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									                                           Contents
 Preface .......................................................................................................... xxi
 Acknowledgments ........................................................................................... xxiii


                                               CHAPTER 1

                             Insurance, Law, and Society
I.      Risk and Insurance 101 .....................................................................                 2
II.     Beyond Risk Spreading — Part One..................................................                           4
                     D.R. Jacques, Society on the Basis of Mutual Life Insurance...                                  8
                     Questions.......................................................................                9
III.    Beyond Risk Spreading — Part Two..................................................                           9
IV.     (Way) Beyond Risk Spreading — Insurance and Social
        Responsibility......................................................................................       12
        A. Insurance and Accountability......................................................                      15
        B. Insurance and Trustworthiness...................................................                        16
        C. Insurance and Causation ............................................................                    17
        D. Insurance and Freedom..............................................................                     20
        E. Insurance and Solidarity .............................................................                  21
V.      Insurance Law.....................................................................................         22
                     Robert H. Jerry II, Insurance...........................................                      22
                     An AIDS and Insurance Problem.................................                                26


                                               CHAPTER 2

                               Contract Law Foundations
I.      Introduction........................................................................................       29
II.     Insurance Contract Interpretation ....................................................                     30
                    Gaunt v. John Hancock Mutual Life Insurance Co...........                                      30
                    Notes and Questions.....................................................                       34
                    World Trade Center Properties v. Travelers Indemnity Co....                                    35


                                                        xiii
xiv                                                                                                  Contents


                  Notes and Questions.....................................................                     39
                  C&J Fertilizer, Inc. v. Allied Mutual Insurance ...............                              42
                  Notes and Questions.....................................................                     51
                  The Hurricane Andrew Code Upgrade Problem........                                            56
III. Waiver and Estoppel ..........................................................................            57
                  Darner Motor Sales, Inc. v. Universal Underwriters
                  Insurance Co. ..................................................................             58
                  Notes and Questions.....................................................                     66
                  Bible v. John Hancock Mutual Life Insurance Co.............                                  68
                  Notes and Questions.....................................................                     69
                  Jenkins v. Indemnity Insurance Co. of North America .......                                  70
                  Notes and Questions.....................................................                     73
                  The Roseth Problem ......................................................                    74
IV. The Role of Insurance Intermediaries..............................................                         74
                  Economy Fire & Casualty Co. v. Bassett ...........................                           75
                  Notes and Questions.....................................................                     79
V.   Misrepresentation...............................................................................          79
                  The Auto Insurance Misrepresentation Problem ........                                        81
                  Notes and Questions.....................................................                     82
                  Pum v. Wisconsin Physicians Service Insurance Corp. ......                                   84
                  Notes and Questions.....................................................                     89
VI. Disproportionate Forfeiture ..............................................................                 91
                  Aetna Casualty & Surety Co. v. Murphy ..........................                             92
                  Notes and Questions.....................................................                     97
                  WeCare’s Problem.........................................................                    99
VII. Damages..............................................................................................    100
                  Kewin v. Massachusetts Mutual Life Insurance Co. ..........                                 101
                  Notes and Questions.....................................................                    105
     A. The Tort of Insurance Bad Faith ...............................................                       107
                  Anderson v. Continental Insurance Co. ............................                          107
                  Notes and Questions.....................................................                    111
     B. Punitive Damages ........................................................................             114
                  Hangarter v. Provident Life & Accident Insurance Co......                                   114
                  Notes and Questions.....................................................                    123


                                             CHAPTER 3
      First-Party Insurance: Illustrative Lines and Issues
I.      Health Insurance ................................................................................     129
        A. ERISA...........................................................................................   130
            1. Express Preemption Under ERISA §514............................                                130
            2. ‘‘Complete’’ Preemption Under ERISA §502(a) .................                                  132
                    Andrews-Clarke v. Travelers Insurance Co. ......................                          134
            3. A Note on ERISA Remedies ................................................                      137
                    ERISA Preemption Problems .......................................                         138
            4. The Scope of ERISA’s Preemptive Shield...........................                              138
Contents                                                                                                     xv

