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Author:  	Mr. Robert Linton Reeves Munden (rlrm.utlaw@mail.utexas.edu)
School:	University of Texas School of Law
Course:	Insurance
Year:		Summer Session, 1995
Professor:	Eric M. Holmes; 
Book:		Cases on Insurance Law, Young & Holmes (2d Ed.) Foundation

INSURANCE

??????
1°/3° party ins:
what is procedural unconscionability
what is no choice unconscionability
p67--know all ?s

INS:  
	1)  aleatory K (condition precedent is a fortuitous event)
		risk must be well defined; must have some possibility of fortuitous event

	2)  risk transference & distribution
		3° must assume risk		
		risk must be ratable--distributed in common fund
		must have a defined group subject to the risk
		must be planned

	3)  insurable interest
		quantifiable financial interest @ TK (and T FORTUITOUS EVENT  for prop)  		
		must have interest in matter insured which would result in econ detriment to you
		if   ^, illegal K, best defense avail to ins co b/c void ab initio, easy proof
		must have reasonable personal interest, not a mere gamble; may be life or prop
			life beyond 1° fairly difficult, but fact dep; ins co can be T sued if viol this
			-- int must exist at TK
			prop must also be identifiable--bailee, O, tenant; O int usually prevails
			-- int must exist at TK AND T FORTUITOUS EVENT 		
		capable of evaluation--quantifiable
		Why--otherwise mere punting--P2 conflicts w/IT, gambling
	4)  indemnity & subrogation		

	5) 1°/3° party

"a plan or scheme to transfer and distribute risk of fortuitous events" 
"insurable interest + subject to a well-defined risk + assumption by a 3° of the risk + distribution 	of the risk among a group subject to this risk + group must make a ratable contrib to 	common fund (premium)"

e.g.:  "replace and repair any tire blown due to defects in material or workmanship"  ins b/c no 
		fortuitous event
         "replace/repair any tire blown for any reason for TX wort reason" = ins b/c fortuitous event
         "burial societies" = ins
         "AAA coverage" = ins
care whether or not "ins" b/c if classified as ins, must comply w/code provisions  costs
--§ usually doesn't define--e.g. VA§ in GAF

ins  biK----ins = reverse uniK:  -ed must perform act (premiums, application, notice, truth) to 	trigger subsequent uniK; this subseq uniK obliges -er to pay/defend in given fortuitous 	event; -ed makes no P, only payment (etc.) satisfies ( condition precedent)
	-ed tenders premium and forms = offer (act); ins co accepts (acts, silence)
	--fortuitous = out of control if -ed; if unsure, use GF, IIFP of GF/reasonable efforts
		b/c must be fortuitous, no IT
	what -ed does  duty, = condition precedent; -er has no duty until conditions precedent 			are met; they are in essence a threshold
--rt to indemnity from ins co  absolute--subject to conditions occurring, then enforceable
--beware illusory K:  must have some element beyond your control (fortuitous event) in order 	for bargain exchange
when is ins K formed?  §20--when reas people viewing surrounding cirs would say so;  
	evidence:  assigning case #, deposit check, inordinate time, solicitation, data entry, 			issue policy

How to read policy: 
1.  dec sheet:  parties, period, $amt, premium, prop/people insured
2.  definition of person insured:  is person claiming covered?
3.  insurance clause:  read to see if event is covered
4.  exclusions:  see if insured/client is excluded from coverage despite 3
5.  conditions of compliance:  what are conditions precedent and have they been met 	(strict/substantial)
6.  facts/stipulations in declaration & application:  are there K defense b/c of fraud, misrep
7.  consider general principles of law, equity & applicable §:  no-fault, finan resp law, 	un/derinsurance, PER, §oF

excess:  covers amt > std/primary coverage; MAJ rule is that 1° owes duty to defend; if mult 	excess ins cos, general RoL is pro rata share of excess
reinsurance:  ins co sells/buys ins liability/exposure w/ or w/o knowledge of -ed

Tests:  Substantial Control Test
		Does P invoke s.t substantially beyond control of Por?  Y = ins; N  ins
		MAJ rule in US
		will tolerate small amount of ins w/o calling it that
		--but too broad b/c virtually all w are ins under this, plus many Ks
	Ancillary Test--GAF  
		Was ins P the dominant feature of the K? Y = ins; N  ins
		Minority view  "will become MAJ"
		~ to covenant not to compete:  illegal if overbroad, enforceable if focused
			covenant not to compete must be reasonable and ancillary
		 argue by analogy--say K was about X, not ins/w 
	Purposive Interpretation Test
		Purposive Interpretation:  Is purpose of calling it ins needed/met here? (policy)
		why do we want to reg this--b/c consumers need protection		
		--e.g., want to have solvency reqt, deter BF K, rates, forms, state requires ins
		 call it ins when we want to regulate it

Interests:  ST agency (for policy holders), InsCo owners (shareholders, users, partners), ins agents, ATLA,  bar, policy holders

Ins = 2 duties:		1)  duty to indemnify (pay sums...)
			2)  defend
Types:	marine (prop, home)
	fire
	life
	casualty (liability)

Is there a K?--look at all surrounding circs  MoL
	Interp--> jury is FoF concerning I of parties  no SJ
	Construction--> Ct decides if there is a K,  can get SJ 

reverse uniK:  once conditions precedent met, Por (-er) has duty ^ to Pee (-ed) 

1°/3° party ins:  to whom does payment run?

