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 -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 Insurance Rules of Construction 1) 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 intend 2) purpose of the coverage 3) 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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such as relation of insured to insurer and spreading of risk. 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. -Factors for determining whether federal law specifically relates to business of insurance.  To the contrary. specific detailed references to the insurance industry in proposed legislation will normally achieve the McCarran-Ferguson Act’s objectives. Allstate Life Insurance Co.” ADA affected matters at core of McCarranFerguson Act’s concern. Pallozzi v. John Garamendi. -3 plaintiff arguments: 1) Title III does regulate the underwriting practices of insurance companies 2) Title III’s regulation of insurance underwriting is not barred by McCarranFerguson Act because ADA specifically relates to the business of insurance 3) district court imposed unjustified pleading burdens in ruling on the motion under FRCP 12(b)(6). that Congress will have focused upon its insurance-related effects. -McCarran-Ferguson does not apply to the executive branch. -Court seems to be making a political decision in this case. and any intrusion by ADA on state insurance regulation was not inadvertent. and thus falls outside scope of McCarran-Ferguson Act: 1) whether statute has connection with insurance plans 2) whether statute relates to insurance business explicitly 3) whether statute effects matters at core of McCarran-Ferguson Act’s concern. State of CA -The court holds that federal law does control in this case. 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. 3 . 4) purposes of McCarran-Ferguson Act -Neither the McCarran-Ferguson Act’s language. subject to the safe harbor provision of Title IV 501(c).rather than where the policy was taken out. for they will call the proposed legislation to the attention of interested parties. -Allstate initially issued the Pallozzis a temporary life insurance policy for $65. requires the federal statute to relate predominantly to insurance. should the proposal become law. or administering of risks.  Court agrees with all 3 -Application of Title III of ADA to insurance underwriting was not barred by McCarranFerguson Act. classifying. etc.. Insurance Commissioner. and thereby normally guarantee. -Joseph Pallozzi had major depression and agoraphobia. nor its purpose. Lori Pallozzi had major depression and borderline personality disorder.000. but cancelled the agreement based on med info provided by Pallozis’ psychiatrist. American Insurance Association v. since ADA specifically related to business of insurance. -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. -When plaintiff pleads discrimination by insurer in violation of Title III of ADA in underwriting. Title III defined “insurance office” as “public accomodation.

-Employee brought suit against insurance co that issued his employer’s group insurance policy for breach of contract and tort claims.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. State Farm Mutual Automobile Insurance Co. Dedeaux. disability plans..W. -Issue: -Whether ERISA preempts state common law tort and contract actions asserting improper processing of a claim for benefits under an insured employee benefit plan? -Holding: 4 . (anything that deals with employment really). -Insured’s no-fault coverage extended to injuries she sustained when she was shot by 3rd party while driving. -“Accident” under uninsured motorist coverage is to be viewed from perspective of tort-feasor. 41 (1987) -ERISA is federal regulation of retirement benefit plans.-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. -No-fault benefits are paid “for bodily injury to an insured. -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.” -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). etc. 488 N. Pilot Life Insurance Co. the victim is compensated for what the liability carrier would have paid had the uninsured motorist had insurance. maintenance. v.S. -Uninsured motorist policy states “the bodily injury must be caused by accident arising out of the operation. -Under uninsured motorist policy. or use of an uninsured motor vehicle. caused by accident resulting from the maintenance or use of a motor vehicle as a vehicle. -For purpose of no-fault/economic loss benefits coverage. 481 U.” -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. -Plaintiff injured his back in activity related to employment -Dedeaux sought permanent benefits but Pilot Life terminated them after 2 years. term “accident” is to be understood from perspective of injured victim. McIntosh v.

Time Insurance Co. and was not limited to entities within insurance industry. World Trade Center Case -Issue -Was 9/11 a single occurrence or multiple occurrences? -Court rules single occurrence Glainer v. -Metropolitan refused to pay because 1) policy never delivered and 2) 1st premium not paid in accordance with terms. within meaning of saving clause in ERISA preemption provision. -Was it reasonable for the insured to believed he was covered? Kramer v. -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). -Court considers what the reasonable expectations of the parties are. Metropolitan Insurance Co. Contract Issues in Insurance Law -Important that 1st premium is at least tendered. within meaning of saving clause in ERISA preemption provision. -Time is essentially arguing there is no K because no delivery occurred. -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.-state lawsuit asserting improper processing of claim for benefits under ERISAregulated plan was preempted by federal law where state common law cause of action did not regulate insurance. even if not accepted by the insurance agent. Grisham -Crucial fact here is that insured is buying insurance policy from a plane salesman. not an insurance agent. -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. did constitute integral part of policy relationship between insurer and insured. -MS common law of bad faith does not regulate insurance. v. Gulf Insurance Co. and there was clear expression of congressional intent that ERISA’s civil enforcement scheme be exclusive. 2) whether the practice is an integral part of the policy relationship between the insurer and insured. -Kramer seeks to recover accidental death policy covering her and her husband. -Look to top of pg 300 for 6 necessary elements of insurance K. 3) whether the practice is limited to entities within the insurance industry. where law could not be said to effect spreading of policyholder risk. 5 .

-Policy was to be paid by direct deductions from the Kramer’s checking account. -Delivery of policy is not really necessary for it to be effective  more determinative than delivery is whether the policy was issued. -There is a difference between a policy being reinstated and a new policy being issued. -Kramer offered to pay first premium in cash but Duffey (metropolitan agent) wouldn’t accept. to a degree. 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. 1st payment was to be supposed to be paid in cash. -When policy was delivered. -FHA insurance -Insures the ultimate holder of the mortgage against losses. -2 types of mortgage insurance. so have to determine if there was constructive delivery. 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. -It is uncontested that there was no actual deliver. Verex Assurance -Case concerns mortgage insurance. -It is also to determine whether the first premium was tendered (offered) by the insured. premiums will often be increased as compensation for allowing the time-limited provisions to run from the time of the initial policy. they will offer you a new policy so the provisions from the first policy have to run again (provisions such as a 2 year suicide provision). in the event of default. you are off to the races. -Think of 3 terms 1) cancellation 2) rescission 3) non-renewal 6 . WHEDA v. Policy Cancellation -Policy can be rescinded for 1) non-payment of premium 2) material misrepresentation 3) insured has not complied with terms of the policy  ex. but if you don’t die and the 31st day comes. -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.  when policy is reinstated.

North Carolina Farm Bureau Mutual Insurance Co. Misrepresentation -There are different types of misrepresentation 1) fraudulent 2) innocent 3) reckless  not innocent but not fraudulent. such as that of a bailee. Glen Falls Insurance -Tublitz had executory contract to have a building demolished. but they can decide not to renew at their whim. Tublitz v. -NCFBMI issued Burgess home owners insurance policy covering home and contents for $32. insurance co can cancel automobile insurance policy for not complying with conditions in the 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. of whatever kind and however acquired. -At same time Burgess took out this policy. 4) when he has mere possession or right of possession. Insurable Interest -Insurable interest in 5 categories: 1) when the insured possesses legal title to the property insured. but may suffer. -The building burns down before demolished and court says insurance co still has to pay. 5) when he has neither possession of the property. Prohibition Against Other Insurance Burgess v. whether vested or contingent. 2) when he has an equitable title to the property. the loss of a legal right (a legal liability right). 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. -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.000. insurance co cannot cancel life and health policy. 3) when he possesses a qualified property or possessory right.-Generally. from its destruction. nor other legal interest in it. -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 7 . -Generally. defensible or indefeasible.

Allstate Insurance Co. Problem 5 pg 487 -Seems like insurance co would have to pay.  had the employee not acted negligently there would have been no injury. 8 . was immaterial because Allstate held itself to a higher standard in the policy. -Court says it will no longer distinguish between “accidental means” and “accidental results” (d) Preexisting Conditions and The Concepts of Fortuity and Accident Hill v. -Proximate cause sets in motion the events that cause the injury. violent and accidental means. -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. Mutual Benefit Life Insurance Co. Paul Fire and Marine Insurance Co. -King’s yacht sank the day before the temporary coverage ended. -Whether the applicable law required that denial of coverage be based on any misrepresentation. Commercial Travelers Mutual Accident Association -Decedent got in a wreck in a snow storm. Liberty National Life Ins. Falls on his shovel and dies. v. Smoke did dmg. -Is the loss a direct result of the fire or the ordinance? -Fire is the proximate cause. not fire Problem 4 pg 486 -There was an entire loss. but for the fire there would have been no loss. Causation and the Concept of Accident Marshall Produce Co. even absent intent.King v. -Causation is important in insurance in order to determine if the loss is covered and if there is a single loss or multiple losses. 1) accidental death 2) death by accidental means 3) accidental results 4) accident Hairston v. St. Predominant Cause Problem 4 pg 496 Burr v.000 of temporary coverage. -King takes out insurance policy from Allstate on yacht  binder for $100. -Had accidental death benefit covering losses that were direct and proximate result of and which were caused solely and exclusively by external. Got out of the car to shovel snow out from in under the car.

