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Insurance Outline

Professor Baron
Spring 2007
Insurance is one of the principal sources of fuel for the litigation system.

Insurance = an arrangement for transferring and distributing risk
Collateral Source Rule = Tortfeasor should not benefit from a victim's insurance
Premium = money paid by insured to transfer the risk to the insurer, includes a
proportionate share of expected losses, reserve, profit, and overhead
Pure Premium = portion that covers only the proportionate share of losses, money paid by the insured.
Actuary specialist in statistics and probability, is able to make accurate predictions for losses that will
be incurred in a particular pool of insureds for particular risks.
Risk Distribution = insurance viewed from the eyes of the insurer or society as a
whole, the Insurer receives the risk and distributes it over a pool of insured's
Reinsurance = the method of solving the problem of an inadequately sized pool,
basically is insurance sold from one insurer to another

Retrocessional reinsurance where the reinsurer reinsures its risks

Risk Retention/Self Insurance = assets are set aside to pay the pure premium over
time or a series of events to set up a reserve, payments to reserve take place of
payments of a premium, avoids the overhead costs involved with premium
payments, claims are not a deductible business expense

Requires state approval

Adverse Selection = phenomenon that occurs when potential insured's are treated
alike irrespective of some factor that differentiates between risk
Reciprocal Insurance = insurance arranged by a non-profit mutual type of
association where members agree to share losses on a designated risk,
administered by an attorney-in-fact, only pay a pure premium when loss occurs
CDW collision damage waiver device used be car rental dealers to permit lessee to pay a fee in
exchange for the lessors agreement to waive the right to seek damages from the lessee in the event of car
- Not technically insurance, due to lack of distribution of risk across a pool
Surety - a pledge or formal promise to guarantee a loss or default of another

All Risks policy method of defining insured events as all fortuitous losses
- As opposed to named-perils coverage
Block policy insurance policy that provides coverage for goods while they are in transit between two
locations, while present on anothers property such as a warehouse, its a type of all-risk policy that
provides coverage for all losses that occur while a policy is in effect.
CGL commercial general liability policy (formerly comprehensive)
Claims made Policy coverage is extended only to claims made during the policy period

Based on the date that the insured made the insurance company aware
of the potential claim
Claims can be generated due to conduct that exits at least after the
retroactive date of the policy
This is in comparison to an occurrence policy

General Insurance Facts:

Reserves are turned into profit if they are not paid as claims
Large claims affect future rate payers, not existing insured's, premiums are raised
for additional reserves
"Insurance is one of the principal sources of fuel for the litigation system
Third Party Insurance = insurance for liability for the insured to a third party (car wreck, someone sues

15-30-5 liability insurance for a motor vehicle 25-50-25

First Party Insurance = recovery on the contract, payment by the insurer to the
named insured, you are suing the insurance company for what you are due
Omnibus Clause = statutorily imposed clause in auto liability policies which
extends coverage to all persons who operate the insured's vehicle with the
permission of the insured
McCarron Ferguson Act = Federal Statute recognizing that states are the sole
regulators of the "business of insurance", however there are several areas where
federal regulation comes in - Title VII, TIL, SEC, Anti-Trust

Austin says this was made in 1945 created in 1944

Co-Insurance = clause in property insurance which provides a formula for loss

sharing b/w a insurer and insured when the coverage is less than the total risk, is
often used in commercial properties where total loss is unlikely and the insured
elects to be covered for less than the total value of the property
CQV = Cestui Que Vie - the person whose life is insured
Excepted Clauses v. Exclusions = exception concerns a link in the chain of
causation, exclusions apply to the entire event

Floater = insurance coverage that is supplemental to property insurance, picks up

coverage of property that changes or is movable???
Incontestability = clauses seen mainly in life insurance policies whereby after a
certain length of time the policy is incontestable by the insurer on a basis of a
misrepresentation in the application
Subrogation = the right of the insurer who indemnifies the insured on a loss to
stand in the shoes of the insured in order to pursue the tortfeasor or another
third party who may be liable on the loss, usually a contractual right but may
be statutory
Loan Receipt Clause = clause designed to avoid the real party in interest doctrine
-when an insurer sues on a subrogation clause, it wants to be able to bring lawsuit in the name of the
insured, insured agrees the payment is a loan to be repaid to the insurer upon receipt from the
tortfeasor, similar to a mandatory deductible, it is how the insurer keeps a stake in the claim in the
name of the insured
Stacking = describes attempted recoveries by an insured on more than one policy
for the same Event
Surplus Line Brokers = handle rare forms of insurance, not regulated in the state,
no agent in the state, only a broker who can sell policies
Term Insurance = type of life insurance where the payment of a specified amount
results in the payment of a specified death amount if death results during the
time period specified in the policy, insured has a right to renew w/o regard to
health, no surrender value
Territorial Rating - idea that insurers look at the territory for risk assessment
Umbrella Policy - policy designed to cover losses which exceed the limit of
another liability Policy
UM coverage uninsured motorist coverage 1st party coverage
UIM coverage under insured coverage
NAIC national association of insurance commissioners
Uberrimae fidei the most abundant good faith absolute and perfect candor, the
absence of any concealment or deception, however slight.
Moral hazard clause cant insure same stuff with multiple policies they only
pay their fair share eventually
Insurance is regulated by the States (the State Division of Insurance)if what you do is considered insurance, then
you will be regulated by the State Division of Insurance. Main purpose of the DOI is to ensure that insurance
companies can pay their claims (have adequate reserves, well capitalized, etc).
Before we get to insurance, we start with ignorance ignorance can be too profound to manage

- We have a way to cope with not knowing. Managing risk.

What is Insurance?
Insurance = risk sharing. Also defined as an arrangement for transferring and distributing risk.
o Its a way to manage risk
Insurance = a contract where one undertakes to indemnify another against loss, damage or liability caused
by an unknown or contingent event. (Life insurance is an exception to the insurance definition. You know
are going to die, it is just a matter of time.)
What is Risk?
Risk = Risk is a rational device for managing ignorance. Ignorance is not knowing what is going to happen
in the future to cause a loss. You never know when you are going to have a loss. Risk could cover a
bundle of risks or an individual risk such as hazard or peril or it could be an aspect of risk. Some
ignorance is so profound that it cannot be managed.
Consider guy who gets hit by a car. He suffers risk of bodily injury, risk of loss of income, risk of property
damage, risk of loss of property, spouse has risk of loss of consortium, etc. These risks can be managed in
a bunch of ways, such as health insurance, disability insurance, property insurance, sick leave offered by
ER. All of these risks can be anticipated and can be assigned to someone else.
The tortfeasor is responsible for the damages he has caused
Collateral Source Rule (AKA collateral benefits rule). Tortfeasor is still liable for the full extent of damages
that he has inflicted on the plaintiff, even if the plaintiff receives compensation from collateral sources (i.e. is
fully compensated by insurance). The defendant is always held responsible for the damage he inflicts. The
defendant cannot tell the jury about the collateral source rule
Jurgensen v. Smith, 2000 South Dakota 73, 611 NW2d 439. (Supp. Pg. 3) Upheld Collateral Source Rule
3/2 Decision
Defendant should not have the advantage of the collateral source rule
One type of tortfeasor can is allowed to bring the collateral source rule into court DOCTORS doctors
can tell the jury that all the plaintiffs medical bills are paid
Cruz v. Groth: defendant sought to introduce evidence that plaintiff had medical insurance coverage
o Upheld collateral source rule
Did not allow evidence of other insurance.
Forms of Risk Management:
1. Risk Control, Avoidance, Reduction this is to make enterprises safer (this involves safety inspections,
putting whistles on vehicles when they back up).
a. Commercial insurers are very active in this division, they are very involved in making things safer
b. A.L.P.S. Attorney(s) Liability Protection Society
i. Very involved in risk control and avoidance for legal malpractice
2. Risk Transfer + Distribution of Risk (Insurance) Traditional Insurance. This is the transfer and
distribution of risk over a pool.
a. Example:
i. Risk of losing a textbook
ii. Hardy is insurance salesman, selling a $400 policy for law books. You may not have
even though that it was a risk before Hardy began talking about it. Policy sold for law
book covering up to $400. Hardy is trying to create a pool of students. Hardy is charging
a premium to enter the pool of students.
iii. How is the total premium computed?
1. Pro rate share of loses for pool
a. 60 students in pool, total loss for year estimated by actuary is $300
equaling a pure premium of $5 per student
b. $5.00


