Law Commons^™

Terrorism Risk Insurance Act: Time To Renew . . . Or Rethink?, Jeffrey E. Thomas

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This paper summarizes the U.S. program for terrorism insurance, outlines its advantages and disadvantages, and describes the current proposals for extension of the program. The program, generally referred to as a “Federal Backstop,” functions in some ways that are similar to reinsurance, but it does not require participants to pay premiums ex ante. Instead uses an ex post recoupment mechanism to recover some or all of the Federal payments made under the program. This approach has the advantage of reducing the cost and increasing the availability of terrorism insurance. Some have criticized the program for its interference in market mechanisms, …

Allen V. Bryers: The Missouri Supreme Court's 2016 Decision Adds Clarity (And Confusion) To Insurers' Duty And Right To Defend Their Insureds, Jeffrey E. Thomas

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In a previous paper, I suggested that the Missouri Supreme Court had adopted a forfeiture penalty for insurers that breached the duty to defend. This paper revises that position based on the December 2016 Missouri Supreme Court decision of Allen v. Bryers in which the court held that to recover damages beyond the applicable liability insurance policy limits, the insured (or an assignee) would have to demonstrate the insurer had acted in bad faith. However, the court confirmed a forfeiture approach up to the liability insurance policy limits. Where an insurer breaches its the duty to defend in a liability …

Foreword – Institutional Responsibility For Sex And Gender Exploitation, Nancy Levit

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Organizations are increasingly being held accountable for sex and gender exploitation perpetrated by individuals who are associated with them. The idea of litigating toward gender justice by making institutional actors responsible for various forms of sex and gender discrimination unites the articles in this Symposium.

This Foreword begins by tracking the evolution of tort law from its early vindication of isolated individual claims to its much more recent incarnation as an instrument of social reform for collective interests. The second part addresses legal impediments that prevent redress of certain types of gendered harms — ranging from areas that are virtually …

Understanding Financial Derivatives, Timothy E. Lynch

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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 …

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

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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

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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 …

Insurance Perspectives On Federal Financial Regulatory Reform: Addressing Misunderstandings And Providing View From Different Paradigm, Jeffrey E. Thomas

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Much of the current call for Federal regulatory reform of insurance is based on fundamental misunderstandings regarding American International Group (AIG) and the financial crisis, and because insurance, which is regulated predominately at the state level, provides a different, and potentially useful, regulatory paradigm. The first section of this article will analyze the role of insurance in the financial crisis. It exposes the misunderstandings and explain how insurance had little, if any, role in the crisis. The second section outlines the current, state-based regulatory paradigm for insurance, and will explain how this paradigm has become a barrier for Federal reform …

Insurance Law Between Business Law And Consumer Law, Jeffrey E. Thomas

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The U.S. legal system has multiple and complex regulatory regimes for insurance which combine statutes, administrative regulations and common law rules. Regulation of insurance is predominantly done by the fifty states, and this increases the system’s complexity. The regulatory regimes generally divide the industry, the subject of regulation, from the consumers, which are to be protected, without regard for the status or sophistication of the insurance consumer. This article focuses on the role of insurance law and regulation within the legal system, and in particular the divide between business or commercial insurance and that provided for consumers, more commonly known …

Government Support For Terrorism Insurance, Thomas Russell, Jeffrey E. Thomas

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Federal government support for the terrorism insurance industry has a very brief history. Prior to 9/11, insurers did not take terrorist-related losses into account when underwriting risks. The industry did not even conceive of an attack that could generate such significant losses. The dramatic shift in perception since then has caused many to suggest that terrorism risks are uninsurable. The notion that terrorism risk was uninsurable was part of the rationale advanced for government intervention. When the initial efforts at legislation failed, the industry began to withdraw from the market by adding exclusions for terrorism-related losses to their policies. Reinsurers …

The Indemnity Principle: From A Financial To A Function Paradigm, Brad Wilson, Jeffrey E. Thomas

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Although the indemnity principle is well-accepted, its customary meaning has not kept up with insurance practice. This paper explores the evolution of the indemnity principle in the context of property insurance in the United States. When property insurance was standardized in the 19th century, "indemnity" had a strict, financial meaning. An insured was only entitled to receive actual cash value for a loss, less depreciation. This ensured that insureds received a financial recovery equal to the value of their property prior to the loss. This approach to indemnity was developed in the context of concerns about the morality of insurance, …

Exclusion Of Terrorist-Related Harms From Insurance Coverage: Do The Costs Justify The Benefits, Jeffrey E. Thomas

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The September 11 attack was the largest single insured event in history. In the end, insurance companies are expected to pay approximately $50 billion to victims of the attack. In response to the perceived potential of future terrorist losses, many insurers have begun to exclude terrorist-related losses from their policies. In light of the size and uncertainty of future losses, this is understandable. In adopting this approach, however, it appears that little thought has been given to the transaction costs associated with the exclusion. One of the significant contributions of Law and Economics to legal literature has been to illuminate …

Insurance Implications Of September 11 And Possible Responses, Jeffrey E. Thomas

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September 11 was a "defining moment" for this generation. The graphic images of that day will forever remain seared into people's individual and collective consciousness. Americans responded in many ways, both individually and collectively. The government, with nearly unanimous public support, immediately responded by declaring "war" on terrorism and by adopting measures to provide relief for victims of the attack.

September 11 was also a defining moment for the insurance industry. It was "the largest single insured event in history." Insurance companies are expected to pay some $50 billion to victims of the attack -more than eight times what the …

Crisci V. Security Insurance Co.: The Dawn Of The Modern Era Of Insurance: Bad Faith And Emotional Distress Damages, Jeffrey E. Thomas

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Crisci v. Security Insurance Co. typifies the doctrine of "bad faith," one of the most interesting and important contributions of insurance law to the general body of law. It "typifies" the doctrine with its classic, if somewhat extreme, fact pattern, and with its reliance on the implied covenant of good faith and fair dealing for the recognition of a cause of action that sounds in tort. Yet it also represents a potential for bad faith law that has not yet been fulfilled: the promise of emotional distress damages for an insurer's failure to settle.

This article explores both what Crisci …