                     Aetna Health Inc. v. Davila.............................................                140
                     Notes and Questions.....................................................                147
       B. Drawing the Medical Necessity Line ..........................................                      149
                     Pirozzi v. Blue Cross-Blue Shield of Virginia....................                       150
                     Notes and Questions.....................................................                156
                     Problem: The End of Mammography?........................                                160
       C. The Mental/Physical Distinction .................................................                  161
                     Arkansas Blue Cross & Blue Shield, Inc. v. John Doe ......                              161
                     Notes and Questions.....................................................                164
                     The Autism Treatment Problem ..................................                         167
       D. Preexisting Condition Exclusions...............................................                    168
                     Hardester v. Lincoln National Life Insurance Co. ............                           168
                     Notes and Questions.....................................................                172
                     The Fibromatosis Preexisting Condition Problem......                                    175
                     A Note on COBRA Coverage.......................................                         176
II.    Disability Insurance............................................................................      177
       A. The Meaning of Disability ..........................................................               177
            1. Social Security.......................................................................        177
            2. Workers’ Compensation.......................................................                  177
            3. Americans with Disabilities Act............................................                   177
                     Prudence Life Insurance Co. v. Wooley ............................                      178
                     Notes and Questions.....................................................                180
                     Heller v. Equitable Life Assurance Society.........................                     182
                     Notes and Questions.....................................................                185
       B. Coordination of Benefits.............................................................              188
                     Cody v. Connecticut General Life Insurance Co. ...............                          188
                     Notes and Questions.....................................................                191
                     MegaMutual’s Human Resources Problem..................                                  193
       C. ERISA Litigation: ‘‘Toto, We’re Not in Kansas Anymore’’........                                    194
                     Fought v. UNUM Life Insurance Co. of America .............                              195
                     Notes and Questions.....................................................                206
                     John H. Langbein, Trust Law as Regulatory Law:
                     The UNUM/Provident Scandal and Judicial Review
                     of Benefit Denials Under ERISA......................................                    208
III.   Life Insurance.....................................................................................   218
       A. Incontestability ............................................................................      219
                     Metropolitan Life Insurance Co. v. Conway ......................                        219
                     Notes and Questions.....................................................                221
                     Allstate Life Insurance Co. v. Miller.................................                  222
                     Notes and Questions.....................................................                225
                     Fortress’s Incontestability Problem ..............................                      228
       B. Life Insurance Tax Benefits .......................................................                229
                     Kyle Logue, The Current Life Insurance Crisis:
                     How the Law Should Respond..........................................                    230
       C. Insurable Interest ........................................................................        233
                     Grigsby v. Russell ............................................................         233
                     Notes and Questions.....................................................                235
                     Stephan R. Leimberg & Albert E. Gibbons,
                     COLI, BOLI, TOLI and Insurable Interests.....................                           238
                     Notes and Questions.....................................................                240
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                  Mayo v. Hartford Life Insurance Co. ...............................                        242
                  Notes and Questions.....................................................                   245
                  Mighty Widgit’s Insurable Interest Problem ...............                                 246
IV.   Property Insurance.............................................................................        249
      A. The All Risk Concept, Causation, and Excluded Losses...........                                     250
                  State Farm Fire & Casualty Co. v. Bongen ......................                            277
                  Notes and Questions.....................................................                   280
                  Causation Problems ......................................................                  282
                  Buente v. Allstate Property & Casualty Insurance Co........                                284
                  Tuepker v. State Farm Fire & Casualty Co. .....................                            285
                  Leonard v. Nationwide Mutual Insurance Co...................                               289
                  Broussard v. State Farm Fire & Casualty Co....................                             297
                  Broussard v. State Farm Fire & Casualty Co....................                             300
                  Notes and Questions.....................................................                   303
      B. Valuation ......................................................................................    306
                  McAnarney v. Newark Fire Insurance Co.........................                             306
                  Notes and Questions.....................................................                   310
                  A Note on Valuation and Insurance Redlining...........                                     313
                  The Auto Valuation Problem .......................................                         314
      C. Business Interruption Insurance ................................................                    314
                  Zurich American Insurance Co. v. ABM Industries, Inc. ..                                   315
                  Notes and Questions.....................................................                   320
      D. Innocent Co-Insureds..................................................................              322
                  Watson v. United States Services Automobile Association ...                                322
                  Notes and Questions.....................................................                   327
                  SITA’s Innocent Co-Insured Problem .........................                               331
V.    Subrogation ........................................................................................   331
                  Rimes v. State Farm Mutual Automobile Insurance Co. ....                                   333
                  Ludwig v. Farm Bureau Mutual Insurance Co. ...............                                 337
                  Notes and Questions.....................................................                   341
      A. Some Technical Aspects of Subrogation Law ............................                              345
      B. The Subrogation Tetrahedron ...................................................                     346
                  A Tort Reform Problem Illustrating the
                  Relationship Between Subrogation and the
                  Collateral Source Rule ..................................................                  350


