of the stipulated amount of $21,000.

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Friendly Fire v. Hostile Fire-Friendly fire = contained in the intended place a fire should be, such as in a stove, fireplace, or furnace. generally excluded-Hostile Fire = one that occurs outside the usual confines of a friendly fire.-Go back and read this section pg 589

Scope of the Term "Premises"Northwest Airlines, Inc. v. Globe Indemnity Co.-Northwest had “Blanket Crime Policy” with Globe.-

delivered the money to a hijacker.-The hijacker jumped from the airplane with the money and none of the $200,00was recovered.

-The hijacking consisted of a continuous course of related events beginning withthe takeover of the airplane and culmination with the hijacker’s successful escapewith the money which was, when taken, owned by plaintiff.

-Rules:2)-Where the language used in an insurance contract is ambiguous, it must be givenits ordinary and usual meaning the same as the language of any other contract andthe court cannot under the guise of construction redraft the contract.4) money orders and counterfeit paper currency coverage; and5) depositor’s forgery coverage.

-Insurance company argues that no coverage based on fact that there was no wrongful abstraction because it occurred outside the premises.-Purpose of this case is to show that courts will define “property” very broadly.-Because there is a blanket policy at issue, everything is covered.-Court said that loss occurred on the premises despite the plane not being covered because the hijacking was a continuous course of events beginning with the takeover of the plane and culminating with the hijacker’s successful escape.

Property DamageRetail Systems, Inc. v. CNA Insurance Companies-Issues:

1) Whether the trial court erred in finding that the computer tape and data were tangible property?

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2) Whether the trial court erred in finding that Retail was not holding the tape for storage or safekeeping?

-Holding:1) The computer tape and data were tangible property.2) Retail was not holding the tape for storage or safekeeping.2)-The mere possession of property does not indicate that the possessor is also holding the property for storage or safekeeping.-The tape was not entrusted to Retail for storage but so that Retail could work on the tape.-Any storage of the tape was merely incidental to Retail’s true reason for possessing it.

-Rules:1)-An insurance policy provision is to be interpreted according to both its plain,ordinary meaning and what a reasonable person in the position of the insured would have understood it to mean.

Place of Loss LimitationsVargas v. Insurance Co. of North America-INA issued aviation policy to Joseph Khurey on Dec. 13, 1977.-Policy provided that it would apply “only to occurrences, accidents or losses which happen …within the US, its territories or possessions, Canada or Mexico.”-Issue:

-Is the insurer’s interpretation of the K the only reasonable and fair construction as a matter of law?

-Holding:-The policy is readily susceptible of a reasonable and fair interpretation that wouldcover the flight at issue.

-Reasoning:-The parties knew that the plane would fly substantial distances as it transported

-Rules:-The insurer bears the heavy burden of proof, for it must establish that the words and expressions used in the insurance policy not only are susceptible of the construction sought by the insurer but that it is the only construction which may fairly be placed on them.-The insurer is obligated to show:

1) that it would be unreasonable for the average man reading the policy to construe it as the insured does; and2) that its own construction was the only one that fairly could be placed on the policy.

Theft and Mysterious DisappearanceBenson v. Bradford Mutual Fire Insurance Corp.-Benson sued Bradford claiming that 2,400 - 2,500 hogs had been stolen from him sometime-Holding:

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-Benson did not introduce sufficient evidence of theft to go to the jury.-Reasoning:

-Benson took no monthly counts, reported no feed consumption drop, reported noapproximate dates when he discovered losses, nor reported any temporal relationship between the unlocked gates or unusual truck noises and any specificlosses.-The caretakers were in a position to see the pens and hear anything unusual, yet,with the exception of Mrs. Smith, none of the caretakers testified.-Bradford presented a credible explanation which would account for substantiallygreater losses from disease.

-Rules:-A plaintiff must prove more than mere disappearance to prove theft.-“Theft” as used in an insurance policy, where it is not defined, is given its popular meaning as covering any wrongful appropriation of another’s property to the use of the taker.-“Theft” must be construed to mean something other than escape, mysterious disappearance, inventory shortage, wrongful conversion or embezzlement, because these are specific exclusions in the insurance policy.

-When Benson alleges that 2500 hogs were stolen and asserted coverage under the policy, insurance company denied coverage based on inadequate proof of theft.

used exclusion for mysterious disappearance to deny coverage.-There was not enough proof to show that the pigs were lost.

