Fahad - a.k.a. Make it rain a.k.a. Money Mayweather a.k.a. Pound for Pound - Diwan
Insurance Law – May 4
-a mixture of contracts, torts, family law, legal ethics
-what do we do about things we consider as being ‘risky’?
-Readings:
- They’re all there but you don’t have to read every single word. She’ll be covering the stuff in class.
-Exam is closed book
- You need to know the cases though. Use mnemonic devices!
- Questions will adjust as a function of it being a closed book
- Will be straight forward
- You will be given the CCQ dispositions
-The law of insurance originated in England it is very much an Anglo-American development
-Life is risky; some of us deal with risk better than others
- Some are risk averse, risk neutral and risk seekers
-Insurance is a knowledge-based enterprise
- Expression and dissemination about the information about risk is an important element and it is asymmetric
-Risk is associated with uncertainty
- Something might happen but the element is uncertain
- i.e. life insurance. Yes death is certain, but the timing is uncertain.
-Risk is the probability that an uncertain event which might cause one harm will occur
- Harm can be harm to our patrimony, bodily integrity
-Tolerance for this risk varies
- Risk averse people are more upset by a marginal loss in the value that they have rather than the satisfaction that comes with a gain
- Are willing to take a lower sum of money when it is certain rather than a higher sum of money when it is uncertain
- Risk neutral people are neutral on the above
- Risk seekers prefer uncertain outcomes to certain ones; they are the ones who are willing to ‘bet the store’
-People aren’t wholly risk-seeking or risk-averse; in certain situations, one may be risk seeking rather than risk averse, i.e. 50% of 2000 vs. certain 1000. Perspective changes if it is referring to a fine rather than a reward.
-Purchasing insurance also has social reflections independent of the calculation of the event happening at anytime
-Problems with savings as a means of aversion to a probable negative outcome
- May not cover the loss
- It may be too much
- So we might not be using the money most efficiently by saving as a way of mitigating an uncertain event
- Thus, no real correlation between the amount we save and the possible loss
-Another way of mitigating an adverse event is by assistance (charity)
- Ad hoc: something happens and you’re scrambling
- It’s discretionary: not everyone gets it / has access to it
- Temporary
- Rarely enough
-Element of mutuality
- An underpinning of the very early forms of insurance
- Idea of mutual self-help
-Example:
- Person owns a house of $100K with 1% chance of it burning down
- Expected loss = $1K
- For the individual, its either $0, or $100K
- Individual would be willing to pay an amount of money to eliminate the zone of uncertainty of $99K ($100k-1K)
- What the person is willing to pay for this peace of mind is the premium
-Another example:
- We have 5 houses worth $100/each
- Probability that 1 house will burn each year
- Therefore, 1 owner will lose a house but uncertain as to which one
- Each owner could contribute $20/each; and add more to incorporate administration costs and profits
- There is an assumption here that the events will be random
- You can see in this example the concept of mutuality: each individual is simultaneously an insurer and insured
- What the $100 is in this case is the indemnity of the value of the house
- security or protection against a loss or other financial burden
- it’s not a way of making money! The idea is that you are put back in the situation you were with respect to the thing that was lost
-In the real world, insurer and insured are separate entities
-Insurance contract not normally considered to be an adhesion contract
- For acontractto be treated as acontractofadhesion, it must be presented on a standard form on a "take it or leave it" basis, and give one party no ability to negotiate because of their unequal bargaining position.
-Also NOT considered to be a consumer contract
-Insurance is about indemnity (security or protection against a loss or other financial burden)
- Easy to visualize with loss of a house but what about life insurance?
- The sum to be paid is determined in advance
- The premium is entered into the pool in which the life is insured
- We don’t value the life in the same way as in other forms of insurance; you contract for a certain amount and at death that is paid to you.
- What is the point of life insurance?
- It became popular in the 19th century because there weren’t many ways of savings; people did not earn very much. It initially grew out of as a poor persons way of saving.
- Some life insurance policies have a little reserve that you can tap into while you alive
-Difference between insurance and tortious evaluation is that insurance is done in advance
-Types of insurance
- Life insurance and health insurance
- Related to the person
- Damage insurance to property and third party liability
- Considered to be insurance to property, patrimony, etc.
- “damage insurance” “liability insurance”
- this type of insurance comes on top of a Tort regime: insurance that would compensate my patrimony for damage I may cause to another
- intentional act of the insured is a sure ex-ne to recovery
-Moral Hazard
- Our actions become more reckless or less careful when we know we are insured
- How to insurers counter this idea?
- Incentivizing good behaviour
- Smoke detectors in your house
- Deductible (only for damage insurance)
- In an insurance context, you may be insured for the value of X but the first $500 you have to pay yourself
- You know the deductible in advance
-Key Words
- Indemnity
- Risk
- Premium
- Insurer
- Insured
-J. Lopez: Why did she insure her ass?
