Insurance Law Notes

Insurance Law Notes

Notes Before Midterm

Professor Miller

  • Summary judgment is issue in GAF, was GAF entitled to summary judgment - even if everything you say is true - you lose. See Rule Summary judgment is proper no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Federal Rule of Civ Pro 56(c); MD Rule 2-501 - new 2005 Maryland Court of Appeals case Rockwood v. Uninsured Employers' Fund reiterates standard. Assume all fact go against moving party.

  • GAF case - issue on life that deals with what is the definition of insurance.

  • The states - here Virginia - regulate insurance. One of the few areas generally untouched by the Commerce Clause The insurance industry has been able to duck expansion of federal regulatory authority.

  • Ask first what does the statute say -- the state's regulatory definition.

  • If it is not clear. (some states do not clearly state this). Then you look to the principle purpose of the statute to determine what the definition in that state is.

  • It is easy peripherally to tell-99% of the value of the product is the product itself and then is unlikely to be insurance, if the bulk of the cost is more heavily based on the warranty or the insurance of the product going beyond the inherent quality/workmanship of the product then it is more likely insurance.

  • Question: Is one or more of the evils at which the regulatory statues were aimed and the elements of risk transfer and distribution present in the transaction?

  • In GAF, 4 th Circuit found that insurance was incidental to the larger transaction

  • What does it mean to have insurance? What are the duties inferred to the parties?

  • Apodaca (p.13) - the Rawlings are farmers and there was a fire for which they filed an insurance claim with first party insurance holder's Farmer insurance. Turns out Farmers had also insured the Apodaca's (a 3 rd party insurance holder - a third party being injured on the property) the persons who started the fire à conflict of interest. Court found insurance company acted in bad faith.

  • Insurance typically has a great deal of market share: few insurance companies handle most of the insured persons in a given area. So the conflicting people can both be covered by the same insurance company.

  • example 1st party insurance: dental insurance, collision insurance

  • example 3d party insurance: liability insurance when you hurt someone else in a car accident

  • If there is a 20/40 policy - 20K per individual, 40K per occurrence. The insurance money given for the single occurrence cannot exceed 40K, and the money given to each individual injured cannot get more than 20K. (small policies)

  • If a 20/40 policy crashes with a 500/100,000 policy. then the person with the better policy sues her own insurance company because she was injured by an underinsured motorist.

  • This farmers insurance was not very good because it only covered 10K for damages. Rawlings didn't realize there was even a 3 rd party policy out there. The IO said "okay we will give you your 10K and we will research the fire and see how they can get you more money." If the insurance company finds the bad guy then they ask for their money back because the only reason they pay up is when the injured party cannot sue the person who injured them. The insurance company finds out that they are the 3rde party insurance.and so do the Rawlings.the Rawlings sue and the insurance company loses for bad faith tort.

  • The IC is not a fiduciary. It is something in between; they must be fair but need not be at the level of fiduciary.

  • HYPO: Let say the insurance company does not want to pay up and wants to go to trial - then the injured person gets millions over the insurance policy coverage. Now, the insured owes the restitution. The lawyer will say, you should have settled this case and sue the insurance company for bad faith because they did not do everything they could to settle the case.

  • If the insurance company can show that the winning of that case was a billion to one they win. Insurance companies are only required to take all reasonable steps to protect their insured ! When the insurance company acts in bad faith - doesn't protect - they lose. Maryland law: there is third part bad faith but not first party bad faith. Accordingly, for an uninsured motorist claim in Maryland , no duty for first party insurance company to make payment within policy limits even if claim has value beyond policy. Example of Maryland auto accident case: Joe has GEICO insurance with 300k per person limit, driver hits him has 20k State Farm insurance policy. Auto accident causing medical bills in excess of 300k, no liability dispute. Even if GEICO does not pay the 280, and jury awards $1 million, GEICO is not required to pay even though it took risk of hit in excess of policy. - Maryland Uninsured Statute is in Transportation Code, Title 19

  • In Maryland and elsewhere, when the insurance provides you with a personal injury lawyer to represent you in your case, the lawyer is yours and has no personal relationship with the insurance company, except that the insurance company pays the lawyer. A inherent conflict of interest. Nationwide lawyer defending your auto accident claim defends you and has duty to you but is paid by Nationwide.

