Chapter 50

Business Law: Insurance Notes

Chapter Overview

  • Business Law, Twelfth Edition by Henry Cheeseman

  • Focus on "Insurance"

  • Broad learning objectives covering insurable interest, insurance policies, life insurance, health and disability insurance, homeowners’ insurance, automobile insurance, special forms of business insurance, cyber insurance, and umbrella insurance.

Learning Objectives

50.1 Define insurable interest.
50.2 Identify common clauses in insurance policies.
50.3 Compare various types of life insurance.
50.4 Explain health and disability insurance.
50.5 Identify the risks covered by homeowners’ insurance.
50.6 Describe automobile insurance.
50.7 Illustrate special forms of business insurance.
50.8 Explain the coverage of cyber insurance.
50.9 Describe umbrella insurance.

Introduction to Insurance

  • Insurance allows individuals and businesses to protect themselves against risks of loss.   - Examples include:     - Fire Insurance: Covers losses due to fire.     - Automobile Insurance: Reimburses for losses due to theft or damage.     - Life Insurance: Provides proceeds to beneficiaries upon the death of a designated person.

Insurable Interest

Definition

  • Insurable interest is the requirement that the purchaser of insurance has a personal interest in the insured item or person.

Property Insurance

  • Individuals who would suffer a pecuniary loss from the destruction of property have an insurable interest.   - Note: A person without insurable interest is treated as a wager and cannot enforce the policy.   - Insurable interest must exist at the time of loss.

Life Insurance

  • Individuals with close family relationships or economic benefits from another's life have insurable interest.   - Includes spouses, parents, children, and siblings.   - More distant kin require proof of economic interest (e.g., proof of support).   - Insurable interest is validated at the time of policy issuance, not necessarily at the time of death.

Beneficiary

  • The individual designated to receive life insurance proceeds upon the death of the insured.

Case Study: Insurable Interest

Sun Life Assurance Company of Canada v. Wells Fargo Bank, N.A.

  • Case Citation: 208 A.3d 839 (2019)

  • Judicial Body: Supreme Court of New Jersey

  • Facts:   - Bergman, as sole owner of a trust, applied for life insurance with Sun Life.   - The trust had four investors, and the policy was transferred to Wells Fargo during bankruptcy.   - After Bergman's death, Wells Fargo sought coverage, which Sun Life denied.

Issue

  • Did the original investors possess an insurable interest in Bergman's life?

Insurance Policies

  • Governed by contract law.

  • Utilize standardized forms, with some state laws mandating specific language.

  • Statutory requirements may outline coverage details.

Endorsement (Rider)

  • A document that modifies an insurance policy and becomes part of the overall policy.

Cancellation and Grace Periods

  • Insurance policies can be canceled anytime.

  • A grace period is given for overdue premium payments.

Duties of Insured and Insurer

Duties of Insured

  • Pay premiums as stipulated in the policy.

  • Notify insurers about insured events.

  • Cooperate in investigations of claims.

Duties of Insurer

  • Duty to Defend: Defend against lawsuits involving claims covered by the policy.( insurance company pays for a lawyer)

  • Duty to Pay: Settle legitimate claims up to policy limits.

Common Clauses in Insurance Policies

50.2 Identify common clauses in insurance policies.

  • Deductible Clause: Specifies amounts the insured must pay before insurance proceeds apply.

  • Exclusions Clause: Lists risks not covered.

  • Coinsurance Clause: Requires payment of a percentage of loss by the insured.

  • Incontestability Clause: Limits insurers' ability to contest statements made in the insurance application after a specified time.

Life Insurance

50.3 Compare various types of life insurance.

  • Policies obligate insurers to pay a specified sum on the insured’s death.

  • Parties involved:   - Insurance Company: Issues the policy.   - Owner: Contracts with the insurer and pays premiums.   - Insured: The individual whose life is insured.   - Beneficiary: Receives proceeds upon death of the insured.

Types of Life Insurance

  1. Whole Life Insurance:    - Coverage for the insured’s entire life.    - Premiums set to cover benefits and provide cash surrender value.

  2. Limited-Payment Life Insurance:    - Set premiums for a fixed term but provides coverage for life.    - Higher premiums than whole life; includes cash value.

  3. Term Life Insurance:    - Coverage for a limited period, no cash value.    - Usually lower premiums, with options for renewal or conversion.

  4. Universal Life Insurance:    - Hybrid of term and whole life; variable interest cash value.

  5. Endorsement and Annuity Contracts:    - Endorsements provide lump-sum payments while annuities offer periodic payments.    - Includes double indemnity for accidental death only.

Suicide Clause

  • States that if suicide occurs before a stipulated date, no proceeds are paid; after that date, full payment is made to the beneficiary.

Health and Disability Insurance

  • Health Insurance: Covers costs of medical treatments and procedures.

  • Dental/Vision Insurance: Covers dental and vision care expenses.