Coverage Under "All Risk" PoliciesGreat Northern Insurance Co. v. Dayco Corp-Rules:

1)-Under an all risk policy, the insured has the burden to establish a prima facie casefor recovery.-The insured need only prove the existence of the all risk policy and the loss of thecovered property.-The very risk of an all risk policy is to protect the insured in cases where it is difficult to explain the disappearance of the property; thus, the insured need not establish the cause of the loss as part of its case.2)-Once the insured has established a prima facie case, the insurer must prove that the claimed loss is excluded from coverage under the policy.-The insurer must show that the loss was proximately caused by the excluded peril.-Because exclusions will be given the interpretation most beneficial to the insured, the

insurer must demonstrate that an interpretation favorable to it is the only reasonable reading.

-In the context of insurance policies, the causation inquiry stops at the efficient physical cause of the loss; it does not trace events back to their metaphysical beginning.-In construing insurance policies, the court is to stops its inquiry at the cause

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nearest to the loss.-Where a policy expressly insures against a direct loss and damage by one elementbut excludes loss or damage caused by another element, the coverage extends to the loss even though the excluded element is a contributory cause.3)

Valued Policy-The policy states that the covered property is insured at a specific price established in the policy.

Cash Value-What the property is worth at the time it is destroyed.-How is what the property is worth calculated?1) replacement cost less depreciation-If you buy a $6,000 20 year roof that has to be replaced after 20 years at a cost of $6,000; you would get $6,000 minus depreciation amount2) replacement cost3) actual cash value-Spare 40,000 mile tire with 30,000 miles on it is stolen; cost to replace the tire is 200.-Actual cash value of a used tire with 30,000 miles is probably going to be about $50 so that’s what you get.Coinsurance Policies-Assume property valued at $125,000; coinsurance requires 80% coverage; property is only insured for $75,000 when it needs to be insured for about $100,000. Because 80% provision is not satisfied, insurance co is only going to pay $15,000 $75,000(actual coverage)/$100,000(required coverage) = ¾ ¾ X $20,000(amount of loss) = $15,000.

Title Insurance-When you buy a home, you will be offered title insurance.-Title insurance in every situation where is mortgage is involved is required by the mortgage company.-Title insurance policy insures the title of the property against the claims of all others.-If someone makes a claim to the title of property you own and have a title insurance policy covering it, the title insurance company will defend you in the suit.-If you refinance because you want to make an addition to the house, the mortgage company is going to make you buy a new title insurance policy.

What Constitutes Bodily InjuryVoorhees v. Preferred Mutual Insurance Co.-In order for bodily injury provision of insurance policy to apply, there must be physical manifestation of injury accompanying a claim of negligent infliction of emotional distress.-Court also had to interpret meaning of “occurrence” under the policy.-Had to determine whether Voorhees making comments that lead to emotional distress were covered under the policy because the policy did not cover intentional acts

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What Constitutes Property DamageSt. Paul Fire & Marine Insurance Co. v. National Computer Systems-Duty to defend is part of the duty to indemnify.-What is the reasonable expectation of the insured at the time the contract of insurance was entered into is it reasonable for the insured to expect that the damage/loss at issue is of the type that is covered by the policy?

Defining and Counting the Liability “Occurrence”Michigan Chemical Corporation v. American Home Assurance Company-MCC had 5 insurance policies granting $28 million in coverage per occurrence.-MCC argues that each claim filed against it constitutes an occurrence.-Insurance companies argue that there is only one occurrence the shipping of the toxin.-Court says that the number of occurrences is determined by the cause of injury, not the number of claims.

What Constitutes a “Claim” or “Suit” for Purposes of the Duty to DefendHazen Paper Company v. United States Fidelity & Guaranty Company-Court has to determine whether letters sent by the EPA to Hazen constituted a “suit” under the terms of the policy and whether cleanup costs were “property damage.”-Court says the letter from the EPA did involve a suit “the consequences of the receipt of the EPA letter were so substantially equivalent to the commencement of a lawsuit that a duty to defend arose immediately.”-When pollution has occurred, cleanup costs are damages within the policy language because in that circumstance the word “damages,” which is not defined in the policy, is ambiguous.-If there are 2 rational interpretations of policy language, the insured is entitled to the benefit of the one that is more favorable to it.

