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Business Law Chapter 50 Homework There Rule That Moving Out House Increases

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9 pages
Word Count
6839 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
1
Chapter 50
Insurance
INTRODUCTION
This chapter discusses topics related to the concept of private ownership of property: insurance. Individuals
and businesses establish plans to protect their personal and financial interests against events that threaten to under-
mine their security. This concept is risk management. The most common method of risk management is the transfer
of risk from an individual or a business to an insurance company. The first part of this chapter outlines aspects of the
law concerning insurance.
CHAPTER OUTLINE
I. Insurance Terminology and Concepts
A. INSURANCE TERMINOLOGY
Insurance has its own special concepts and terminology
Policyan insurance contract.
Premiumthe consideration paid to the insurer.
Underwriter or insurerthe insurance company.
Insuredthe person or party covered by the insurance policy.
Agentan insurance company representative who works for the insurer.
Brokeran independent contractor who sells insurance policies.
2 UNIT TEN: PROPERTY AND ITS PROTECTION
When a broker deals with an applicant for insurance, the broker is, in effect, the applicant’s agent, but an
insurance agent is not an agent of the applicant but an agent of the insurer, to whom the agent owes
fiduciary duties.
B. CLASSIFICATIONS OF INSURANCE
Insurance is classified according to the nature of the risk involved. The classifications include
automobile, fire, health, homeowners’, life, and mortgage insurance.
C. INSURABLE INTEREST
A person can insure anything in which he or she has an insurable interest.
1. Life Insurance
One must have a reasonable expectation of benefit from the continued life of another to have an
insurable interest in that person’s life. This interest must exist when the policy is obtained.
a. Life Insurance on Family Members
A close family relationship gives a person an insurable interest in the life of another.
b. Key-Person Life Insurance
This is insurance an organization obtains on the life of a person important to it.
2. Property Insurance
In the case of property, an insurable interest exists when one would sustain a pecuniary loss from
its destruction. This interest must exist when the loss occurs.
CASE SYNOPSIS
Case 50.1: Breeden v. Buchanan
Donald Breeden and Willie Buchanan were married in Marion County, Mississippi. They lived in a home
in Sandy Hook. Nationwide Property & Casualty Insurance Co. insured the home under a policy bought by
Breeden that named him as the insured. The policy provided that the spouse of the named insured was
covered as an insured. After eight years of marriage, Breeden and Buchanan divorced. Breeden transferred
his interest in the home to Buchanan as part of the couple’s property settlement. Less than a year later, a fire
completely destroyed the home. A claim was filed with Nationwide. Nationwide paid Buchanan. Breeden then
filed a suit in a Mississippi state court against Buchanan and Nationwide to recover the proceeds under the
policy. The court dismissed the suit. Breeden appealed.
A state intermediate appellate court affirmed. Buchanan was entitled to the proceeds of the claim filed
with Nationwide because at the time of the fire, the insurable interest in the property existed with Buchanan.
..................................................................................................................................................
Notes and Questions
Does the result in this case seem fair? Should the court have considered who paid for the policy,
or who had the insurable interest when the policy was bought, or even who paid for the home, in
CHAPTER 50: INSURANCE 3
deciding to whom the proceeds were payable on the loss? It may not seem fair in this case, given that
Breeden procured and paid for the policy, and may have paid for the home. But the law is clear on the
principle. In the case of property, an insurable interest exists when one would sustain a pecuniary loss from
its destruction. This interest must exist when the loss occurs.
II. The Insurance Contract
Insurance policies generally are in standard form; and in some states, standardization of forms is required.
A. APPLICATION FOR INSURANCE
The application is part of the insurance contract. Because an insurance company evaluates the risk
based on the information in the application, misstatements or misrepresentations can void a policy.
B. EFFECTIVE DATE
A broker is the applicant’s agent. If the broker fails to obtain coverage, and the applicant is harmed, the
broker is liable.