the insured should argue that it was within their reasonable expectations to be covered under the assignment of the policy. Assignment and the Property Insurance Contract Christ Gospel Temple v. -Public Policy requires that an innocent co-insured be permitted to recover based upon the insured’s reasonable expectations and not punishing the innocent victim for the wrongs of another. Westminster Presbyterian Church (Westminster) purchased a fire insurance policy on a building it owned. -Court also denies coverage to Presbyterian Church of Harrisburg because. -Both Betty and John were named insureds on the policy. -Failure to mitigate will reduce the amount the insured is entitled as a result of the damage.  insurance company is going to argue contract. -Public Policy rationale  a wrongdoer should not benefit from his wrongdoing. -Hoyt v. The Innocent Co-Insured Problem Kulubis v. Texas Farm Bureau Underwriters Insurance Company -Betty and John Kulubis bought a home owners insurance policy on their mobile home from Texas Farm. -In May. so since insurance company received the premiums and could not show that the risk shifted. -Failure to mitigate gives the insurance company a basis to deny coverage. -Court says there was not a valid assignment of the insurance policy and therefore Christ Gospel was not covered by the policy. 9 . contract  prohibition of assignment clause. -Betty filed for divorce in 1982 and when John was served with the papers he burned the mobile home and subsequently killed himself. Fidelity and Guaranty Insurance Co. -Test that should be applied is what a reasonable person would have understood the fire insurance policy to mean.  basically. -Therefore. it should not be off the hook. -Co-insureds under an insurance policy covering jointly owned property acquire joint rights and obligations under the policy. -Jones v. 3) keeps records of the reasonable damages to submit to the company. Liberty Mutual Co. contract. they no longer had an insurable interest in the property. 1968. the insurance company will be held liab -Insured under 3 duties in event of a loss(property damage) 1) protect property from further damage. due to the conveyance. if the accident that triggers the death is the sole cause of death being triggered. -Plaintiffs lawyer could have argued that interest attaches to the real property and that the risk had not shifted. the illegal acts of one of the co-insureds prevent recovery by the other co-insured. 2) make reasonable repairs to stop ongoing damage. New Hampshire Fire Insurance Co.-Court says that even if there is a preexisting condition.

-Because there is a blanket policy at issue. everything is covered. -The hijacker jumped from the airplane with the money and none of the $200. 4) money orders and counterfeit paper currency coverage. such as in a stove. Friendly Fire v. -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.00 was recovered.-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. -Go back and read this section pg 589 Scope of the Term "Premises" Northwest Airlines. Inc. -Purpose of this case is to show that courts will define “property” very broadly. Inc. and 5) depositor’s forgery coverage. -Northwest had “Blanket Crime Policy” with Globe. owned by plaintiff. -Rules: 2) -Where the language used in an insurance contract is ambiguous. 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. -The hijacking consisted of a continuous course of related events beginning with the takeover of the airplane and culmination with the hijacker’s successful escape with the money which was. v. it must be given its ordinary and usual meaning the same as the language of any other contract and the court cannot under the guise of construction redraft the contract. Property Damage Retail Systems. delivered the money to a hijacker. or furnace. Globe Indemnity Co.000. -Insurance company argues that no coverage based on fact that there was no wrongful abstraction because it occurred outside the premises.  generally excluded -Hostile Fire = one that occurs outside the usual confines of a friendly fire. -Because the property was a gift. CNA Insurance Companies -Issues: 1) Whether the trial court erred in finding that the computer tape and data were tangible property? 10 . v. Hostile Fire -Friendly fire = contained in the intended place a fire should be. when taken. fireplace.