History
12th Century Lombards start w/maritime:  a warranty from marine ins--owner had to state facts 	about the ship, load, etc, and people would subscribe, underwrite
Lloyd's coffee shop
1870 Langdell/Harvard--legal formalists, law as science; cases mere specimens of science; lab 	is library  study cases to est what laws are  writ system
1881  Holmes states immutable sys in The Common Law
1921  Williston on K--1st distillation of a body of law into a subject part

Regulation via Courts/JR 
ins § called "code", but isn't really b/c still requires interp

GAF v. County  
H:  part of this was insurance, so insurance rules must/may apply
	--the fortuitous part was ins
	--if ins element is ancillary, small portion of underlying K,  ins
	sale and installation of roofing material was primary part of K, not w/ins P

Federal/State Regulation 
1810--ins regulates by STs
1876--Paul v. VA Ct says that ins  interST commerce  Feds can't regulate
1944--US v. SE U/w Ass'n  SCt o/r ^,  Feds can regulate ins  Fed antitrust apply to price 	fixing scheme; all regulation now at Federal level
McCarran Act results from ^ + lobbying of ST ins agents
--now both can potentially regulate ins
STs:  "regulate business of insurance"; narrowly defined as all acts before TK  all after TK Fed
Fed:  all but ^
--b/c "bus of ins" narrowly construed, more falls into Fed hands

§1--regulation of ins by STs is in pub interest--P2 reasons
§2(powers)	a.  ins is regulated by individual states
		b.  three rules:
			1.  no implicit federal preemption--fed § must specifically apply 						themselves
			2.  Cong can reg if they want--by specifically applying to ins
			3.  Fed antitrust laws apply unless STs pass their own (all have)
1-3 restrictions only apply to "business of ins", not business of corps  (SEC v. Nat'l Securities) 
	--must touch -er/-ed relationship to be "bus of ins"  @ or before TK
but what is TK?   sense b/c now just argue about what TK means
needed to prevent preemption of (1) corp law, (2) antitrust law, (3)  
 no implicit preemption before TK; if Feds want to reg before TK (i.e., the business of ins), 	must be deliberate; e.g ERISA
--serves as an antitrust exemption so can price fix, share information in public interest
	Rating bureaus are exempted from fed § b/c of McC Act  can make 1 STwide risk 			assessment (hence, potential price fix, abuse)

Royal Drug [p30] ins co went to pharmacists and got agrt that they would all sell Rx drugs at 	cost +$2; ins co then sends clients to participating stores 
	 -eds tender $2 wort cost of drug--clear violation of fed antitrust
	but TX ins official approves under TX §, so if fed law applied, would supersede TX law
		 depends on whether you say this is part of "bus of ins" or just bus
	H:  agrt not between -ed/-er  not bus if ins  fed law regulates  this is illegal
RESULT:  3 criteria to not be subject to fed antitrust law:
	1.  if act is to xfer, spread risk among policyholders, OK
		(all up to xfer of risk is ok, all after FED)
	2.  if act is practice integral part of -er/-ed relationship, OK
	3.  if act is integral part of ins industry, OK

Pireno health ins policy; chiropractor bills ins co for svcs, insco denies payment
---er has review board to see if 1) med necessary, 2) cost reasonable
--board says not necessary and too expensive
 sues for price fixing b/c takes decis away from Dr. to det price and necessity~~collusion
I:  do FED antitrust laws apply?  Is this bus, or bus of ins?
	using Royal Drug, bus, not ins b/c after TK   

If ins co consistently sends you to one of three Indep Med Examiners (b/c of their rec's), and 	they say no?  If can show, then BF/unconscionable

Risk Distribution
Can an insurer discriminate based upon Gender/other factors

Norris  women paid the same, but upon retirement women get less of a pension
H:  illegal discrimination

Manhart  women forced to pay 15% more to pension  take-home pay less
H:  illegal violation of Title VII

Kimball/Stevens debate
Kimball--if s.t. is actuarially significant, and easy to det, may as well account for it in rate
	--if it is actuarially sound, it cannot be discriminatory
Stevens--

tensions:  group v. indiv  // vol v. mandatory  // assigned risk v. social utility  // med v. life v. self

Contract Insurance Analysis

Plain Meaning Rule
K says what is says and is limited to that
Hionis [p65]
Parol Evidence Rule (PER)
if totally integrated, K says what is says and is limited to that:  p72
but n/a if only partially integrated
how to det if integrated?
	4-corners test:  looks integrated to judge (judicial interpretation)
	--merger/integration clause is supporting ev of this
If want extrinsic evidence, but barred by PER, use
	Wigmore's evidence test
	Willistonian natural omission/inclusion test
	prior court cases on point

once this adopted, Ct. interprets, no construction

Judical Opinions

Experts, Etc.

Extrinsic Evidence
barred under PER, but many ways to get it in
Best: Need to Explain an Ambiguity, equivocal
if allowed, necessarily a fact question, so must go to jury 
--once brought in, use R2K 202,3,6,7
once ambiguity established, then judge can use contra proferentum
--why CP?  ins K  normal K reflecting bargained for exchange, but really a form K w/no real 	bargain or change available
	 whoever created for, chattel, good, svc, should not get bene of doubt

how to argue to get it in?
--say it is not contradictory, merely explanatory
--the mere fact that it is being litigated must mean it is ambiguous--$ wasted if not
--this Ct. had a dissenting opinion on this issue  must have some ambiguity
--different Cts/jurisdictions say different things  must have some ambiguity
--writing is only evidence of the K, parties' I
--different areas of law give different meanings (K/T--CiF&PC/admiralty, etc.)
--difference between legal, common sense, and dictionary definitions