  • When looking at who is responsible - the backdrop in most jurisdictions is to construe the insurance contract against the insurance company/drafter .

  • The need for insurance is an essential cog in the way the economic machine works today (if something come up, it is okay). It is not like a warranty.

  • This is because of the disparate bargaining power the IV has and it is not a level playing field

  • Maryland insurance law on interpreting insurance contract is that a court's interpretation of insurance contracts to determine the scope and limitations of the insurance coverage, like any other Maryland contract, begins with the language used by the parties involved. In its interpretation the K, the court considers usual everyday use of words. If ambiguous, courts look to extrinsic sources to figure out what contract means. If unambiguous, the court decides meaning. How would a reasonable person construe contract? If two different ways, then ambiguous. Maryland law does not construe insurance policies as a matter of course against the insurer. BUT when a term in an insurance policy is found to be ambiguous, the court will construe that term against the drafter of the contract (which almost always is the insurer). So Maryland law is basically the same, just looks at it a little different.

  • Deschler - the insured died from a water ski kite and there was an exclusionary clause in the life insurance which did not cover accidental death from devices of aerial navigation. The court found that it did fall with in the exclusion. The water ski kite did keep the person a flight and the person on it had some kind of control, and the accidental death was not covered.

  • The dissent says: the interpretation was too broad. If a reasonable person could look at the policy before doing the activity and say I am covered than it should be covered. Reasonable Person Standard .

  • Note 7: other examples that could occur - loss from mental disorder. The problem with this is that you have to dig into causal reasons, and some say that if you do something bad while on the drug then it is the fault of the drug.

  • The test: an expert for the insurance company would have to say that I believe to a reasonable degree of expert certainty that this person committed suicide because of the drug. (more likely than not.)

  • In life insurance policies, there are debates over suicide, and what constitutes suicide under the policy. i.e. if you kill yourself in a drug induced state the IC does not have to cover it because no matter what it is still suicide - the why does not matter. The law wants to make it easy. not ambiguity.

Fundamental Assumptions
  • Fortuity - is a critical component of any insurance contract. Fortuity is when something is inevitably going to happen in the future, it cannot be insured. Life insurance is the ONE exception to this rule because one day all persons will die.

  • Compagnie Des Bauxites - is there fortuity if the die is already cast? No, because the court does not look at it in hindsight; rather you base it on what was known by reasonable people at the time the contract was signed.

  • There was a structure being built and it had to be fixed so business had to be put on hold while it was fixed, this company had business interruption insurance.

  • The insurance company argued the fortuity requirement was not met, they said it was inevitable that this was going to happen, because in the time before the contract someone could have looked at the crack in the structure and known to a high mathematical certainty that the structure would ultimately need repair.

  • The counter argument is that in looking back. you could see that but in the moment it was pre-destined to occur. You do not look at it in hindsight, rather you base it on what was known by reasonable people at the time the contract was signed.

  • Insurable Interests

  • After the report that the titanic had hit an iceberg. they started selling insurance for the titanic. The key to the fortuity aspect is the facts known at the exact time of the contract. People did not know how bad it would be.

  • Snethen (good faith purchaser case/property contracts) Is there an insurable interest in a stolen car, something you never really had? Look to the reasonable expectation of the parties (in foresight) at the time of the agreement.

  • (1985 Okla. ) Guy buys a new car, turns out it was stolen but he did not know. He gets into an accident, files a collision claim, but in that process he is told the car is stolen. The insurance co argues he does not have insurable interest and so they pay nothing. He argues he was a good faith purchaser and so deserves his money.

  • Brewton -

  • Mrs. Browning bought a fire insurance policy and put it in her name and in her friend's name, Brewton. When she died (with no will) the Brewton's argued that they had an insurable interest because they paid monthly premiums for years. Nonetheless, the court said the Brewton's had no insurable interest in the property.

  • Beard. - (MD case) a contract is inherently void on its face if there is not an insurable interest involved in it.

  • A guy works a farm and when the owner dies he wants to buy the farm. But he doesn't have the money to do so, so he buys insurance for the farmer's death. He finds an aggressive company who will write the policy.the guy's sister ends up suing for the farm because she was giving him money to keep the place afloat.