Reserve cost added on to the pure premium to cushion in case the insurer has a
bad year and underestimated
a. $2.00
3. Administrative Cost of the Insurance Company
a. $15.00
4. Advertising/Agents Fee
a. $15.00
5. Profit
a. $3.00
6. Total Premium $40 = $5.00 + 2.00 + 15.00 + 15.00 + 5
iv. Student pays $40 to become a part of the pool and has the policy
v. The students real risk is $5 but because Hardy is such a good salesman the student is
willing to pay $40 for the policy.
b. Total Premium =
i. Pure premiumInsureds proportionate share of total losses
ii. Reservethe amount of money that needs to be set aside in case the insurance company
has a bad year.
iii. Costs of running the insurance companystaplers, paper clips, pens,.
iv. Business/Sales commissionsalary of the insurance sales agent.
v. Profit
c. Re-insuranceinsurance sold by one insurance company to another insurance companythis is
a way to spread the risk of loss. Re-insurance covers all claims in the pool over a specified dollar
i. Traditionally re-insurance was for insurers that had a small pool and felt they had some
exposure to catastrophic losses.
ii. This reinsurer premium is passed right along to the consumer.
d. Insurance is sold on a firm commitment projection basis.
i. Insurance transactions are all done in the futureyou pay a premium up front and
you are then covered for (x) amount of months later. Regardless of how big of a loss
there is, the insurer makes an unconditional promise to pay. If you have unusually high
claimsthe future rate payers suffer the impact of high claims, not the existing rate
e. ReservesThere should be money on hand to pay the claim or loss.
i. Once reserves are created, if they are not utilizedthen they are turned into profit for the
insurance company.
f. Notice requirements are put into every policyyou have to contact the insurance company
within 24 hours of the loss.
i. Look at how the notice requirements affect the riskHow has the violation of notice
requirement affected the traditional definition of Insurance. Look at if the risk is
g. The larger the pool the better to keep the premium down.
i. Larger pools allow actuarial estimates to be more accurate.
ii. Larger pools reduce administrative expenses per customers (efficiency).
iii. Generally speaking the larger the pool is, the better. The larger the pool the lower the
fees because they are spread over more people.
h. Reciprocal Insurancean agreement by a number of people to share losses. An attorney at fact
is the person who administers this reciprocal insurance. No one pays a premium up front, but all
parties share in the losses as they occur.
i. The attorney at fact has to comply with regulations.
ii. Example:
1. Roseland the SBA vp gets everyone together and agrees to pay for the losses as
they arise. If 60 people join this agreement and one person loses their books at
the cost of $100, everyone pays $1.66 to cover the cost of one persons loss. If
there is only one claim, then everyone only paid $1.66 versus $40 for Hardys



Adverse Selection occurs whenever potential insureds are treated alike irrespective of some
factor that differentiates them as insurance risks. This occurs when a higher risk party is introduce
into a pool causing the lower risk parties to suffer from increased premiums.
i. Higher risk insureds are excluded from the pool
ii. Ideally, high risks candidates will be put in a higher risk pool.
iii. This happens in the area of term life insurance polices and is tolerated. This is straight
1. Insurance company has the right to have you examined. You have to submit to a
physical and make sure you are not going to die right away. Once you get on a
term life policy, it is automatically renewed. If you continue and are
automatically renewed, you are not subjected to another medical examination.
If you become sick the insurer will not find out. In the renewal of term life
insurance, adverse selection sets in because the higher risks cant get insurance
elsewhere so they stay in the pool.

Risk Retention/Self-Insurance Reciprocal

a. Under this system, you set aside assets that match the pure premium over a period of time into a
b. Generally only used by larger companies.
c. Under this you avoid a major percentage of the premium that you would normally have to pay.
This is because your only cost is the cost of the pure premium, you dont have to pay the ins cos
d. Some types of self-insurers are regulated by the State. The State makes sure you have enough
money to pay the losses.
i. In SD you are required to have both:
1. Motor Vehicle Insurance (or post a 50k bond with division of insurance); and
2. Workers Compensation insurance that covers injuries to employees
e. Banks and mortgage companies might require that if you self insure you get traditional insurance
f. Another drawback of being self-insured/retaining the risk is the IRS will not consider the money
put into the reserve as business expenses.

Side note: SD legal insurance plan sets aside 55k for each time a lawyer contacts ALPS regarding a
potential malpractice claim
- Thats what the books reflect not sure how that works
- Many times this goes to the reserve
- If it pays less than 55k thats call and unexpected recoverable
Griffin Systems, Inc. v. Ohio DOI
Griffin offered vehicle protection plans. The VPP only protected against defects of the vehicle (warranty) and didnt
create indemnity against unrelated perils. It covers mechanical breakdowns of the vehicle, an extended warranty.
Sued by OH Dept of Insurance saying these were insurance and they didnt comply with ins. rules. Found for


Court holds it is not insurance, but it is a warranty. A warranty promises indemnity against defects in an
article sold, while insurance indemnifies against loss or damage resulting from perils outside of and
unrelated to defects in the article itself. The Court held that status should not be taken into consideration.
The Dissent (Rogerthinks the dissent is right) says that Griffin was not the manufacturer of the parts and
therefore if there is a claim, Griffin pays out money to the injured partythey dont just fix the problem
with parts on hand, because Griffin does not have parts on hand. Griffin also reinsured itself with another
insurance company. The fundamental purpose of insurance regulation is to make sure that the
insurance company can pay claims.
This case is the minority view. Elements as distinguishing characteristics of insurance are:
i. K between an insurer and insured which exists for a specific time period.
ii. An insurable interest possessed by the insured.
iii. Consideration in the form of a premium paid by the insured.



iv. The assumption of risk by the insurer.

Dissents five factors (different than list above)
a. The insured possess an insurable interest
b. The insured is subject to loss through the destruction or impairment of that interest
c. The insurer assumes the risk of loss
d. Such assumption is part of the general scheme to distribute actual losses among a large
group of persons bearing similar risks
e. The insured pays a premium as consideration for the promise.
Baron thinks that the status of the party (manufacturer, independent third party) is of consequence, contrary
to the majority opinion. When it is the manufacturer or seller that gives the VPP, then they are just
guarantying the quality of the product.
Look at supplement pg 2South Dakota Supreme Court holds the following as insurance:
i. Sheriffs bond
ii. The bond on an assistant bank cashier
iii. Title Option Plus being sold as an alternative to Lenders title insurance policy
iv. Vehicle Protection Plansthey are generally considered to be insurance unless they are
in the nature of warranties by the seller or manufacturer.
v. SDCL 58-1-3(3) specifically excludes motor vehicle service contracts from regulation.

58-1-2 (8) insurance a contract where by one undertakes to indemnify another or to pay or provide a specified or
determinable amount of benefit upon determinable contingencies
58-1-3(3) exemptions for vehicle protections plans (from regulation)
Truta v. Avis Rent A Car System, Inc.
The Defendants are the car rental agencies. The scrutiny is over CDW (collision damage waiver)the agency pays
up to $1,000 damages no matter whose fault the accident is. The CDW is a valid contract. This is not insurance it is
not a pooled risk and there is no reserve.
1. The plaintiffs thought the CDW was insurance and the charges were excessive and unconscionable. The
plaintiffs wanted the rental agencies to be regulated as an insurance company because then prices would be
2. The Court held that the CDW was not insurance, because the lessor is not agreeing to pay anybody
anything, but is simply agreeing not to hold the lessee liable, there is no need for accumulating
reserves. In this situation there is no need for money to be on hand in a reserve to pay a claim.
3. All insurance Ks concern risk transference, but not all Ks involving risk transference are
insurance. Even in those states that have the broadest statutory or decisional definitions of insurance,
which if literally applied would include all or nearly all Ks transferring risks, many arrangements
encompassed w/in the scope of such definitions still are not treated as insurance transactions in legal
4. The primary purpose of the K was to rent a car, not purchase insurance.
5. This is majority rule.

Where low income people paid into a fund and got their medical services taken care of by a medical
company was not insurance. This was primarily a contract for providing medical services.
Where lawyers enter into an agreement with a medical facility to handle all of their medical malpractice
claims for a set fee, it was found to not be insurance.
Credit Life insurance is where a vendor will cancel the contract upon death of buyer. It is usually
considered incident to the sale and not regulated. But if it is offered by a 3 rd party is will be considered
insurance and will be regulated.

Other Situations pgs 16 and 17

Case of California Physicians Service v. Garrison
o Is that insurance?
Case of Transportation Guar. Co. v. Jellins
o Is that insurance?


What constitutes insurance? Page 5 of supplement

- Lundeen v.Schumacher
- FDIC v.Western Surety Co
- State Div of Ins v. Norwest
Classification of Insurance:
Often statutes require that a particular policy cover both 1 st and 3rd party interests. Ex: auto policy covers your
property from damage as well as third parties who are injured by you.
1. First party insuranceinsurance company pays the insured. The insurer makes a payment under the
contract. Includes property insurance, collision insurance, life insurance.
2. Third party insurance Insurance company pays a third party. Liability insurance.
a. Risks associated with being sued by another party
i. Auto liability
ii. Med or legal malpractice
iii. Home owners policy
3. Life insurance has its own class. It covers the first party, but payment goes to a third party.
a. CQV the insured person
Automobile Insurance 15-30-5usually third party coverage. Public policy is that it is desirable to have
everyone have liability insurance. Virtually all states require everyone to have liability insurance (financial
responsibility laws).
1. In the beginning, it was only liability insurance coverage.
2. 32-35-70--$25,000 of coverage for injuries paid to one claimant, $50,000 payable to all persons injured,
$25,000 is the amount payable for property damage. This is SDCL. If you are injured by someone, the
max. you can get form this type of minimum policy is $75K.
3. First Party coverage
a. Collision and comprehension insurancefire, hail, or collision
b. Medical payment provision
c. Un-insured motorist coverage.
No Fault Legislation designed to remedy the inability of the tort system to rapidly and fairly compensate car
accident victims. The idea is to remove minor claims from court by eliminating fault as a predicate for liability. The
laws require payment upon accrual of loss and require all vehicle owners to carry no fault ins. Generally a covered
person cant recover against another covered person for basic economic loss, and a covered person who hasnt
sustained serious injury cant recover against another covered person for non-economic loss. There are maximum
limits you can collect. But you never have to prove fault.
Setup like workers compensation
Limitations on recovery, ceilings
Schedule of Damage
No right to sue tortfeasor
Liability Insurance
3rd Party Insurance (coverage)
1st Party Coverage
Notes p. 20
Note 4 Classifications of Insurance
Note 5 Life Insurance
Note 7 No fault legislation
Liability Coverage

15-30-2 = $15,000 one persons injuries, $30,000 two or more persons, $2,000 property damage
10-20-2 = $10,000 one persons injuries, $20,000 two or more persons, $2,000 property damage
SD requires 25-50-25 = $25,000 one persons injuries, $50,000 two or more persons, $25,000 property damage
Now, in SD, it is required to carry automobile insurance
1st party coverage
Medical payment
UM (uninsured)
UIM (underinsured)
Collision (not mandatory)

Page 246 in book sub (a) means in which the coverage is paid see this!
Page 16 of Supplement 32-35-70 and 113 Coverage and Amount
- Every driver or owner shall maintain insurance
The state regulations insurance through the division of insurance
- Controlled by the executive branch
- Standard fire policy page 18 of supplement
o Actually wrote what the policy is, mandated by statute.
- Roughly regulating 60 local insurance companies in SD
- Roughly 1400 foreign insurance companies here
- Typically insuring financial health of the insurance entity.
- Merl Schriber is the commissioner of the division of insurance in South Dakota
Three ways a Division Of Insurance can regulate rates:
i. File and usean insurance company files for new rates and the day it files is the day it can start to use that
new rate. Some auto insurance policies can do this in SD. (Baron didnt mention this SD part)
ii. Prior approvalwhen an insurance company wants to set new rates they have to file for those rates and
wait for approval. SD and most states use this system, the most common form.
iii. The division of insurance actually sets the rates. This is uncommon.
Selected provisions of Chapter 58-24 (on rate making)
Chapter 58-24
Fire, Marine, Casualty, and Surety Insurance Rates and Rating Organizations
Page 13 of the Supplement
58-24.1 Purpose of chapter. The purpose of this chapter is to promote the public welfare by regulating insurance
rates to the end that they shall not be excessive, inadequate or unfairly discriminatory, and to authorize and regulate
cooperative action among insurers in rate-making and in other matters within the scope of this chapter. Nothing in
this chapter is intended to prohibit or discourage reasonable competition, or to prohibit or encourage, except to the
extent necessary to accomplish the aforementioned purpose, uniformity in insurance rates, rating systems, rating
plans, or practices. This chapter shall be liberally interpreted to carry into effect the provisions hereof.
58-24-2. Application of chapter. This chapter applies to all forms of casualty insurance, including fidelity, surety,
and guaranty bonds, to all forms of property, fire, marine, and inland marine insurance, workers compensation, and
to any combination of any of the foregoing, on risks or operations in this state. Inland marine insurance shall be
deemed to include insurance now or hereafter defined by statute, or by interpretation thereof, or if not so defined or
interpreted, by ruling of the director, or as established by general custom of the business, as inland marine insurance.
58-24-5. Excessive, inadequate, or discriminatory rates prohibited. Rates shall not be excessive, inadequate, or
unfairly discriminatory.

58-24-6. Making of rates Matters considered. TO determine whether rates are excessive, inadequate , or
unfairly discriminatory, the director may consider:
1. Past and prospective loss experience within this state;
2. Conflagration and catastrophic hazards;
3. Reasonable margin for the underwriting profit and contingencies;
4. Dividends, savings, or unabsorbed premium deposits allowed or returned by insurers to their policy
holders, members, or subscribers;
5. Past and prospective expenses specially applicable to this state; and
6. All other relevant factors within and outside this state.
The loss experience shall be on at least the most recent five-year period for which such experience is available. If
South Dakota data are not adequate because of insufficient sample size, the director shall consider the loss
experience or the expense data, or both, outside this state.
Insurance Regulation
Insurance is regulated by the states. SDCL Chapter 58 regulates insurance in SD.
SDCL 58-24-1: gives purpose of insurance regulations. Wants companies to have cooperative action among
insurance rates among insurers. This type of thing is prohibited by anti-trust laws, but we get around it by
statute. The idea is that actuaries need the most information possible to make good predictions.
In South Dakota the division of Ins. oversees 60-70 domestic insurance companies and 1400 or 1500 that are
out of state corporations and regulates approximately 10,000 insurer agents (no called producers rather than
agent). The staff is less then twenty-five people.
Purpose of insurance regulation:
a. Protect consumers
b. Regulate company reserves
c. Guarantee solvency of company
d. 58-24-5: Rates shall not be excessive, inadequate or unfairly discriminatory. This is very
broad. The main purpose of regulation is not to protect consumer from price-gouging.
e. 58-24-10: Every such filing shall state the posed effective date, and shall indicate the character
and extent of coverage.
There is also statutorily imposed conditions and restrictions on policies such as: omnibus clause, fire insurance,
UIM protection. In cases like these, the legislature may require an ins co to sell a particular line of insurance
as part of another policy or in order to allow it to do business in the state.
NAIC Agent Liability
Wilson v. All Service Insurance Corp.
sues broker because ins co that broker picked ended up being insolvent and couldnt pay claims. Summary
Judgment for broker.
1. Broker does not have to investigate the Ins. Co. to make sure it is solvent; that job falls on state DOI.
2. All that broker needs to do is make sure that the ins company is approved to do business in the state.

Where agent tells guy he isnt eligible for crop insurance, and he is wrong, broker is liable. He wasnt under a
duty to make such a determination but when he does he is liable.
Where broker takes premium and doesnt purchase a policy for a client, there is a cause of action for this. Court
also allowed the cause of action to be assigned to the tort victim.

See Page 21 in supplement - Aesoph and Kobberman

See Page 22 Northstar v. Rasmusse
No Fault Legislation Basic Principles of Liability Insurance and the Law of South Dakota:
1. Liability insurance for accidents caused by owner of the car.




Direct actionno direct action is permitted until you get a judgment. You cannot sue the TFs
insurance company directly. You can only sue the ins. co once you have sued the TF and obtained
a judgment. SD and most states do not allow direct action.
Liability insurance for accidents caused by person borrowing the car.
a. General Rule is that cannot sue Owner. must sue TF. Some states do allow suits against the
owner (IA).
i. Exceptions:
a. Negligent Entrustmentgiving keys to an unsafe and unlicensed driver
a person who has 4 previous DUIs
i. The borrower of the car has to have a valid drivers licensed or
the owner could be held liable
b. Vicarious liability/Respondant Superior where drivers is working for
the owner of the car
c. Direct negligencefailure to maintain vehicle in proper working order.
b. Omnibus Clause (third party insurance). Although the owner may not be liable, the insurance
company probably will be. Essentially the insurance covers anyone that drives the car.
i. Not in title 58
ii. The owners insurance company will be liable for the TFs accident because there is an
omnibus clause in every contract. Requires owners insurance policy to cover every
permissive driver of the vehicle.
1. Omnibus clauseDriving somewhere without permission is outside the
omnibus clause and is outside the vicarious liability for the owners liability.
a. Example: if the driver takes a detour from the course and scope of
employment (under vicarious liability) and detours from where he was
originally going to go.
b. Biggest question regarding omnibus clauses is whether there was
express permission or implied permission.
c. Omnibus clause doesnt extend to someone who steals your car. They
must be a permissive user.
c. The plaintiff cant sue the insurance company directly. The plaintiff must get a judgment against the
tortfeasor first.
Collision coverageyour own insurance
a. Subrogationthe right of insurance company to step in the shoes of its insured to sue the
tortfeasor for damages.

See page 30 of supplement for more information about omnibus clause.

See page 25 of supplement stover v. Critchfield allowing one to drive your car does not in itself create liability in
the owner of the car.
Metz v. Universal Underwriters Insurance Co.
National Car Rental in this case is not liable just because they let someone drive their car. Metz is trying to collect
from Nationals Insurance Co. based on omnibus clause.
1. The insurance companys position is that they are relying on their policythat says the insurance doesnt
cover rental cars while leased to others.
2. The exclusion is the rental cars, cars rented to others.
3. The Plaintiffs response is that he was a permissive user and the state statute require permissive users to be
4. The Court held that Universals exclusion of automobiles while rented to others conflicts with Insurance
Code, and is therefore ineffective to limit coverage to only that of Hamlin.
5. The theme from this case isthe public policy (based on CA statute) is that all drivers have to be insured.
The public policy seen in this coverage is void because it is against public policy. Therefore this policy
provision is not valid, it is void.
a. Public policy we have uniformly held that the entire automobile financial responsibility law
must be liberally construed to foster its main objective of giving monetary protection to that ever
changing and tragically large group of persons who while lawfully using the highways themselves
suffer grave injury through the negligent use of those highways by others.


The owner of the car is not liable just because he let someone else use the car. But the owners insurance
company will be liable.

Liability Insurance (with lawyers)

Claims made policy
o Lawyer Malpractice Graph in Notebook Occurrence policy versus a claims made policy. This
development happened because of lawyer malpractice but it has expanded into other areas. Now it
is included in school districts and businesses (sexual harassment, civil rights claims, etc.).
Insurers can look at judicial move in that time period when analyzing the risk. Here is an
example. How many got civil rights judgments last year? Only 3 claims got money and average
was $200. Movement limits insurers exposure. When you switch to claims made, date of
conduct does matter. Auto and homeowners policies are still occurrence policies. Coverage
exists on claims if you were covered when actions happened.
o Wanted a claims-made trigger, obligating the insurer to pay or defend only those claims made
during the policy period
o You see this in other forms of insurance
Political subdivisions
Civil rights insurance to a municipality or county
School districts
SDCL 32-35-71. Conditions of operators policy Nonowned vehicles Limits of liability. An operators
policy of liability insurance referred to in 32-35-68 shall insure the person named as insured therein against loss
from the liability imposed upon him by law for damages arising out of the use by him of any motor vehicle not
owned by him, within the territorial limits described in 32-35-70 and subject to the limits of liability set forth in
32-35-70 with respect to an owners policy of liability insurance.
Your insurance policy has to cover you whenever you drive someone elses car. So not only are you insured by the
owners policy (omnibus clause) you are also insured by your insurance. Question is then which policy pays first?
Primary coverage has been adopted by custom (not statute) and that is that the insurance on the car pays first
(insurance required by omnibus clause). This holds true unless the owner of the vehicle is anyone engaged in the
business of selling, repairing, etc cars.
Auto-Owners Ins. Co. v. Enterprise Rent-A-Car Co.
Auto-Owners Insurance Company is the insurer of the operator of a rental car that was involved in a collision. AutoOwners brought a declaratory judgment action to determine whether it or Enterprise Rent-A-Car had the duty to
provide primary coverage on a vehicle that was operated by one of Enterprises customers. The circuit court
determined Enterprise had the primary obligation to defend and indemnify. Enterprise appeals.
1. What supports Auto-Owners argument? The omnibus clause
2. Enterprise had a lease that said if you have other insurance then that has to kick in first, the lease supports
Enterprises argument
3. Trial judge said under 32-35-70 pays first, 32-35-71 pays second
4. SC upheld trial court in an unanimous decision
5. Insurance on the car pays first, insurance that follows the driver pays second
State Farm v. Bottger: page 34 of Supplement:
- Check this out holding was based on a reasonable belief even though 32-25-71 mandates that insurance
extends to all vehicles driven by the insured.
Supplement p. 8
32-35-113. Maintenance of financial responsibility Violation as misdemeanor.
Populism and Insurance Regulation: page 35-38 in the text book


States are the primary regulators of the division of insurance.
The United States Supreme Court in 1868 said that the making of a contract or policy of insurance was not
a transaction of commerce. (Paul v. Virginia)
a. Therefore congress could not regulate insurance under the commerce clause.
3. McCarran-Ferguson Act (1945)Grants broad authority to states to regulate insurance. Sets up reverse
preemption and says that no federal law can preempt state law regarding insurance.
a. This Act came after US v. South Eastern Underwriters Association (1944) where the court
reversed Paul v. Virginia.
The business of insurance and every person engaged therein, shall be subject to the laws of the states which relate
to regulation or taxation, unless:
1. Specifically related to the business of insurance
2. The challenged activity didnt constitute the business of insurance.
3. The state had not enacted a law for the purpose of regulating the business of insurance which would be
invalidated, impaired, or superseded by application of Fed Law.