THUS
1)  get extrinsic evidence in to est or confirm ambiguity, using ^ reasons  (MoF for jury)
2)  once ambiguity established, intro ev favorable to your side
3)  jury can tell Ct what K means (interpretation) OR 
4)  Ct can use contra proferentum (construction)	   (MoL for Ct)

R2K §202, 3, 6, 7

Determining Coverage
1.  who is -ed?  claimant, or 1°?  only -ed can sue on K due to privity
2.  what fortuitous events are covered?  if not this event, no coverage
3.  is -ed or event taken out of coverage?  fraud, exclusion, definition
Which rule applies:  Plain Meaning, DORE, or Equitable &ct?
Pinhole rule:  Cts will construe coverage broadly and exclusions narrowly (virtually all juris)

How to read ins policy [626] example:
1)  dec sheet--look for 1°/3°

what is the essential question?  Who is the master of the words:  the K (plain meaning), or the 	Ct (construe & interp)

Standard Venetian Blind v. American Empire Insurance [57]  rain D to portico + B's property
commercial general liability (3°); dec j action  judge must inter/construe
most general liability policies are designed to pay for D to others' prop, not D to own, or D to 	own in addition to others
 this is liability ins, not property ins--should know they need to get sep policy for that
b/c commercial parties, both should know that this was not 1° insurance
reas expectations of parties is real issue--can always get around w/ambiguity
 DORE^
DIS says plain meaning rule should prevail--Hionis rule gives duty to read K and ask ?'s if need
	if so, then correlative duty is for insco to explain, and if it doesn't, it's subject to CP
	thus, the real question is:  was K actually explained and understood, not could it be
note 2--riders are usually separately bargained for
note 3--custom/TU/CoD/CoP is admissible to show meaning wort PER;  need expert witness 	to say what custom/TU/CoD/CoP is; not contradictory b/c shows better what I of parties

Bowling Alley Vandals [68]--cans cause roof to flood, thus water D; H2O D excluded
T/c:  no direct coverage b/c D was by H2O, not vandalism
 ins co says I of policy was to prot against fire, paint, windows, etc., not indirect H2O D that 	proper maintenance would have prevented
	--D caused by H2O, not vandalism  no duty to pay b/c not covered
:  ins co has duty b/c there would have been no H2O but for the vandalism  was dir. cause
b/c both & defn rational, must be ambiguous  must determined what "direct loss caused 	by" means
  now says ct should apply CP;  says I of policy was not this b/c price does not reflect this 	coverage
 wants to use T PC/CiF defn,  wants K language (narrower)
but if two diff meanings thought, CP says ins co should specify,  ins co loses

Polite Soldier [69]  NG soldier trips on tent cord on drill, tries to claim against policy; policy 	excludes for loss "caused by or resulting from military service"
 issue:  was this caused by, or incidental
 was this a status or result clause?
status clause = just being in service disqualifies you "while in svc"
	P2 probs b/c may be buying illusory K
result clause = if characteristic act results in harm, excluded
H:  K had result clause
T/c:  SJ for ins co
A/c:  aff'd
R:  how was injury caused by military service?  b/c was in line of duty, characteristic of service
pinhole rule applied favorable to  here, but found facts to contrary

typical e.g.:  "losses except those OCONUS"--while  not causal, but what @ NY-Miami flight?
	"except while non-fare paying pax on aircraft"--status

Equitable Insurance Analysis
DORE:  would this incident be covered under the reas expectations of the parties?
--necessarily a MoF for jury
p74 "":  -er has duty to explain/disclose, otherwise bound by ORE of -ed ( need to reform ins 	co agents' tng, custom)
	exclusion lost if lost in details to the avg -ed  ct construes against -er & extends 			coverage to -ed
a rule of interp that really just ignores what K says
Ct will ignore exclusion if not reasonable to find it w/a simple reading
don't need to show ambiguity before using this; separate tack
duty to read/explain:
	if ct says there is a duty to read, then must show ambiguity (but none really needed if 			argue persuasively v)
	if no duty to read, then don't have to prove ambiguity, esp b/c mass or form K
		(surrounding cirs means ambiguity may or may not be relevant)
	once ambiguity shown or n/a, then K lang unimportant, only ORE b/c PoP still have 			ORE based upon it
	 ct can impose mng or ignore exclusion easily (apply pinhole, CP)
	DORE is about ORE, not K lang, so ambiguity not really necessary
	 does not matter if -ed actually read policy, only what a juror thinks -ed's ORE was
		may be a supporting fact to show subjective reasonableness
		can show subj reasonableness b/c this is equitable:  goal is fairness  don't 			have to be rigid about no ambiguity
logical extension of K law:  K law to fulfill the reas expectations of parties, ins K should be =
Reason for it:  P2--to allow consumer to actually get what he thinks he is paying for
most powerful if exclusion eviscerates the dominant feature of the K--then impose ORE
--< 50% in US recognize DORE, but get around by calling it a classic K approach
defenses to DORE:  fraud, BF, other equitable one (any required for fairness)
a K theory, but roots in equity

[notes only]  Dr. sued by parents for botched delivery
policy:  "-er will defend & indemnify Dr...." + "will pay up to $1million per claim for injury caused"
?: what is "injury"--occurrence, or discrete harm, claim
	potential claims:  father, mother, infant; could be three suits or 1
So, plain meaning, or DORE?---is "injury" ambiguous?---should ct allow extrinsic ev to explain?
	argt for:  physical + emotional--different injuries?; kid + mom--different?
	 argue that if ins co wanted to restrict the meaning of "injury" they would & should do			so explicitly 
	 also argue that "injury" is broad--definitions 1-10, not just 1 of 10, & ins co must 			restrict if they want to (pinhole rule)
	DORE--argue that this is the coverage that Dr. wanted, that if he had wanted less, 			would have paid less, that is, the Dr. deliberately Ked for this coverage
	argt against:  b/c there are 10 meanings, "injury" must be ambiguous