- Some concern over weight loss or something that would cause her behind to get smaller
- Her policy would likely exclude factors that would be under her control (i.e. she stopped eating and her behind got smaller)
- It may be likely tied to her income; perhaps her income is correlated to her rear-end
- You can only not insure things against public order
- Salacious
-The more adverse the outcome, the higher the premium
-Back to Life Insurance
- Payment of a premium which is calculated, in an actuarial manner, on the basis of life expectancy plus the state of health of the individual
- Insured and policy holder may be same in some instances
- Beneficiary is the one who receives the payout
- The relationship between the life insured and the policy holder is that there has to be an economic interest or relationship such that there is more of an interest in the insured being alive than dead
-“Wagering” idea that was outlawed in late 18th century
- the loss that is out there only created by the bet; this is the difference between gambling and life insurance. You are not related in anyway, economically, morally, or relationally, apart from this wager
- the whole creation of loss relates only to the bet itself
-Adverse selection
- Relates to the asymmetry of information available
- It is the insured who knows more about the insured than the insurer
- Are the people who go for insurance more likely to be high risk?
- Lemons market idea.
-Division of powers
- S. 92 Property and Civil Rights: provincial governments largely have legislative authority in this domain
- In QC, there is no private litigation for bodily injury resulting from an automotive accident (not the same in other provinces). There is for material injury, however.
- Insurance falls under this head of power because it essentially relates to ‘property’
-Banking, credit and insurance industries often intertwine and interact
-Hmwk:
- Read one of the two historical articles
- Generally, get the GIST!!
- We’re looking for particular things skim and then go back to the relevant sections after class
The Early History of Insurance Law – Vance
-Debatable whether insurance was known to the ancients; it depends on whether we take a broad or narrow definition of insurance.
-There seems to be little evidence for a narrow definition of insurance, which is similar to modern insurance, in the laws of Rome
-However, a broad definition of insurance – where one party assumes the risk of another party – is as old as society itself
-Bottomry and Respondentia bonds are a form of a broad definition of insurance where a lender of money can only claim the repayment if the ship arrives into port safely and is entitled to a premium for assuming the risk.
-Author traces hundreds of years of history to determine how insurance law was transported into the U.K.
-CML courts with highly technical and tedious rules of procedure were poorly prepared for settling insurance disputes.
- Merchants and underwriters largely relied upon arbitrators to settle disputes and thus avoid the CML courts.
-Lord Mansfield understood the principles of Insurance Law and reacted quickly to the needs of merchants.
-The doctrines he established have survived all of the many changes that have occurred in commercial conditions, and has left a complete system of insurance law in place
The Early History of the Insurance Contract - Holdsworth
-Similar to Vance’s article: a long history/search for the insurance contract among ancients civilizations. Author focuses on marine insurance.
- Introduction of Insurance into England was focused on marine insurance in the court of Admiralty.
-There was no appreciable progress in UK insurance law during the entire 100 years of the 17th century. Onlywhen Lord Mansfield came along in 18th century do we see progress.
-Early forms of life and fire insurance were also available in England, however it was not until the 18th and 19th century that the legal incidents and consequences of these forms of insurance were defined.
Insurance Law – May 5
-2389.A contract of insurance is a contract whereby the insurer undertakes, for a premium or assessment, to make a payment to the client or a third person if a risk covered by the insurance occurs; Insurance is divided into marine insurance and non-marine insurance.
-Idea of mutuality; idea of pooling
-The bigger the pool (the aggregate), the more you can take advantage of the average
- i.e. if you flip a coin twice, you might get tails both times. If you flip it a 1M times, you’ll likely get 50/50
-In Quebec, we have two categories:
- Damages
- Property, 3rd person liability
- Persons (life, accident, health)
-In other provinces, insurance is classified by peril or by subject matter
- i.e. in Ontario Act: one section is fire insurance and other sections divided into boilers and machinery
-there are public and private insurers
- public: government entities which administer insurance regimes created by the government
- employment insurance, automobile insurance, etc.
- private:
- heavily regulated industry
- what we’ll be looking at for this class
-there are good arguments for privatization of insurance
- i.e. moral hazard: if people aren’t paying for it, they’ll abuse it
- i.e. health insurance: people will clog up and go to hospitals when not really needed because its free
-role of intermediary between insurance companies and the actual purchasers of insurance is very important; their role is also a legal role
-so, classification is straightforward in Quebec; in CML, it is categorized by risk, etc.