Entire McCarran-Ferguson Act on p. 64 of Supplement

Where the McCarran-Ferguson Act (MCFA) doesnt shield insurance companies from federal regulation:
1. RICO does apply to insurance companies.
2. Mergers: The SEC can disapprove a merger of two insurance companies that is approved by a state. The SEC
is regulating the relationship of the shareholder to the company.
3. Financing ins policies: Question as to whether truth in lending (TIL) act applies to insurance companies.
Whether they should disclose the APR. Split of authority.
4. Anti-trust laws: Split of authority - sometimes apply because this issue isnt regulated by states at all.
Argument against this is that statutes (see SDCL) want insurance companies to cooperate in setting rates so
that actuaries have better information.
i. Agreement between insurance company and pharmacy that you can only get prescriptions
filled at a certain pharmacy. Not considered to be business of insurance, therefore not
shielded by MCFA. Therefore, subject to anti-trust laws.
5. Product Liability Risk Retention Act - allows companies to self-insure. This is a federal regulation that
insurance companies must comply with and they are not shielded by MCFA.
UM and UIM Coverage
UM coverageUn-insured motorist coverage
UIM coverageunderinsured motorist coverage
Clark v. Regent Insurance Company(this is an expansive reading of first party coverage)
There is hit and run accident, so dont know who TF is. Car was just swerved and ran off the road. Both owner and
injured passenger file claims under UIM coverage. This is a Phantom Vehicle case because there is no proof that the
other vehicle exists. There are two policies, both require physical contact with vehicle insured.
1. The Statute involved in this case is SDCL 58-11-9 (pg. 35 in supplement). it covers hit and runs, but
doesnt specifically define whether there needs to be physical contact.
2. The insurance company argues that policy requires that need physical contact to collect in a hit and run
situation. Concern over fraud if no physical contact is required.
3. The insured says the insurance company argument is void and against the public policy of the statute.
4. The South Dakota Supreme Court says dont need physical contact to be considered a hit and run and
therefore rules in favor of the motorist.
a. The purpose of the uninsured motorist statutes is to provide the same insurance protection to the
insured party who is injured by an uninsured or unknown motorist that would have been available
to him had he been injured as a result of the negligence of a motorist covered by the minimum
amount of liability insurance. To accomplish that purpose, the provisions of the uninsured
motorist statutes are construed liberally in favor of coverage. This clause is void because of a
public policy.

5. Majority rule is that physical contact is required. Case where a chunk of ice fell off a truck, hit a car, and
caused an accident was sufficient physical contact to provide coverage.

There is a split of authority regarding whether there is UM coverage for drive by shootings.
For drive by shooting case in SD, SDSC found there was no coverage because the vehicle wasnt being used for
Where kids were screwing around in a camper and left engine running. Found no coverage because vehicle was
used as a residence, not transportation device. Therefore no UIM coverage.
UM coverage does not extend to property damage
Page 95 of supplement uninsured motorist and drive by shooting cases
Page 93 of supplement state farm v. vostad

Cimarron Insurance Company v. Croyle SD SC

Brother driving dads car, sister passenger. Accident. Sister injured. Sister tries to claim on the coverage of her
father. The policy is 100-300-100. Declaratory judgment, no coverage.
1. The insurance company relies on the policy which has a household exclusion.
2. The daughter claims that the policy is void under the omnibus statute.
3. The Trial court said there has to be $25,000 coverage to the daughter. Affirmed.
a. The policy is void because you have to have mandatory coverage per UIM statute. However court
says that it is void up to the statutory minimum of UIM coverage. An excess beyond the statutory
minimum is excluded by the household exclusion.
4. SD followed the majority rule. Other jurisdictions will void the policy up to its limits, not just the statutory
5. Immediately, the South Dakota Legislature overruled this case by enacting 32-35-70:
a. The policy may entirely exclude or limit coverage pursuant to 58-11-9.3, or for a relative residing
in the named insureds household. The Legislature says you can have a household exclusion
policy and it will be enforced even under the statutory minimums.
b. The Rule todayThe house hold exclusion policy is valid. You cant get household coverage in
South Dakota.
UIM (Underinsurance) Statutes and various UIM/UM statutory provisions in SD
Supplement p. 45
UIM (Underinsured Motorist) Coverage Issues
Supplement p. 46
P is seriously injured by TF. Ps Damages exceed $300,000. P has UIM coverage of $100,000 for bodily injury or
death of one person. The TF has a liability insurance policy with a limit of $50,000.
How much does P get from UIM coverage?
o Two answers:
1. Get $100,000 totaling $150,000
2. Subtract off and she gets $50,000 (this is the SD answer)
UIM coverage.
Required by statute in SD.
Hypo: TF has policy with $50K liability coverage. has $100K UIM coverage. has $300K injuries. gets
$50K from TF. will get $50K from its UIM coverage (limits of UIM coverage less recovery from TF). See
has $25K UIM. collects $25K from TF. doesnt get anything from UIM.
Statutes are designed to prevent stacking of insurance policies so that a person doesnt get covered multiple
times for the same injury.
Connie Phen Case

Facts: She was a passenger on motorcycle. She has policy with Progressive and driver of motorcycle has policy
with Financial. She got $25,000 from financial. TF doesnt have insurance. Her bills so far are $100,000. Her UM
(uninsured) is $25,000. Suit is against her own insurance company. They have policy with anti-stacking clauses.
This supports their position. She sues for $25,000 and for bad faith.
Procedure: Trial Judge she got the money. They relied on older case (Westlaw) from 1973 there is coverage.
Appeal wasnt against public policy found in statute. Found in paragraph 10 quote from Westlaw case. She can
collect twice now. Supreme Court said as a matter of law it was not bad faith. This case is about stacking. Defined
in paragraph 9. Stacking is permitted in this situation. Policies belong to different people.
Public Policy: Paragraph 22.
Notes: Other unsuccessful arguments by Progressive paragraph 12, the 1973 decision should not apply. Each
amendment is reflected in italicized language. UM statute. The only change is that the insured can reject coverage.
Second change deals with amounts. They are trying to distinguish Westphal. The statutes dont change the
Westphal case. The UM policy doesnt apply because we have 2 different policies owned by 2 different people.
Tortfeasor is uninsured.
1. Financial Indemnity pays Phen $25,000
2. Phen has a claim against Progressive, wants to collect $50,000 from them
3. Progressives position is that you are not allowed to stack these two, they are relying on the policy language
4. Definition of stacking in paragraph 9 of the opinion
5. Also sues from UM coverage and for bad faith
6. What is wrong with the provisions? They are void, they violate public policy of the uninsured motorist
Nickerson v. American States Insurance
Supplement p.46
Stacking of UIM coverages is disallowed by SDCL 58-11-9.7 and 58-11-9.8. This can produce some very harsh
results for plaintiffs who are seriously injured and for who separate UIM coverages have been paid for. [In the
Nickerson case, Justice Amundson dissented in a very well-reasoned opinion, arguing that stacking should only be
a concern with more than one on the insureds own policies. In this case, the insured should be allowed UIM
coverage of both her primary and excess insurers.]
Hockett v. LaPointe
Supplement p. 54
Westfield Insurnace
Supplement p. 34
H and W have UIM coverage for $500,000. They are killed by tractor trailer driver. TF settles with estate for
$750,000. That is $375,000 for each of them. Leaves $125,000 on their UIM policy. What their estates want to
collect. Policy says that if there is just one accident, they will only pay $500,000. Insureds lose. Turn to p.28. But
the court said that we uphold policy language rather than the statute construction. The insurance company paid
$144,000 for motor home and they got that out of the $750,000 as subrogation.
1. Gallant killed in car accident. Ins co pays property claim of $144K. Then collect $750K from TF liability
ins. Ins co wants to get at the settlement and says they need to be reimbursed for $144K. Court allows the
2. Court didnt allow collection under UIM coverage. Daughter claimed that they werent made whole by
$750K so deserved UIM coverage. Not allowed.
3. SD SC explicitly rejects the make whole doctrine. Ins co gets entirely reimbursed. Daughter ends up
with approx $606K.
Hoglund v. Dakota Fire Insurance Co.
Supplement p. 55
Hartford Fire Insurance v CA 1993 (The Mother of all antitrust cases.)
Ps alleged that both domestic and foreign Ds violated the Sherman Act by engaging in various conspiracies to affect
the US Insurance market. Domestic Ds argued that the McCarran-Ferguson Act precludes application of the
Sherman Act to the conduct alleged; further, international Ds argued that the principle of international comity