  • The court decides if there is an insurable interest. They look at the Md statute §366(a) says there are 3 areas where there is a potential insurable interest.

  • If there are blood relatives (closely related by blood or by law)

  • Someone who has an economic interest when that interest is greater when they are alive as opposed to dead.

  • That the individual is important to a contract of sale.

  • The policy tried to call the two parties business partners; really they were not, but on some level they have a pseudo partnership. and the court looks at this to help their cause.

  • The court says the starting point for the analysis is whether the person will be made whole by a life insurance policy and they say "no" in this situation because the owner

  • could have terminated the lease at any time,

  • the lease itself was binding on its heirs (so he technically doesn't lose anything because nothing changes upon his death. simply the estate takes over the property)

  • The fact that you lose something (potentially your job if the farm is sold) is not dispositive of a partnership. The person asserting the existence of the partnership has the burden.

  • Waiver - voluntary intentional relinquishment of your own right. But very often this is satisfied by a failure to assert your rights. In this case the waiver is - you wrote me the policy, you know the issue, you wrote business partnership knowing that it was not one.

  • Estoppel - It would be unconscionable to induce someone into a contract by saying we've got your back and then when the situation arises say we cannot help you!

  • Incontestability - some policies have these clauses which means after so many years you cannot contest the policy, deny coverage on certain things that may have changed. (this tries to create a certain level of comfort for the insured)

  • Personal Insurance - issue spot when and who someone can insure someone else's life. Can insure spouse, business partner and child's life. Siblings are debatable. No relation and no financial interest is uninsurable

  • Noah - One person cannot take out a life insurance policy on another because it might give that insuring person a reason to hurt the insured person and it would create a market for secondary insurance policies (a wagering on making money on people's deaths).

  • That would be a contract of pure wagering, and without strict requirements this would create a whole new market for secondary life insurance policies. Compensating for someone's death is difficult because it is hard to put a dollar amount on someone's life.

  • Guy's brother had insurance policy on him and he died, the co. wouldn't pay because he says he does not have insurable interest. There is a requirement that there be a financial interest at stake. (i.e. if someone has no money, has no job, no monetary value an insurance policy will not hold up upon their death because there is no financial connection to their death.)

  • There is a split in jurisdictions as to whether sibling relationships should have an insurable relationship. But there is no vested economic interest in a sibling.

  • If it is a business partner there is a certain insurable interest.

  • Valuation of Loss

  • There are always situations in claims where the person recovering is enriched by winning. In insurance aspects there are different ways to insure that kind of mistake.

  • You can insure for the market value of the damage done OR the replacement value . There is little difference between these things when talking about cars because cars have a used market.a secondary market for the ready exchange of damaged cars and there is no such market for other items like clothing, carpeting etc.

  • Collateral source rule - I purchased that separate PIP insurance and therefore you cannot hold that against me and it is not a set-off against my claim because I paid separately for it. PIP insurance exists so that emergency rooms get paid back.

  • Elberton Bathing Co . - replacement value v. market value à they have different meanings and you would not use the terms interchangeably. Replacement value is more expensive because it is new. So the contract naming one of those terms as opposed to the other had very different meaning.

  • Depreciation - over time something decreases in value. (except property appreciates). By in large fixed assets depreciate.

  • How do you determine actual cash value? There are 3 methods:

  • Market value - Kelly Blue Book; mileage and make.

  • Replacement cost less depreciation - this is the easiest method to calculate and so allows for certainty as to what the value will be. The by product is less lawsuits.

  • Broad evidence rule - In determining value most courts err on the side of Broad Evidence. Take everything under the sun and weigh all the issues. Greater justice and more litigation.

  • Doelger - (alligator shears)

  • Doelger makes shears to kill alligators and they used to sell them and then when demand went down they put them into storage. When the shears were made they sold for 30K, then the market fell and were worth nothing. There was a fire and they were all destroyed. The wanted to recover the placement value. They got less than half of what they thought they deserved.

  • There is a certain injustice in not giving these people any money even though these items are worthless. Because all this time this man has paid insurance premiums on these things, the items had some value to him or he would have stepped up to the plate and said I am canceling my insurance.

  • Judges have discretion and this guy getting 4K for the loss is totally up to the sitting judge.