The Concept of an Uninsurable Known LossGeneral Housewares Corp. v. National Surety Corporation-This is an EPA case as well.-Case involves the “known loss doctrine”-How is known loss different from case we read earlier in the semester about the CA house that was damaged due to landslide said coverage applied when loss manifested itself.-Known Loss Doctrine

-One may not obtain insurance for a loss that has already taken place.-Losses which exist at the time of the insuring agreement, or which are so probable or imminent that there is insufficient risk being transferred between the insured and insurer, are not proper subjects of insurance.-Is there a substantial certainty that the loss will occur?-If an insured has actual knowledge that a loss has occurred, is occurring, or is substantially certain to occur on or before the effective date of the policy, the known loss doctrine will bar coverage.-The known loss doctrine is inapplicable if the insurer also knew of the circumstances on which it bases the defense.

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When is Coverage TriggeredSingaas v. Diederich-Diederich built machine negligently.-When machine was negligently built (wrongful act) insurance coverage in place, but at time plaintiff was injured, Diederich had cancelled the insurance policy.-Court has to determine whether the coverage applied at the time of the wrongful act or at the time the injury occurred.-Court said that occurrence did not occur until the injury resulted.-This is the majority rule.CGL Policy Trigger for Property Damage ClaimsEljer Manufacturing, Inc. v. Liberty Mutual Insurance Co.

-“Occurrence” defined as an accident, including continuous or repeated exposure to conditions during the policy period.-Eljer Argument for leaking Qest System:

-Physical injury to the property of the buyer of a Qest system occurs when the system is installed in the buyer’s house or apartment, not when it begins to leak oris replaced or is recognized to have reduced the value of the buyer’s property.

-Eljer Argument for Non-leaking Qest System:-If the Qest system has been replaced in anticipation of its proving defective, or the value of the home has been diminished, or the homeowner has lost the use of his property because he’s afraid to use the plumbing, then, provided at least one other Qest system somewhere else has leaked, there is “property damage” as of the time when the homeowner realizes that the Qest is reducing the value of his home and (or) must be replaced.

-Liberty Argument for Leaking Qest System:-The “property damage” to which the policies refer does not occur until the system

leaks.-Liberty Argument for Non-leaking Qest System:

-Physical damage occurs when the homeowner replaces the Qest system, since theprocess of removing the old system causes unquestioned damage to the house.

-Many of the leaks upon which tort claims against Eljer are based did not occur until after the expiration of Liberty’s last insurance policy with Eljer at the end of 1988.-Many people did not realize until after 1988 that their Qest system was potentially defective and reducing the value of their homes and ought to be replaced and maybe the home not used until it was replaced because the water should be cut off immediately as a precaution.-Holding:

-The drafting history of the property damage clause, and the probable understanding of the parties to liability insurance contracts, persuade us that the incorporation of a defective product into another product inflicts personal injury in the

relevant sense on the latter at the moment of incorporation, here, the moment the defective Qest systems were installed in homes.

Travelers Insurance Co. v. Eljer Manufacturing, Inc.-Same facts as previous case, but this decision deals with the excess insurance coverage.

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-The relevant language contained in all of the excess policies is identical, to the extent that all policies provide indemnity coverage for an “occurrence” resulting in 3rd party “property damage” which takes place during the respective policy period.-The policies have different definitions of “property damage” depending on the year the policy was issued.-Definition of “property damage” in 1979-1981 policies:

injury to tangible policy interpreted according to NY law-Definition of “property damage” in 1981-1990 policies:

physical injury to or destruction of tangible property interpreted according to IL law.

-Insurer’s General Argument:-“property damage” does not occur until a particular claimant’s Qest system failsand leaks, causing water to damage the claimant’s property.

-Policy Holders’ General argument:-“property damage” within the meaning of the policies takes place at the time of the installation of the allegedly defective Qest system.

-Issue:-When indemnity coverage for “property damage” under excess CGL insurance policies, issued between 1979 and 1990 by various insurance companies, is triggered?