1. Binder
A binder indicates that a policy is pending. A person who seeks coverage from an insurer’s agent is
usually protected from the moment the application is made and a premium is paid.
2. Life Insurance
An insurance applicant may be protected from the time he or she pays the first premium, or an
applicant may not be protected until he or she passes a physical exam.
C. PROVISIONS AND CLAUSES
1. Provisions Mandated by Statute
A policy includes whatever a statute requires, even if the policy does not expressly include it.
2. Incontestability Clauses
After a policy has been in effect for a statutorily mandated period, the insurer cannot contest
statements made in the application.
3. Coinsurance Clauses
These provide that if a property owner insures the property up to a specified percentage of its
value, the owner will recover any loss up to the face amount of the policy. If the insurance is for
less, the owner suffers a proportionate share of the loss. Students might find it helpful to work
through a few examples of coinsurance clauses.
4. Appraisal and Arbitration Clauses
Under these clauses, if the parties cannot agree on the amount of a loss, an appraisal can be
demanded, subject to the review of a third party.
5. Multiple Insurance Coverage
If the amount of the coverage under several policies covering the same loss exceeds the amount of
the loss, the insured can collect only each insurer’s proportionate share of the liability, relative to
the total amount of the insurance.
6. Antilapse Clauses
A policy may not automatically lapse if a payment is not made on the due datei.e., there may be a
grace period under an antilapse clause. If no payment is made after the grace period, the policy
may be cancelled, or
The insurer may extend the insurance for a period of time.
The insurer may issue a policy with less coverage to match the amount of the payments.
The insurer may pay to the insured the policy’s cash surrender value.
ADDITIONAL BACKGROUND
Provisions and Clauses
Insurance underwriting developed at Edward Lloyds’s coffee house in London, England, in the
seventeenth century, when shipowners and other merchants sought insurance for their ships or their cargo.
The merchants were usually at least as wealthy as the individuals from whom they sought insurance, and
thus, the insurance contracts were entered into between persons of relatively equal bargaining power. Also, a
merchant often prepared the contract to submit to the insurers, who would agree to insure the risk described
in the document by writing their names, one beneath another, at the bottom of the proposal (which is why
insurers came to be called “underwriters”), with each writing in a specific amount until the full amount was
subscribed.
As the insurance business developed, insurers more frequently prepared the contracts according to their
needs. In the United States, for two hundred years, insurers have determined the terms in insurance
contracts. Normally, a consumer chooses only a type of coverage and an amount. These developments
have had a significant effect on the resolution of disputes between the insurers and the insured.
In some cases, the unambiguous language of a clause in an insurance policy would appear to provide so
little coverage that courts have held that it would be unconscionable to allow the insurer to enforce it.
Insurance policies are typically long and detailed, in language drafted by an insurance group. Consumers
often do not read the policies and, even when they do, often do not understand the provisions. In those
cases, the courts may determine that if the insured had read and understood the clause, he or she would
have considered the coverage unacceptable.
CRITICAL THINKING
Should insurance policy provisions be read to avoid ambiguities if possible? Why or why not?
Yes. Language should not be tortured to create ambiguities. A fundamental principle of contract interpretation
in the context of insurance policies is that while ambiguities are reconciled in the insured's favor, courts may
not invent ambiguity and have no warrant to stretch language to find against an insurer. No, because while
ambiguities should not be invented, they should not be ignored when most likely they were created by the
insurer to the detriment of the insured.
D. INTERPRETING PROVISIONS OF AN INSURANCE CONTRACT
The words in an insurance contract have their ordinary meanings and are interpreted by courts in light of
the nature of the coverage involved. Ambiguities and uncertainties are interpreted against the insurance
company.
CHAPTER 50: INSURANCE 5
ENHANCING YOUR LECTURE
  RECOVERING FOR THE LOSS OF COMPUTER DATA
 
Over the past decade, hackers have spread numerous viruses that can cause computer systems to fail
and stored data to be lost. When a business’s computer system comes under attack, often the damage is
extensive. Yet traditional business insurance policies usually do not specifically cover the risks associated
with the loss of computer information. Typically, business insurance covers only “physical loss,” and a
number of courts have held that computer information is not physical.a Only in rare circumstances have courts
held that general business insurance policies cover the loss of computerized information.