-Benson sued Bradford claiming that 2. -Reasoning: -The parties knew that the plane would fly substantial distances as it transported -Rules: -The insurer bears the heavy burden of proof.500 hogs had been stolen from him sometime -Holding: 11 . 13. Place of Loss Limitations Vargas v.2. Theft and Mysterious Disappearance Benson v. -The tape was not entrusted to Retail for storage but so that Retail could work on the tape.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. Insurance Co. 2) -The mere possession of property does not indicate that the possessor is also holding the property for storage or safekeeping.400 . -Any storage of the tape was merely incidental to Retail’s true reason for possessing it.” -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 would cover the flight at issue. 1977. Canada or Mexico. -Policy provided that it would apply “only to occurrences. -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. 2) Retail was not holding the tape for storage or safekeeping. ordinary meaning and what a reasonable person in the position of the insured would have understood it to mean. and 2) that its own construction was the only one that fairly could be placed on the policy. its territories or possessions. -Rules: 1) -An insurance policy provision is to be interpreted according to both its plain. 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. accidents or losses which happen …within the US. Bradford Mutual Fire Insurance Corp. of North America -INA issued aviation policy to Joseph Khurey on Dec.

-The insurer must show that the loss was proximately caused by the excluded peril. the insurer must demonstrate that an interpretation favorable to it is the only reasonable reading. -Rules: -A plaintiff must prove more than mere disappearance to prove theft. yet. -Because exclusions will be given the interpretation most beneficial to the insured. inventory shortage. none of the caretakers testified. -“Theft” as used in an insurance policy. -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. -The insured need only prove the existence of the all risk policy and the loss of the covered property. -When Benson alleges that 2500 hogs were stolen and asserted coverage under the policy. the insured need not establish the cause of the loss as part of its case. wrongful conversion or embezzlement.-Benson did not introduce sufficient evidence of theft to go to the jury. reported no approximate dates when he discovered losses. -Bradford presented a credible explanation which would account for substantially greater losses from disease. -Reasoning: -Benson took no monthly counts. it does not trace events back to their metaphysical beginning. thus. -“Theft” must be construed to mean something other than escape. Dayco Corp -Rules: 1) -Under an all risk policy. where it is not defined. mysterious disappearance. the court is to stops its inquiry at the cause 12 . -In the context of insurance policies. v. -In construing insurance policies. Smith. because these are specific exclusions in the insurance policy. reported no feed consumption drop. Coverage Under "All Risk" Policies Great Northern Insurance Co.  used exclusion for mysterious disappearance to deny coverage. with the exception of Mrs. is given its popular meaning as covering any wrongful appropriation of another’s property to the use of the taker. -There was not enough proof to show that the pigs were lost. -The caretakers were in a position to see the pens and hear anything unusual. insurance company denied coverage based on inadequate proof of theft. nor reported any temporal relationship between the unlocked gates or unusual truck noises and any specific losses. 2) -Once the insured has established a prima facie case. the causation inquiry stops at the efficient physical cause of the loss. the insurer must prove that the claimed loss is excluded from coverage under the policy. the insured has the burden to establish a prima facie case for recovery.

-Where a policy expressly insures against a direct loss and damage by one element but excludes loss or damage caused by another element. Title Insurance -When you buy a home. -How is what the property is worth calculated? 1) replacement cost less depreciation -If you buy a $6.000(required coverage) = ¾  ¾ X $20.000. you would get $6. -If someone makes a claim to the title of property you own and have a title insurance policy covering it. coinsurance requires 80% coverage. the coverage extends to the loss even though the excluded element is a contributory cause. property is only insured for $75. the title insurance company will defend you in the suit.nearest to the loss. 3) Valued Policy -The policy states that the covered property is insured at a specific price  established in the policy. there must be physical manifestation of injury accompanying a claim of negligent infliction of emotional distress. What Constitutes Bodily Injury Voorhees v.000(actual coverage)/$100. -If you refinance because you want to make an addition to the house.000 20 year roof that has to be replaced after 20 years at a cost of $6. Coinsurance Policies -Assume property valued at $125. -Court also had to interpret meaning of “occurrence” under the policy. -Actual cash value of a used tire with 30.000.000(amount of loss) = $15. insurance co is only going to pay $15.000. the mortgage company is going to make you buy a new title insurance policy. Because 80% provision is not satisfied. Preferred Mutual Insurance Co. -Title insurance policy insures the title of the property against the claims of all others.000. Cash Value -What the property is worth at the time it is destroyed.000 miles on it is stolen. -Title insurance in every situation where is mortgage is involved is required by the mortgage company.000  $75. you will be offered title insurance. -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 13 . -In order for bodily injury provision of insurance policy to apply.000 mile tire with 30.000 when it needs to be insured for about $100.000 minus depreciation amount 2) replacement cost 3) actual cash value -Spare 40. cost to replace the tire is 200.000 miles is probably going to be about $50 so that’s what you get.

