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To trigger exclusion from Liability for an Intentional Act, the actor must have:
- Majority Test
- Insured must have intended both:
- 1- the Act
- 2- and to cause SOME kind of Injury/Damage
the fact that the precise kind of injury or damage that resulted differed from what was intended does not prevent the exclusion from applying.
EXCEPTIONS to exclusion from liability for an intentional act:
In majority of jdx,the law presumes the insure intended the result that was the natural consequence of his intentional act. (in NC self defense is not an exception to the exclusion)
- In a minority of jdx self defense is an exception to exclusion. Analyze:
- -Voluntary Act?
- - Was even within control of insured
- - Was accident/calamity beyond control of insured?
General Rules for Interpreting Insurance Coverage
Exclusion Grants Ambiguity - Statute Burdens Policy Terms
- 1- grants of coverage read broadly
- 2- Exclusions/Limits read narrowly
- 3- Ambiguities will be construed against the insurer
- 4- Words & terms, unless defined, are given their ordinary meaning
- 5- policy is read as a whole
- 6- Insured has BOP to bring himself within coverage/ Insurer has BOP on exclusions/limits
- 7- Statutes will overrule contrary policy provisions
Characteristics of Insurance
Transfer Fee for Fortuity Party Large!
- - Transfer of Risk
- - Fee
- - Fortuity
- - Party in business
- - Law of Large Numbers
Abraham: Risk distribution arrangement entered into by one party as its business.
SC: K whereby one undertakes to indemnify another or pay a specific amount on a determinable contingency
Fiduciary Duty in relation to insurance contracts
There is an implied covenant of good faith & fair dealing in every contract. Even though there is no fiduciary relationship with the insured, the insurer holds some duties of a fiduciary nature... equal consideration, fairness and honesty are among them.
Fortuitous event rule
An event is Fortuitous if it is an event which so far as the parties to the contract are aware, is dependent on chance & unknown to the parties.
There is a Duty to defend where there is a CONTINGENT risk of loss.
- as long as there is
- 1- UNCERTAINTY about the damage/injury that may occur during the policy period & uncertainty regarding the imposition of Liability upon the insured &
- 2- NO LEGAL obligation to pay a 3rd pty has been established
- 3- then there is a potentially INSURABLE risk.
Insurable Interest - Definition
- Any interest that the Courts recognize as sufficient.
- - Legal Liability Interest
- - Factual Expectancy
- - Property Rights
- - Contract Rights
When must insurable interest exist for property?
AT time of loss the pty must have a lawful or substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage at time of loss.
ONLY INSURER CAN RAISE LACK OF INSURABLE INTEREST AS DEFENSE (NOT 3RD PARTIES)
When must Insurable Interest exist for Life Insurance?
- what interests are recognized?
- Life: AT TIME OF CONTRACTING must have either:
- 1- a sufficiently close interest: related by blood or law/marriage (a substantial interest engendered by love and affection) OR
- 2- Lawful & substantial economic interest: partners, employers-->managers, Creditors(proportional to debt)
ONLY INSURER CAN RAISE LACK OF INSURABLE INTEREST AS DEFENSE (NOT 3RD PARTIES)
Property Right Test of Insurable Interests
- - Legal or Equitable title of any kind: fee simple, life tenant, license holder, future interests (not option holder)
- - Voidable or Void title: as long as pty is good faith purchaser he has an insurable interest
Contract Right Test of Insurable Interest
- Insured has insurable interest so long as contract rights depend on continued existence of property
- 1-Creditors have an interest to the extent of their debt
- Secured creditors: Insurable interest in property
- Unsecured creditors: insurable interest in life of debtor
an insured is entitled to receive benefits up to or equal to a loss but not to receive benefits in excess of a loss.
(if insured has no interest in property or a person, the insured suffers no loss as a result of damage to the property or person)
3 methods to determine Actual Cash Value:
- 1- Market value
- 2- Replacement Cost less Depreciation
- 3- Broad Evidence Rule (Ct prefers this rule)
What is the broad evidence rule
It is a method of determining actual cash value where the trier of fact considers every fact & circumstance, including market value & replacement cost less depreciation, which tends to apply to the formation of a correct estimate.
What is a Valued Policy?
- A policy for which the insured item is based on an agreed value.
- Cts place duty on the insurer to investigate & determine the insurable value.