  • Maryland law: Davis v. Jackson 1972 Maryland Court of Appeals case - replacement cost not determinative but relevant factor to consider

  • An Overview of State Legislation and Administrative Regulation - states will adopt certain uniform laws to avoid conflicts among states.

  • Classifications for insurance - Ins. Co. have the ability to perform very widespread data research that can depict the individual risk for particular people.

  • Warranties

  • Vlastos -

  • She owned a business building; it burned down, the warranty refused to pay because the language in the contract was ambiguous. The janitor lived on the 3rd floor of the building. Having someone live in the building would raise the risk of damage to the building. If something is written in the policy then somebody deems it to be material to the risk . The issue is whether this was an aggravator or a reducer of risk. Especially because this was a free will contract, not an adhesion one. ( any handwritten writing on a contract will trump the typed )

  • Ambiguity - is when two reasonable persons could read it differently. And so is a question of law, for the judge (not the jury). The jury is involved when the language is a question of fact, if the court decides that it is ambiguous then it is up to the jury to figure out what it meant in the first place. If something is unambiguous it doesn't go to the jury. the judge determines. See Beale, Maryland Court of Appeals opinion in 2002.

  • In Md. no parole evidence unless it is ambiguous. (Everywhere else in the world allows parole evidence to determine if something is ambiguous.)

  • "A Representation"

  • Is not part of the insurance contract and not material to the risk. Representations have to be true at the time they are said/made. If a misrepresentation occurs and the injury done is not related to that misrepresentation then yo9u get off Scott-free.

  • Is part of a warranty because it doesn't matter whether or not it is material to the risk and if you violate the warranty in any way you are denied recovery. (a warranty is locked in)

  • Affirmative v. promissory warranties - Note 2.

  • Here the court says that this was a warranty and that the janitors' presence was okay because it said that, but the warranty did not say that the 3rd floor could not be used for anything else so she was fine.

  • Pg.193 - the standard of review for this case was de novo and plenary - there is nothing about the case that would lead to a presumption. Simply a question of how the law applies because it is what it is.

  • Misrepresentation of a Warranty

  • Berger . - Omitting information is not always fraudulent (there is no real distinction between fraudulent and knowing and intentional, but the jury draws one) but can be grounds for denial of liability if knowing and deliberate and " material" to ascertaining the risk.

  • Man who was diagnosed with diabetes left it off his insurance policy form and when he dies the insurer denied him coverage after discovering the omitted information on the grounds that it was a fraudulent misrepresentation. He did not disclose the information because he did not want to pay higher premiums. His death was a result of an acute codeine overdose (indirectly related to his diabetes).

  • Court finds that under the state statute only one of the 3 elements has to be shown and Berger's misrepresentation while not fraudulent was knowing and intentional.

  • The court defines material as whether the insurance company would have offered the same policy having known the risk. (they either would not have provided coverage OR they would have had higher premiums)

  • In order to determine if something is material we have to determine if the misrepresented fact would have affected the risk. This is determined by

  • what the "reasonable insurer would do" OR

  • The hybrid test, what a "reasonably similarly situated person (as that particular insurance company) would have done." OR

  • A clearly subjective test - the insurance company saying exactly what they would have done.

  • "Materiality" is measured at the time the person signs the contract. There are arguments that it is at the time the person fills out the contract, but by in large we go with the signing of the k.

  • JMR Electrics Corp . - when someone deliberately denies (lies) a fact (i.e. claiming to be a non-smoker when they are in fact a smoker) they can be denied coverage.

  • ? claimed to non-smoker but in fact did smoke. Insurer is not liable because it was a misrepresented fact. The insurance company would have insured him anyway. they just would have charged him more.

  • The court says the insurer can deny coverage is there was a misrepresentation of fact whether or not they would have insured him anyway.

  • Waxse - If question are answered honestly and fully in terms of what they specifically ask then no policy holder can be denied coverage on the grounds that they did not disclose particular information.

  • Diagnosed with HIV but told he did not have AIDS, no question on the policy asked about AIDS or HIV and so waxes did not disclose it. Court said he answered honestly and did not omit anything which was asked for. Insurer must pay.

  • This guy understood the disease, knew he was probably gonna die, had a moral obligation to disclose it but the law says he was okay. There is unequal bargaining power in favor of the insurers and so the court sided with the plaintiff.