-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. -Court says that the number of occurrences is determined by the cause of injury. v.What Constitutes Property Damage St. -If there are 2 rational interpretations of policy language. The Concept of an Uninsurable Known Loss General Housewares Corp. National Computer Systems -Duty to defend is part of the duty to indemnify. -The known loss doctrine is inapplicable if the insurer also knew of the circumstances on which it bases the defense. American Home Assurance Company -MCC had 5 insurance policies granting $28 million in coverage per occurrence. -Known Loss Doctrine -One may not obtain insurance for a loss that has already taken place. or is substantially certain to occur on or before the effective date of the policy. v. -Losses which exist at the time of the insuring agreement. -MCC argues that each claim filed against it constitutes an occurrence. is ambiguous. the known loss doctrine will bar coverage. -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. or which are so probable or imminent that there is insufficient risk being transferred between the insured and insurer.” -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. are not proper subjects of insurance. Paul Fire & Marine Insurance Co. What Constitutes a “Claim” or “Suit” for Purposes of the Duty to Defend Hazen Paper Company v. the insured is entitled to the benefit of the one that is more favorable to it. -Is there a substantial certainty that the loss will occur? -If an insured has actual knowledge that a loss has occurred. -Insurance companies argue that there is only one occurrence  the shipping of the toxin. not the number of claims.” which is not defined in the policy. is occurring. 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. National Surety Corporation -This is an EPA case as well. 14 .

or the value of the home has been diminished. the moment the defective Qest systems were installed in homes. -Eljer Argument for Non-leaking Qest System: -If the Qest system has been replaced in anticipation of its proving defective. or the homeowner has lost the use of his property because he’s afraid to use the plumbing. here. -Same facts as previous case. then. -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. -Holding: -The drafting history of the property damage clause. and the probable understanding of the parties to liability insurance contracts. -“Occurrence” defined as an accident. v. -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. Travelers Insurance Co. Inc. Eljer Manufacturing. but this decision deals with the excess insurance coverage. including continuous or repeated exposure to conditions during the policy period. not when it begins to leak or is replaced or is recognized to have reduced the value of the buyer’s property. -Court said that occurrence did not occur until the injury resulted. since the process of removing the old system causes unquestioned damage to the house. but at time plaintiff was injured. Inc. -Liberty Argument for Non-leaking Qest System: -Physical damage occurs when the homeowner replaces the Qest system. -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. provided at least one other Qest system somewhere else has leaked. -Court has to determine whether the coverage applied at the time of the wrongful act or at the time the injury occurred. v. -Liberty Argument for Leaking Qest System: -The “property damage” to which the policies refer does not occur until the system leaks. -When machine was negligently built (wrongful act) insurance coverage in place. 15 .When is Coverage Triggered Singaas v. CGL Policy Trigger for Property Damage Claims Eljer Manufacturing. 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. -This is the majority rule. Diederich had cancelled the insurance policy. 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. Liberty Mutual Insurance Co. Diederich -Diederich built machine negligently.

-To the average mind. shape. -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. tangible property does not experience “physical” injury if that property suffers intangible damage. -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. such as diminution in value as a result from the failure of a component. causing water to damage the claimant’s property. -The policies have different definitions of “property damage” depending on the year the policy was issued. color or in other material dimension. -Insurer’s General Argument: -“property damage” does not occur until a particular claimant’s Qest system fails and leaks. to function as promised.” the plain language of the post-1981 policies requires that there be an injury to tangible property and that the injury be physical in nature. 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. 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. -Reasoning: 1) Pre-1982 policies 2) Post-1981 Policies -In order to trigger coverage for “property damage. ordinary person. issued between 1979 and 1990 by various insurance companies. 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. there 16 . -Something physical occurs when plumbing is installed. such as the Qest system. but it is not injury. -To the average.-The relevant language contained in all of the excess policies is identical. -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. tangible property suffers a “physical” injury when the property is altered in appearance.

