Insurance Law Commons^™

Mandatory Rules And Default Rules In Insurance Contracts, Tom Baker, Kyle D. Logue

Law & Economics Working Papers

The economic analysis of contract law can organized around two general questions: (1) what are the efficient or welfare-maximizing substantive rules of contract law; and (2) once those rules have been identified, when if ever should they be made mandatory and when should they be merely “default rules” that the parties can contract around if they wish? Much of contract theory over the past twenty years has been devoted to developing answers to those two questions. The same two questions can be posed with respect to the rules of insurance law. Although previous scholars have examined particular substantive doctrines of …

Contra Proferentem: The Allure Of Ambiguous Boilerplate, Michelle E. Boardman

Michigan Law Review

Bad boilerplate can shake one' s faith in evolution; not only does it not die away, it multiplies. The puzzle is why. Much of boilerplate is ambiguous or incomprehensible. This alienates consumers and is i ncreasingly punished by courts construing the language against the drafter. There must, therefore, be some hidden allure to ambiguous boilerplate. The popular theory is trickery: drafters lure consumers in with promising language that comes to nothing in court. But this trick would require consumers to do three things they do not do-read the language, understand it, and take comfort in it. There is a hidden …

A Reasonable Approach To The Doctrine Of Reasonable Expectations As Applied To Insurance Contracts, Karen K. Shinevar

University of Michigan Journal of Law Reform

Part I of this article examines standard insurance contract analysis and the existing confusion within that analysis. Part II examines the doctrine of reasonable expectations. In Part Ill, Professor Keeton's expansion of the reasonable expectations doctrine is explained and analyzed. This article concludes in Part IV that Keeton's expanded doctrine has the effect of confusing most courts, which continue to discuss reasonable expectations in relation to conventional rules of contract construction. The article proposes that the reasonable expectations doctrine be limited to contractual language and surrounding circumstances in order to establish clearer guidelines for insurers and consumers.

Secured Transactions-Insurance-A Security Interest In The "Proceeds" Of Secured Collateral Does Not Include Insurance Proceeds-Universal C.I.T. Corp. V. Prudential Investment Corp., Michigan Law Review

Michigan Law Review

In return for a loan, a debtor executed a promissory note to codefendant, Prudential Investment Corporation, and entered into a written agreement to secure this note, designating as collateral a semi-tractor and the proceeds therefrom. Under this type of arrangement, Prudential's security interest would attach automatically to any property received from a sale, exchange, or other disposition of the tractor. Petitioner, Universal C.I.T. Corp., held the conditional sales contract which was executed in financing the purchase of the tractor and was named as loss payee in the insurance contract covering the tractor. When the tractor was totally destroyed, petitioner collected …

The Extension Of Insurance Subrogation, Spencer L. Kimball, Don A. Davis

Michigan Law Review

When an insured loss occurs under circumstances that make a third person liable to reimburse the insured, there are various possible ways to adjust the loss among the three persons involved. One solution would permit the policyholder to recover both on the insurance and from the third person, i.e., would permit double recovery for the loss. A second solution would give the third person the benefit of the insurance by denying recovery from him. A third solution would subrogate the insurer to the policyholder's rights against the third person. Combinations of these three solutions are possible by applying sometimes …

Insurance-Rate Regulation-Construction And Effect Of Guaranty Bond Agreement, Robert L. Harmon

Michigan Law Review

Plaintiff, an insurance agents' association and several other insurance companies and associations, instituted an action attacking an order of the State Board of Insurance. The order approved a guaranty bond form, together with rates and rules, which had been submitted to ,the Board pursuant to statute by the defendant insurance company. The guaranty agreement was an arrangement whereby defendant guaranteed payment of losses under fire insurance policies of other insurers in the event the latter should be unable to pay. Although the bond form was not restricted to any specific original insurers, it was contemplated that defendant would use ,the …

Taxation-Federal Income Tax-Strike Insurance Agreements, Robert A. Butler S.Ed.

Michigan Law Review

Contracts indemnifying persons or corporations for losses and damage resulting from an interruption of business due to strikes have existed at least since the beginning of this century. The Mutual Security Company of Connecticut, for example, wrote such a policy for the Buffalo Forge on April 9, 1906. In more recent times, strike insurance agreements have been instituted in major industries, and their impact on collective bargaining has been the subject of some controversy. The purpose of this comment is to consider the federal income tax questions which arise from such arrangements. Specifically, attention is directed to the deductibility of …

Concurrent Causation In Insurance Contracts, William Conant Brewer Jr.