KP Pacific Holdings Ltd v Guardian Insurance Co of Canada [2003] SCC 25 – CML – Classification of Risk – Multi-Risk / Multi-Peril
Facts: insured has multi-risk insurance policy, which covers fire. Hotel damaged by fire. Multi-risk insurance is efficient from both parties’ perspectives, but makes it difficult to classify the multi-risk policy to the rules of the Insurance Act. The insurer argues that the applicable limitation period is one year from the date of the loss, according to statutory condition 14 of Part 5, the Fire Insurance Part. The insured, by contrast, argues that this all-risks policy does not fit under Part 5, and falls instead under the general provisions of Part 2, where the limitation period is one year from filing proof of loss.
Issue: Should multi-risk insurance be classified under rules on fire insurance or general provisions?
Held: General provisions, as it cannot be shoehorned into fire insurance.
Reasoning (McLachlin, C.J.)
- Neither the language in Part5 nor the history of that provision supported the conclusion that the Legislature intended a multirisk policy to fall within Part5.
- Insurance Act lays down rules, including limitation periods, based on different and discrete categories of insurance.
- The outmoded category-based Act contains rules based on the old classes of insurance. The newer comprehensive policies are difficult if not impossible to fit into the old categories.
- It would be highly salutary for the Legislature to revisit these provisions and indicate its intent with respect to all-risks and multi-peril policies.
- Options to deal with multi-risk insurance include: chop up policy, rank the perils, or consider perils to be incidental and expel from discrete categories. Each has it’s own weaknesses.
- Multi-peril policies do not fit into Part V (Fire Insurance) of the Act, It follows that comprehensive policies are governed by Part 2, which is of general application. Accordingly, we conclude that the limitation period of one year from filing proof of loss applies, and that the appellant's claim is not statute-barred.
- Furthermore, the fact that the contract specifies a limitation period shorter than the one in Part 2, does not oust the longer limitation period as the Insurance Act does not permit the insurer to substitute contractually harsher terms than those provided in Part 2.
Ratio: Multi-risk insurance policies cannot be shoehorned into discrete classes of insurance and must be governed by general provisions of the Insurance Act.
Comments:
- Insurance Act says you cannot include provisions in insurance Ks that are harsher on the insured than the substantive law. (cf. CCQ 2414).
- SCC found the policy fell into Part II and the K was saved.
- Does KP Holding apply in other provinces?
- Can a shorter provision be put in where there is no statutory restriction?
Problem of classification in CML is a live problem.
Class Notes:
Facts: Insured hotel was damaged by fire. Insurer denied payment. Insured brings an action.
-in 2012, there were modifications to the BC insurance act to respond to the classification in this case
-This was a multi-risk policy
- problem was that where is this policy classified?
- Different sections of the act have different limitation periods
- problem was that for fire, you had one year from the date of loss; but for other types of insurance claims, you had a year from the filing of the proof of loss
-Timeline: date of loss proof of loss filing of the claim
-Thus, the BC statute was ill-equipped to handle this comprehensive insurance policy
-Courts looked to the purpose of the contract (multi-risk insurance policy) and ruled that insurers cannot make it harder for the insured to recover. This would be against public order.
-Does it apply to other provinces?
- Generally yes.
-Does it apply to other provisions as well, i.e. more than limitation provisions?
- Not really answered yet…
-You see the difference between the date of loss and knowledge of the loss?
-This act is a major overhaul of what was there before
-Now we move to insurance of persons:
- Individual:
- 2392.Insurance of persons covers the life, physical integrity or health of the insured; Insurance of persons is divided into individual insurance and group insurance; Group insurance of persons covers, under a master policy, the participants in a specified group and, in some cases, their families or dependants.
- Straight-forward
- Group:
- Usually structured as a master policy
- i.e. employers, McGill, etc.
- So insurer master policy members of the group (adherents)
- It’s a benefit for adherents since policy is cheaper, and benefit for the master policyholder because they get a better workforce (or student body) (i.e. if its health insurance: healthier workers!)
-Another problem of the classification of insurance is what fits into insurance?
-why wasn’t it insurance?
- Courts stated that there was no risk; insurance is based on the risk of uncertainty. The only risk attached to this is how the premium is invested (it may go up or down). If death is before 60, you still get the money. If this is insurance, than every pension scheme would also have to be categorized as insurance.
-As for the divorce in Idaho: generally, legal acts validly performed under other jurisdictions would be recognized in private international law. However, usually for this to apply, the individual must be domicile in that jurisdiction.
-In life insurance, the insurer runs the risk that the insured will die before covering the expected cost of the payout
- Annuity is the flip-side of this
-The result of this case was that many provinces adjusted their insurance acts to specifically include annuities within the definition of life insurance
-2393.Life insurance guarantees payment of the agreed amount upon the death of the insured; it may also guarantee payment of the agreed amount during the lifetime of the insured, on his surviving a specified period or on the occurrence of an event related to his existence;Life or fixed-term annuities provided by insurers are assimilated to life insurance but also remain governed by the chapter on Annuities. However, the rules in this chapter that apply to unseizability take precedence.