requires the district court to refrain from exercising jurisdiction over certain claims against it. The District Court
granted Ds motion to dismiss; the appellate court reversed. USSC held that the most of the domestic Ds were not
immunized from anti-trust liability by the McCarran-Ferguson Act; and, the principle of international comity does
not preclude district court jurisdiction over the foreign conduct alleged.
Ps complaint alleged that Ds wanted to force insurers change the terms of their standard CGL policies; the four
changes were:
1. Change insurance coverage from occasion based to claims-made based.
2. Change the claim-made policy to employ a retroactive date provision.
3. Elimination of sudden and accidental pollution coverage
4. Legal defense costs to be counted against the stated limits providing a legal defense cost cap
Hartford and Aetna sought the changes, and if the changes did not take place, Hartford and Aetna would refuse to do
business with the reinsurers. It took a while, but Hartford finally obtained the changed forms.
Issue #1 Court had to determine whether the activity constituted the business of insurance and would be
preempted by the McCarran Ferguson Act. Held Yes it was insurance and therefore preempted (should be
regulated by states)
Issue #2 Was this a boycott? If it was, 1013 of the McCarran Ferguson Act says that the Sherman Act is
preempted. Held: No it was not a boycott, it was only a concerted agreement. Scalia goes to special pains to say
this isnt a boycott.
This case is a huge victory for the insurance companies.
**Holding: the grant of immunity under McCarren Ferguson applies, even if these entities deal with reinsurers who
are not regulated. Insurance companies can collude to change their forms unless state law precludes it.
Hartford Fire Insurance, Co. v. California et al., 113 S. Ct. 2891 (1993)
Nineteen states and numerous private parties brought antitrust suits against domestic insurers, domestic and foreign
reinsurers, and insurance brokers which agreed to boycott general liability insurers that used nonconforming forms.
The United States District Court for the Northern District of California, Schwarzer, J., entered order dismissing
suits, and appeals were taken. The Court of Appeals, reversed and remanded. On writ of certiorari, the Supreme
Court, Justice Souter, held that: (1) domestic insurers did not lose their McCarran-Ferguson Act immunity from
federal regulation simply because they agreed or acted with foreign reinsurers allegedly not regulated by state law,
and (2) district court should not have refused to exercise Sherman Act jurisdiction over foreign reinsurers under
principles of international comity. The Supreme Court, Justice Scalia, further held that plaintiffs' complaint
sufficiently alleged boycott under statutory exception to insurance companies' McCarran-Ferguson Act immunity
to survive a motion to dismiss.
Judgment of Court of Appeals affirmed in part and reversed in part; case remanded.
Justice Scalia dissented in part and filed opinion, in which Justices O'Connor, Kennedy and Thomas joined.
- Defendants: 4 Primary Insurers (CGL), Reinsurers (US and Foreign), Trade Association, Insurance
Services Office (ISO)
- Want to change the complex general liability forms by:
o Shift to claims made (as opposed to occurrence)
o Start up date
o Eliminate sudden and accidental pollution coverage
o Cap on legal defense costs, apply to policy limit
- Changes were made to the forms, but not all. Hartford and Allstate went to the Reinsurers and tell all
insurers that they would not reinsure unless all four changes were made
- Eventually the ISO had to agree to the new forms because no reinsurance would be available if they didnt
- 19 states file an action claiming an antitrust violation
- Trial Court granted a dismissal by based on the McCarran Ferguson Act
- Court of Appeals reverses
- Whether the conduct here is the business of insurance.

It is the business of Insurance, but foreign insurers are not regulated by States so when the domestic
insurers affiliated with the foreign insurers they waived the immunity granted by the MF Act. Even if there
is immunity, it is a boycott so the Sherman Act would apply.
Supreme Court takes the Case
o Reversed, Ins Co are granted MF immunity because even though they are foreign they are insurers
o Just because a regulated insurer is doing business with a non-regulated insurer they are still
conducting the business of insurance
o On remand, the court will decide whether the activities are regulated by state law. Under state law
(SDCL 58-24.1) cooperative action is encouraged.
o Captain Boycott (circa 1860) owned a lot of land and kept raising the rent. All tenants got
together and decided not to have any contact with him; wouldnt rent from, wouldnt sell to him,
and refused to deal with him on anything.
o Scalia says this is not a boycott, this is just a concerted action (cartelization) based on solid
business principles
o Reinsurers are stating that we will sell you reinsurance only if you comply with these terms. As a
business entity they have the right to exert power in the marketplace.
o It is not an absolute refusal to deal, which is a boycott. While it may be bad conduct and it would
be actionable as an antitrust violation if there was not an immunity under 1012(b). See paragraph
prior to [13].
o If reinsurers say if you send in some old forms and some new forms we wont sell you any that
is boycott. Or, if you dont do it this way, we wont reinsure anything that is a boycott.
Insurance Companies win a huge victory!!

Discrimination (Should this say Title 9 or Title 7???)

Manhart case: insurance rates were different for men and women regarding retirement benefits. Manhart held
that the situation didnt involve insurance so Title 7 does apply (cant discriminate).
Unisex table: blend both men and women into one table and then you would have a result that is in between.
This is good law today. Do we have to have unisex table in all insuranceanything regulated by Title 7
requires that unisex table have to be used in Employment Practices. (Therefore, even life ins. provided by an
ER must be based on unisex table.)
Non-ER provided life insurance: many states allow different premium tables for men and women.
Auto insurance: typically tables must be the same for men and women.
In Penn. all tables have to be unisex tables.
How an insurance policy comes to be:
1. Solicitationcan be by a machine or an agent
a. The purpose of this is to get the insured to fill out an application.
b. Common misunderstanding is that once you have filled out an application, you have bound
2. Application. two frequent problems:
a. From standpoint of insureds there is misrepresentation on the application.
b. From the standpoint of insurers there is misrepresentation or conduct that results in estoppel or
waiver by the agent that then reflect s on the insurer.
3. Binderthis is a term that represents immediate coveragethis is also called a conditional receipt.
4. UnderwritingInsurance Company Approval/Evaluation Process.
5. Policy Issuedthe insurance company issues a policy/contract at this time.
Group insurance is usually limited to life and health insurance coverage.
Lloyds of London:
1. Lloyds never sells insurance itself, it is a clearinghouse.



The insurance is provided by syndicates groups of individuals.

Traditionally only people (individuals) were on risk, not corporations. If the claim is not honored, you sue
the individual. Lead underwriter represents the syndicates and underwrite the insurance. The Lloyds
broker represents the insured. The Lloyds broker will take the risk and go to an underwriter. A syndicate
usually never insures an entire risk. The process is that they go from one syndicate to another syndicate
until they get it full subscribed.
Corporations are now taking over the Lloyds.

Agent Representations
Washington National Insurance Company v. Strickland
1. Strickland applied for health insurance. She gave the agent money, and he wrote that she had immediate,
temporary coverage on the conditional receipt even though the receipt said she didnt have coverage.
injured. The insurance company denied coverage because the policy had not been processed yet. Had it
been submitted earlier, the company would have declined her. She sued the agent and the insurance
company for fraud and misrepresentation. She cant sue under the K because there is no K.
2. At trial level, she got $1300 actual damages and $21,000 in punitive (big recovery). She got punitives
because fraud was alleged (That he said she was covered, knowing she wasnt. That the agents notation
induced the plaintiff to rely on the insurance). If there may have not been a claim right away, there might
not have been a problem.
3. The insurance co says the receipt said no coverage exists until after medical exam.
4. Court allows insured to recover because there was a misrepresentation and the insured relied on it.
This case discusses the role of the agent:
General Agent: Stands in the shoes of the company. He can bind the company. He IS the insurer.
He is one who has authority to transact all of the business of the principal, of a particular kind, or
in a particular case. (Includes Allstate or State Farm agents who dont work for any other
Special Agent (aka soliciting agent): Agent with LIMITED authority. Misconduct by this type of
agent, may come back and haunt the company under some theories. Respondent Superior
doctrine. These agents sometimes work for many insurance companies. This agent has no power
to bind his insurer principal in contract.
Independent Agent (aka broker): Agent of the INSURED. Can also sometimes be a special agent
for certain insurers. Doesnt usually have the authority to bind the company.
5. The primary evidence against the agent was the record/license that he was an agent of the ins co.
Unreasonable Delay
Talbot v. Country Life Insurance
9/13/69 Talbot signed app and paid premium. He died 5 months later. The day after he died, the insurance co.
returns his premium. They had never issued the policy.
1. Wife cant sue on the policy, because there is none. She sues in tort for unreasonable delay in acting on an
2. C/A clearly exists against the insurance company. The agent also has a duty to act with reasonable speed
and care. Both agent and company are liable.
3. Rule of law: the agent or company owes an insurance applicant a legal obligation to act with
reasonable promptness on the application, either by providing the desirable coverage or by notifying
the applicant of the rejection of the risk so that he may not be lulled into a feeling of security or put
to prejudicial delay in seeking protection elsewhere.
4. The C/A generally only exists if money is paid at the time of the application. Majority rule.
SD Law on Unreasonable Delay
Miller v. Hanson there is no C/A for unreasonable delay by an insurance company.
Worden v Farmers State there is no duty to act promptly on an application for insurance.
Oral Contracts
Maryland Casualty Co. v. J.M. Foster

