1. Chapter 51 Insurance Law Chapter 51: Insurance Law
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2. Overview LO51-1: What is the nature of the insurance relationship?
LO51-2: What does the insurance contract include?
LO51-3: How is an insurance policy canceled?
LO51-4: What are the obligations of the insurer and the insured?
LO51-5: What is the insurer's defense for nonpayment?
LO51-6: What are the types of insurance available to consumers?

3. Chapter 51 Hypothetical Case 1
After years of heartache and despair, Wallace and Virginia Gwinnett are finally getting a divorce. Five years ago, when the bonds of their holy matrimony first started fraying, Virginia took out a $251,000 life insurance contract on George without his knowledge. The insurance contract was a 20-year term policy listing her husband as the measuring life and Virginia Gwinnett, herself, as the beneficiary.
Virginia Gwinnett wonders: When the golden ring is off of her finger, can she keep the life insurance policy by continuing to pay the premiums on it? If she does, will she be entitled to the $251,000 if Wallace Gwinnett dies within the 20-year term period?
Chapter 51 Hypothetical Case 1: After years of heartache and despair, Wallace and Virginia Gwinnett are finally getting a divorce. Five years ago, when the bonds of their holy matrimony first started fraying, Virginia took out a $251,000 life insurance contract on George without his knowledge. The insurance contract was a 20-year term policy listing her husband as the measuring life and Virginia Gwinnett, herself, as the beneficiary.
Virginia Gwinnett wonders: When the golden ring is off of her finger, can she keep the life insurance policy by continuing to pay the premiums on it? If she does, will she be entitled to the $251,000 if Wallace Gwinnett dies within the 20-year term period?
[Instructor: See The Nature of the Insurance Relationship and Types of Insurance in Chapter 51]

4. Chapter 51 Hypothetical Case 2
After 13 years of marriage between Ivan and Donita Raspail, love had turned to hate. The two divorced, and as part of the divorce settlement, Donita Raspail received complete title to the home they had shared for so many years. Six months later, the house was completely gutted by a fire. The police ruled out Ivan as the perpetrator, since he had been gambling in Atlantic City, New Jersey, the night the fire occurred. The total loss due to the fire was estimated at $615,000, based on the house's appraised value of $425,000. In addition, all of Donita Raspail's personal property was destroyed, a loss that amounted to $190,000. On the date of the loss, there was one existing homeowners' policy on the property with a maximum insurance value of $751,000, issued by Prentice-Towers Insurance Company. Ivan Raspail is listed as the sole beneficiary of the homeowners' policy, and he has filed an insurance claim with Prentice-Towers requesting compensation for the $615,000 loss.
Is Prentice-Towers legally and/or ethically obligated to pay Ivan Raspail the $615,000, since he was listed as the sole beneficiary of the homeowner's policy? If not, is Prentice-Towers legally and/or ethically obligated to pay Donita Raspail the $615,000, since she was the sole owner of the property at the time of the loss?
Chapter 51 Hypothetical Case 2: After 13 years of marriage between Ivan and Donita Raspail, love had turned to hate. The two divorced, and as part of the divorce settlement, Donita Raspail received complete title to the home they had shared for so many years. Six months later, the house was completely gutted by a fire. The police ruled out Ivan as the perpetrator, since he had been gambling in Atlantic City, New Jersey, the night the fire occurred. The total loss due to the fire was estimated at $615,000, based on the house's appraised value of $425,000. In addition, all of Donita Raspail's personal property was destroyed, a loss that amounted to $190,000. On the date of the loss, there was one existing homeowners' policy on the property with a maximum insurance value of $751,000, issued by Prentice-Towers Insurance Company. Ivan Raspail is listed as the sole beneficiary of the homeowners' policy, and he has filed an insurance claim with Prentice-Towers requesting compensation for the $615,000 loss.
Is Prentice-Towers legally and/or ethically obligated to pay Ivan Raspail the $615,000, since he was listed as the sole beneficiary of the homeowner's policy? If not, is Prentice-Towers legally and/or ethically obligated to pay Donita Raspail the $615,000, since she was the sole owner of the property at the time of the loss?
[Instructor: See Insurer and Insured Obligations in Chapter 51]

5. Nature of the Insurance Relationship
Insured party: Party who makes a payment (a premium) in exchange for a payment in the event of damage/injury to property/person
Premium: Payment on policy
Insurer (underwriter): Party who receives premiums from insured party
Beneficiary: Person who receives insurance proceeds
Policy: Document that expresses agreement between the insured party, beneficiary, and insurer
Risk: Potential loss
Insurable interest: Economic interest in life/property
Life interest must exist at time policy obtained
Property interest must exist at time of loss
In terms of the nature of the insurance relationship, an insured party is a party who makes premium payments on an insurance policy in exchange for payment in the event of damage or injury to property or person. An insurer, or underwriter, is a party who receives premiums from the insured party. The beneficiary is the person who receives the insurance proceeds. A policy is a document that expresses an agreement between the insured party, the beneficiary, and the insurer. Risk constitutes potential loss. Finally, an insurable interest is an economic interest in life or property; in order to constitute an insurable interest, a life interest must exist at the time the policy is obtained, and a property interest must exist at the time of the loss.