  • It is legal fraud to claim "repressed memory" I didn't remember, so I didn't lie I just didn't know. and most courts will allow the coverage to avoid the he said she said. James v. Goldberg, 1970 Maryland Court of Appeals case for rules for legal fraud in Maryland: (1) false representation; (2) that either its falsity was known or reckless indifference to truth; (3) that the misrepresentation was made for the purpose of defrauding; (4) relied upon the misrep; and (5) damage. Maryland standard different from case in notes in text. 

  • Age is considered like sex and lying. It has some room for error

  • Continuing obligation to disclose - most states will hold you to it.

  • Nebraska Revised Statute (p.213) -

  • The Limits of Regulation

  • Omaha Sky Divers Parachute Club . - information within the policy can potentially be construed as warranty or conditional, but of there is a separate exclusion clause that can only be a part of the policy and not subject to breach of warranty actions.

  • Aircraft insurance policy was to insure damage to plane while in motion. Policy explicitly required the pilot to have a FAA medical certificate and the one at the time of the wreck had only an expired one. The policy explicitly excluded any uncertified pilot within the terms of the policy as well as in an exclusion clause and so no argument of warranty could triumph. Insurer did not have to pay.

  • If it's a warranty than that Nebraska statute will trump (that the medical certificate that was a few days lapsed is not likely to be the cause of the accident) But if it is a term of the agreement (an exclusion) then the statute does not apply and the insurance co does not have to cover.

  • The warranty looks as if it promises something. Jurisdictions are split as to whether a policy can legitimately exclude something that is normally just a warranty (as the insurers do in this case). This case says that you can make your warranties exclusions as long as it is done explicitly.

  • Under common law if the warranty is breached there is no coverage. Some states have statutes that say there will still be coverage unless the breach of warranty is material.

  • Notes (pp. 219-221)

  • Maryland Law on accidental death: MAMSI v. Callaway, 2003 Maryland Court of Appeals Case. Test is whether the damage caused by the actor's intentional conduct was unforeseen, unusual and unexpected, and not whether the actor intended the effects of his or her actions

  • In the Matter of Mostow . - when language is ambiguous it is interpreted in favor of the insured and against the drawer.

  • The auto accident insurance had ambiguous policy terms regarding whether there was a per-person limit when an accident occurred or whether when there was more than one person in the accident if the accident limit overruled. The court says because the terms were ambiguous the policy is construed in favor of the insured, not the insurer. The insurer could have saved them if they had just said the policy was subject to "Insurance Law code." but without that they lose.

  • The underinsured motorist insurance company has a choice, "pay to play" let the other insurance co pay the policy or pay it themselves. if they chose the former they waiver their subrogation rights against that bad driver. So if they want to stick around and sue the bad guy. you the underinsured carrier has to pay themselves.

  • This case points out that everyone knew what 100/300 meant but this policy was worded poorly and so the drawer should suffer for drafting it inadequately. Maryland law see Beale v. American. National Lawyers Insurance , 2002 Maryland Court of Appeals opinion overturning Judge Noel in Baltimore on insurance policy interpretation. Policy ambiguous. Take home message for insurance companies: write you policies clearly or assume the consequences (MD law, not because you are insurance company but because you are drafter).

  • Waiver, Estoppel, and Election

  • Waiver - is an intentional relinquishment of a known right.

  • Estoppel - one with knowledge of the facts has acted, behaved, conducted in a particular manner so that she ought not to be able to assert that given right, for the sake of fairness. Taking actions inconsistent with your right such it would be inequitable to allow you to retain that right.

  • i.e. a guys kills his parents and then at sentencing tries to mitigate because he is an orphan.

  • Election -

  • Reformation - where the court rewrites the policy based on a number of reasons.

  • Silverton Elevators . (waiver) - the policy explicitly covered the household goods and the local agent had full knowledge of the 3rd party position in the insurance policy.

  • Is there a securable interest for a 3rd party (Silverton) who maintains an insurance policy for a building that the Silverton manager lives in to cover the building and manager's (who lives in the building) personal property even thought they have no ownership in the household goods. No, but for the fact that the agent KNEW what was going on.