This is work comp case. EE gets injured on job, he is . He sued his ER and insurance co. This looks like a
violation of direct action because the ER pays for the insurance. But because of the unique status of work comp, EE
can have a direct action. No states allow EEs to sue in court, they must use administrative channels. Ins. co. sues
the agent (Foster) and the other 3 companies that the agent was able to write work comp policies on.
1. Foster was writing work comp ins for the ER. Clearly an independent agent.
2. A new store opened and he was trying to get coverage. He was waiting for just a little bit of information,
and so he delayed a phone call. In the meantime the EE was injured. Agent represented to ER that they
had work comp coverage.
3. Ins co denies coverage because the policy wasnt in effect yet.
4. Issue is whether an agents intent to place the policy with MD Casualty is sufficient to keep them on the
risk. He was able to place policies with 3 other insurers. But all previous policies he had placed were with
Md Casualty.
5. Holding is that ins. co isnt liable. Court said if there were the slightest act that he had actually tried to
place the policy with the particular company, then it probably would have been effective.
Oral contracts for insurance Oral contracts exist. Statute may dictate that some types of insurance have certain
types of clauses. So in oral contract, they follow the statutory requirements. Had the agent in MD Casualty case
made any action showing his intent to place insurance with the one company, then they would have been bound
under an oral contract of insurance.
Rumpza v. Larsen (South Dakota 1996)
1. Insured wanted to fully insure a vacant building. Ins co said only cover 60% of value of bldg if vacant.
2. Ins Agents duty is to procure insurance of the kind and with the provisions specified by the insured.
a. This also obligates the insurance company.
3. Negligence of the agent is imputable to the insurance company SDCL 56-6-9 (based on agency principles)
4. Insured recovers against both agent and ins co.

Rumpza v. Larsen & Stockholm Farm Mutual, 1996 SD 87, 551 N.W.2d 810 (July
17, 1996)

This insured had lots of insurance coverage through this agent, paying more than $30,000 in premiums
annually to this agent. This dispute involves a vacant building which agent knew was vacant and which
agent knew that insured wanted covered for $50,000.


$50,000 fire policy on building owned by insured, but building was vacant: Policy provided it was payable
only at 60% if permission granted for vacancy ... insurer paid 60% or $30,000


Insured sued Agent & Insurer for 100% (remaining 40%)


Summary Judgment for both defendants by trial court.


Reversed as to both Defendants!


As to agent: Insurance agents duty [is] to provide insurance of the kind and with the provisions
specified by the insured. [agent knew of other types of coverage which would have fully protected
insureds interests]


As to Insurer, the agents negligence is imputable to the insurer pursuant to SDCL 59-6-9 [A principal is
responsible to third persons for negligence of his agent ...]


The agent had testified that, as an agent, he had to be two faced and he had to look after the interests of
both parties. The insurer had asserted that the agent was the agent of the insured.

North Star v. Rasmussen

Supplement p. 18
1. Had primary coverage, had wanted umbrella coverage
2. Whether or not the agent and the insurance company could be held liable for that
Temporary Coverage/Binders
Southeastern Colorado Homeless Center v. West
1. The employer applied for workers comp on 5/15 and the employer got letter from insurance co saying
premium due 6/12 and if received by then, coverage good back from 05/16, and the letter said if it was
received after 6/12, then coverage wont start until the day after we receive it. Premium was received
06/16. The claim arose 6/15. There was a statute that said no K for insurance could be revoked without 30
day grace period.
2. Barons trouble with this case is that the word only. Statute doesnt say can only cancel after 30 days.
3. Argument is had another 30 days to pay per the statute. Second problem is that getting started, it is not
called a policy, it is called a binder (creating temporary insurances and policies).
4. Court construes in favor of the insured and finds that binder is included in definition of policy. Be aware
that you can have a statute that overrides workers comp and other areas. When comes to cancellation and
non-renewal of insurance, it is HEAVILY regulated by statute.
5. A Binder is a temporary or preliminary contract of insurance that protects the insured until issuance of a
formal policy or as a written memorandum evidencing the existence of such a contract.
6. Holding: In the absence of an express agreement to the contrary, a binder incorporates all the terms
of the contemplated policy.
7. SD case law holds that phrase any policy does not include binders.
Harmon v. American Interinsurance Exchange Co.
1. Guy has terrible driving record and cant get ins. He ends up applying for a high risk auto policy. Agent
assures him that he has full coverage. A few days after application, he goes drag racing and gets in
accident. He hadnt received the actual policy yet.
2. Insurance Co. agrees that there is a policy. But it denies coverage saying that drag racing is an exclusion
under the policy.
3. However policy hadnt been issued and insured wasnt aware of the exclusions.
4. Issue: Is the denial of coverage for the claim proper when the insured was told he was fully covered and
hadnt received policy yet.
5. Notice the representations during the application process v. during the claims process. (during the claims
process it is less significant, than the application when you are paying moneyconsideration matter).
6. Find in favor of insurer. The holding is that fully covered means: All ordinary provisions and exclusions
of policies issued to cover similar risks will be read into the temporary binder, unless there was an
express agreement at the time of the issuance of the binder which would make such provisions and
exclusions inconsistent with the intent of the binder agreement.
7. This case does not allow oral representations of the agent to expand coverage under the policy/binder.
**Despite holding in Harmon, when an agent makes oral representations that there is full coverage under a policy, it
invites an estoppel claim against the insurer when gaps in coverage appear later. If a court applies the reasonable
expectations doctrine, then an insurance co might be estopped from denying coverage and might not be allowed to
assert an exclusion written in the policy.
Waiver, Estoppel, and Election
Waiver- A voluntary and intentional relinquishment of a known right. It is unilateral in nature.
Ex: insurer has the right to make you go through a physical to obtain life insurance and the company may
waive its right to do so.
Estoppel- Conduct or representations by one party (insurer or agent) relied upon by the insured which leads to the
detriment of the insured. There needs to be an element of reliance by insured.

Ex: Insurer processes a claim with a claims adjuster and the SOL about to run out and the adjuster says dont
file the lawsuit, we will get the claim settled, and the SOL runs. The insurance company is going to be
estopped from relying on the defense of SOL. Also can see it in the application process. For estoppel look
for where the agent is saying something to make the insured rely on that statement.
Usually use term waiver and estoppel prior to issuance of policy. Often estoppel occurs after policy is issued.
Election- Where the insurer kinds waffles and sits on something (usually a premium) without doing anything.
Waffing Insurer sits on deal on which it could escape or avoid.
Ex: Talbot, apply for life insurance pay the premium and 5 months later, they have collected your
premium, and they still havent issued you the policy. By virtue of fact you didnt exercise your right to
issue the policy right away, you chose an election.
**There is no estoppel or waiver into coverage. Can utilize waiver or estoppel to bring the policy as would exist,
but cant use it to create something not there.
Harr v. Allstate Ins. Co.
Note 4 on p. 172
Allows the conduct of the agent to expand the coverage
Republic Insurance Co. v. Silverton Elevators, Inc.
ER took out a policy to cover a mobile home. ER allowed EE to live there. ER purchase coverage for the home and
for the contents. Destroyed by tornado. No problem getting coverage for the home, but denied coverage for the
household goods. Ins co claims that ER has no insurable interest in the household goods.