-Holding:1) Pre-1982 Policies-Under NY law, an “injury to tangible property” may include tangible property which has been diminished in value by the Qest system to an extent greater than the value of the Qest system.2) Post-1981 policies-Coverage under the post-1981 policies is triggered (property damage takes place)at such time that a claimant suffers “physical injury to tangible property” in the form of water damage due to leaks from the Qest system.-Coverage under the post-1981 policies is not triggered in the context of a Claimant’s voluntary decision to replace a fully functional Qest system prior to the development of a leak.

-Reasoning:1) Pre-1982 policies

2) Post-1981 Policies-In order to trigger coverage for “property damage,” the plain language of the post-1981 policies requires that there be an injury to tangible property and that theinjury be physical in nature.-To the average, ordinary person, tangible property suffers a “physical” injury when the property is altered in appearance, shape, color or in other material dimension.-To the average mind, tangible property does not experience “physical” injury if that property suffers intangible damage, such as diminution in value as a result from the failure of a component, such as the Qest system, to function as promised.-Something physical occurs when plumbing is installed, but it is not injury; there

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is injury (of a sort) when the plumbing is installed, but it is not physical injury.-Rules:

1) Pre-1982 Policies-When one product is integrated into a larger entity, and the component product proves defective, the harm is considered to be harm to the entity to the extent thatthe market value of the entity is reduced in excess of the value of the defective component.-Under NY law, an “injury to tangible property” includes tangible property which,as a result of the integration of a defective product, has been diminished in valueto an extent greater than the value of the defective product.2) Post-1981 Policies

Interstate Fire and Casualty Company v. Auto-Owners Insurance Co.-Whether there are multiple carriers on the hook, courts are either going to either use the closest to the risk test or pro rata share.

Consolidated Edison Company v. Allstate Insurance Company-Issue is whether each insurer is liable for a portion of the loss or the entire loss.-Con. Ed. Wants each insurer to be responsible for the entire loss.-Court puts burden to prove “accident”

Weedo v. Stone E Brick-Policy does not cover faulty workmanship, which causes the accident, so insurance co off the hook.

Life Insurance-Life, health and disability insurance is different from all other insurance.-For all other types of insurance, the insurance companies are all really selling the same product you typically can’t get from one company what you can from another as far as coverage goes. all companies are going to look at limits of liability, deductibles, and what exclusions should be included.-Life, health, and disability policies are creatures of marketing and vary.-In regard to life insurance, really need to understand the product.-3 forms of life insurance1) Term insurance

1) annual renewable term policy says it will insure for a specific amount and charge a yearly amount ex. $1 million term for $500 a year.-ART premium will increase as the insured gets older.-Only about 2%-3% of term policies ever pay because people get tired of paying the premium.-Premium will be higher in beginning because insurance co knows people will letthe policy lapse-Usually have provision saying that at the end of the term the insurance co will letyou keep it but price the premium very high only people who keep them are those in bad health.

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2) term for a period of time2) Whole Life insurance

-You buy it and pay the premium of X dollars for your whole life.-2 types of companies that sell these and term life policies stock companies and companies like Mass Mutual.-Company like Mass Mutual is owned by the insureds the company pays dividends out from its profits that are used to reduce the insureds dividends.-Stock companies don’t pay dividends so probably better to use mutual company.

-Term policy will never have cash value all you get pack is unearned premium-In permanent coverage, there will be a build up of money you can get, but you may have to give up the insurance to get it.-Generally the insured owns the policy, but sometimes a 3rd party can own the party such examples include a spouse or ex spouse.- Amex Life Assurance Company v. The Superior Court of LA-Court holds that once the “incontestability period” has passed, the insurance company has to pay.-Court says that if the application had been made not by the insured but by someone else, the insurance company may not have had to pay raises the question of who really bought the insurance policy.-Ruling and incontestability clause put the burden of diligent investigation on the insurance company.-Court says that one the incontestability period passes, fraud does not negate the policy.

Rendleman v. Metropolitan Life Insurance Co.-Court rules that policy benefits go to the ex-wife.

Employers Modern Life Co. v. Lindley-Cant name a bank that you have taken out a loan from as beneficiary of a life insurance policy -Can collaterally assign insurance proceeds as collateral for a loan.

Disability Insurance-Disability comes in 2 main forms:1) Disability coverage generally does not cover more than 60% of what the insured earns2) Employee or Employer paid-If employer pays premiums, it is taxable income to the employee.-If the employee pays premiums or pays tax on it, when proceeds become due, they are tax free.-In a disability policy, the insured is going to want the profession from which the disability precludes him from engaging in to be described as specifically as possible.

