Bài giảng Business Law (13th edition) - Chapter 27: Insurance Law

PropertyPersonal Property and BailmentsReal PropertyLandlord and TenantEstates and TrustsInsurance Law5McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.Insurance LawPAETRHC27“If anything can go wrong, it will.”Anonymous (1950s), known as Murphy’s LawLearning ObjectivesInsurance policies as contractsProperty insuranceLiability insuranceBad faith breach of insurance contract27 - *In an insurance agreement, the party who risks a particular loss (insured) transfers that risk – along with consideration (premium) – to another party (insurer) which bears the financial consequences if the particular risk (perils) materializes as an actual eventPerson to whom insurance proceeds are payable is the beneficiaryOverview27 - *Insurance policies must satisfy all of the elements required for a binding contractInsured’s misrepresentation, if relied on by the insurer, renders the contract voidableIf a dispute arises over policy language, courts interpret provisions as an average person would understand them and construe ambiguities against the insurerSee Property Owners Insurance Co. v. CopeSpecifics of Insurance 27 - *A binder is an agreement for temporary insurance pending the insurer’s decision to accept or reject the riskExample: World Trade Center Properties, LLC v. Hartford Fire Insurance Co. is about interpretation of property insurance binders issued shortly before the September 11, 2001, plane attacks on the World Trade Center TowersThe Insurance Binder27 - *Within specified time, insured (beneficiary for life insurance) seeking benefits of an insurance policy must notify insurer a covered event occurredInsured (or beneficiary) must furnish reasonable proof of the loss-causing event Proof of Loss & Time Limits27 - *Insurers perform obligations by paying out sums and taking other actions under the policy’s terms within a reasonable time after the occurrence of a covered eventFor property insurance, insured must have insurable interest Some perils (events) may be excludedInsured may sue insurer for breach of contract for wrongful refusal to pay for covered lossInsurer’s Performance & Breach27 - *Real property insurance may also cover personal property inside a buildingPersonal property insurance policies for specific items are indemnity contracts with policy limitsUnder right of subrogation, an insurer obtains insured’s rights to pursue legal remedies against anyone who negligently or intentionally caused harm to the propertyPersonal Property Insurance27 - *Pro rata clause: apportions loss among insurers if several insurance policies cover the propertyCoinsurance clause: requires insured to buy coverage in amount equal to a percentage of fair market value to recover full cost of partial lossesIncrease of hazard clause: insurer’s liability will be terminated if insured takes action to materially increase insurer’s riskSpecial Contract Clauses27 - *Liability insurance (personal, business, professional) allows insured the ability to transfer liability risks to insurerProtects against insured’s liability for negligence, but not deliberate wrongful actsIf insured is sued for a risk contemplated by a liability insurance policy, the insurer has a duty to defend insured and win, settle the case, or pay any resulting award of damagesLiability Insurance27 - *Test Your KnowledgeTrue=A, False = BInsurance policies are not like the typical contract and do not require consideration.A binder is an agreement for temporary insurance pending the insurer’s decision to accept or reject the risk. “Proof of loss” refers to the evidence in a lawsuit against an insured.27 - *Test Your KnowledgeTrue=A, False = BPaul owns a small house, but rents it to his cousin Deanna, so Paul does not have an insurable interest in the property.A pro rata clause apportions loss among insurance companies if the insured purchased multiple insurance policies. Insurers must specifically exclude all perils which will not be covered by the policy.27 - *Test Your KnowledgeMultiple ChoiceDr. Philamena was sued for malpractice, but is covered under a liability policy from Big Insurance. Could Big Insurance settle the case without Dr. Philamena’s consent? (a) Absolutely(b) Yes, as long as the settlement was not in bad faith (c) No, an insurer must have the insured’s consent(d) None of the above27 - *Test Your KnowledgeMultiple ChoiceFor 2 years, ChemCo had a 50% increase in the number of worker’s compensation claims because the company failed to install required safety equipment. Could the insurer terminate the policy? (a) No, because once a policy is written, it must continue until terminated by the insured(b) Yes, under an increase of hazard clause(c) Yes, under the subrogation clause27 - *Thought QuestionHow should insurance claims be handled in major disasters, such as the damage caused by Hurricane Katrina along the Gulf Coast? 27 - *