Thompson v. Occidental of California [72]  life ins premium paid up; -ed dies; survivor wants 	pro-rata share of premium based upon rest of year
H:  K silent as to issue of refund  can't be ambiguous  can't construe otherwise  j/ins co
Ct could gap fill by saying parties intend reasonable terms for items not mentioned, and this 	would be reasonable (a PoP would expect a reas refund), thus getting DORE in

Cortagelli v. Globe Life & Accident Ins [75]  Idaho
--no ambiguity required to use DORE
--ID has reversed itself  2x since then, so this rule still applies

Estrin Construction v. Aetna [77] Missouri; only case that really explains DORE
Estrin (genK) build to plans of Morris (architect); Estrin had gen liability policy w/
	bldg D in storm;  files under builder's ins; builders ins sues M, M impleads  under 	indemnity agrt;  demands defense from ;  denies coverage b/c of two exclusions: if 	D in accident and -ed or indemnitee was architect [status]; and if D was to prop of -ed, 	or care, custody of -ed 
I:  was coverage properly denied, or does  have to defend ?
What type of policy was it?  3° liability, & most of those exclude D to own stuff
 says don't look @ K, I have ORE for coverage & defense for all things under this policy
	asks Ct to use DORE
--but is 's interp really a reasonable one?
H:  NO, no coverage b/c even using DORE, ORE of a 3° ins K is not 's
	why not reas?  b/c  controlled the event (b/c of K w/Morris) not fortuitous
	besides, if  paid, what would it really be paying for:  s.t. that 1° should cover
	 if allow  suit, all 3° insurers end up picking up the tab for 1° insurers, defeats 			purpose of 1° ins

Crop Duster [83b]  part time crop duster/farmer buys policy to cover just this type of accident 	(overspray), but exclusion eviscerated only purpose of him getting ins
best example of a term being excluded that means wrt this farmer there was no purpose for K
 strong argt for DORE

Implied Warranty of Fitness for a Particular Purpose
if view ins as a good, then IWFPP applies
would have to radically change K law, b/c then potentially all mass Ks are goods w/these W
argt:  these mass Ks do not involve genuine bargained for exchange, but adhesion/take-it-or-	leave-it   [counterargt:  there is mass bargaining on the mktplace]
 it is so much not a bargain that it  K, but chattel instead
once you call it a chattel, UCC applies
thus, if you buy theft ins, have W that it will protect from theft
 
C&J Fertilizer v. Allied Mutual Insurance [83] theft policy; "defines" theft, but really gives 	evidentiary conditions/limits
H:  violates IWFPP b/c condition too restrictive

Farm Bureau Mutual v. Sandbulte [87] farm liability policy; want coverage for accident on farm 	business; ins co says no b/c this not "way immediately joining"
-ed says -er W that this would be covered when he sold policy
H:  IWFPP applies, but under these facts, ins co prevails b/c general liability policy does not 	have a particular purpose

Other Equitable Theories honesty, good faith, conscience, and equity
divine right originally passed from king to vassal to Cts--led to causes of right
but few had rights, yet still need to solve disputes, so came up with system for ADR w/o rights
thus no actions at law (with rights) but did have action at equity (key goal:  justice)
4 governing principles
honesty, good faith, conscience, and equity --all dealt with in Cts of chancellery ( should be 	"chancellery theories", not "equitable theories"
but b/c of modern name, often forget honesty, GF, & conscience
now there is an equitable right--have duty to act in GF, w/conscience, honesty & equity
	P under equity can invite you to rely,  Por has duty to act to prevent detrimental 			reliance
example of equitable theory:  P estoppel, DORE (can get more than K D)
R2K §205--all K have implied covenant of GF & FD which is not K or T duty, but equitable
So, when ins co fails to pay legit claim, get more than K D, b/c is only got K D, then ins co 	always dispute to drive up costs to give -ed incentive to settle for less than K amt (yet 	still more than if fight it to get full K amt b/c of costs)
b/c ins K are mass K of adhesion, no real bargain or exchange need to change to deal 	w/reality
	 CP, DORE, equity, GFFD, honesty, conscionability

Good Faith
GF STD:  does ins co have good basis in fact or law to deny pmt?  if ins co acts in GF, no DPUN 
	 look at all surrounding facts to see if there was a reas basis in fact/law
	-ed tries to show that -er had no basis; -er tries to show that it did have a basis
	must act reasonably in doing whatever it did (deny coverage, limit coverage, etc)
	 BF = unreasonable, BF  spiteful, WW, malicious
GF  T, K std, but = equitable std:  incorporates all areas of law to get what is fair
GF is additur concept:  adds covenant of GF & FD to all dealings to achieve fair result
GF std analogous to N std in T:  merely evaluate conduct under K wrt duty in K
D for BF = all D proximately caused  conseq, incidental, collateral, ED, P&S  flexible

3 types of K Ds:  classical (DK/EXP/INC); BF (all D from br/duty of GF + all D following); punitive--	for I harms, etc

Unconscionability
deals w/ and tries to rectify, adjust the parties to make them = so can bargain fairly
sources of :  bargaining status, pwr; access to info; knowledge (subj & obj) of parties; 	practical ability to bargain; value exchanged (actual $ for unlikely pay off) [may also buy 	peace of mind]