Michigan Law Review

A great deal of work and thought has been devoted to concurrent causation problems in the field of torts. Less attention has been paid to the insurance cases, and no serious effort has been made to formulate the separate rules applicable to them. It is the thesis of this article that concurrent causation problems which arise under an insurance contract must be handled somewhat differently from those which arise in connection with tort litigation, and that the tendency to borrow rules of law from the larger tort field and apply them to the smaller volume of insurance cases can only …

Contacts - Subrogation - Partial Subrogation Of A Cause Of Action For Personal Injuries, Jerome M. Salle

Michigan Law Review

Plaintiff, an incorporated home for the aged, provided all essential medical care to one of its residents under the provisions of a life-care contract between it and the resident. On the basis of a contract clause which purported to subrogate plaintiff to the right of the resident to recover medical expenses caused by the negligence of third parties, plaintiff brought an action to recover certain medical expenses incurred from the party who was allegedly responsible for the injuries and death of the resident. The trial court sustained a demurrer to the complaint for failure to state a cause of action …

Marine Insurance And The Substantive Admiralty Law A Comment On The Wilburn Boat Company Case, Brunson Macchesney

Michigan Law Review

At the invitation of the editors, Professor MacChesney undertook to write this article especially for the memorial issue as a tribute to Professor Durfee, his former teacher.

Insurance - Recovery - Delay Of Insurance Company In Rejecting Application For Insurance, Harry D. Krause S.Ed.

Michigan Law Review

Plaintiff, designated as beneficiary by deceased life insurance applicant, sued defendant life insurance company in assumpsit. Deceased, a combat pilot in the Korean War, had applied for one of defendant's policies, passed the medical examination, and made several premium payments on the policy. After the applicant was killed in combat defendant refused payment, contending that it had never accepted the risk but that it had responded to the application with a counter offer containing an aviation waiver. Because of ·the applicant's frequent change of address and his early death this proposal had never been communicated to him. On appeal from …

Insurance - Recovery - Land Contract Purchaser Allowed Recovery On Both Vendee's And Vendor's Policies In Excess Of Loss, Jerome K. Walsh, Jr.

Michigan Law Review

An owner of realty entered into a contract to sell the land to the plaintiff. The vendor then took out fire insurance on his interest in the amount of $6,000 and the plaintiff obtained a policy covering his interest in the sum of $12,000, with a "three-fourths value" clause. Before performance of the contract and transfer of title, a fire occurred which caused $12,000 damage to the property. After the plaintiff paid the full contract price and took title to the property, he demanded and received an assignment of the claim under the vendor's policy. Plaintiff then brought suit on …

Conflict Of Laws - Contracts - Enforcement Of Foreign Contract Though Contrary To State, William G. Cloon, Jr. S.Ed.

Michigan Law Review

Plaintiff, a citizen of Texas, obtained from the defendant an insurance policy which was written and delivered in Texas. The defendant agreed to pay for any damages to plaintiff's truck caused by fire, but stipulated that any dispute over the amount of the loss should he determined by arbitration proceedings in accordance with the terms of the contract. The truck was damaged by fire in Arkansas and a dispute arose over the amount of the loss. Plaintiff refused to submit the question to arbitration and brought this suit in the Federal District Court for Arkansas. Defendant argued that the action …

Insurance - Recovery - Rights Of Mortgagee Under Mortgagor's Insurance, Robert B. Fiske, Jr. S.Ed.

Michigan Law Review

Defendant issued a policy of fire insurance on an automobile plaintiff had purchased with money borrowed from one Hansen, to whom a note and a chattel mortgage were given as security for the debt. A week after the policy was issued naming plaintiff as the insured, defendant executed an amendment to the policy in the form of an endorsement reading, "Less if any ... shall be paid to the insured and Charles H. Hansen as their interests may appear." The policy provided that it should not apply while the car was subject to any mortgage or other encumbrance not specifically …

Insurance - Insurer's Right Of Restitution For (1) Excessive Payment Made In Discharge Of The Liability Of A Coinsurer And (2) Costs Of Defense, John W. Hupp S.Ed.

