Chapter 1: Legal Ethics 1

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 1.What is an insurable interest? When must an insurable interest exist—at the time the insurance policy is obtained, at the time the loss occurs, or both? 2.Is an insurance broker the agent of the insurance applicant or the agent of the insurer?  2

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 3.What are the basic requirements for executing a will? How may a will be revoked? 4.What is the difference between a per stirpes and per capita distribution to the grandchildren of the deceased? 5.What are the four essential elements of a trust? What is the difference between an express trust and an implied trust? 3

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Insurance is a contractual arrangement for transferring and allocating risk.  Risk Management. – Prediction concerning potential loss based on known and unknown factors. – Involves the transfer of certain risks from the individual to the insurance company by a contractual agreement.Insurance 4

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  Classification of Insurance. – Insurance is classified according to the nature of the risk involved. 5

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  Insurance Terminology. – Policy (Insurance contract). – Premium is the consideration to be paid to the insurer. – Underwriter (usually an insurance company). – Broker v. Agent. 6

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  Insurable Interest. – A person can insure anything in which he or she has an insurable interest. – Life Insurance: a person must have a reasonable expectation of benefit from the continued life of another.  7

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  Insurable Interest. – A person can insure anything in which he or she has an insurable interest. – Life Insurance.  – Key-Person Life Insurance.  – Property Insurance.  8

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  Insurable Interest. – Life Insurance: a person must have a reasonable expectation of benefit from the continued life of another. Insurable interest must exist at the time the policy is obtained. Interest may be financial or relational (blood or affinity). 9

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  Insurable Interest. – Key- Person Life Insurance: obtained by an organization on the life of a person important to the organization. – Property Insurance: insured derives a pecuniary benefit from preservation and continued existence of certain property. Owner must have insurance at the time of loss. 10

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  The Insurance Contract. – Governed by the general principles of contract law, and regulated by the state. – Application for Insurance: is an offer, which insurance company can either reject or accept. Misrepresentations can void a policy.  11

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  The Insurance Contract. – Effective Date. Broker versus Agents: broker is agent of applicant. Can be liable if policy is not secured and applicant is injured. Binders and Conditions: binder means policy is pending, but applicant is insured if compensation is paid. 12

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  The Insurance Contract. – Application. – Effective Date. – Coinsurance Clauses. – Incontestability Clauses.  13

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Insurance  The Insurance Contract. – Insurer must adequately notify insured of any change in policy under an existing policy. – CASE 29.1 V ALERO V. F LORIDA I NSURANCE G UARANTY A SSOCIATION, I NC. (2011). – CASE 29.1 V ALERO V. F LORIDA I NSURANCE G UARANTY A SSOCIATION, I NC. (2011). How can an ‘exclusion’ absolve an insurance company from paying a claim?  14

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Insurance Contract  Good Faith Obligations.  Bad Faith Actions. – Tort action if insurer denies coverage, insured may seek damages beyond the policy, as well as punitive damages.  Defenses Against Payment.  15

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Insurance Contract  Defenses Against Payment. – Insurance policy procured through fraud, misrepresentation. – Insurance company lacked an insurable interest (void from beginning). – Improper actions, contrary to public policy, or illegal. 16

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Will provides for a Testamentary disposition of property. – A will is the final declaration of how a person desires to have his or her property disposed of after death. – Testator makes the will.  17

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Person who dies with a will, dies testate (intestate without a will). – Executor: personal representative named in a will. – Administrator: personal representative appointed by the court when person dies without a will. 18

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Types of Gifts. – Devise: gift of real estate. Bequest or Legacy: gift of personal property. – Types of Gifts: specific, general, or residuary. – Abatement. – Lapsed Legacies. 19

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Requirements for a Valid Will. – Testamentary Capacity and Intent: requires a “sound-mind” and testamentary intent. – CASE 29.2 I N RE E STATE OF J OHNSON (2011). – CASE 29.2 I N RE E STATE OF J OHNSON (2011). What role did Johnson’s alcoholism have in the court’s conclusion of undue influence. 20

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Requirements for a Valid Will (cont’d). – Writing: can be handwritten, or holographic will (but nuncupative (oral) will is possible). – Signature : at least two witnesses, so will is ‘self-proving.’ – Witness.  21

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Requirements for a Valid Will (cont’d). – Publication Requirements: not required under the UPC.  Revocation of Wills. – Executed will is revocable by the maker anytime before death. – Revocation by Physical Act.  22

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Requirements for a Valid Will (cont’d). – Revocation by Subsequent Writing: called a codicil. – Revocation by Operation of Law. 23

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Probate Procedures. – Informal Probate Proceedings: Family Settlement Agreements, and Small Estates. – Formal Probate Proceedings: larger estates, guardianship appointment, and trusts for minors or incompetent persons. 24

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Probate Procedures. – Property Transfers Outside the Probate Process. Living Trusts. Joint Ownership of Property. Gifts Intervivos (while one is alive). Life Insurance Policies. Individual Retirement Accounts (IRA). 25

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Probate Procedures. – Property Transfers Outside the Probate Process. Living Trusts. Joint Ownership of Property. Gifts Intervivos (while one is alive). Life Insurance Policies. Individual Retirement Accounts (IRA). 26

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Intestacy Laws. – Statutes of descent and distribution which attempt to carry out the likely intent and wished of the decedent who died without a will. – Surviving Spouse and Children. Surviving spouse usually receives ½ of the estate if there is a surviving child.  27

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Intestacy Laws. – Surviving Spouse and Children. Surviving spouse usually receives only ½ of the estate, 1/3 if two or more children, 1/2 if one surviving child, or entire estate if no children or grandchildren. If no surviving spouse or child the order of inheritance is: lineal descendants, and then collateral heirs (if no lineal descendants). 28

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Wills  Intestacy Laws. – Step, Adopted, and Illegitimate Children. Stepchildren -- not considered children of deceased. Adopted children -- considered children of deceased. Illegitimate -- must prove paternity. 29

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Distribution to Grandchildren. – Per stirpes distribution: heirs take the share their deceased parent would have taken had that parent lived.  Intestacy Laws 30

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Distribution to Grandchildren. – Per capita distribution: each person takes an equal share of the estate. Intestacy Laws 31

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Trusts  A trust is any arrangement whereby property (real or personal) is held by one party for the benefit of another.  Essential Elements: designated beneficiary, designated trustee, funds sufficiently identified to enable title to pass to the trustee, actual delivery to the trustee with the intention of passing title. 32

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Trusts  Express Trusts. – Living Trusts: revocable living trusts, irrevocable living trusts. – Testamentary Trusts. – Charitable Trusts. – Spendthrift Trusts. – Totten Trusts. 33

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Trusts  Implied Trusts. – Constructive Trusts: arises by operation of the law in the interest of equity and fairness. – CASE 29.3 G ARRIGUS V. V IARENGO (2009). – CASE 29.3 G ARRIGUS V. V IARENGO (2009). What circumstances prompted the court to create a constructive trust? 34

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Trusts  Implied Trusts (cont’d). – Resulting Trusts.  The Trustee: person holding trust property. – Trustee’s Duties: honesty, good faith, and prudence in administering the trust and high degree of loyalty to beneficiaries.  35

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  The Trustee (cont’d). – Trustee’s Powers: state law governs in the absence of specific language in will or instrument. – Allocations Between Principal and Income. Trusts 36