A COMPUTER VIRUS CAUSED SIGNIFICANT DAMAGE
In one case, the operating system of an employment agency, Lambrecht & Associates, Inc., was attacked
by a computer virus. All of Lambrecht’s employees were networked into a large central server that was
equipped with certain prepackaged software programs, such as MS Office and Norton Anti-Virus. One day
when the employees came to work, they discovered the computers were having difficulty booting up and were
performing strange operations. Ultimately, the entire system froze up, and all of the information that had
previously been stored on the system was deleted. As a result, Lambrecht’s employees were unable to use
their computers to communicate with prospective employers and employees, and the business lost income.
In addition, Lambrecht had to replace its server, buy a new operating system and new software, and manually
reenter a large amount of data. When Lambrecht filed a claim with its insurer, State Farm Lloyd’s, State Farm
denied coverage. Lambrecht filed suit, but the trial court agreed with the insurer that the loss was not covered.
Lambrecht appealed.
THE EXACT LANGUAGE OF THE INSURANCE POLICY
Lambrecht had a business insurance policy that provided coverage for “accidental direct physical loss to
business personal property.” In addition, Lambrecht had purchased $100,000 of additional coverage for
replacement of valuable “papers or records, including those which exist on electronic or magnetic media,”
provided that the loss is not “caused by an error in programming.” State Farm contended that the damage to
Lambrecht’s computer system was neither “accidental” nor “physical,” as the insurance policy required for
coverage.
THE MEANING OF “ACCIDENTAL AND “PHYSICAL LOSS
According to State Farm, the damage was not accidental because the hacker’s act of infecting
Lambrecht’s computer system with a virus was voluntary and intentional. The state appellate court, however,
held that the question of whether an occurrence was “accidental” should be determined by looking at the
incident from the perspective of the insured. Here, there was no evidence to indicate “that Lambrecht was
involved in any voluntary or intentional conduct or took any action which caused the damage Lambrecht
suffered.” Thus, the court held that the damage was unexpected and accidental.
The court also rejected State Farm’s argument that the data loss was not “physical” because data are not
6 UNIT TEN: PROPERTY AND ITS PROTECTION
tangible (capable of being touched). Although the court recognized that other judges have focused on this
distinction, in this case, the plain terms of the policy expressly covered electronic records and storage media.
Hence, the court held that the language of the policy dictated a finding that the data losses Lambrecht
suffered were “physical” as a matter of law.b
FOR CRITICAL ANALYSIS
If the policy in this case had not expressly mentioned loss of electronic records, would the court
have found that the loss was “physical”? Why or why not?
E. CANCELLATION
An insured can cancel a policy at any time. An insurer can cancel only on written notice. The reasons
for cancellation depend somewhat on the type of insurance
Auto insuranceAn auto policy can be canceled for nonpayment of premiums or suspension of the
F. DUTIES AND OBLIGATIONS OF THE PARTIES
The insured and the insurer have an implied duty to act in good faith.
1. Duties of the Insured
An applicant must disclose all material facts (whatever an insurer would consider in determining a
premium amount or deciding whether to issue a policy). An insured must
Pay the premiums stated in the policy.
Notify the insurer within a reasonable time if an event occurs that gives rise to a claim.
Cooperate with the insurer during an investigation or litigation.
2. Duties of the Insurer
Regarding a claim, an insurer has a duty to investigate the facts and to make reasonable efforts to
settle. If a claim cannot be settled, the insurer has a duty to defend the insured.
3. Bad Faith Actions
If an insurer’s denial of a claim or refusal to settle a claim for a reasonable amount within a policy’s
limits is in bad faith, the insured may recover damages, including punitive damages, in tort.