Conscience is an excisor concept:  removes part of K which is evil to achieve fair result
presumed mutual consent--->	1.  procedural unconscionability {too hard to find mat term}
					2.  substantive unconscionability {too hard to understand}
					3.  no-choice unconscionability  {no real choice on terms}	
public policy ---->			4.  unconscionability per se (illegality)
§2-302 UCC = unconscionablility

C&J Fertilizer [burglary ins case]
exclusion/definition was not real definition, but evidentiary condition (visible marks) for 	proof of substantive element (violence, force)
Strickland (Article) w/90-day amputee, same as ^:  90-days is evidence of causation, but should not be 	only allowable evidence	
if use K theory for ^, easy to break, but silly restrictions; equity (e.g. DORE) ----> fairer result
to get CT to adopt, don't say "unfair", ask why clause is there; ans is to show linkage, reas lim 	to coverage
then can say that this clause was but one way to show evidence of meeting the 				substantive requirement

--if won't let do that, start by ripping up K to show that it is mere evidence of K
--b/c writing only ev of K, the assent (as condition) must be presumed
--then attack presumption w/ ability to read, understand
	1-4^ tests the assent of the parties

1.  PROCEDURAL:  if mutual assent presumed, may be unconscionable if cannot locate 	material terms of agreement
	how do you read a policy and interrelate the relevant passages, coverages, exclusions? 	--duty to read v. duty to explain
	 to overcome this, an ORE is that agent should lead -ed through, explain, or give -ed 			an analytical reading method
	ins co can defeat ^ by 1.  providing clear method to read  2.  have agents explain
	--most ins co don't do either ^
	technique:  give jury entire ins K in order to baffle them, show them how to read
	also, usually have K to read only after you are bound  can show that no one reads K 
		1.  don't have at TKFORMED = physical unconscionability; esp for group policies
		2.  don't want to 
		 if you are bound, shouldn't you have a copy to read?
		if -ed has duty to read, they cannot meet it
		if -er has duty to explain, they have br/it   (esp if try to exclude coverage)
	if you are going to use classical K theory, at least do it fairly
	ins co may be able to beat ^ by saying party commercial, sophisticated

2.  SUBSTANTIVE:  even if PoP can find relevant terms, must be able to understand them  
e.g.:  polluter who eroded bridge--case keyed on "accidental", but D occurred over time
 argue that "accident" was incomprehensible  unconscionable b/c how can you assent to a	 	K you don't understand?	

coverage terms:  	pre 1966:  "caused by accident"
			1966-86:  "occurrence"
			1986:  "claims made and reported"
	must cite case law that is from same type of coverage term

3.  NO CHOICE:  -ed is unable to bargain for provisions, clauses ( has no choices)--no 	endorsements available, only 1 possible K--ultimate adhesion
general/specific assent (Llewellyn):  K presupposes a bargain, but only for items specifically 	dickered over; rest of form K has no genuine assent
so if only general assent given, cannot enforce specific provision adverse to -ed

thus, if mutual assent is presumed, atk w/1-3 above; if no assent, can't have K, or at least that 	part
	
4.  PER SE:  wort consent, illegal as against public policy--usually in a §	

waiver:  1-way act that releases s.t. in/from K (often called P estoppel)
P estoppel:  coverage occurs b/c of P
election:  conduct of party indicates party has elected s.t., esp wrt remedies

Public Policy Insurance Analysis

what is P2?  find it in CL, §, CONS, facts, legis record, purposive interp
Strickland (article):  may viol P2 b/c of purposive interp (4), but how else?
by setting ev condition, against P2 b/c effectively private law making via K
	ins co is telling -ed what ev rules will be w/o -ed's or public's representation
	 against P2 to impose private law w/o ct approval
Old strict compliance rules from Lloyds, but no longer applicable to mass Ks
 should now have Substantial Compliance--comply w/I of K, not necessarily the letter

Major P2 issue/concerns:
1.  compensating victims; logical conclusion of this is 100% no fault system; since we don't 	have one, there must be other concerns
2.  financial responsibility clauses (wrt car):  must show proof of 3° ins or post if get in wreck, 	but not before  
3.  compulsory ins:  req 3° ins to register car; insures a car, not a person ( meets #1 b/c 	broader)
4.  un/underinsured motorist coverage:  req all dvrs to have this to prot self (1°) from harms 	caused to them by others
	 no fault b/c must sue TF before can collect from own ins co & ins co may defend TF
	also supports #1 b/c is another way to compensate victims
5.  owner liability doctrine:  owner of car per se responsible for all harm caused by it = SL for 	car owners
6.  omnibus insurance clauses:  defines who beyond name -ed is covered by policy 
	those indirectly insured are "omnibus insured"
	P2 says to require this to be broad, thus supporting #1
	purpose:  to make sure whoever is behind a wheel is insured so victims will get $
7.  no bar:  lack of K privity is no bar to suit by injured ( injured 3° can sue -er directly)  
	very few STs have explicitly for ins, but may come in through claimants right §
	WI, LA allow; perhaps PR, RI, KY
8.  no joinder/action §/clause:  opposite of ^, so cannot sue ins co directly, only TF [p111 e.g.]
	sue TF, once have j/TF, then you are judgment creditor  can sue ins co via K b/c now 			have derivative rights  "stand in the shoes of the -ed" to sue on K w/privity b/c 			now you are assignee
	--but ins co can raise 3° and 1° defenses against this suit
	donee/creditor/intentional/assignee 3° beneficiary can sue on K; incidental (non-				intentional) beneficiary cannot sue on K
	--classic donee:  life ins
	3° beneficiaries are always intended beneficiaries under liability ins, but if there is a #8 			clause, you must first sue TF