6. The Insurance Contract
Application for insurance: Party with insured interest makes an offer to purchase insurance (Based on information described in application, insurance company evaluates the risk and determines whether to accept/reject offer)
Effective date: Date policy becomes effective
Binder: Gives temporary insurance until decision to accept/reject application made
In an application for insurance, a party with an insured interest makes an offer to purchase insurance. Based on information described in the application, the insurance company evaluates the risk and determines whether to accept or reject the offer. The effective date is the date the policy becomes effective. A binder gives temporary insurance until a decision to accept or reject the application is made.

7. Elements of the Insurance Contract
Incontestability clause: Ensures insurance company cannot contest statements made in insurance application after certain period of time
Antilapse clause: Grace period for insured to pay premium
Appraisal clause: Insured party and insurer select disinterested appraiser for second opinion on damages
Arbitration clause: Disputes must be submitted to an arbitrator
An incontestability clause in an insurance contract ensures that the insurance company cannot contest statements made in an insurance application after a certain period of time. An antilapse clause ensures a grace period for the insured to pay a premium. By way of an appraisal clause, the insured party and the insurer select a disinterested appraiser for a second opinion on damages. Finally, with an arbitration clause, insurance disputes must be submitted to an arbitrator for resolution.

8. Canceling an Insurance Policy
While insurer/insured may cancel policy at specified times, insurer limited as to when it may cancel the policy
If either party breaches its duties as established in the insurance policy, the other party has legal remedy
While the insurer or the insured may cancel a policy at specified times, the insurer is limited as to when it may cancel the policy; if either party breaches its duties as established in the insurance policy, the other party has legal remedy.

9. Insurer and Insured Obligations
Insurer duties
Defend insured; insurer must defend insured party from claims for which insured party liable
Pay sums owed by insured
Insured duties
Disclose material (significant, relevant) information on application
Cooperate with insurer (on defense of claims)
An insurer has the obligation to defend the insured from claims for which the insured party is or may be liable and to pay sums owed by the insured. An insured has the duty to disclose significant and relevant information on the application and cooperate with the insurer on the defense of claims.

10. Insurer's Defenses for Nonpayment of Claims
Includes (but is not limited to):
Breach of contract
Lack of insurable interest
Illegal activity
An insurer's defenses for nonpayment of claims include, but are not limited to, breach of contract, the lack of an insurable interest, and the insured's participation in an illegal activity.

11. Types of Insurance
Individual insurance: Insured party is party purchasing insurance
Group insurance: Party who is neither insured party nor insurer purchases insurance
Personal insurance: Covers individual's life/health
Commercial insurance: Covers business interests
Property insurance: Protects property from loss/damage
Casualty insurance: Protects person/property from accidental injury
Liability insurance: Protects business from tort liability to third parties
Commercial general liability policy: Protects business against broad range of risks
Types of insurance include individual insurance, where the insured party is the party purchasing insurance. With group insurance, a party who is neither the insured party nor the insurer purchases the insurance. Personal insurance covers an individual's life or health, while commercial insurance covers business interests. Property insurance protects property from loss or damage, while casualty insurance protects a person or property from accidental injury. Liability insurance protects a business from tort liability to third parties. A commercial general liability policy protects a business against a broad range of risks.

12. Types of Liability Insurance
Contractors' liability insurance: Protects contractors against liability for injuries that might occur while completing a job (excluding injuries to employees)
Garage liability insurance: Protects garage owner from liability to persons injured by operation of the garage
Product liability insurance: Protects producer or manufacturer of good from loss due to damages paid to people injured using the good
Professional liability insurance: Protects members of specific professions from liability associated with their professional acts
Fire insurance: Protects property from loss or damage from fire
Livestock insurance: Protects owner from loss due to injury or death of livestock
Water, weather, and natural forces insurance: Flood insurance, water damage insurance, weather insurance, hail insurance, lightning insurance, etc.
There are several different forms of liability insurance. Contractors' liability insurance protects contractors against liability for injuries that might occur while completing a job (excluding injuries to employees). Garage liability insurance protects the garage owner from liability to persons injured by the operation of the garage. Product liability insurance protects the producer or manufacturer of a good from loss due to damages paid to people injured using the good. Professional liability insurance protects members of specific professions from liability associated with their professional acts.
There are several types of property insurance. Fire insurance protects property from loss or damage from fire. Livestock insurance protects the owner from loss due to injury or death of the livestock. Water, weather, and natural forces insurance includes flood insurance, water damage insurance, weather insurance, hail insurance, lightning insurance, etc..

13. Life Insurance Whole-life: Protection for entire life of insured
Term-life: Provides coverage for specified term (beneficiary paid only if insured party dies during designated term)
Life insurance can be either whole-life or term-life. Whole-life insurance is protection for the entire life of the insured, while term-life insurance provides coverage for a specified term, and the beneficiary is paid only if the insured party dies during the designated term.

