978-1259638855 Chapter 27 Part 2

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Chapter 27 – Insurance Law

27-7

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

classified as an intentional tort). Determining whether a given liability is covered by a

policy requires close examination of relevant policy language and frequently necessitates

application of contract interpretation techniques discussed earlier in the chapter.

Francis v. Allstate Insurance Company (p. 763). Francis and her minor made defamatory

were not an accident. The Francises rebut Allstate’s assertion by stating that their

comments were meant to protect themselves and prevent any harm from coming to them.

of the district court.

Other Examples: Problem Cases #1 and #4.

4. Discuss the insurer’s major obligations under a liability insurance policy.

a. Explain the duty to defend and what it entails. Note the declaratory judgment and

Medmarc Casualty Insurance Co. v. Avent America, Inc. (p. 766): The Seventh

Circuit holds that Medmarc had no duty to defend a class action lawsuit filed against

Points for Discussion: Have a student summarize the basic allegations in the

underlying class action lawsuit. Then ask what the critical policy language was.

allegations of bodily injury from use of the cups. In addition, the complaint

suggested that the concerned parents did not even have their children use the

defense.

b. Explain the duty to pay sums owed by the insured. As part of this explanation, discuss

the liability insurer’s role in negotiating settlements of claims. Note the strategic

5. Discuss the major arguments on each side in the debate over whether there is a liability

insurance crisis and, if so, what to do about it.

1. Explain that this cause of action is a tort claim, not merely an ordinary breach of contract

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

claim. Note that the bad faith claim cannot be made out when the insurer possessed a

plausible (though erroneous) reason for not performing its policy obligations. The bad

faith claim arises when the insurer’s policy obligations were clearly triggered but the

insurer, with no reasonable justification, nonetheless refuses to perform—or unreasonably

2. Note the significance of this claim’s being a tort (intentional tort, to be more specific)

action: punitive damages become available in addition to compensatory damages. This

obviously increases the potential for a large award if the plaintiff is successful.

3. Provide other examples of the types of situations in which bad faith liability has been

recognized. Publications such as the Wall Street Journal and the National Law Journal

are good sources of current examples.

IV. RECOMMENDED REFERENCES:

A. LEE R. RUSS, COUCH ON INSURANCE.

PRINCIPLES, LEGAL DOCTRINES, AND COMMERCIAL PRACTICES.

E. JOHN F. DOBBYN, INSURANCE LAW IN A NUTSHELL.

F. ROBERT H. JERRY, UNDERSTANDING INSURANCE LAW.

Decades, 51 OHIO ST. L.J. 823 (1990).

71 NEB. L. REV. 1194 (1992).

M. Jeffrey W. Stempel, Unreason in Action: A Case Study of the Wrong Approach to Construing

Triggered Insurance Policies, 1999 BYU L. REV. 1215.

O. William T. Barker, Evidentiary Sufficiency in Insurance Bad Faith Suits, 6 CONN. INS. L.J.

81 (1999).

V. ANSWERS TO PROBLEM CASES:

1. World Trade Center Properties, LLC v. Hartford Fire Insurance Co., 345 F.3d 154 (2nd Cir.

2003). The Second Circuit Court of Appeals holds that under the definition of occurrence set

extrinsic evidence bearing upon the question of whether the two planes striking the World

Trade Center was one occurrence or, instead, two occurrences. (The jury ultimately held

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Hartford, Royal and St. Paul liable for their respective policy limits times two.)

Points for Discussion: Focus on the issue of how occurrence should be interpreted,

without getting mired in the details of the parties’ motions. Ask the students what the

stakes are here. (If it’s one occurrence, the insurer pays out the policy limits only once.

students agree that the impacts of the two planes amounted to one occurrence under this

definition? When occurrence is undefined (the situation with the Travelers binder), what

the Travelers binder?

2. No. Noting that the lower court’s decision had rested on a determination that no partnership

interest existed and that Harber and USA Properties therefore had no insurable interest, the

whether a partnership agreement existed and whether a resulting insurable interest also

existed, there were factual issues to be resolved by a jury. Moreover, the court observed,

London, 2000 U.S. App. LEXIS 305 (2d Cir. 2000).

3. No. The District Court for the Northern District of Indiana held that Cope had a right to

businessman has no genuine recreational interest whatsoever in these types of activities and

4. No. The U.S. Court of Appeals for the Third Circuit concluded that the unfair competition

term in the provision covered not only common law claims but also appropriate statutory

Insurance Co. v. Aamco Transmissions, Inc., 57 F.3d 316 (3d Cir. 1995).

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5. Yes. The determination of the case was not a matter of law [as the policy was ambiguous];

interior damage of the home. Maples v. Shelter Mutual Ins., 309 F.3d 1068 (8th Cir. 2002) (p.

773).

6. Yes. The Indiana Supreme Court took the transfer due to an interlocutory appeal by the

exclusion in the policy. The Indiana Supreme Court remanded for further factual findings.

7. No. Holding that the insured was unilaterally mistaken about whether a certain event would

be covered under his property insurance policy and that the insured therefore was not entitled

evidence, not merely by the usual preponderance of the evidence standard. The difficult-to–

establish elements necessary for reformation and the demanding standard of proof were in

hard time winning. This is especially true when an enhanced standard of proof such as clear

and convincing evidence applies. Here, the testimony was in sharp conflict, unlike the cases

the relevant documents (the written policy itself and the written checklist, signed by Ridenour

to indicate that the agent and Ridenour had gone over it) were clearly on the insurer’s side.

8. Vining won the case and received both compensatory and punitive damages. The Tenth

insurance policy, the insurer may be held liable for bad faith breach if the insurer did not in

9. Yes. Lane’s acts of exiting the restaurant and fighting with Taylor were not performed as part

of his duties or in the service of his employer, Memtek. Lane’s reason for these actions was

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

the battery on Taylor. Because he acted outside the scope of employment, Lane was not an

insured for purposes of the policy at issue. American Family thus owed no duty to defend

Lane and no duty to indemnify him for any damages he owed to Taylor. American Family

Mutual Insurance Co. v. Lane, 782 F. Supp. 415 (S.D. Ind. 1991).

10. Yes. The Minnesota Court of Appeals held that the Crowells’ right of first refusal, granted to

sufficient to support the conclusion that the Crowells possessed an insurable interest.

Crowell v. Delafield Mutual Fire Insurance Co., 453 N.W.2d 724 (Minn. App. 1990).

VI. ANSWER TO ONLINE RESEARCH PROBLEM: