Law Commons^™

Federal Courts’ Recalcitrance In Refusing To Certify State Law Covid-19 Business Interruption Insurance Issues, Christopher French

Journal Articles

Over 2,000 COVID-19 business interruption insurance cases have been filed in state and federal courts the past two years with most of the cases filed in or removed to federal courts. The cases are governed by state law. Rather than certify the novel state law issues presented in the cases to the respective state supreme courts that ultimately will determine the law applicable in the cases, each of the eight federal circuit courts to issue decisions on the merits in such cases to date has done so by making an Erie guess regarding how the controlling state supreme courts would …

Contracts Without Courts Or Clans: How Business Networks Govern Exchange, Sadie Blanchard

Journal Articles

Legal scholars have long recognized the close-knit community as an alternative institution for supporting trade when contract law and trusted courts are unavailable. But recent research suggests that another option may be available: heterogeneous business networks. What’s interesting is that these networks lack features traditionally seen as essential to community-supported trade. In particular, they lack preexisting noncommercial social ties that allow reliable and trusted information to spread at low cost, make exiting the network difficult, and enable coordinated sanctioning of cheaters. As a result, some leading scholars doubt that these networks are doing the work of sustaining cooperation. This Article …

Covid-19 Business Interruption Insurance Losses: The Cases For And Against Coverage, Christopher French

Journal Articles

The financial consequences of the government-ordered shutdowns of businesses across America to mitigate the COVID-19 health crisis are enormous. Estimates indicate that small businesses have lost $255 to $431 billion per month and more than 44 million workers have been laid off. When businesses have requested reimbursement of their business interruption losses from their insurers under business interruption policies, their insurers have denied the claims. The insurance industry also has announced that business interruption policies do not cover pandemic losses, so they intend to fight COVID-19 claims “tooth and nail.” More than 450 lawsuits throughout the country already have been …

Insurance Policies: The Grandparents Of Contractual Black Holes, Chris French

Journal Articles

In their recent article, The Black Hole Problem in Commercial Boilerplate, Professors Stephen Choi, Mitu Gulati, and Robert Scott identify a phenomenon found in standardized contracts they describe as “contractual black holes.” The concept of black holes comes from theoretical physics. Under the original hypothesis, the gravitational pull of a black hole is so strong that once light or information is pulled past an event horizon into a black hole, it cannot escape. In recent years, the theory has been reformulated and now the hypothesis is that some information can escape, but it is so degraded that it is virtually …

Sex, Videos, And Insurance: How Gawker Could Have Avoided Financial Responsibility For The $140 Million Hulk Hogan Sex Tape Verdict, Christopher French

Journal Articles

On March 18, 2016, and March 22, 2016, a jury awarded Terry Bollea (a.k.a Hulk Hogan) a total of $140 million in compensatory and punitive damages against Gawker Media for posting less than two minutes of a video of Hulk Hogan having sex with his best friend’s wife. The award was based upon a finding that Gawker intentionally had invaded Hulk Hogan’s privacy by posting the video online. The case has been receiving extensive media coverage because it is a tawdry tale involving a celebrity, betrayal, adultery, sex, and the First Amendment. The case likely will be remembered by most …

The Insurability Of Claims For Restitution, Christopher French

Journal Articles

Does and should a wrongdoer’s liability insurance cover an aggrieved party’s claim for restitution (e.g., a claim for the disgorgement of ill-gotten gains)? This article answers those questions. It does so by first answering the question of whether claims for restitution are covered under the terms of liability insurance policies. Then, after concluding that they are, it addresses the question of whether claims for restitution should be insurable as a matter of public policy and insurance law theory. There are long-standing legal and equitable principles that, on the one hand, dictate that a wrongdoer should not be allowed to benefit …

Insuring Floods: The Most Common And Devastating Natural Catastrophes In America, Christopher French

Journal Articles

Flooding is the most common natural catastrophe Americans face, accounting for 90% of all damage caused by natural catastrophes. Hurricanes Katrina and Sandy, for example, collectively caused over $160 billion in damage, but only approximately 10% of the Hurricane Katrina victims and 50% of the Hurricane Sandy victims had insurance to cover their flood losses. Consequently, both their homes and lives were left in ruins in the wake of the storms. Nationwide, only approximately 7% of homeowners have insurance that covers flood losses even though the risk of flooding is only increasing as coastal areas continue to be developed and …

The Role Of The Profit Imperative In Risk Management, Christopher French

Journal Articles

Risks in the world abound. Every day there is a chance that each of us could be in a car accident. Or, one of us could be the victim of a tornado, flood or earthquake. Every day someone becomes deathly ill from an insidious disease. Our properties are in constant peril—one’s house could catch fire at any time or a tree could fall on it during a storm. Any one of these events could have devastating financial consequences, and they are just a few of the many risks that impact our daily lives. One of the principal ways we manage …

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

All Faculty Scholarship

The economic analysis of contract law can be 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 …

Enhancing The Socially Instrumental Role Of Insurance: The Opportunity And Challenge Presented By The Ali Restatement Position On Breach Of The Duty To Defend, Jeffrey W. Stempel

Scholarly Works

The American Law Institute (ALI), in its current draft of the Restatement of the Law of Liability Insurance , has adopted the position that a liability insurer in breach of its duty to defend, but not acting in bad faith, forfeits the right to dispute coverage of the resulting judgment or reasonable, noncollusive settlement in a lawsuit. The ALI view is the minority rule in the courts in that most make bad faith a prerequisite for loss of a coverage defense but presumably will spur re-examination of the issue in many states. Unsurprisingly, insurers have opposed the ALI position with …

Segmented Settlements Are Not The Answer: A Response To Professor Squire’S Article, How Collective Settlements Camouflage The Costs Of Shareholder Lawsuits, Christopher C. French

Journal Articles

In his recent article, Professor Richard Squire offers a provocative theory in which he claims the underlying claimants in shareholder litigation against corporate policyholders are overcompensated due to what he describes as “cramdown” settlements, under which insurers are forced to settle due to the “duty to contribute” that arises under multi-layered directors and officers (“D&O”) insurance programs. He also offers a novel idea regarding how this problem could be fixed by what he refers to as “segmented” settlements in which each insurer and the policyholder would be allowed to settle separately and consider only its own interests in doing so. …

Understanding Financial Derivatives, Timothy E. Lynch

Faculty Works

Derivatives are commonly defined as some variation of the following: a financial instrument whose value is derived from the performance of a secondary source such as an underlying bond, commodity or index. But this definition is both over-inclusive and under-inclusive. Thus, not surprisingly, derivatives are largely misunderstood, including by many policy makers, regulators and legal analysts. It is important for interested parties such as policy makers to understand derivatives, because the types and uses of derivatives have exploded in the last few decades, and because these financial instruments can provide both social benefits and cause social harms. This Article presents …

The “Ensuing Loss” Clause In Insurance Policies: The Forgotten And Misunderstood Antidote To Anti-Concurrent Causation Exclusions, Chris French

Journal Articles

As a result of the 1906 earthquake and fire in San Francisco which destroyed the city, a clause known as the “ensuing loss” clause was created to address concurrent causation situations in which a loss follows both a covered peril and an excluded peril. Ensuing loss clauses appear in the exclusions section of such policies and in essence they provide that coverage for a loss caused by an excluded peril is nonetheless covered if the loss “ensues” from a covered peril. Today, ensuing loss clauses are found in “all risk” property and homeowners policies, which cover all losses except for …

Debunking The Myth That Insurance Coverage Is Not Available Or Allowed For Intentional Torts Or Damages, Christopher French

Journal Articles

Over the years, a myth has developed that insurance coverage is not available or allowed for intentional injuries or damage. This myth has two primary bases: one, the “fortuity” doctrine, which provides that insurance should only cover losses that happen by chance; and two, public policy, which allegedly disfavors allowing insurance for intentional injuries or damage. This article dispels that myth. Many types of liability insurance policies expressly cover intentional torts including trademark infringement, copyright infringement, invasion of privacy, defamation, disparagement, and improper employment practices such as discrimination. In addition, punitive damages, which typically are awarded for intentional misconduct, are …

Stoney Road Out Of Eden: The Struggle To Recover Insurance For Armenian Genocide Deaths And Its Implications For The Future Of State Authority, Contract Rights, And Human Rights, Jeffrey W. Stempel, Sarig Armenian, David Mcclure

Scholarly Works

The Armenian Genocide during the waning days of the Ottoman Empire continues to represent one of history’s underappreciated atrocities. Comparatively few people even know about the 1.5 million deaths or the government-sponsored extermination attempt that provided Hitler with a blueprint for the Nazi Holocaust. Unlike the Holocaust, however, there was never any accounting demanded of those responsible for the Armenian Genocide. In the aftermath of both tragedies, insurers seized upon the resulting disarray and victimization to deny life insurance benefits owed as a result of the killings. American-based litigation to vindicate rights under the Armenian polices faced substantial legal and …

Gambling By Another Name; The Challenge Of Purely Speculative Derivatives, Timothy E. Lynch

Faculty Works

Derivatives contracts can be used to hedge pre-existing risks, but they can also be used to speculate. This Article focuses on derivatives contracts in which both counterparties are speculators. These “purely speculative derivatives (PSD) contracts” have become increasingly common over the last several years and have notably resulted in the transfer of many tens of billions of dollars from institutions that had invested in the US subprime housing market to a handful of speculators who foresaw the market’s collapse, as well as many billions of dollars in fees to PSD brokers.

PSD contracts are problematic. PSD contracts are less-than-zero-sum transactions …

Derivatives: A Twenty-First Century Understanding, Timothy E. Lynch

Faculty Works

Derivatives are commonly defined as some variation of the following: a financial instrument whose value is derived from the performance of a secondary source such as an underlying bond, commodity or index. But this definition is both over-inclusive and under-inclusive. Thus, not surprisingly, derivatives are largely misunderstood, including by many policy makers, regulators and legal analysts. It is important for interested parties such as policy makers to understand derivatives, because the types and uses of derivatives have exploded in the last few decades, and because these financial instruments can provide both social benefits and cause social harms. This Article presents …

The “Non-Cumulation Clause”: An “Other Insurance” Clause By Another Name, Chris French

Journal Articles

How long-tail liability claims such as asbestos bodily injury claims and environmental property damage claims are allocated among multiple triggered policy years can result in the shifting of tens or hundreds of millions of dollars from one party to another. In recent years, insurers have argued that clauses commonly titled, “Prior Insurance and Non-Cumulation of Liability” (referred to herein as “Non-Cumulation Clauses”), which are found in commercial liability policies, should be applied to reduce or eliminate their coverage responsibilities for long-tail liability claims by shifting their coverage responsibilities to insurers that issued policies in earlier policy years. The insurers’ argument …

The Insurance Policy As Statute, Jeffrey W. Stempel

Scholarly Works

Insurance policies are classified as a subspecies of contract. Although the taxonomy is correct, rigid adherence to this classification system limits the legal system's ability to deal with some of the most problematic and frequently litigated questions of insurance coverage. Restricting conception of insurance policies to the contract model unduly limits analysis of the meaning and function of the policies. In addition, restricting characterization of insurance as a matter of “contract” does not necessarily produce swift, inexpensive, efficient, or uniform decisions (to say nothing about accuracy, justice, or fairness). Within contract law, scholars, and courts differ over the respective primacy …

Misclassifying The Insurance Policy: The Unforced Errors Of Unilateral Contract Characterization, Hazel G. Beh, Jeffrey W. Stempel

Scholarly Works

Insurance policies are traditionally classified as unilateral or “reverse-unilateral” contracts, a characterization we find largely incorrect, with problematic consequences for adjudication of insurance coverage disputes. In addition to the general difficulties attending the unilateral classification, the concept as applied to insurance policies is not only unhelpful but incorrect. Insurance policies are more accurately viewed as bilateral contracts. In addition, the unilateral characterization of insurance policies introduces error and inconsistency into the litigation of insurance controversies. In particular, the unilateral view tends toward excessive formalism and focus on so-called “conditions” precedent to coverage, eschewing material breach analysis and encouraging needless forfeitures …

The Insurance Policy As Social Instrument And Social Institution, Jeffrey W. Stempel

Scholarly Works

Insurance policies are classified as a species of contract. Although this characterization is correct, it is unduly narrow if used as the exclusive lens for assessing insurance policies, which are not merely contracts but also are designed to perform particular risk management, deterrence, and compensation functions important to economic and social ordering. Recognizing this has significant implications regarding the manner in which insurance policies are construed in coverage disputes and suggests that policy construction can be improved by not only performing traditional contract analysis of disputed policies but also by appreciating the particular function of the insurance policy in question …