14. Chapter 51 Hypothetical Case 3
Jerry Allenton has a small beach cottage on the Outer Banks of North Carolina. He has owned his little piece of paradise for the past 21 years, and for that entire time, he has maintained hurricane insurance on the property through Homeland Underwriters, Inc. Each and every year, Allenton has dutifully paid the annual hurricane insurance premium well before the due date of September 1. He has never made a claim on the policy. On August 2, Allenton receives a letter from Homeland Underwriters. He believes the letter is a bill for the annual premium payment, but he is surprised to discover that it is a letter terminating his hurricane insurance coverage. The letter states, in part, "Mr. Allenton, we have valued our association with you over the past 21 years, but we regret to inform you that the Homeland Underwriters hurricane insurance policy on your property at 321 Clambake Drive is no longer renewable. Effective September 1, your policy is terminated. Best of luck, and please continue to consider Homeland Underwriters for any other insurance needs you might have." From a probability standpoint, Homeland Underwriters has determined that Outer Banks properties are no longer insurable risks.
Does Allenton have any legal rights against Homeland Underwriters? In the interests of equity, would a court likely compel Homeland Underwriters to renew the hurricane insurance policy, especially if it would be difficult or impossible for Allenton to obtain such insurance elsewhere? From an ethical standpoint, and given Allenton's 21 years of customer loyalty, should Homeland Underwriters renew the policy?
Chapter 51 Hypothetical Case 3: Jerry Allenton has a small beach cottage on the Outer Banks of North Carolina. He has owned his little piece of paradise for the past 21 years, and for that entire time, he has maintained hurricane insurance on the property through Homeland Underwriters, Inc. Each and every year, Allenton has dutifully paid the annual hurricane insurance premium well before the due date of September 1. He has never made a claim on the policy. On August 2, Allenton receives a letter from Homeland Underwriters. He believes the letter is a bill for the annual premium payment, but he is surprised to discover that it is a letter terminating his hurricane insurance coverage. The letter states, in part, "Mr. Allenton, we have valued our association with you over the past 21 years, but we regret to inform you that the Homeland Underwriters hurricane insurance policy on your property at 321 Clambake Drive is no longer renewable. Effective September 1, your policy is terminated. Best of luck, and please continue to consider Homeland Underwriters for any other insurance needs you might have." From a probability standpoint, Homeland Underwriters has determined that Outer Banks properties are no longer insurable risks.
Does Allenton have any legal rights against Homeland Underwriters? In the interests of equity, would a court likely compel Homeland Underwriters to renew the hurricane insurance policy, especially if it would be difficult or impossible for Allenton to obtain such insurance elsewhere? From an ethical standpoint, and given Allenton's 21 years of customer loyalty, should Homeland Underwriters renew the policy?
[Instructor: See Insurer and Insured Obligations and Canceling the Insurance Policy in Chapter 51]

15. Chapter 51 Hypothetical Case 4
Stay-at-home mother Dorinda Niedermayer purchased a $2 million, 20-year life insurance policy for herself two years after the birth of their second child. Her rationale for purchasing the policy was that her husband, Goran Vuckovic, would not only need additional income in the event of her death—he would also need to provide childcare for and pay for college for their children, Billy and Stephanie.
A year after she purchased the policy, Niedermayer began experiencing abdominal pain and nausea. She suspected that she was pregnant again and visited her gynecologist. The doctor confirmed that she was indeed expecting, but she also had terrible news: Niedermayer had stage four colon cancer and had been suffering from the disease, undetected, for several years. Niedermayer and Vuckovic decided to forgo treatment for her cancer, and she carried the child, named Susan, to term. Niedermayer died 10 days after her daughter was born.
Because Niedermayer had colon cancer at the time she purchased the policy (even though she did not know it), does the insurer have to pay the $2 million to Vuckovic?
Chapter 51 Hypothetical Case 4: Stay-at-home mother Dorinda Niedermayer purchased a $2 million, 20-year life insurance policy for herself two years after the birth of their second child. Her rationale for purchasing the policy was that her husband, Goran Vuckovic, would not only need additional income in the event of her death—he would also need to provide childcare for and pay for college for their children, Billy and Stephanie.
A year after she purchased the policy, Niedermayer began experiencing abdominal pain and nausea. She suspected that she was pregnant again and visited her gynecologist. The doctor confirmed that she was indeed expecting, but she also had terrible news: Niedermayer had stage four colon cancer and had been suffering from the disease, undetected, for several years. Niedermayer and Vuckovic decided to forgo treatment for her cancer, and she carried the child, named Susan, to term. Niedermayer died 10 days after her daughter was born.
Because Niedermayer had colon cancer at the time she purchased the policy (even though she did not know it), does the insurer have to pay the $2 million to Vuckovic?
[Instructor: See Types of Insurance in Chapter 51]