ADDITIONAL CASES ADDRESSING THIS ISSUE
Bad Faith Actions
CHAPTER 50: INSURANCE 7
Cases considering whether an insurer acted in bad faith include the following.
Dimmitt v. Progressive Casualty Insurance Co., __ S.W.2d __, 2003 WL 115231 (Mo. 2003) (a buyer of a
mobile home under a contract for deed had an insurable interest in the home and its contents, despite a
failure to comply with statutory requirements to sign the certificate of title and apply for a new certificate).
Bajwa v. Metropolitan Life Insurance Co., __ Ill.App.3d __, 776 N.E.2d 609, __ Ill.Dec. __ (1 Dist. 2002)
(although an individual must have an insurable interest in the life of another to obtain an insurance policy on
that life, insurance companies have no duty to refrain from issuing life insurance policies to the person whose
life is being insured, who may then designate a beneficiary without an insurable interest).
G. DEFENSES AGAINST PAYMENT
A incontestability clause may prevent an insurance company from asserting certain defenses. A
misstatement of age is not sufficient to void a policy. But an insurance company’s defenses to payment
include ordinary contract defenses and others
III. Types of Insurance
There are five general categories of insurance coverage—life insurance, fire and homeowners’ insurance,
automobile insurance, marine insurance, and business liability insurance.
A. LIFE INSURANCE
Basic types include whole life, limited-payment life, term insurance, endowment insurance, and universal
life. The parties’ rights and liabilities depend on their contract.
1. Insurer’s Liability
The contract states whether the insurer is liable on the insured’s death—i.e., there are often
exclusions for death by suicide, war, and execution by a state, and sometimes for death while the
insured is a passenger in a commercial vehicle.
2. Adjustment Due to Misstatement of Age
A misstatement of age in an insurance application permits adjustment of premiums or benefits, but
it is not a sufficient material error to void the policy.
3. Assignment
An insured can change beneficiaries and can usually assign the rights to the policy on notice to the
insurer. Exceptions include the policy’s prohibition of assignment and the vesting of the
beneficiary’s rights to the proceeds.
4. Creditors’ Rights
8 UNIT TEN: PROPERTY AND ITS PROTECTION
Creditors can reach
Insurance proceeds payable to the insured’s estate.
Proceeds payable to anyone if payment of the premiums worked a fraud on creditors.
Proceeds payable to a beneficiary whose rights have not vested.
5. Termination
The insured can cancel the policy but the insurer cannot unless
The insured defaults.
The insured dies (and benefits are paid).
The term of the policy expires.
B. FIRE AND HOMEOWNERS INSURANCE
1. Standard Fire Insurance Policies
These protect against fire and lightning, and damage from smoke and a fire department’s water.
a. Liability
Most policies limit recovery to losses from hostile fires (e.g., a defective electrical outlet).
Different amounts are recoverable, depending on whether a policy is valued (the amount
specified in the policy) or open (the actual cost of the loss).
b. Proof of Loss
Proof of loss is a condition to recovery.
c. Occupancy Clause
Generally, premises must be occupied at the time of a loss.
CASE SYNOPSIS
Case 50.2: Estate of Luster v. Allstate Insurance Co.
Wavie Luster obtained a homeowners’ insurance policy from Allstate Insurance Co on her house in
Merrillville, Indiana. She fell, was admitted to an extended-care facility, and less than five years later died
without returning to her home. Still later, when the house was damaged in a fire, Luster’s attorney Rick Gikas
filed a claim with Allstate. The insurer purported to cancel the policy retroactively to the date of Luster’s fall,
arguing that the unoccupied house increased the “hazard.” On behalf of Luster’s estate, Gikas filed a suit in a
federal district court against Allstate. Accepting the insurer’s argument, the court issued a summary judgment
in Allstate’s favor. Gikas appealed.