  • The language in this policy is clear, but the insurance company argues that there is a waiver principle at play. The problem is that even though Silverton does not have ownership/insurable interest in the household goods, the agent knew exactly what was happening in terms of whom and what was covered. So the insurer wrote the policy and took the premiums knowing what they were doing, and he confessed that he did know.

  • There was an explicit specific provision that said personal property was not covered. But the court relies on waiver, since the agent knew what was going on, they are considered to have waived that provision of the policy.

  • DISSENT - the majority took the clause at the end (allowing the goods to be covered, waiver) and extended it too far. The dissent says you cannot use waiver to wipe away the terms of a clear, unambiguous contracts.

  • Essentially, the court has rewritten the policy.

  • The Insured's Reasonable Expectations

  • Clark Peterson Co .- CP lost a lawsuit for wrongful termination b/c of discrimination for alcoholism. The company then tried to recover under their insurance policy, and the policy denied them because it was intentional discrimination.

  • The court says they can recover because of the doctrine of "reasonable expectations."

  • FIRST determine

  • Whether an ordinary layperson would misunderstand the coverage OR reasonable expect coverage

  • Then à This doctrine can be only used when the issue involves one of the following:

  • Bizarre and oppressive (i.e. obscenity)

  • Eviscerates the terms explicitly agreed to

  • Eliminates the dominant purpose of the transaction

  • The court says (b) the language has been eviscerated.

  • Doctrine of unconscionability - cousin of bizarre and oppressive, but this tends to be broader in scope.

  • CON: This gives a cushion to bigots.

  • Parole Evidence: everyone is trying to get to the same place, determining the intent of the parties,

  • Restrictive View (Wiliston) - no parole evidence unless ambiguity exists. (stay within the 4- corners to determine what was agreed to). If the K is ambiguous then we can listen to what everyone else has to say, otherwise the language is the final word.

  • Corbin View - parole evidence is allowed in to determine if something is ambiguous (look at everything to figure out the plain meaning of the contract)

  • The judge determines ambiguity.

  • Taylor - the Arizona law is widely panned by its critics but the state follows the Corbin Rule. Parole evidence is allowed always.

  • Maryland on Parole Evidence and Contract Interpretation

  • Md follows Restrictive Rule - the opposite of Taylor, just because the parties say otherwise does not by itself change the fact that the language says what it says.

  • Pacific Indemnity Co. - federal court asks the Maryland to court how they would handle this case/interpret the md law, not factually, but technically because there are no cases on point.

  • ISSUE: a child dies post injury with 2 life ins. Policies. One covered what it was supposed to and the second (the umbrella policy) is asked to pay more. The court is deciphering how to partition payment.

  • Pacific says they should not pay because the death was the result of one injury, and that is not an injury within the limits of their policy. The primary insurance company says they paid most of the claim and the rest is multiple injuries.

  • Md says this is to be interpreted under contract law, and regular (Webster's language) according to what a reasonable lay person would think.

  • Ambiguity - when 2 reasonable lay persons would disagree on the meaning.

  • In Md. ambiguous within 4 corners - then the court looks to parole evidence (which often doesn't help) and then you construe is against the drafter (different than in Arizona)

  • Md has a conservative view of the law. Some words are ambiguous (occurrence, operate, collapse) and some are not (use of motorcycle, loan, dishonest fraudulent act)

  • Ambiguity is a Q of law for the court and then determining ambiguity becomes a Q of fact for the jury.

First Party Coverage
  • Life Insurance

  • Crobons . - (DEATH CERTIFICATE) has a legal presumption of being correct but can be rebutted with evidence. Call experts, call doctor.

  • Crobons dies leaving his wife behind. He and his business partner had bought insurance policies on each other with each other as the beneficiaries. Wyant (bus. partner) and Crobons changed their beneficiaries to their own wives and then Crobons gets ill, is noted as brain dead on day 1, Wyant changes himself back to the beneficiary (because he has the power to do so) and then on day 5 Crobons family pulls the plug. The death certificate says that he was legally dead on day five.

  • The insurance company paid Wyant but should have filed an Interpleader (given the money to the court and said we owe this to someone, but you need to decipher who.the business partner or the wife? (wife wins)

  • Uniform Determination of Death Act - death certificate is presumed right.