Elements of Fradulently Over- Insuring
- 1- INTENTIONALLY over-valued the property
- 2- representations were MATERIAL to the risk
- 3- Insurer RELIED on those representations
A relying party that suffers harm or detriment may sue for damages or for rescission of the contract.
- There must be a representation that is
- 1- Substantially false & misleading
- 2- material
- 3- induces reasonable reliance
- 4- causes harm or detriment.
Test for Materiality
- The information sought is material if it would significantly affect the decision of the underwriter in:
- 1- issuing the policy at all
- 2- in estimating the degree or character of the risk
- 3- in fixing the amount of premium to be charged for coverage.
Property Valuation Rule - good faith valuation
It is a question of good faith and honest intention on the part of the insured, and though he may have put a value on his property greatly in excess of its cash value in the market, yet he did so in the belief that the property was worth the valuation put upon it, and the excessive valuation was made in god faith, and not intended to mislead or defraud the insurer, then such overvaluation is not a fradulent overvalutation that will defeat recovery.
Doctrine of Subrogation
- No equitable right of subrogation where policy does not have a subrogation provision.
- The courts have adopted a rule that the insured shall be entitled to one full indemnity for the injury sustained.
- The insurer can recover only the excess which the insured has received remaining after the insured is fully compensated for the loss.
- The right of the insurer to be put in the position of the insured in order to pursue recovery from third parties, legally responsible to the insured.
- If the insured has been compensated in full by the insurer for the loss sustained, and subsequently receives recovery from a third pty, the insurer's right becomes a right to the proceeds if subrogation is found to apply.
- An insurer is only entitled to that part which was paid in compensation for the SAME loss. An insurer cannot recover beyond the amount actually dispersed by it.
Excess / Competing Insurance Rule
The general rule is that obligations of insurance coverage are set/governed by the policy language.
Insurers with Competing Insurance Clauses
3 methods of pro-rating losses
- 1- Pro-rate according to the limits contained in each policy (Majority Rule)
- 2- Pro-rate on the basis of the premiums paid to each insurer
- 3- Pro-rate loss equally up to the limits of the lower policy (Minority Rule)
3 ways Insurers regulate liability when multiple coverage exists
- 1- Pro-rate clause: limits liability of an insurer to a proportion of the total loss
- 2- Escape clause: avoids all liability if covered under another policy.
- 3- Excess clause: provides that the insurance will only be excess if other coverage exists
Minnesota Rule - Total Insuring Intent (Multiple policies with competing insurance clauses)
This is a Closest to the risk analysis. Analyzing the insurance as a whole and looking for the risk which gives rise to the loss in light of the "total insuring intent".
Downside: leads to a factual dispute in every case.
Total Loss - Inland Marine
Total loss may be actual of constructive
- American rule: Constructive loss: an owner may claim a constructive total loss of the insured vessel if the cost of repairs and other expenses required to get the ship to its destination would exceed one half the value of the vessel after repairs are made.
- English Rule: requires that the costs exceed the full value of the vessel after repairs.
- **these rules also apply to cargo**
- - straight deductible (auto & HO)
- - aggregate deductible (health ins)
- - franchise deductible (loss must equal or exceed % of value)
- - variable deductible (combines straight & franchise deductible)
Requires the insured to share in the loss along with the insurer, regardless of the amount of the loss.
The insurer looks to policy limits v. the ACV of the property to determine if the insured has violated the co-insurance clause and is subject to the applicable penalty.
States regulate insurance by
- Consumer Complaints
- In cases that an insurer becomes insolvent:
- State guaranty fund will compensate in-state residents
- Fund is payer of last resort
- Funded by insurers doing business in that line of insurance within the state.
- State assesses companies based on their % of premium volume within that line of business in the state.
Theoretical Rate Formula
- Amt needed to pay claims (pure premium) +
- + amount needed to pay expenses (expense load)
- / divided by the number of insureds (pure rate)
Variables in Rates
- Loss Reserves
- Classification of risks (age, sex, vehicle, miles driven, driving record)
- Investment Income
(Pure Premium + fixed expenses) / (1+variable expenses)
Methods of Regulation on Rates
- prior approval
- file and use (most common)
- 50/50 no-file
- Bureau Rate
Federal Regulation on Insurance usually only in cases of:
- anti-trust (rate-fixing)
- ***most other issues are dealt with at state level***
Doctrine of Waiver
- Intentional waiver of a known right, express or implied, by the insurance company.
- Cannot waive rights that exist for public policy reasons.
Doctrine of Estoppel
Where an insurer takes an action and the insured changes his position by virtue of the insurer's action (detrimental reliance).