-Whether there are multiple carriers on the hook. health. 17 . -Rules: 1) Pre-1982 Policies -When one product is integrated into a larger entity. which causes the accident. -In regard to life insurance. an “injury to tangible property” includes tangible property which. Life Insurance -Life. -Con. as a result of the integration of a defective product. but it is not physical injury. -Only about 2%-3% of term policies ever pay because people get tired of paying the premium. 2) Post-1981 Policies Interstate Fire and Casualty Company v. Allstate Insurance Company -Issue is whether each insurer is liable for a portion of the loss or the entire loss.  all companies are going to look at limits of liability. Stone E Brick -Policy does not cover faulty workmanship. and disability policies are creatures of marketing and vary. -Under NY law. deductibles.is injury (of a sort) when the plumbing is installed. -Life. and what exclusions should be included. health and disability insurance is different from all other insurance. courts are either going to either use the closest to the risk test or pro rata share. Consolidated Edison Company v. Auto-Owners Insurance Co. -Court puts burden to prove “accident” Weedo v. -Premium will be higher in beginning because insurance co knows people will let the policy lapse -Usually have provision saying that at the end of the term the insurance co will let you keep it but price the premium very high  only people who keep them are those in bad health. has been diminished in value to an extent greater than the value of the defective product. -ART premium will increase as the insured gets older. -3 forms of life insurance 1) Term insurance 1) annual renewable term  policy says it will insure for a specific amount and charge a yearly amount  ex. really need to understand the product. the harm is considered to be harm to the entity to the extent that the market value of the entity is reduced in excess of the value of the defective component. -For all other types of insurance. so insurance co off the hook. and the component product proves defective. 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. $1 million term for $500 a year. Wants each insurer to be responsible for the entire loss. Ed.

the insurance company may not have had to pay  raises the question of who really bought the insurance policy. -Court says that if the application had been made not by the insured but by someone else.2) term for a period of time 2) Whole Life insurance -You buy it and pay the premium of X dollars for your whole life. . Disability Insurance -Disability comes in 2 main forms: 1) Disability coverage generally does not cover more than 60% of what the insured earns 2) Employee or Employer paid -If employer pays premiums. -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. the insurance company has to pay. they are tax free. Metropolitan Life Insurance Co. -In a disability policy. -Stock companies don’t pay dividends so probably better to use mutual company. -Court says that one the incontestability period passes. 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. -Ruling and incontestability clause put the burden of diligent investigation on the insurance company. you want the disability 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 litigator does. -Court rules that policy benefits go to the ex-wife. v. it is taxable income to the employee. -If you are an optometrist who develops a disability in one of your hands. The Superior Court of LA -Court holds that once the “incontestability period” has passed. but sometimes a 3rd party can own the party  such examples include a spouse or ex spouse. Rendleman v. 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 the employee pays premiums or pays tax on it. -If you are a lawyer that litigates and you get throat and neck cancer.Amex Life Assurance Company v. 18 . fraud does not negate the policy. when proceeds become due. 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. -Generally the insured owns the policy. Employers Modern Life Co. there will be a build up of money you can get. but you may have to give up the insurance to get it. -2 types of companies that sell these and term life policies  stock companies and companies like Mass Mutual. -Term policy will never have cash value  all you get pack is unearned premium -In permanent coverage.

sister hit a pedestrian.000/month. -Issue is whether the car owner’s sister was covered by the policy. -When driving the car.000 for bodily injury to member’s of husband’s household caused by underinsured automobile. Scope of Uninsured Motorist Coverage Cardin v. 19 . states began allowing no-fault motorist 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. Lumbermens Mutual Casualty Co. No-Fault Automobile Insurance -In reaction to uninsured motorist problems. -Uninsured and underinsured motorist coverage is controlled in every state by statute. -Nursing home coverage will pay a set sum of money per day  if you have nursing home coverage you need inflation coverage. -W owned 1979 van separately insured. Simon v.000 for bodily injury and $25. Blish v. -Issue is whether coverage extended from the Father’s Lumbermens policy. policy under auto insurance extended because injury occurred from use of motor vehicle as motor vehicle. -Sister lived with her father. Royal Insurance of America -W injured when riding as passenger in husband’s car. -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. -Car owner had Aetna policy on the car. -Undisputed that coverage extended from the Aetna policy because sister was driving with the permission of the owner. but more often costs more. -Lumbermens policy covered non-owned automobiles but excluded coverage if the non-owned car was used regularly by the person involved. -Father had policy with Lumbermens. -In buying nursing home coverage.Nursing Home Coverage -Nursing home care currently costs a minimum of $3. -Sister was driving car with permission of her sister. -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. -Husband’s insurance paid $25. Atlanta Casualty Company -Court ruled that when driver was beaten and robbed while changing his tire.