                                           CHAPTER 4
                                   Liability Insurance
I.    General Liability Insurance ...............................................................            353
      A. Understanding the Insuring Agreement....................................                            354
         1. Trigger of Coverage.............................................................                 355
                  Owens-Illinois, Inc. v. United Insurance Co. ....................                          355
                  Notes and Questions.....................................................                   377
                  A Note on the ‘‘Scope’’ or ‘‘Allocation’’ of
                  Coverage Issue ..............................................................              379
Contents                                                                                                xvii

                   Eljer Manufacturing Inc. v. Liberty Mutual
                   Insurance Co. ..................................................................     382
                   Notes and Questions.....................................................             387
                   Claims-Made vs. Occurrence ........................................                  388
                   Problem: The Case Against Dr. Bill ............................                      390
                   Problem: Dr. Bill’s Choice............................................               390
          2. What Is Bodily Injury? .........................................................           393
                   Voorhees v. Preferred Mutual Insurance Co......................                      393
                   SL Industries, Inc. v. American Motorists Insurance Co....                           394
                   Notes and Questions.....................................................             396
          3. The Application of Limits and Deductibles:
             The ‘‘Number of Occurrences’’ Issue ..................................                     397
                   Transport Insurance Co. v. Lee Way Motor
                   Freight, Inc. ....................................................................   398
                   Notes and Questions.....................................................             402
      B. Environmental Liability Insurance Coverage Issues .................                            403
                   Environmental Trigger Problems ................................                      404
                   Peace v. Northwestern National Insurance Co. .................                       404
                   Notes and Questions.....................................................             411
                   Environmental Coverage Problem...............................                        412
      C. The Problem of Intentional Harm.............................................                   413
          1. Defining ‘‘Expected or Intended’’ .......................................                  413
                   Carter Lake v. Aetna Casualty & Surety Co. ....................                      414
                   Physicians Insurance Co. of Ohio v. Swanson ...................                      418
                   Notes and Questions.....................................................             426
          2. The Public Policy Issue ........................................................           427
                   Ambassador Insurance Co. v. Montes................................                   428
                   Notes and Questions.....................................................             435
          3. ‘‘Intent’’ at the Borders of Tort Law, Criminal Law,
             and Insurance Law ...............................................................          438
                   State Farm Fire & Casualty Co. v. Wicka ........................                     438
                   Notes and Questions.....................................................             441
          4. The Criminal Acts Exclusion ...............................................                442
                   Daniel C. Eidsmore & Pamela K. Edwards,
                   Home Liability Coverage: Does the Criminal
                   Acts Exclusion Work Where the ‘‘Expected or
                   Intended’’ Exclusion Failed? .............................................           442
                   Notes and Questions.....................................................             443
                   Allstate Insurance Co. v. Peasley ......................................             444
                   Notes and Questions.....................................................             449
                   The Prosecutor’s Problem ............................................                451
II.   Automobile Liability Insurance .........................................................          451
      A. The Omnibus Clause...................................................................          453
                   Odolecki v. Hartford Accident & Indemnity Co. ................                       453
                   Notes and Questions.....................................................             456
      B. The Family Member Exclusion ..................................................                 457
                   State Farm Mutual Automobile Insurance
                   Co. v. Ballard..................................................................     457
                   Notes and Questions.....................................................             463
      C. Arising Out of the Use of an Automobile..................................                      464
xviii                                                                                              Contents