-If you are a lawyer that litigates and you get throat and neck cancer, you want thedisability policy to define your profession as “litigator” rather than “lawyer” because a lawyer doesn’t necessarily have to be able to talk to work but a litigatordoes.-If you are an optometrist who develops a disability in one of your hands, you want the disability policy to say “optometrist” rather than “physician” because a physician can work without the use of one hand as a general practitioner but an optometrist cannot work without the use of a hand.

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Nursing Home Coverage-Nursing home care currently costs a minimum of $3,000/month, but more often costs more.-Nursing home coverage will pay a set sum of money per day if you have nursing home coverage you need inflation coverage.-In buying nursing home coverage, when does the waiting period start and when will it pay?

Auto Insurance-What ought to be covered in auto insurance that isn’t?

-ATV-motorcycles require separate policy

Who is the “insured”-Named insured and family are going to be insured under a policy.Simon v. Lumbermens Mutual Casualty Co.-Issue is whether the car owner’s sister was covered by the policy.-Sister was driving car with permission of her sister.-Sister lived with her father.-Car owner had Aetna policy on the car.-When driving the car, sister hit a pedestrian.-Father had policy with Lumbermens.-Undisputed that coverage extended from the Aetna policy because sister was driving with the permission of the owner.-Issue is whether coverage extended from the Father’s Lumbermens policy.-Lumbermens policy covered non-owned automobiles but excluded coverage if the non-owned car was used regularly by the person involved.-Court here decided that coverage did not extend because the sister drove the car exclusively 6 weeks prior to the the accident the car was made available to the sister for her regular use so coverage excluded under the policy.

Blish v. Atlanta Casualty Company-Court ruled that when driver was beaten and robbed while changing his tire, policy under auto insurance extended because injury occurred from use of motor vehicle as motor vehicle.

Scope of Uninsured Motorist CoverageCardin v. Royal Insurance of America-W injured when riding as passenger in husband’s car.-Husband’s insurance paid $25,000 for bodily injury and $25,000 for bodily injury to member’s of husband’s household caused by underinsured automobile.-W owned 1979 van separately insured.-Uninsured and underinsured motorist coverage is controlled in every state by statute.-Court said that exclusion in policy on 1979 van could not limit or exclude uninsured motorist coverage because it would be against public policy to do so.

No-Fault Automobile Insurance-In reaction to uninsured motorist problems, states began allowing no-fault motorist coverage.

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-No-fault coverage in essence covers the other driver who hits you it protects the driver from anyone who might hit and cause him injury. you can’t go after the driver that hits you, you can only get what you have in no-fault coverage.

State Farm Mutual Automobile Insurance Co. v. Mabry-Court in this case said that the insurer had to pay for diminution in value after a car had been wrecked and repaired.-Court reaches this conclusion based on the particular contract language at issue provided for reimbursement of loss.

Siegle v. Progressive-Court analyzes same issue in previous case but reaches different conclusion based on the contract language said insurer would pay the lesser of 2 amounts-Most policies today provide for cost of repairs only don’t cover diminution of value.

Cranfill v. Aetna Life Insurance Co.-Would it have mattered if there was not an accidental death policy at issue?

-yes-Court rules that death after drinking and driving is accidental.

The Contract Law Approach to Bad FaithBeck v. Farmers Insurance Exchange-Majority of states predicate bad faith claims on tort principles.-Plaintiff would want to bring bad faith claim based on tort principles because punitive damages are available in tort cases.

The Measure of Damages from Bad Faith Conduct

Campbell v. State Farm Mutual Automobile Insurance Company-Ratio of Punitive Damages to Compensatory Damages-The ratio of punitive to compensatory damages is not determinative just one factor for consideration.-If the other six factors indicate a high punitive damage award, a judge should not decrease the amount solely because of the ratio of punitive to compensatory damages.-Crookstone I and II rejected the idea of establishing a specific ratio or capping punitive damages.-A ratio of greater than 3 to 1 is permissible here trial court erred in remitting the jury award.-Federal Law-Whether the punitive damage award was unconstitutionally excessive?-Only when an award can fairly be categorized as “grossly excessive” in relation to these interests (state’s interest in punishing unlawful conduct and deterring its repetition) does it enter the zone of arbitrariness that violates the DPC of the 14th Amendment.-3 factors for considering the constitutionality of a punitive damages award:

1) the degree of reprehensibility of the conduct2) the disparity between the harm or potential harm suffered and the punitive damages award

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3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

Conclusion-The trial court’s analysis of the punitive damages award under BMW was correct.-Trial court’s remittitur order vacated and reinstatement of jury’s verdict awarding $145 million in punitive damages.