  • Nielsen - (SUICIDE) insurance companies use the language "sane or insane" when discussing their exemption of insured's who commit suicide for whatever reason. (even death resulting from foolish high risk activities are excluded)

  • ? would argue that the suicide was the result of some drug or something, but this language is CLEAR and the courts know what it means, for public policy reasons it stands and is not rebuttable.

  • Crawford (INCONTESTABILITY) - a clause the states that at some point )2 years from date of K) we (the insurance company) will not contest the payment, we will just pay out (unless you do not pay premiums).

  • Public policy that under lies incontestability clauses may often collide with the policies of the insurable interest doctrine.

  • Facts: Crawford owned his own company and had his wife on the group insurance plan saying that she was an employee when really she was not. The insurance company did not do any due diligence to see if the wife really was an employee to establish her eligibility (they could have just asked for a W-2).

  • This court says the insurance company is not contesting the policy but rather the eligibility of the insured signed up for the policy and this is allowed, because if they are not a rightful recipient of this policy then they have no claim.

  • Eligibility is a Threshold Issue which this court addresses first and is a defense to contestability.

  • There is a split jurisdiction issue - some courts and the dissent would say the insurance company could have established this earlier.

  • Sometimes an insurance company will make a warranty into an exclusion (like in the pilot case).jurisdictions would be split as to how to handle this.

  • Incontestability clauses also serve the purpose of allowing the "insurer a reasonable opportunity" to investigate "the statements made by the applicant in procuring the policy. They have time to figure out whether insured is lying. Downside: do we want insurance companies to spend time making sure people are not lying?


  • Man has been married 3 times and the day before he dies he writes a letter to his daughter saying he wants her to have everything and leave nothing to his wife because she is not loving.

  • This court takes the liberal Corbin view. Letter is not valid but is sufficient to change the beneficiary because the writer used language that made it clear he was trying to make a legal document

  • Jurisdictional split - some states say you have to follow the insurance company's protocol (strict compliance) or the change is not valid. This cause less problems because everyone know s the rules and there are no questions, less litigation.

  • Two Part Test:

  • An intent to change

  • Affirmative action

  • Can be done orally - (lots of witnesses, and needs an affirmative act, like maybe calling the insurance company)

  • Athmer - DISQUALIFICATION OF BENEFICIARIES no direct or indirect benefit for murder. (public policy)

  • Interpleader Action. Who should receive the money owned by a man who was murdered by him wife.

  • Clearly wife cannot recover and there should be no indirect recovery either. Wife's kids and siblings would be indirect.

  • INA Life Insurance v. Brundin (pp. 335-342)

  • Maryland Law on Incontestibility: Maryland General Assembly started making law regarding incontest clauses in 1937. Maryland Insurance Code 48A, §441(2): no denial of a claim, after two years from the date the policy was issued because disease or physical condition had existed before coverage. Maryland Court of Appeals 1999 case, Mutual Life v. Insurance Commish - same rule as Crawford regarding coverage in the first place. Good opinion by Judge Eldridge that flushes out Maryland law. The Beard case from earlier in semester also addresses how Maryland looks at these clauses.

More Insurance Law Notes and Summaries

Contact Us For a Free Consultation

If you are hurt in a serious accident or are the victim of medical malpractice, contact our team of lawyers to discuss your case.
Call us now for help at (800) 553-8082

You can also get a FREE no obligation on-line consultation.

Client Reviews

  • They quite literally worked as hard as if not harder than the doctors to save our lives.
  • Ron helped me find a clear path that ended with my foot healing and a settlement that was much more than I hope for.
  • Hopefully I won't need it again but if I do, I have definitely found my lawyer for life and I would definitely recommend this office to anyone!
  • The last case I referred to them settled for $1.2 million.
  • I am so grateful that I was lucky to pick Miller & Zois.
  • The entire team from the intake Samantha to the lawyer himself (Ron Miller) has been really approachable.
  • The case settled and I got a lot more money than I expected. Ron even fought to reduce how much I owed in medical bills so I could get an even larger settlement.
  • Miller and Zois is the best firm in the state of Maryland, and without their support, understanding, and just being there when I needed encouragement, I truly do not know how I would have succeeded without them.

Contact Us

Free Consultation (800) 553-8082 Call 24/7