The U.S. Court of Appeals for the Seventh Circuit reversed and remanded for a determination of the
cause of the lossan investigation indicated vandalism, but the lower court made no findingand a hearing
on Allstate’s contention that non-occupancy increased the risk of loss. “There is no rule that moving out of a
house per se increases the hazards against which the insurance company has insured.” The appellate
court acknowledged that Luster’s long absence “constituted a change in occupancy” of which the policy
required the insured to notify the insurer. But Allstate failed to give the required thirty-day notice of intent
to cancel, which the policy also required.
CHAPTER 50: INSURANCE 9
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Notes and Questions
What fact, if it was different, might have persuaded the court in this case to rule in Allstate’s
favor? Discuss. Among the facts that might have convinced the court to rule in the insurer’s favor had the
circumstances been different are continued occupancy of the house, suppression of the fire that damaged the
house, notice to the insurer of the insured’s absence from the house, and notice of the insurer’s intent to
cancel its policy.
There is no rule that moving out of house increases the hazards against which an insurance company
has insured. There may be more danger of an unoccupied house being destroyed by fire but this is not
always true. Sometimes, an unoccupied house can lead to less risk. A homeowner might invest in more
security when a house will be left vacant. If the homeowner is an elderly person, as in the Luster case, his or
her presence might cause a greater risk of firethe person might inadvertently leave appliances on, fail to
remove flammable materials, or not fix defective wiring. Had Luster, or someone on her behalf, occupied the
house after her fall and injury, the subsequent events in this case might not have occurred. There might have
been no fire, no insurance claim, and no dispute. Or if Luster, or another party, had been in the house and a
fire had occurred, it might have been suppressed or the damage might have been averted, or at least
reduced, and there would have been no claim, or only a small claim, for Allstate to oppose.
Notice to Allstate of Luster’s absence from the housethe lack of which was a violation of their policy
would have given the insurer less to assert against Luster’s claim. But the most convincing circumstance
might have been notice of the insurer’s intent to cancel its policy. Cancellation of an insurance policy can
occur for various reasons, depending on the type of insurance. When an insurance company can cancel its
insurance contract, the policy or a state statute usually requires that the insurer give advance written notice of
the cancellation to the insured. The lack of notice in this case was the fact on which the U.S. Court of Appeals
for the Seventh Circuit based its reversal and remand of the lower court’s decision.
d. Assignment
A fire insurance policy is not assignable without the insurer’s consent.
2. Homeowners’ Policies
a. Property Coverage
Property coverage includes structures on the insured’s lot and personal possessions,
wherever they are, with exceptions and limits, especially for floods. Perils include fire,
lightning, wind, hail, vandalism, and theft. When there is a loss, living expenses may be paid.
b. Liability Coverage
Liability coverage includes personal injuries and property damage to others, because of the
unsafe condition of the policyholder’s premises, with exceptions for business activities,
intentional acts, and others.
c. Renters’ Policies
Renters’ insurance covers personal possessions in some circumstances and may include
living expenses.
10 UNIT TEN: PROPERTY AND ITS PROTECTION
C. AUTOMOBILE INSURANCE
1. Liability Insurance
This covers bodily injury and property damage. The text explains how policies describe limits.
These limits can be increased with an umbrella policy, which may also cover personal liability in
excess of the limits of a homeowners’ policy.
2. Collision and Comprehensive Insurance
Collision covers damage to the insured’s car in any collision. Comprehensive covers loss, damage,
and destruction due to fire, hurricane, hail, vandalism, and theft.
3. Other Automobile Insurance
Uninsured motorist coverageSome states require that all drivers carry this.
Double indemnity, or accidental death benefitsThis pays if the insured dies in an automobile
accident.
Medical payment coverageThis may pay hospital, medical, and funeral expenses for every-
one in a vehicle when the insured is driving.
An omnibus clause, or other-driver coverageThis protects the insured and anyone who
drives the insured’s vehicle with his or her permission.
D. BUSINESS LIABILITY INSURANCE
1. General Liability
Besides a key-person insurance policy, a business may have a general liability policy (to cover vir-
tually any risk the insurer agrees to cover).