State Farm Mutual Automobile Insurance Company v. Campbell-State Farm takes the case to the Supreme Court based on the assertion that the punitive damage award rendered by the UT Supreme Court was in violation of Due Process.-If litigating against an insurance company that is refusing to settle, threatening bad faith claim and citing Campbell case will get their attention. Court holds that award of $145 million in punitive damages on $1 million compensatory judgment violated due process.Issue:-Whether, in the circumstances, an award of $145 million is excessive and in violation of the DPC of the 14th Amendment?-The DPC of the 14th Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor.-3 factors for considering the constitutionality of a punitive damages award:

1) the degree of reprehensibility of the conduct2) the disparity between the harm or potential harm suffered and the punitive damages award3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

III-It was error to reinstate the jury’s $145 million punitive damages award.III - A Degree of reprehensibility-Most important indicium of a punitive damages award is the degree of reprehensibility of the defendant’s conduct-Factors for determining degree of reprehensibility:

1) whether harm caused was physical as opposed to economic;2) whether the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others;3) whether the traget of the conduct had financial vulnerability;4) whether the conduct involved repeated actions or was an isolated incident;5) whether the harm was the result of intentional malice, trickery, or deceit, or mere accident.

-Court not suggesting there was error in awarding the punitive damages based upon State Farms conduct toward the Campbells, but that a more modest punishment for this reprehensible conduct could have satisfied the State’s legitimate objectives.-The plaintiffs, and the courts in imposing a high punitive damages award, used this case a platform to expose and punish the perceived deficiencies of State Farm’s operations throughout the country.-Not State Farm’s fault out-of-state conduct evidence involved from their opening statements onward, the Campbells framed this case as a chance to rebuke State Farm for its nationwide

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activities.-A State cannot punish a defendant for conduct that may have been lawful where it occurred A state does not acquire power or supervision over the internal affairs of another state merely because the welfare and health of its own citizens may be affected when they travel to that state.-As a general rule, a state does not have a legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the State’s jurisdiction.-Campbell argument even if evidence introduced at trial was legal where it occurred, it was not the primary basis for the punitive damage award and was relevant to the extent it demonstrated State Farm’s general motive against its insured.

court rejects-Lawful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant’s action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff.-Jury must be instructed that it may not use evidence of out-of-state conduct to punish a defendant for action that was lawful in the jurisdiction where it occurred.-The UT courts erred in awarding punitive damages to punish and deter conduct that bore no relation to the Campbell’s harm.-Due Process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other parties’ hypothetical claims against a defendant under the guise of the reprehensibility analysis Court says this is what the UT Supreme Court did.

Punishment on these bases creates the possibility of multiple punitive damages awards for the same conduct.

-It is true that repeated misconduct is more reprehensible than an individual instance of malfeasance, but courts must ensure the conduct in question replicates the prior transgressions.

Campbells identified scant evidence of repeated conduct of the sort that injuredthem. Evidence pertaining to claims that had nothing to do with a 3rd party lawsuit was introduced at length.

-Because the Campbells have shown no conduct by State Farm similar to that which harmed them, the conduct that harmed them is the only conduct relevant to the reprehensibility analysis.III - B Ratio between harm or potential harm and punitive damages-Court will not adopt a bright-line ratio which punitive damages award cannot exceed.-Few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.-Single-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution, than awards with ratios of 500 to 1.-Ratios greater than those the Court has previously upheld may comport with due process where a particularly egregious act has resulted in only a small amount of economic damages. vice versa true as well-Court notes that the compensatory award in this case was substantial $1 million compensatory award was complete compensation for year and a half of emotional distress.-UT Supreme Court sought to justify the large award by referencing State Farm’s failure to report a $100 million TX punitive damage award

This is out-of-state conduct that was dissimilar and should have been given little or no weight rendered in a 1st party suit; no judgment entered; settled for a

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