Michigan Law Review

The increasing use of the "pro rata" or "other insurance" clause in liability insurance policies has given rise to new instances of coinsurer relationships. Such a clause typically provides that the insurer will not be liable under its policy for a greater proportion of any loss than the applicable limit of liability of its policy bears to the total applicable limit of all valid and collectible insurance against such loss. It has been frequently stated that the existence of such clauses in two policies covering the same loss renders the liability under each of the policies several and not joint, …

Torts--Inducing Breach Of Contract--Attorney-Client Contingent Fee Contract, Richard W. Pogue

Michigan Law Review

Plaintiff, a practicing attorney, undertook on a contingent fee basis to represent a husband and wife in separate claims for damages alleged to have been suffered by them through the negligence of the driver of a motor vehicle. The driver was insured under a policy issued by defendant. Defendant had notice of the contract. After plaintiff had started suit on the damage claim and as the case was about to be tried, defendant's adjusters, without knowledge on the plaintiff's part, allegedly induced the clients to discharge the plaintiff (and "thereby break their contingent fee contract with him") and subsequently to …

Agency-Imputation Of Agent's Knowledge To Principal-Insurance Contracts, Robert B. Krueger S.Ed.

Michigan Law Review

Defendant insurance company's soliciting agent falsified applicant's warranted answers to material questions in an application for automobile casualty insurance. The applicant signed, not knowing of the nature of the answers. On the basis of these answers, defendant issued a casualty policy on applicant's automobile, containing a clause prohibiting waiver or estoppel as to any of the terms of the contract because of the agent's knowledge. As a result of a subsequent accident, plaintiffs recovered judgments against applicant which applicant failed to satisfy. In an action by plaintiffs against defendant, on supplemental petition, defendant admitted recovery against applicant, but claimed no …

Insurance-Loan Contract Which Provides For Cancellation Of Debt In Event Of Named Contingencies As An Insurance Contract, Wendell B. Will

Michigan Law Review

In consideration of plaintiff's promise to pay $720 to defendant in twelve monthly installments, defendant promised to advance $600. Plaintiff's obligation was to be cancelled in case of his death, and his obligation to pay installments was to be suspended while plaintiff was disabled because of illness or accident. Plaintiff warranted his good health and agreed that the contract was neither usurious nor one of insurance. The contract having been executed, plaintiff sought recovery under the Texas usury statute. The trial court held that of the $120 paid in excess of the loan, $60 was for maximum legal interest, $12 …

Insurance-Consummation Of The Contract-Delivery Of The Policy, John J. Gaskell S. Ed.

Michigan Law Review

An application for life insurance was accepted, and a policy issued, mailed to, and received by the agent of the insurer. The application provided that the policy would not take effect until "manual" delivery thereof. The agent made several unsuccessful attempts to deliver the policy, but before any physical transmission of the policy, the insured died. The beneficiaries sued to recover the amount of the policy. The trial court gave judgment for the defendant insurance company. On appeal, held, affirmed. Manual delivery was a valid condition precedent. There having been no manual transmission to the insured, and the plaintiffs …

Contracts-Measure Of Damages-Life Insurance Contract, Howard Van Antwerp

Michigan Law Review

When the plaintiff was expelled from defendant Brotherhood an insurance policy issued to the plaintiff by the defendant was canceled and the cash surrender value paid to him in accordance with the terms of his policy. The directors of the Brotherhood later decided that this expulsion had been wrongful, whereupon the plaintiff returned the cash surrender value of the policy and demanded the return of all premiums paid. When this demand was refused, the plaintiff sued to recover damages for wrongful cancellation of his policy. The trial court instructed the jury to return a verdict for the premiums paid with …

Changing The Beneficiary Of A Life Insurance Contract, Grover C. Grismore

Michigan Law Review

A cursory examination of the court reports will reveal that there is a constant stream of cases coming before our courts in which the principal questions at issue involve the disposition of the proceeds of matured life insurance policies. The question arises most often when the insured, having reserved the right to change the beneficiary, had manifested an intention that someone other than the beneficiary named in the policy should receive the proceeds, but had not complied with the formalities prescribed in his contract for effecting a change. Unfortunately, the answer to the question in the particular case has often …

Insurance-Liability Of Insurer For Judgment In Excess Of Policy Limits, Clinton R. Ashford S.Ed.

Michigan Law Review

A liability insurer has issued a policy, reserving the sole right to effect a settlement, and refuses to settle, within the limits of the policy, a claim against the insured. A judgment in excess of the policy limit is then recovered against the insured. These circumstances present the question whether the insurer may be liable to the insured for the amount of the judgment in excess of the policy limit.

This comment will be limited to consideration of cases involving only the above facts, and no attempt will be made to consider the liability of the insurer for failing to …

Insurance-Effect Of Incontestable Clause In Suit For Reformation Of Policy, N. S. Peterman S. Ed.

Michigan Law Review

For over twenty years, defendant insurer accepted premiums on a life insurance policy issued to plaintiff. Defendant then discovered that a clerical error had been made in the original policy, as a result of which plaintiff's premium payments were approximately one-half the premiums defendant normally received for the type of policy actually issued. Defendant asked for reformation of the policy on the ground of mistake, and the trial court granted the relief sought. On appeal, held, reversed. The action was barred by the incontestable clause. Richardson v. Travelers Insurance Co., (App. 9th, 1948) 171 F. (2d) 699.

