Bài giảng Business Law - Chapter 27: Insurance Law

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin5Personal Property and BailmentsReal PropertyLandlord and TenantEstates and TrustsInsurance LawPropertyPARTInsurance LawPAETRHC27If anything can go wrong, it will.Anonymous (1950s)known as Murphy’s LawLearning ObjectivesExplain contractual relationship between insurer and insuredLearn how to interpret policy clausesUnderstand insurance terminology and concepts: subrogation, insurable interest, coinsurance, bad faith, duty to defendIdentify types of liability insuranceEach day, every person and every business faces the risk of physical and financial lossIn an insurance agreement, the party who would normally risk a particular loss (the insured) transfers – along with consideration (the premium) – that risk to another party (the insurer) which bears financial consequences if the particular risks materialize in the form of actual events (perils)OverviewAn insured is the person who acquires insurance on real or personal property or insurance against liability, or, in the case of life or health insurance, the person whose life or health is the focus of the policy, but the person to whom the insurance proceeds are payable is the beneficiaryExcept for life insurance, the insured and the beneficiary generally are the sameSpecifics of Insurance Insurance policies must satisfy all of the elements required for a binding contractPerson makes application (offer) to insurance company for insurance coverageIf the insurance company accepts the offer, an insurance contract arisesInsured’s initial premium payment and future premium payments furnish consideration for the insurer’s promises of coverageSpecifics of Insurance State law governs whether insurance contracts are covered by the statute of fraudsOnce written, the policy generally is enforceable as writtenIf a dispute arises over policy language, courts interpret the provisions as an average person would understand them and construe ambiguities against the insurerSpecifics of Insurance Applicants for insurance have a duty to disclose all material facts about the risk so an insurer may make an intelligent decision about whether to accept the riskAn insured’s misrepresentation, if relied on by the insurer, is like any other contract: the contract is voidable at the election of the insurerMisrepresentationWithin a specified time, the insured (for life insurance, a beneficiary) who seeks to obtain the benefits of an insurance policy must notify the insurer that an event covered by the policy has occurred The insured (or beneficiary) must furnish reasonable proof of the loss-causing eventA sworn statement by the insured (called a proof of loss) about the loss and resulting damage is often required by the policyProof of Loss & Time LimitsInsurers 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 eventIf the insurer refuses to pay despite the occurrence of the covered event, the insured may sue the insurer for breach of contractCompensatory and consequential damagesPerhaps punitive damages if denial in bad faithInsurer’s Performance & BreachAn enforceable property insurance policy requires the person who purchases the policy (policy owner) to have an insurable interest in the property being insuredInsurable interest is a legal or equitable interest in the property that translates into an economic stake at the time of the lossThe Insurable InterestInsurers tend to (a) specify covered events (perils) for which the insured will be paid for resulting losses, or (b) broadly state coverage and specify excluded perils for which no payment will be madeCovered & Excluded PerilsVolcano damage is rarely coveredReal property insurance typically covers not only harm to a residential or commercial building, but also to personal property inside the real propertyLessees of real property may obtain renter’s insurance to cover their personal propertyPersonal property insurance for a specific item, such as a vehicle, is availablePersonal Property InsuranceProperty insurance policies are indemnity contracts, thus insurer must reimburse the insured for actual losses to insured property caused by a covered event, but reimbursement may not exceed the insurable interest or amount of coverage purchased (policy limits) Indemnity ContractsIf real property insured under a valued policy is destroyed, insured recovers face amount of policy regardless of fair market valueExcept for the valued policy, property insurance policies often contain a pro rata clause that apportions loss among insuraners if insured had multiple insurance policiesAn increase of hazard clause states that the insurer’s liability will be terminated if insured takes action materially increasing riskSpecial IssuesA coinsurance clause states that for the insured to recover full cost of partial losses, the insured must buy property insurance in an amount equal to certain percentage (e.g., 80%) of the fair market valueUnder the right of subrogation, the insurer obtains all of the insured’s rights to pursue legal remedies against anyone who negligently or intentionally caused harm to the propertySpecial IssuesLiability insurance allows the insured the ability to transfer liability risks to insurer:Personal liabilityBusiness or comprehensive general liabilityProfessional liability or malpractice insuranceWorkers’ compensation policiesCoverage for employers’ statutorily required obligation to pay benefits to injured workersLiability InsuranceLiability policies generally protect against insured’s liability for negligence but do not cover deliberate wrongful actsUnder a workers’ compensation policy, injured employees need not prove negligence on the part of their employer in order to be entitled to benefits, thus the insurer’s obligation relates to liability the insured employer would face under state law rather than employer’s negligenceLiability InsuranceIf another party states a legal claim against the insured and the claim is such that the insurer would be obligated to cover the insured’s liability if the claim were proven, the insurer has a duty to defend insuredInsurer must furnish, at its expense, an attorney to represent insured in litigation resulting from the claim against insuredInsurer’s ObligationsIf a claim against the insured falls within the liabilities covered by the policy and the claimant is awarded compensatory damages, the insurer must pay the amount held to be due from the insured to the claimant, including court costsPayment obligations are subject to the policy limits of the insurance contract involvedInsurer’s ObligationsInsurance policies allow insurers to settle claims of third parties who have made liability claims against the insuredGenerally, the insurer’s preferenceInsurers that unjustifiably refuse to perform obligations under a policy may be liable for a bad faith breach of contract claimSee Vining v. Enterprise Financial Group, Inc.Insurer’s ObligationsThought QuestionHow should insurance claims be handled in major natural disasters? Aerial view of flooding caused by Hurricane Katrina