Coverage is not created by Estoppel.
Reasonable Expectations Doctrine
- If by reading the policy, the insured can reasonably expect the claim to be paid, then the policy language will be set aside and the insurer will be ordered to pay.
- Usually ambiguous language is construed in favor of the insured so doctrine of reasonable expectations is not needed.
Uniform Determination of Death Act
- Part 1 - total failure of the cardiorespiratory system
- Part 2 - the entire brain must cease to function, irreversibly, includes the brain stem, as well as the neocortex.
MUST be able to prove CAUSAL connection between actions of the insured & the insured's death.
Majority Rule: For an insurer to avoid liability on the basis of suicide clause with the words "sane or insane" it is not necessary for the insured to realize the physical nature or consequence of his act or to form a conscious purpose to take his life.
INTENTIONAL SELF DESTRUCTION
- A policy exclusion for suicide "sane or insane" is not operative absent an intent by the insured to kill himself.
- Such intent could not be formed by the insured if he were so far insane as to be without appreciation of the physical consequences of his action or without power to resist the disordered impulse that caused him to take his life.
- A provision that the VALIDITY of the policy shall be incontestable after two years from its date of issue during the lifetime of the insured, except for nonpayment of premiums.
- A provision that all statements made by the employer or trustee or by individual employees shall, in absence of fraud, be deemed representations and not warranties, and that no such statement shall be used in defense to a claim under the policy, unless it is a written application.
Friendly Fire Rule
- A fire which is
- 1- Intentionally lit
- 2- remains Confined
- 3- Never escapes
- 4- is not Excessive
- will be characterized as friendly and will not subject the insurer to any liability for the resulting loss.
***Insurer will only be excused if the fire is INTENDED to cause some sort of damage***
Negligence - Friendly Fire Rule
Negligence or inadvertence of the insured or one of his employees will not bar recovery, provided the fire causing the loss or damage is what is known in law as a HOSTILE fire.
Property - Partial Interests
- Vendor & Vendee Rule
-Insurance runs with the insured. Unless contract assigns risk of loss to a party, the seller remains the legal & equitable owner of the property until the sale is complete.
Property - Equitable Conversion - Majority Rule
- Majority of jdx treat the purchaser as the owner of the land pending completion of the contract.
- The vendor is viewed as retaining only legal title, which in effect gives the vendor a security interest, whereas the equitable or beneficial title is placed in the purchaser.
- Under this doctrine the purchaser bears the risk of loss.
Other Insurance Clause (when does other insurance apply) SIR
- Other insurance clause states that it must be
- "on the same:
- INTEREST &
- "against the same RISK
Trigger of Coverage
- Manifestation: when insured found it
- Injury in fact: date of harm causing event
- Continuous: all of the policies in effect from exposure through manifestation)
- Exposure: initial exposure
NC Rule for Defective Construction
The date that the construction was completed is the date of the Injury in Fact. ***but were there damages at the time of the injury in fact... must have damages to have a loss***
Manifestation of loss trigger rule
- Prior to manifestation of damage, the loss is still a contingency under the policy and the insured has not suffered a compensable loss.
- Once the loss is manifested, the risk is no longer contingent, rather it is an event that triggers indemnity unless such event is excluded under the policy terms.
- An undertaking, or calling for gain, profit that is continued, extended or prolonged course of business or occupation.
- Continuity is an important aspect of business pursuit v. casual accommodation.
Intentionally Caused Loss (elements)
- Where the insured intended both
- 1- to do the act which caused injury
- 2- to cause SOME kind of bodily injury
***does age of insured mean that he may lack capacity to form intent?***
Intentionally Caused Loss Rule
- The intent to cause injury may be actual or inferred.
- Intent may be inferred from the nature of the act and the accompanying reasonable foreseeability of harm.
- Once intent to cause injury is found... it is immaterial that the actual injury caused is of a different character & magnitude than that intended.
Majority Test for Intentional Acts Exclusion
- - Insured must have intended the act
- - Insured must have intended SOME kind of injury & damage
Does not matter that the injury/damage is much more severe than intended.
Minority of JDX - Exception to Intentional Acts Exclusion for Self Defense
If insured only acted with enough force to defend himself & the event was not within his control, this will be an exception to the Exclusion and coverage will extend.
If the insured used excessive force, it will be found to be intentional and will fall within the exclusion.
**In NC, self-defense is NOT an exception to the exclusion***