  • Disability Insurance: Provides monthly income for insureds unable to work due to disability.

Fire and Homeowners’ Insurance

50.5 Identify the risks covered by homeowners’ insurance.

  • Standard Fire Insurance Policy: Protects against fire, lightning, smoke, and water damage.

  • Replacement Cost Insurance: Covers the full replacement costs, subject to policy limits.

  • Homeowners’ Policy: Comprehensive coverage, including personal liability.

  • Personal Liability Coverage: Comprehensive insurance for the insured and family members.

  • Personal Articles Floater: Covers specific valuable items beyond standard homeowners’ policy.

  • Renters’ Insurance: Covers personal property for those renting.

Title Insurance

  • Ensures real property owners have clear titles.

  • Protects against undisclosed defects and encumbrances.

Commercial Property and Liability Insurance

  • Commercial Property Insurance: Protects businesses from losses due to various risks.

  • Commercial Liability Insurance: Covers third-party claims for personal injuries and property damage.

  • Business Owner’s Policy (BOP): Combines both property protection and liability coverage.

Case Study: Exclusion from Coverage

Crescent Plaza Hotel Owner, L.P. v. Zurich American Insurance Company

  • Case Citation: 20 F. Fourth 303 (2021)

  • Judicial Body: U.S. Court of Appeals for the Seventh Circuit

  • Facts: COVID-related loss of business income led to legal action against Zurich for coverage under the business policy.

  • Issue: Does the COVID virus qualify as a microorganism under policy exclusions?

Automobile, Vehicle, and Vessel Insurance

50.6 Describe automobile insurance.

  • Collision Insurance: Covers vehicle damage from collisions.

  • Comprehensive Insurance: Covers losses from non-collision causes.

  • Automobile Liability Insurance: Covers damages an insured causes to third parties.

  • Medical Payment Coverage: Covers medical expenses for insured and passengers after an accident.

  • Uninsured Motorist Coverage: Protects against damages from uninsured drivers.

  • No-Fault Insurance: Covers injuries regardless of fault during accidents.

Commercial Vehicle Insurance

  • Provides comprehensive coverage for business-related vehicle use, including liability, collision, and personal injury risks.

E-Bike Insurance

  • Designed for electronic bikes, covering risks associated with operation that are not covered by home or auto insurance policies.

Marine Insurance

  • Covers loss or damage to vessels and cargo, including inland and ocean marine risks.

Business Insurance

50.7 Illustrate special forms of business insurance.

  1. Business Interruption Insurance: Reimbursements for lost revenue due to damage.

  2. Workers’ Compensation Insurance: Compensates employees for work-related injuries.

  3. Key-Person Life Insurance: Insures lives of key executives.

  4. Directors’ and Officers’ Liability Insurance (D&O): Protects corporate leaders from liability.

  5. Professional Malpractice Insurance: Covers negligence-related liabilities.

  6. Product Liability Insurance: Protects against injuries from defective products.

Cyber Insurance

50.8 Explain the coverage of cyber insurance.

  • Cybercrime: Encompasses crimes targeting computer systems or utilizing computers to commit crimes.

  • Sophisticated Cybercrimes: Often labeled as cyberattacks.

  • Spyware: Malicious software used to gather information without consent.

  • Malware: Software designed for disruption, damaging files and data.

  • Ransomware: Locks users out until a ransom is paid.

  • Distributed Denial-of-Service (DDoS): Attacks targeting business systems to disrupt access.

  • Data Breach: Unauthorized access resulting in the theft of sensitive data.   - Companies may be liable for breaches affecting customers.

  • Cyber Insurance: Covers losses due to cyberattacks, though often costly.

Umbrella Insurance

50.9 Describe umbrella insurance.

  • Provides additional coverage over basic policy limits and requires a minimum basic coverage amount to be in place beforehand.

Discussion Cases

Case 50.1: Exclusion from Insurance Coverage

  • Case: Green v. Life Insurance Company of North America

  • Issue: Determines if operating under intoxication disallows recovery of life insurance benefits.

Case 50.2: Insurance Fraud

  • Case: People v. Abraham

  • Issue: Examines guilt of the defendant for insurance fraud.

Case 50.3: Malpractice Insurance

  • Case: Travelers Insurance Company v. National Union Fire Insurance Company of Pittsburgh

  • Issue: Liability for a substantial settlement.

Case 50.4: Automobile Insurance

  • Case: Frederking v. Cincinnati Insurance Company

  • Issue: Determination of coverage after an accident caused by DUI.

Case 50.5: Ethics in Insurance

  • Case: Fedderson v. Columbia Insurance Group

  • Issue: Ethical implications surrounding collection of insurance proceeds.

Case 50.6: Ethics in Fraud Cases

  • Case: Neidenbach v. Amica Mutual Insurance Company

  • Issue: Ethical considerations in denying insurance coverage due to fraud.

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