Mutual of Enumclaw Ins v. Wiscomb [91] intra-familial tort; spouses sue each other
per se uncons/P2 concerns
HH/family exclusion common in liability ins b/c of conflict of interest, collusion, fortuity
but P2 is to compensate V, even if V is in same family
H:  exclusion excised per P2

State Farm v. Tringali [125] car/bike in HI; IT  no fortuitous event
P2 conundrum:  interest in fortuity and in compensating V
H:  V compensation is higher P2 interest  excise clause

Union Camp Corp v. Continental Casualty [98] employment discrimination
P2 says we want V to be compensated
--but if req ins co to pay, diminish punitive nature of award
--also will result in Ee's paying for it themselves
 ins co argues that its own policy is per se illegal as P2 issue (b/c V would end up paying for 		own award)
H:  judgment was not predicated on intentional discrimination ins co doesn't pay (would have 	had to pay for intentional b/c was liability policy--for intentional actions of -ed)
DORE says a reas -ed would not expect coverage  no coverage

DUTY TO DEFEND
what triggers duty to defend?
	1)  face of complaint, if coverage pleaded, or
	2)  if any complaint, after required reasonable investigation indicates coverage
		--of after investigation no facts indicate coverage, no duty to defend
	--don't use facts if coverage in pleading
1 based upon old writ system of pleading though, so now unfair b/c of liberal pleading--nothing 	gets weeded out
2 allows ins co to investigate, and w/non-waiver allows ins co to preserve defenses and get out 	once actual facts shown
duty to appeal?  in theory, all to SCt, but cts say look at probability of what would happen on 	appeal
duty to defend and pay generally independent, but always somewhat predicated on the 	potential requirement to pay
	-- duty to pay is a constructive condition precedent--MAJ juris w/PMR
	--but duty to defend generally construed more broadly than duty to pay
when does duty extinguish?
	when policy limits exhausted by settlement or judgment (b/c then no longer have reqt to 		pay wort any suits)
	--must start our defending all suits filed
	--3, 9, 11 circuits say can even abandon current suits
	or, when reas person would end it given the reas expectations of the suits
DPUN claims alone are enough to trigger--count as covered under liability policies
when ins co refuses coverage, really 2 possibilities:
	1)  coverage dispute from w/in the policy--exclusions, etc
		e.g.:  conditions precedent not met--premiums not paid, unreasonable notice, no 			assistance 
		  key here is not strict compliance, but substantial compliance
			--look to why rule is there:  usually to prevent prejudice to -er
	2)  K defenses--fraud, PER, §oF etc

Afcan v. Mutual Fire....[277] real estate broker case:  coverage not originally plead; ins co tries 	to drop;  amends for coverage, but then ins co still denies b/c claim actual facts trump
I:  does ins co have to defend -ed even if actual facts counter pleadings?
H:  yes
nonwaiver agrt here prob invalid b/c too broad, not tailored

Potential Claims
Gondola Accident [293]--no claims filed, yet ins co informed
DORE says ins co has present duty to investigate, defend b/c a PoP would think they would 	be sued given actual facts
classical K (minority for this) says no, b/c K lang says not until suit filed

Envir example:  EPA clean-up order
trigger duty to defend?  yes because even though INJ. could be D as well, so b/c potential for 	D exists, coverage potentially exists,  must defend
***source of duty of ins co to investigate?  history and equity

Gray v. Zurich [286] IT assault; IT excluded
even if IT not explicitly excluded, probably not there b/c non-fort event
1)  no coverage b/c IT
2)  actual facts show IT, too  no coverage
still, CT finds duty to defend based upon CP, DORE and K adhesion--through construct/interp
CP:  concentric circles of ambiguities in K; says duty to defend very broad
	--but exclusions later restrict (SOP for ins policy); but they may be procedurally uncons
	ambiguities:  were I acts or I results excluded?  I to hit or I to harm?
	^ ambiguous, CP says must find for 
H:  duty to defend is distinct and separable from duty to pay
	defense does not extinguish, not a condition precedent
	(but there must still be some possibility of payout)
very close to finding an absolute duty to defend

Great American v. Tate Construction [326] notice given 27 days after accident
NC starts w/ strict, but ends up using DORE
purpose for provision?  reas notice so -er can protect interests
	if not protected, Ct will enforce strict meaning of K and say no coverage
	if protected despite this, ct will construe in favor of -ed  "no harm no foul"  DORE
3 step test:
	1)  jury must decide if notice was given ASAPracticable; if so = reasonable notice
	2)  if ^ N, jury must decide if -ed acted in GF; if so, = reasonable notice  coverage
	3)  if ^ N, -er must show it was materially harmed--if so, then = no coverage
1+2 BoP on -ed; 3 BoP on -er
2 = GFFD adds second equitable notion (to DORE)
some STs stop at 2 (if -ed used GF, prejudice to -er n/a)

History:	Mansfield--strict condition precedent	
		liberal pleading--add reas investigation for facts b/c changed from writ system
		Tate --look at purpose: "no harm, no foul" 

MFA Mutual v. Sailors [323] 2 years after accident notice given; ins co says unreas, no 		assistance no coverage
H:  ins co must still pay & defend even though  (-ed) doesn't coop, show up
R:  b/c bad , wouldn't want him to testify anyway  not being there is no harm
"no harm no foul"  no prejudice so must pay and defend