Siegle v. -A ratio of greater than 3 to 1 is permissible here  trial court erred in remitting the jury award. v. -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. 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. The Measure of Damages from Bad Faith Conduct Campbell v. Farmers Insurance Exchange -Majority of states predicate bad faith claims on tort principles. a judge should not decrease the amount solely because of the ratio of punitive to compensatory damages.-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 only get what you have in no-fault coverage. -Plaintiff would want to bring bad faith claim based on tort principles because punitive damages are available in tort cases. -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 conduct 2) the disparity between the harm or potential harm suffered and the punitive damages award 20 . 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.  you can’t go after the driver that hits you. Aetna Life Insurance Co. -Crookstone I and II rejected the idea of establishing a specific ratio or capping punitive damages. Mabry -Court in this case said that the insurer had to pay for diminution in value after a car had been wrecked and repaired. The Contract Law Approach to Bad Faith Beck v. Cranfill v. -Court reaches this conclusion based on the particular contract language at issue  provided for reimbursement of loss. State Farm Mutual Automobile Insurance Co.

State Farm Mutual Automobile Insurance Company v.3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. -The plaintiffs. III . Conclusion -The trial court’s analysis of the punitive damages award under BMW was correct. -If litigating against an insurance company that is refusing to settle. 5) whether the harm was the result of intentional malice. threatening bad faith claim and citing Campbell case will get their attention. 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. 4) whether the conduct involved repeated actions or was an isolated incident. 2) whether the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others. used this case a platform to expose and punish the perceived deficiencies of State Farm’s operations throughout the country.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. and the courts in imposing a high punitive damages award.  Court holds that award of $145 million in punitive damages on $1 million compensatory judgment violated due process. -Trial court’s remittitur order vacated and reinstatement of jury’s verdict awarding $145 million in punitive damages. the Campbells framed this case as a chance to rebuke State Farm for its nationwide 21 . but that a more modest punishment for this reprehensible conduct could have satisfied the State’s legitimate objectives. in the circumstances. -3 factors for considering the constitutionality of a punitive damages award: 1) the degree of reprehensibility of the conduct 2) the disparity between the harm or potential harm suffered and the punitive damages award 3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. 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) whether the traget of the conduct had financial vulnerability. III -It was error to reinstate the jury’s $145 million punitive damages award. trickery. or mere accident. -Not State Farm’s fault out-of-state conduct evidence involved  from their opening statements onward. or deceit. Issue: -Whether. -Court not suggesting there was error in awarding the punitive damages based upon State Farms conduct toward the Campbells.

B  Ratio between harm or potential harm and punitive damages -Court will not adopt a bright-line ratio which punitive damages award cannot exceed.  Evidence pertaining to claims that had nothing to do with a 3rd party lawsuit was introduced at length. than awards with ratios of 500 to 1. settled for a 22 . -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. 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. -The UT courts erred in awarding punitive damages to punish and deter conduct that bore no relation to the Campbell’s harm. -Campbell argument  even if evidence introduced at trial was legal where it occurred.  Campbells identified scant evidence of repeated conduct of the sort that injured them.  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. in the calculation of punitive damages.  Punishment on these bases creates the possibility of multiple punitive damages awards for the same conduct. -As a general rule. -It is true that repeated misconduct is more reprehensible than an individual instance of malfeasance. 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. -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. -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. -Because the Campbells have shown no conduct by State Farm similar to that which harmed them. but that conduct must have a nexus to the specific harm suffered by the plaintiff. 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. but courts must ensure the conduct in question replicates the prior transgressions. -Single-digit multipliers are more likely to comport with due process. while still achieving the State’s goals of deterrence and retribution. -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. III .  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. no judgment entered. the conduct that harmed them is the only conduct relevant to the reprehensibility analysis.activities. -Few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process. -Due Process does not permit courts.

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