risk management midterm 2

current tort liability problems

Defective Tort Liability System

Rising Tort Liability Costs (mattel case)

Inefficiency in Compensating Injured Parties

Uncertainty of Legal Outcomes

Higher Jury Awards

Long Delays in the Process

Increase in Mass Tort Liability Lawsuits

result of tort liability problems

tort reform

kinds of tort reform

alternative dispute resolution

mediation

limits of amounts of awards

expansion of state of the art defense

5 steps to improve corporate governance

1. Increase Diversity 

2. Appoint Competent Directors to the Board of Director 

3. Ensure Timely Information Flow and Appropriate Distribution 

4. Prioritize Risk Management Activities within Organization 

5. Evaluate Board and Senior Executives Performance 

basic requirements for an enforceable contract

• offer and acceptance

• consideration

• competent parties

• legal purpose

• writing required (sometimes)

offer and acceptance

• “meeting of the minds” (minds have to be in the same place. for example you can’t accept an offer you don't understand. or, there is no contract if you each agree to different terms.)

consideration

•  there has to be an exchange of something. can’t just be a gift. could be monetary, goods, or services

competent parties

individually and as a business

legal purpose

•  illegal purposes cannot be enforced. can’t write a contract rewarding someone for doing something illegal. 

writing required?

parol evidence rule: does the contract require longer than one year to be completed or is the value over $5,000? then it needs to be written. otherwise it can be oral

4 corners rule

look only at the contract dont look at any other document

8 corners rule

look at the contract and also the insurance policy

insurance policy characteristics

• aleatory: unequal value

• unilateral: only one party has the right to enforce (the policyholder)

• conditional: must satisfy certain conditions to be effective (prompt notice)

• personal: no right to transfer (goes only to policyholder)

• adhesion: one part is effectively in control

result of insurance policy characteristics

doctrine of reasonable expectations

• look at what the policyholder reasonably expected to happen

• if there’s a tie it goes to the policyholder

doctrine of waiver

1.  you voluntarily relinquish known rights (like venue/where you’re allowed to sue)

doctrine of estoppel

1. you are not allowed to misrepresent facts, and if you do you will be held to it

   1. ex. late premiums. if you start paying a little late every month and the agent doesn’t say anything, then you have an accident the next month, the agent can’t say “oops no u were late”

effects of waiver and estopppel

1. practical significance: these things may not have been priced in so the insurance carriers may pay claims they didnt expect

basic parts of an insurance contract

• declaration page: the who/what/when/where

• definitons: ensure readibiltiy so we define i, we, it, etc

• insuring agreement: spell out whats actually covered

• exclusions: important to understand what is and isn’t covered

• conditions: failure to comply results in denial of claim

what conditions are in an insurance policy?

1. notice of loss: extremely important, timely notice allows for investigation

2. proof of loss: puts policyholder/claimant on their oath

3. preserve and protect the property: minimize loss

4. assist insurance company in defense of claim: policy covered the policyholder

coinsurance clause

purpose: ensure that property owners purchase adequate amount of insurance (can result in passive retention)

formula: ((actual amt of coverage) / (amt of insurance required)) times (amt of actual loss)

this gives you the amount being covered. and the amount of passive retention by the policyholder

cost of repair notes

geico doesn’t insurance cybertrucks anymore

“bricking”

minor damages - cost repair and time

glass: shattering spontaneously?

Liability – Damage to Third Party Vehicles – Major Repair Expense Thus, difficult to estimate appropriate premium

private insurer types

stock insurance

mutual insurers

risk retention groups

purchasing groups

captives

lloyds of london

stock insurance

1. ownership: stockholders/ board of directors

2. status of policy owner: customer

3. historically dominant in p&c

mutual insurers

1. ownership: policyholders/ board of directors

2. historically dominant in field of life industry

3. types include assessment, advance premium, fraternal

risk retention groups

1. groups of similar types of businesses who agree to share losses

purchasing groups

1. groups of similar types of businesses which by contract collectively purchase insurance

captives

1. insurance companies owned by typically noninsurance businesses like exxon

lloyds of london

1. provides a meeting place - individual syndicates do the insuring

2. has great financial strength

3. major lines of business are ocean marine, reinsurance, and surplus lines

4. names/risk takers are historically individuals but today that includes corporations

government insurers

for example, the national flood insurance plan

distribution systems

agents and brokers

legal status of an agent

sources of authority: express, implied, or apparent

with that authority, agent can bind a principal to contract

brokers

1. represent the insured

2. marketing system: provide services such as risk management, loss control, knowledge about where insurance can be best placed

claim settlement

1. verification that a covered loss has occurred

2. fair and prompt payment of covered claims

3. provide personal assistance to claimant

4. (all insurance company responsibilities)