2. Product Liability
A product liability policy covers products’ risks, including the expense of a recall.
3. Professional Malpractice
A malpractice policy protects professionals against negligence claims.
4. Workers’ Compensation
A workers’ compensation policy covers payments to employees injured in accidents arising out of
and in the course of employment.
TEACHING SUGGESTIONS
1. Ask students to discuss whether insurance companies should be prevented from testing for any sort of
disease before issuing a policy. Because all diseases presumably influence the calculations of life
expectancies and, hence, the premiums to be charged for coverage, is it fair to exempt testing for
certain diseases as the costs of covering these diseases will presumably be passed on to all
consumers?
2. In some states, the law is technical regarding such particulars as the number of persons to whom to send
notice of the cancellation of a policy. Even those whose job is to comply with such technicalities sometimes
make mistakes. For example, an employer who acts as an administrator for a group plan may fail to notify the
insurer of a new employee or may fail to pay the part of the premium for the employee’s coverage. In those
cases, what is the key issue? The key issue is who bears the effect of the mistakethe employer, the
insurer, or the employee. When coverage provided under a group plan terminates altogether, notice is
generally required to the individuals who were insured under the plan. Suppose an employer who acts as an
administrator for a group plan fails to provide that notice. What is the issue in that case? The issue
concerns who bears the effect of that failurethe employer or the insured.
3. Many automobile owners drive without auto insurance because they have either allowed their original
policies to lapse or neglected to acquire it altogether. Ask students to suggest ways in which automobile
insurance laws might be changed so as to ensure that all car owners carry up-to-date insurance.
4. Bring copies of different types of insurance policies for students to read. Discuss the differences between
the provisions of the policies. Why are these contracts full of legalese and “boiler plate” language?
Cyberlaw Link
What effect might the Web have on the competitiveness of insurance rates? Which insurance
policies might cover injuries or damage caused by computer viruses and hackers?
DISCUSSION QUESTIONS
1. What is insurance? Insurance is an arrangement for transferring or allocating risk which is made pursuant
to an insurance contract in which the insurance company promises to pay a sum of money or give something of value
2. Discuss the concept of risk pooling. All types of insurance companies use the concept of risk pooling in
that they spread the risk among a large number of peoplethe poolto make the premiums small compared with the
3. Can anyone claim to have an insurable interest in a particular person or property? No, because such a
state of affairs would permit anyone to take out an insurance policy on any person or property and essentially wager
as to when that person would be injured or killed or that property destroyed. One can take out a policy only if one has
4. Who may be insured by a key-person insurance policy? Key person insurance is usually taken out by an
organization that wishes to insure the life of a person who is important to that organization. The organization has an
5. How is the effective date of an insurance policy usually determined? Coverage on an insurance policy
can begin when a binder is written, when the policy is issued or, depending on the terms of the contract, after a
certain period of time has elapsed. Alternatively, the parties may agree that a life insurance policy will be binding at
6. In what circumstances may an insurer cancel a policy? An insurance company can cancel an insurance
policyafter giving the appropriate notice to the insuredfor a variety of reasons including (in the case of auto
7. What information must be provided by one who is applying for an insurance policy? The applicant is
obliged to act in good faith and reveal everything that is necessary for the insurer to evaluate the risk of issuing a
8. What sort of defenses may an insurance company raise against payment on a claim? An insurance
company can raise any of the defenses that would be valid in an ordinary action on a contract as well as some de-
fenses that do not apply in ordinary contract actions. If the insurance company can show that the policy was procured
9. What are some of the types of insurance policies that businesses carry to protect themselves from
risk? General Liability. Comprehensive general liability insurance can cover virtually as many risks as the insurer
agrees to cover. Among the types of coverage that a business might wish to acquire, for example, is protection from
liability for injuries arising from on-premises events not otherwise insured against, such as company social functions.
