Reasons for Insurance Regulation

1) Insurer Solvency

2) Unequal knowledge and bargaining Power

3) Problem of Pricing

4) Promotion of Social Goals

• "Fair"
• Adequate
• Not unfairly discriminatory

• Prior approval
• File and use
• Open competition

• Paul solicited business in Virginia without a VA insurance agents license
• Paul argued it was unneccessary b/c Interstate Commerce
• US Supreme Court sided w/ VA...not interstate commerce
• Insurance is state regulated

• 1905 Armstrong Committee
• 1910 Merritt Committee

• Investigated life insurance in NY
• Investigated fire insurance in NY

US vs. Southeastern Underwriters Association

1944

• SEUA had monopoly on insurance is southeast
• association for rate making purposes
• federal anti-trust regulations did not apply so Paul vs. VA had to be overturned
• stated insurance was interstate commerce

PL-15  The McCarran Act

1945

• Federal law to allow states to regulate if they do a good job
• every state had passed in by 1950
• exempts insurance from anti-trust regulation

SEC and Supreme Court

Regulation of variable annuities (mutual funds)

Overturned Glass-Steagall Act of 1929

• States regulate and each state has its own insurance codes

National Association of Insurance Commissioners (NAIC)

• Promotes consistency
• Model Bills and Legislation
• Research special problems

• State regulation is a known quantity, job done well
• Still be a need for state regulation even with Fed laws
• Allows for experimentation
• Closer to the public and its problems

• Improvement in efficiency and uniformity
• Company couldnt withdraw because of obnoxious law
• No expertly trained personnel and adequate budgets
• Less subject to company pressure
• Fed could more easily handle insolvency
• Less barriers to foreign companies entering market

• doctrine that individual should be responsible for loss he/she caused

Arises out of...

• criminal wrongs
• breaches of contracts
• torts (not all torts insurable)

1. Deliberate or Intentional Interference (assault, battery, liable...can result in civil/criminal actions)
2. Liability without Fault (strict and absolute liability)

• laws dictate expansive definition of who can be held liable
• ex: workers comp, pure no-fault, family purpose doctrines

3)  Negligence

• failing to use reasonable care
• "reasonable man" standard
• question of fact
• other parties can be held liable (vicarious, joint-and-several)

Plaintiff must show...

• legal duty
• failure of duty
• injury
• causal connection b/t injury and failure

includes medical costs, lost wages, future wage loss, and pain/suffering

Economic vs. Non-Economic Injuries

Compensation to punish a defendant for outrageous acts

• Hedonic Damages - loss of life's pleasures
• Mental Anguish

• Tactic used to shift a heavy burden to the defendant

• No injury, duty or failure
• Contributory negligence - common law
• Comparative negligence - statuatory modification
• Last Clear Chance rule - statuatory modification
• Assumption of the Risk - common law
• Fellow Servant Rule - common law

• responds when someone is "legally liable" to pay damages as long as not excluded from contract
• Must also provide defense costs
• Most states do not allow punitive damages to be paid out of insurance contracts

• much money does not go to the injured party
• small claims tend to be overpaid
• large claims tend to be underpaid
• recovery is often slow
• negligence difficult to determine 

• encourages good driving - rates go up
• fraud is reduced - facts must be shown
• most claims settled within six months
• pain and suffering is real injury, not compensable under no fault
• responsible party pays costs for actions

• Commercial General Liability Policy (CGL)
• Homeowners, Auto, Boat, etc.
• Umbrella policies

1. Legality
2. Capacity
3. Offer and Acceptance
4. Consideration

• be for a legal purpose
• not encourage/protect illegal activities

• Applicant always makes the offer

• Agent solicits offer
• Applicant offers
• Insurance company accepts, rejects or counter offers
• Counter offer may be accepted/rejected by applicant
• Legal offer in life insurance must be supported by consideration

• Must demonstrate a loss to collect
• would be gambling or intentional loss if could collect with no personal loss

• ownership
• leases
• secured creditors can have, general creditors do not
• legal liability
• care, custody, control
• life insurance - for person voluntarilly insuring own life

• Property Insurance - at time of loss
• Life Insurance - at inception of policy, continuing insurable interest not neccessary 

• Measures the Loss
• Indemnity:  a person may not collect more than their actual loss (cant make profit)

• Valued policies
• Valued policy laws
• Replacement cost coverage
• Life Insurance - not an indemnity contract

One who indemnifies anothers loss is entitled to recovery from any liable third parties

• Reinforces principal of indemnity
• holds rates below what they would be otherwise
• places burden of loss on those responsible

• does not exist when principal of indemnity does not apply (life insurance)
• Subrogation is always waived for an Insured
• Insurer is entitled to subrogation dollars only after the Insured has fully collected

• Material Misrepresentation
• Concealment
• Breach of a warranty
• Breach of utmost good faith