                     Farm Bureau Mutual Insurance Co. v. Evans .................                            464
                     Notes and Questions.....................................................               466
        D. Market Segmentation Exclusions ...............................................                   466
                     State Farm Fire & Casualty v. Camara ............................                      467
                     Notes and Questions.....................................................               470
                     Guns and Trucks and Other Problems at the
                     Auto-General Liability Border......................................                    470
III.    Professional Liability Insurance.........................................................           471
        A. The Definition of ‘‘Professional Services’’ ..................................                   471
                     Medical Records Associates, Inc. v. American
                     Empire Surplus Lines Insurance Co. ................................                    471
                     Notes and Questions.....................................................               476
                     Guaranty National Insurance Co. v. North
                     River Insurance Co..........................................................           479
                     Notes and Questions.....................................................               483
                     Woo v. Fireman’s Fund Insurance Co. .............................                      484
                     Notes and Questions.....................................................               492
        B. Directors’ and Officers’ Liability Insurance ...............................                     493
                     Flintkote Co. v. Lloyd’s Underwriters ................................                 494
                     Notes and Questions.....................................................               499
                     Level 3 Communications, Inc. v. Federal Insurance Co.....                              501
                     Notes and Questions.....................................................               503
        C. Late Notice Under a Claims-made Policy..................................                         504
                     Gulf Insurance Co. v. Dolan, Fertig & Curtis ..................                        504
                     Notes and Questions.....................................................               508
                     Root v. American Equity Specialty Insurance Co. ..............                         509
                     Notes and Questions.....................................................               518
                     Marcella DeMoyne’s Late Notice Problem ..................                              519


                                            CHAPTER 5

               Liability Insurance Relationship Issues
I.      The Duty to Defend ...........................................................................      524
        A. The Basic Duty ............................................................................      525
                    Gray v. Zurich Insurance Co. ..........................................                 525
                    Notes and Questions.....................................................                531
                    Adam Scales, Can This Pig Fly? How a
                    Dentist Assaulted a Patient and Made a Million Dollars ...                              534
        B. Terminating the Duty to Defend ...............................................                   538
                    Employers’ Fire Insurance v. Beals ...................................                  538
                    Notes and Questions.....................................................                543
                    Problem: Carol Green’s Fall.........................................                    546
II.     The Duty to Settle ..............................................................................   547
                    Comunale v. Traders & General Insurance Co.................                             548
                    Notes and Questions.....................................................                551
                    A Note on Determining a ‘‘Reasonable’’
                    Settlement Offer............................................................            553
Contents                                                                                                        xix

                     Problem: BMC v. Trustworthy .....................................                          554
                     PPG Industries, Inc. v. Transamerica Insurance Co.........                                 555
                     Notes and Questions.....................................................                   560
                     The Birth Center v. St. Paul Cos., Inc. ............................                       561
                     Notes and Questions.....................................................                   565
III.   The Liability Insurer’s Duty to Tort Victims ....................................                        565
                     Clegg v. Butler ................................................................           566
                     Note ...............................................................................       571
                     Ben A. Patsy, et al. v. Family Insurance Bureau ..............                             571
                     Notes and Questions.....................................................                   576
                     Moradi-Shalal v. Fireman’s Fund Insurance Co. ..............                               576
                     Notes and Questions.....................................................                   584
                     Senator Zhang’s Problem .............................................                      586
IV.    Liability Insurance Conflicts of Interest............................................                    586
       A. Visualizing the Liability Insurance Relationship:
           Triangles and Tetrahedrons .......................................................                   587
       B. Pattern Conflict Cases .................................................................              589
           1. Dollar Limits.........................................................................            589
           2. Verbal Limits on the Covered Harm to Victims.................                                     591
           3. Verbal Limits on the Covered Harm to Policyholders.......                                         591
           4. Verbal Limits Relating to Policyholders’ Obligations ........                                     592
       C. The Defense Lawyer’s Responsibilities in a Conflict Case........                                      592
                     Restatement (Third) of the Law Governing Lawyers ..........                                592
                     Notes and Questions.....................................................                   594
                     Conflicts Problems ........................................................                596
                     Steele v. The Hartford Fire Insurance Co. ........................                         598
                     Notes and Questions.....................................................                   606
V.     The Duty to Cooperate ......................................................................             606
       A. The Basic Duty ............................................................................           607
                     Wildrick v. North River Insurance Co..............................                         607
                     Notes and Questions.....................................................                   613
       B. Settlements and the Duty to Cooperate.....................................                            615
                     Miller v. Shugart.............................................................             615
                     Notes and Questions.....................................................                   619
                     State Farm Fire & Casualty Co. v. Gandy ........................                           621
                     Notes and Questions.....................................................                   627
VI.    The Impact of Liability Insurance on Tort Law...............................                             627