CONFLICT OF INTEREST

How can  cnsl best protect self?  
	1.  ACT ETHICALLY--GF

	2.   undivided loyalty--stay out of coverage issues

	3.  Fully & fairly inform both when prob ID; stop when prob seen, state problem openly, 			no secrets; get consent of both -er and -ed before continuing

conflict of interest:  when cnsl has clients whose interests on one matter may conflict

actual--ID and continue
reconcilable--reconcile and then continue
irreconcilable--don't continue 
	= s.t. must be litigated (MoF) that will det both coverage and liability  clients  interest
	(e.g., when pivotal fact must be litigated & will necessarily prejudice one client)

6 solutions [handout]

1.  -ed exclusive client:  prevent conflict by saying client is -ed exclusively, and cnsl is chosen 	by -ed; no protection of -er's interests; -er pays
--but how can cnsl be truly indep if paid by -er?
--naught in ins K to say this
--ins co may try to get coverage lim to include defense costs	
--**ins co must have some control b/c they are source for authority to settle
--MI only ST w/CL

2.  Cumis/-ed elective 2nd counsel:  avoid conflict, but say that -ed is client, & if CoI arises -er 	may prot interests by paying for another atty
	have 1 cnsl until CoI arises, then cnsl goes to -er, -ed gets new cnsl (leads)
	once ins co reserves rights, -ed can get own atty
16-20 STs
--but then -er is paying 2x (but should be factored into their costs)
--ed may not be competent to pick own cnsl; own cnsl may cost too much
--takes longer b/c new cnsl must learn case, duplicate effort
--ins co still pays, so  independent

3.  -er elective 2nd counsel:  address CoI by having -er pick new cnsl for -ed when CoI arises; 	new cnsl is not lead
	gives more prot to ins co
--few if any STs

4.  1 counsel:  1 cnsl, for -ed for all purposes; rep both until CoI, then tie goes to -ed
--must be careful to stay out of coverage issues (actively avoid CoI)
--Plurality position in US 14-16 STs
--probably most workable soln; conforms to model rules of PR & CL

5.  joint client rule:  -ed consents to -er's defense, wort CoI, by virtue of the K---ed has no priv 	available as long as policy actively or constructively accepted by -ed
	treats -er/-ed as 1 client except for priv commo

6.  one relationship rule:  -ed and -er are deemed to be one client w/same interests  cannot 	have CoI  1 atty is all that is needed
	this arrangement part of basis of bargain of the ins K
	even though up to 3 parties, only one relationship  2 parties waive priv wrt each other
--unfair to -ed b/c -ed will always get short end of stick
--legal fiction

SITUATIONS
I.  Investigation/discovery
 Biggest problem area
frugal neglect:  -er tells cnsl to do minimum necessary to defend and not default
	cnsl who does this can claim only following client's wishes, but doing so ignores 
must be careful about reporting anything discovered which may affect coverage

Employers Casualty v. Tilley [315] cnsl sandbagged client, acted as investigator for -er
? here was notice--2yrs late here; -ed claims acting in GF, but cnsl discovers really BF (that -	ed knew about potential ins liability),  potential defense to ins K  CoI
should cnsl do naught, or tell both?
	here cnsl only told ins co  obvious prejudice  MP
	b/c priv commo, can tell neither
2 probs:  cnsl acted as investigator, and didn't F&F inform both clients
ct adopts 12 principles of PR
iv--when/if CoI, F&F inform both in writing @ nature and extent of CoI
v--cnsl can only continue for both w/acquiescence of -ed (better to get explicit, else not F&F)
vi--cnsl has duty not to disclose facts/info when -ed tells cnsl under impression of a/c priv
iv + v + vi = 4 on 1-6 scale

Parsons v. Continental National American Group [322] cnsl again acting as investigator
pivotal fact is was T I or N; -er defends w/rights reservation; cnsl then finds records clearly 	indicating IT  no coverage
should have told -er naught
H:  -er fully liable for j/ b/c CoI prejudiced -ed
[read]

II.  Evaluation

Stay out of coverage issues--tell ins co to use their own investigators as condition for accepting 	case
	--if you make a coverage evaluation, seek to take yourself off cnsl case
	--how det exposure?  jury verdict data, equation based upon what sought
		verdict data best, but 1st case bias, hard to find, unique cases hard, hard to chg
		hint:  get jv data bound for negotiations, make it look more credible
	also get them to draft RRN/NWA
	1.  reasons for reservation
	2.  a clear denial of liability for the claim asserted against the -ed
	3.  specific grounds and provisions of the policy on which the denial is based
	4.  insurer's intentions
	5.  disclosure of the CoI existing between the -er and -ed
	6.  disclosure of the rt of -ed to seek indep cnsl at own expense and rec'd to do so
	7.  explanation of -ed's req't to coop, etc.
	8.  notification of -er's options in light of -er's denial of liability
	9.  explanation of -ed's liability
	in general:  (1)must F&F, (2)be specific (spell it out), and (3)tell -ed that he has rt to 			indep cnsl for this decis and all subsequent (4)add "included but not limited to"
	--if RWN, make into biK by saying we will interp silence as acceptance/consent
	--if gen + specific, general will be deemed to control  waiving all but specifics
	--if specific but unexplained (F&F), will be stricken
	--won't help you, and will prob be stricken in ct  -er only has K defenses
an actual irreconcilable CoI can occur here (e.g., was flight pleasure or travel?)
when one arises, what should cnsl do?
MI (1)--ignore -er's interests and proceed w/-ed's
all others is a ?, but safe w/4 or 5x, but safe w/4 or 5
	--F&F inform both, in writing
	--don't continue until have express permission of -ed
What are ways out for ins co?  3 options
	1.  defend, and possibly accept liability + defense costs
	2.  don't defend, and possibly take all^ plus BF
	3.  straddle w/ good RRN or non-waiver agrt
	--but if -ed has good personal counsel, will advise no to consent  forcing ins co to 			assign second atty to defend, choose not to defend (thus force to defend or not)
if -ed won't waive, then seek DJ or intervene, other action, but may be forced into 2 or 4 but ins 	co must still take steps to prevent default, take proper steps to reserve rts