The Insurance Policy As Thing, Jeffrey W. Stempel

Scholarly Works

Insurance policies are a type of contract. But characterizing them only as contracts misses much of the richness of the insurance arrangement, policyholder-insurer relations, and the degree to which insurance policies, which are heavily standardized, are designed to perform a particular function. Because of their mass standardization and deployment to address particular risk management issues, insurance policies are in many respects like products or chattels. Insurers and the insurance trade press in fact frequently speak of a line of insurance "products" or a new "product" being introduced to address an emerging risk. Appreciating this aspect of the insurance policy can …

The Relationship Between Defense Counsel, Policyholders, And Insurers: Nevada Rides Yellow Cab Toward "Two-Client" Model Of Tripartite Relationship. Are Cumis Counsel And Malpractice Claims By Insurers Next?, Jeffrey W. Stempel

Scholarly Works

It happens constantly in civil litigation. An insurance company hires a lawyer to defend its policyholder from a third party’s claim of injury. But just who is the lawyer’s “client?” Is it the policyholder who is the named defendant in the case and is “represented” in court proceedings? Or is it the insurer who, in most cases, selected the attorney, pays the attorney, supervises the litigation, and has (by the terms of the liability insurance policy) the right to settle the case, even over the objections of the policyholder? Ordinarily, the liability insurer has both the duty to defend a …

Introduction: Favorite Insurance Cases Symposium, Jeffrey W. Stempel

Scholarly Works

Insurance law scholars and teachers sometimes feel, with a mixture of paranoia and justification, that insurance law simply does not receive its proper respect in the hierarchy of legal education and law generally.

Consider the law school curriculum. In none of America’s nearly 200 ABA-approved law schools in insurance law a required course. Nor is it considered a course that, although not required, prudent students “must” be sure to take before they graduate (e.g. Evidence, Corporations). Enrollments may be respectable but the class is seldom oversubscribed, even where the law school is located in an insurance hub city. Although other …

The Insurance Aftermath Of September 11: Myriad Claims, Multiple Lines, Arguments Over Ocurrence Counting, War Risk Exclusions, The Future Of Terrorism Coverage, And New Issues Of Government Role, Jeffrey W. Stempel

Scholarly Works

September 11, 2001, is an unforgettable date for many reasons. In addition to its political, social, and historical importance, it may mark a watershed of insurance history as well. The value of the insurance losses due to the collapse of the World Trade Center (WTC) towers is estimated to total at least $35 billion and perhaps $75 billion. In addition, most of the people killed by terrorism were covered by life insurance. Many business operations were affected, invoking possible business interruption coverage. The airplanes that became weapons of destruction carried passengers whose estates are likely to press claims against the …

Doctors, Hmos, Erisa, And The Public Interest After Pegram V. Herdrich, Jeffrey W. Stempel, Nadia Von Magdenko

Scholarly Works

The Employee Retirement Income Security Act of 1974 was enacted in the wake of highly publicized pension disasters in order to protect employee pension rights. Born as a piece of pro-worker legislation, it initially was criticized by business groups as a cause of bureaucratic arteriosclerosis that was worse than the disease of pension failures. Even worse, it prompted many employers to consider dispensing with pension plans altogether rather than struggle with the administrative and financial obligations of ERISA. Business, labor, and the public all complained about the law's complexity. It even became something of a national joke as regulators took …

An Inconsistently Sensitive Mind: Richard Posner's Celebration Of Insurance Law And Continuing Blind Spots Of Econominalism, Jeffrey W. Stempel

Scholarly Works

Seventh Circuit Judge Richard Posner is well known for bringing economic analysis to bear on a host of issues, including infamously controversial notions such the market for baby sale. Not surprisingly, Posner's insurance law opinions reflect economics, but perhaps not to the degree one would expect. A review of Posner's 20 years of opinions relating to insurance issues reviews his pragmatic jurisprudence as well. Decisions frequently reflect not only economics but also situational context and considerations of business reality as well as a sophisticated grasp of basic insurance doctrine and contract law. As a general matter, Posner also displays considerably …

Recent Case Developments, Jeffrey W. Stempel

Scholarly Works

Recent case developments in Insurance Law in the years 2000 and 2001.

Recent Case Developments, Jeffrey W. Stempel

Scholarly Works

Recent case developments in Insurance Law in the years 2000 and 2001.

Recent Case Developments, Jeffrey W. Stempel

Scholarly Works

Recent case developments in Insurance Law in the years 1999 and 2000.