Insurance-Death Of Insured Resulting From Criminal Abortion- Right Of Beneficiary, R. V. Wellman

Michigan Law Review

Insured died as the result of a criminal abortion to which she had voluntarily submitted. The policies issued on her life contained a provision to the effect that no benefits should be payable or recoverable should the insured die as a result of a violation of law. The insurer resisted the action brought by the named beneficiary on the policy on two grounds: (a) The insured's death was caused by her violation of law; (b) Although the stated terms of the policy be held not to exclude the risk of death thus caused, it would be contrary to public policy …

Contracts--Consideration-Performance Of One Alternatlve When There Is Dispute As To Which Is Owed, L. B. Lea

Michigan Law Review

Defendant issued a membership certificate to one Flowers providing for payment of $5000 in case of accidental death or $500 in case of death due to heart disease. Later Flowers was injured in an automobile accident and died an hour afterward. The beneficiary submitted proofs of loss, including a statement of a physician that death was caused by "coronary thrombosis. Shock from auto accident about one hour before death." Defendant sent to the beneficiary a draft for $500 clearly stating on its face that the endorsement of the check would be a settlement in full. After cashing the check, the …

Conflict Of Laws-Constitutional Law-Full Faith And Credit-Fraternal Benefit Society's Constitution Controlling Over Statute Of Limitations Of Forum State, Bruce L. Moore S.Ed.

Michigan Law Review

In an action against an Ohio fraternal benefit society to recover insurance benefits resulting from the death of an insured member, the defense was that the constitution of the society prohibited the bringing of an action on such a claim more than six months after disallowance of the claim. This provision was valid under the statutes and court decisions of Ohio. The statute of limitations of the state of the forum, South Dakota, was six years on contract actions. Another statute of South Dakota declared void every stipulation in a contract limiting the time within which a party may enforce …

Evidence -Witnesses - Privileged Communications Between Physician And Patient--Statutory Effect Of Asserting Privilege In Actions On Insurance Contracts, William H. Buchanan S.Ed.

Michigan Law Review

Plaintiff, beneficiary of an insurance policy (but not the personal representative of the deceased insured), sued to recover the amount of the policy from the insurance company. As a defense the defendant claimed that the policy never became effective because the insured had made material misrepresentations in the application as to his state of health. To show that there had been such misrepresentations, the defendant proved that the insured had been treated by physicians during the five years preceding the issuance of the policy. Upon objectionμ by plaintiff the court excluded the testimony of the doctors as to the nature …

Insurance-Beneficiaries-Right To Change Beneficiary Where Beneficiary Has Paid All The Premiums, Howard A. Jacobs

Michigan Law Review

Insured's mother, who was the original beneficiary of a life policy, paid all the premiums before and subsequent to the time when insured's wife was substituted as beneficiary. The mother was interpleaded in the wife's suit on the policy. Held, in the absence of a collateral agreement creating a4ditional rights in the mother, the payments were gratuitous and created no vested interest in the mother in the proceeds of the policy, where the right to change the beneficiary was reserved; and that the wife was entitled to the proceeds on the insured's death. McCloud v. Aetna Life Ins. Co. …

Insurance--Insurable Interest--Assignment Of Life Insurance Policy As Collateral Security, Richard C. Scatterday

Michigan Law Review

The insured and a revocably designated beneficiary jointly assigned a life insurance policy as collateral security for a prior indebtedness of the insured. Another policy and first deed of trust notes were also assigned as collateral by the insured. Upon the death of the insured, who obtained the policy and paid all premiums, the bank applied a proportionate amount of the proceeds from this policy to the debt and paid the remaining sum to the beneficiary. Executors of the estate of the insured seek to recover the sum paid by the bank to the beneficiary, while executors of the beneficiary …

Insurance-Incontestability Clause-Fraud In Connection With Reinstatement, T. M. Kubiniec

Michigan Law Review

Plaintiff sued for disability benefits under a life insurance policy providing that it should be incontestable from its date and that insured's statements, in the absence of fraud, should be deemed representations and would not avoid the policy unless contained in a written application, a copy of which was attached to the policy when issued. Defendant sought to rescind the contract on the ground that a reinstatement granted some eighteen months before had been induced by fraudulent statements. Held, the reinstatement may be contested only within the time after reinstatement fixed for contesting the policy, and that fraud is …