III.  Communication/disclosure
Tilley & Parsons  --much overlap between commo and investigation probs
if discover facts concerning coverage, what MUST cnsl do?
	if source is 3°, disclose F&F to both, even if in -er's interest; tell @ rt to indep cnsl
		continue if both consent	
	if source is client, must not disclose if a/c priv (strong rule, even if fraud)
		--can use vi as was around:  say that ins co shouldn't subsidize fraud, esp from 				outset
		--old rule:  cnsl would tell -ed to tell, and if not, cnsl would tell 
		--even if withdraw, cannot disclose key coverage fact, but by withdrawing, you 				tip hand  potential MP
		best:  4--take interest of -ed if there is a tie; ins co prob can't sue cnsl, but 				cnsl should stipulate this bef taking case

IV.  Negotiation/settlement
cnsl is agent, not m/s  need authority to settle
Gray facts:  500kD + 500k DPUN 100k policy limits
	^ alone sets up potential CoI from DPUN and b/c 400k not covered
	 tell both about this CoI, get consent to continue, tell him to get another opinion
now in settlement:   asks for 110k, EV to ins co = 50k
	tell -ed all of this, + rt to cnsl, + CoI, etc:  -ed will have to pay 60k to settle
		-ed does have right to settle, but only for $60k
	tell -er @ CoI
	must advise -ed not to take if it will require him to pay and it is this close
now  offers $99,999:  BF, sets up right of action against ins co if they unfairly deny
	cnsl must still tell -ed it will cost 49,999 to settle + indep cnsl + CoI + consent to 			continue	
	--must tell not to take unless & until he gets indep cnsl to say so (b/c otherwise lets  pit 		 against cnsl)
	never let -ed pay for a settlement w/in policy limits
	cnsl should tell -er that paying full amt will save potential BF + 
now what if  only demands 25k, but -ed won't settle? (e.g., IT, MP)
	must have GFFD when Dr signed consent to settle form
	ultimately must prot actual interests of -ed
	if -er doesn't agree, get a new cnsl for one of them, b/c cannot settle wort-ed's wishes
	--id ins co settles under -ed, -ed can sue ins co for BF + excess
	--middle ground:  ins co defends, -ed pays all >25k

V.  Litigation	}not
VI.  Special  	}covered

Excess or Extracontractual Liability

CM--claims made (like term life ins)
	 no coverage for any events after term  no tail coverage
	(CM defined differently in each policy; may be suit, notification, knowledge of accident)
	P2 issue:  is there GF duty to disclose accident before claim made, or will that be 			seen as an attempt to ensure coverage for that event wort when suit filed  			making it harder for -ed to get coverage?
	--NO--now must wait for suit and continue w/CM coverage--plain meaning rule applied 			to definition of "claim made" in this ins K
	--Keeton says there is a duty to disclose & reasonably investigate wort definition; 			hiding potential liability may make it harder for  or  to collect,  may be unfair 			to either or both
Occurrence--like paid up whole life--all liability stemming from that period, wort when suit filed
	 liability tail is covered   (occurrence = when manifested)
Accident--old version of ^, 1 point in time, changed b/c of multiple, gradual harms (e.g., bridge)
	 liability tail is covered

so, if have CM following Occ/Acc, can have overlapping coverage
so, if have Occ/Acc following CM, can have gap

"The 165 lines"--common mutual fire policies have this, now prescribed by legis
	--reverse of the reverse uniK of adhesion b/c now terms are imposed on -er
	important b/c was adopted as a std, leading to mass uniform K in ins
	fire ins is only one w/ US-wide boilerplate language
liability policies not controlled by legis, though,  have many different forms, but most in line 	w/ISO std forms
	1940, 43,55,66,73,86; must litigate using precedent from right form
	--first technique when trying to atk ins co is to see if form approved by ST; if not, then 			can say all adverse conditions are void as against P2

Excess
divide into 1°/3°
what is source of duty that leads to right to > DK?
--arise from 1 of 7 lawyering fns ^
usually language in ins K is permissive for -er, mandatory for -ed
 duty arises by reading in--imposing-- a duty of GFFD on the language
	 find duty to act reasonably w/in the K
source:  special relationship between -er/-ed:
	--ed buys ins for peace of mind
	--ins co essentially has $ in trust for -ed in event of accident  shouldn't have to go ape 		to get it and must protect your interests in litigation
Garden variety:  arises out of duty to settle fairly e.g.  demand for 90k w/in policy, no settle, 	j/500k
in this case, ins co liable for all of j/ unless it had reasonable basis in fact or law to refuse 	settlement
	--applies equally to negotiate, extend coverage, etc

Crisci v. Security Ins [376] LL sued by T, lim 10k, could have settled for 3k, -er refuses, j/101k
H:  ins liable for whole j/ b/c had no reas basis to refuse offer

1° BF comes from unreas refusal to pay claim,  can get > DK