                                             CHAPTER 6

                                  Insurance Regulation
I.     Overview .............................................................................................   637
       A. Functional Divisions of Insurance Regulation ...........................                              637
       B. Theoretical Justifications.............................................................               641
           1. Information Problems ..........................................................                   641
           2. Externalities ..........................................................................          642
           3. Opportunism ........................................................................              642
           4. Egalitarian or Distributional Concerns ...............................                            642
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II.     Marking the Boundaries of State and Federal Authority.................                                   643
        A. What Is Insurance Under State Law?.........................................                           643
                     Griffin Systems, Inc. v. Ohio Department of Insurance ......                                644
                     Notes and Questions.....................................................                    649
                     Problems in State Jurisdiction over
                     ‘‘Insurance’’ Activity.......................................................               650
        B. Insurance Federalism ..................................................................               651
                     Susan Randall, Insurance Regulation in the United States:
                     Regulatory Federalism and the National
                     Association of Insurance Commissioners ............................                         652
                     Securities & Exchange Commission v. Variable
                     Annuity Life Insurance Co. ..............................................                   658
                     Notes and Questions.....................................................                    662
                     Semi-Annie’s Variable Annuity Problem......................                                 663
                     Securities & Exchange Commission v. National
                     Securities, Inc. .................................................................          664
                     Notes and Questions.....................................................                    666
                     Weiss v. First UNUM Life Insurance Co..........................                             667
                     Hartford Fire Insurance Co. v. California ........................                          675
                     Notes and Questions.....................................................                    683
III.    Topics in Substantive Insurance Regulation.....................................                          683
        A. Insurance Guaranty Funds..........................................................                    683
                     Notes and Questions.....................................................                    687
                     New Mexico Life Insurance Guaranty Association
                     v. Moore..........................................................................          690
                     Notes and Questions.....................................................                    693
                     Problem: Guaranty Funds for Risk-Bearing
                     Health Care Providers? ................................................                     693
        B. Residual Market Mechanisms .....................................................                      693
                     Ruth Gastel, ed., Residual Markets...................................                       694
                     State Farm Mutual Automobile Insurance Co. v.
                     New Jersey .......................................................................          698
                     Notes and Questions.....................................................                    703
                     Legal Malpractice Residual Markets Problem.............                                     704
        C. Insurance Risk Classification ......................................................                  705
                     Notes and Questions.....................................................                    708
            1. Competing Visions of ‘‘Fair Discrimination’’ ......................                               709
            2. Risk-Based Pricing and Beyond: Legal Grounds
                for Antidiscrimination Litigation.........................................                       710
                a. The Model Unfair Trade Practices Act .........................                                710
                b. The Fair Housing Act ....................................................                     711
                c. Section 1981 of the Civil Rights Act of 1866................                                  712
                d. Title VII of the Civil Rights Act ....................................                        712
                     Telles v. Commissioner of Insurance .................................                       713
                     Notes and Questions.....................................................                    715
                     Risk Classification Problem ..........................................                      719

Table of Cases ................................................................................................ 723
Table of Authorities......................................................................................... 731
Index ............................................................................................................. 739

								
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