Some specialized establishments may be subject to liability in individualized circumstances, and policies can be
drafted to meet their needs. In many jurisdictions, for example, statutes impose liability on a seller of intoxicating
liquor when a buyer of the liquor, intoxicated as a result of the sale, injures a third party. Legal protection may extend
not only to immediately consequent injuries, such as quadriplegia in an automobile accident, but also to the loss of
support suffered by a family because of the injuries. Insurance can provide coverage for these injuries and losses.
CHAPTER 50: INSURANCE 13
ACTIVITY AND RESEARCH ASSIGNMENTS
1. Ask each student to research and write a brief report about the causes of one of the so-called “insurance cri-
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 1: ABM Industries, Inc., is an engineering and janitorial service contractor with office and storage
space in the World Trade Center (WTC). Zurich American Insurance Co. insured ABM against losses resulting from
In Zurich American Insurance Co. v. ABM Industries, Inc., the U.S. Court of Appeals for the Second
Circuit reversed and awarded a summary judgment in ABM’s favor. “The only prerequisite to coverage mandated by
New York law is that an entity have an “insurable interest” in the property it insures.” This term includes “any lawful
and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary dam-
age.” ABM’s income depends on “the common areas and leased premises in the WTC complex, and thus ABM meets
New York’s requirement.”
Doesn’t extending ABM’s insurable interest under Zurich’s policy to include the common areas and
leased premises of the WTC give ABM direct damage coverage for these areas? No, although this is, in part,
what Zurich argued. The U.S. Court of Appeals for the Second Circuit reasoned, “To the contrary, ABM does not have
and does not claim to have an insurable interest in these properties for the purpose of direct damage coverage
Suppose that before September 11, ABM had transferred its operations at the WTC to another firm.
Additionally, assume that it had sold its supplies and equipment to that firm but as of September 11, ABM
had not notified Zurich to cancel its insurance. Would the result have been different? Why or why not? If ABM
had sold its business and its property in the WTC to another firm before the terrorist attacks, ABM would not have had
14 UNIT TEN: PROPERTY AND ITS PROTECTION
an insurable interest in the property at the time of its loss in the WTC. This would have led the court to conclude that
ABM was not entitled to recover under its policy with Zurich.
Footnote 4: Tina Alberts worked for Robert Woo as a dental surgical assistant. Her family also raised
potbellied pigs. Alberts asked Woo to replace two of her teeth with implants. While Alberts was anesthetized, Woo
installed teeth shaped like boar tusks, as a joke, and took photos. Before Alberts regained consciousness, he inserted
In Woo v. Fireman’s Fund Insurance Co., the Washington Supreme Court held that Fireman's had a duty to
defend Woo under the professional liability provision of his policy. “[T]he professional liability provision covers
ownership, maintenance, or operation of an office for the practice of dentistry.” The “insertion of boar tusk [teeth] in
Alberts' mouth conceivably fell within the policy's broad definition of the practice of dentistry.” The state supreme court
reversed the decision of the lower court.
The state intermediate appellate court, in reversing the lower court’s award to Woo, concluded, “No
reasonable person could believe that a dentist would diagnose or treat a dental problem by placing boar tusks in the
mouth while the patient was under anesthesia in order to take pictures with which to ridicule the patient.” Does this
comport with the rule regarding the rule to defend? No, said the Washington Supreme Court. “[W]hat a
Are the acts of the principal parties—Woo, Alberts, and Fireman’s—ethically justifiable in the
circumstances of this case? Woo’s boar-tusk joke was not ethically justifiable if he knew that Alberts did not find his
comments about her pigs to be “friendly.” This would conceivably be a transgression of the Golden Rule. Alberts’s
legal action in response to the joke is arguably excessive, considering that Woo did not appear to act with malicious
In determining whether an insurer has a duty to defend an insured, should a court ask whether the
insured had a “reasonable expectation” of coverage? Explain. Fireman’s made this argument, but the
Washington Supreme Court dismissed it. The court reasoned that the rule with respect to the duty to defend “requires
us to determine whether the complaint alleged facts that were conceivably covered under the insurance policy,” not
what the insured expected.

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