The agent knew the EE owned the goods in the mobile home. Court applied the doctrine of waiver.
Insurance co is on the hook because they KNEW that another person owned the property.
Dissent argues that this uses waiver to extend coverage. However, Court said there isnt additional
coverage here, this was just a question of the insurable interest.

Hypo: Essentially the same fact situation as Republic Ins. However in this situation the agent instructs the people on
how to structure the policy, they rely on this, and have problems with coverage. Now there is waiver and estoppel
because of agents active participation.
Hypo have homeowners policy covering home, but dont insure a storage building on the property. If the storage
building is destroyed cant claim waiver to get coverage because it would increase coverage. Cant use wavier or
estoppel to create coverage
**SD Law on Waiver and Estoppel**
State Automobile Casualty Underwriters v. RoutsalainenSupplement p. 73
Insured had a truck and trailer. The policy was on the truck but not trailer. The agent KNEW that the trailer was
there and that he wanted insurance on it, but the policy didnt cover it. The agent told the insurer the trailer was
covered. Accident. Can the doctrine of waiver or estoppel be used to broaden the coverage afforded under an
insurance policy? In SD, **YESif the evidence is clear and convincing.** (This is not the majority rule.)

The single question presented by this appeal is whether or not the doctrine of estoppel or waiver is
available to bring within the coverage of an insurance policy risks not covered by its terms or expressly
excluded there from.
Baron: Very pro insurer decision
o Waiver or estoppel can broaden coverage provided it the agents action was before or at inception
of policy. Cant use it to cover actions of claims adjuster.

Estoppel can still arise in a SOL scenario (most common form of estoppeldont file suitsee

Roseth v. St. Paul Property and Liability Ins. Co.

Supplement p. 73
Limits the application of this rule (which is to recognized in this opinion as being the minority rule to:
1. Conduct of the insurer or agent which occurs before or at the inception of the policycoverage cannot be
broadened by agent or claims adjuster after the claim arises
2. Reaffirms Routsalainen
3. Conduct that you are relying on occur at or before the claim arises
Sander v. Wright
Supplement p.73
Conduct of insurance adjuster may still serve as basis for use of estoppel when adjuster lulls plaintiff into false
sense of security and statute of limitations expires i.e., if adjuster lulls plaintiff into not filing before s/l expires,
then defendant may be estopped from asserting s/l as a defense.
SD Cases policy provisions at variance with statute of limitations
Supplement p. 120
Estoppel Cases
Smith v. Neville
Erickson & DeSmet Farm Mutual Ins. Co. v. County of Brookings
Criterion Leasing Group v. Gulf Coast Plastering & Drywall
Contractor: Gulf Coast: plastering and drywall. Gulf coast has insurance with Continental
Sub Contractor of Gulf Coast is Evans and their insurance is Criterion, and Criterion is covered by Hartford.
1. Evans has EE that gets injured. Evans is covered by Gulf Coastss insurance policy but the deal is that
Evans has to notify Gulf Coast anytime a new EE is hired in order to have the work comp coverage be
Trial court held there was coverage under equitable estoppel. Court changed this and said that can find
coverage under promissory estoppel. Cant use equitable estoppel because it would create new coverage.
But can use promissory estoppel because they relied on promise that there was coverage. Evans used the
certificate of insurance in thinking there was work comp ins in place.
3. Equitable estoppelmay not be used to affirmatively create or extend insurance coverage.
a. However, an exception to the general rule is the doctrine of promissory estoppel, a qualified form
of equitable estoppel which applies to representations relating to a future act of the promisor rather
than to an existing fact.
i. A party will be estopped from denying liability under the principle of promissory
estoppel when the party makes a promise which the promisor should reasonably expect to
induce action or forbearance of a definite and substantial character on the part of the
promisee and which does induce such action or forbearanceand injustice can be
avoided only by enforcement of the promise.
Agent Liability: The agent can be held liable in addition to the company. Often the ins company will be allowed to
be indemnified by the agent.
History of Insurance: In the 1600s there was a group of investors who began engaging in transactions for insurance.
The beginning of Insurance was a plan developed in England to cover sea going ships. The early forms of insurance
were marine insurance this was expanded toinland marine policy.
Doctrine of Uberrimae Fidei: Utmost good faith. The most abundant good faith; absolute and perfect candor;
the absence of any concealment or deception, however slight. Whoever was applying for insurance had to disclose
everything, because there was no way for the insurer to otherwise inspect or look at the cargo or vessel. Absolute

and perfect candor. The insured had to fully describe the risk so that the insurance co could fully understand the
risk. if the insured didnt disclose everything, then often there would be no coverage.
Merchants Fire Assurance Corp. v. Lattimore 1959
1. Scheduled property- when you itemize and list the property and the value next to it. Insured recovers for
loss to scheduled property.
2. However, she does not recover for losses to unscheduled property. Court found she had $27K of
unscheduled property, but only purchase $10K coverage for it. Ins co calls this a misrepresentation and
denies coverage. However, ins co didnt even ask her the value of her unscheduled property (silence can be
a misrepresentation). However ins co wants to know this because there is a higher risk of loss with more
3. The Court rules for the insurance company because the unscheduled property was very material to the risk.
4. Each party to a contract of insurance shall communicate to the other, in good faith, all facts within
his knowledge which are or which he believes to be material to the contract.
5. In this case she had an independent agent, so he represented her. Therefore she is stuck with his
representations even those he knew the rules but didnt tell her.
6. The court follows the subject analysis

Relief for misrepresentation is RESCISSION.

Majority rule = there is no requirement of causation between the undisclosed fact and the cause of loss.
Where insured has history of drug abuse, but dies in unrelated car accident, court allows contract rescission
because ins co didnt have all the facts related to making the decision.
Tests for materiality:
1) Non-deliberate misrepresentation:
A. Subjective Standard majority rule. Asks whether this particular insurer would have
issued the policy had the fact been disclosed.
B. Objective Standard minority rule. Asks whether a reasonable and prudent insurer
would think this was a material fact.
2) Deliberate misrepresentation.
A. Non-material facts. When there is deliberate misrepresentation of non-material facts,
the general rule is that the ins co may rescind the contract.
B. When the fact is material, the ins co may rescind the contract. A majority of
jurisdictions measure the materiality of a misrepresentation by the extent to which
the disclosure influenced the insurers decision to initially assume the risk of
3) Uberrimae fidei is being relaxed in the US. Generally good faith, unintentional
misrepresentations will not avoid coverage.

Singer v. Nationwide Mutual Fire Ins.

Supplement p. 73
Discussing when non-disclosure of previous cancellation of insurance is material
SD Law on Misrepresentation
SDCL 58-11-44: relates generally to all insurance policies. SDCL 58-11 is entitled, Form and Content of Insurance
Policies. Generally this provision is applied to all policies in SD. Best of both worlds for insurance companies.
No causation necessary, for any material misrepresentation they can deny coverage. Misrepresentations on
application prevent recovery when:
1. Fraudulent
2. Material to acceptance of risk or hazard assumed by insurer
3. Insurer wouldnt have issued the policy or at least not at that premium.
Misrepresentation of Age
Funchess v. United States Life Insurance Co.
1. Guy misrepresents that he is 37, when he is actually 47. He didnt die of old agehe died from a gunshot
wound. Insurance co position is that if they had known his age they would have made him take a physical.


Although they might have still issued the policy, they wouldnt have done so at that premium. Court
allowed recovery for the amount of the premium that would have been paid at the correct age.
If $100K policy, at age 37 the annual premium is $200
At age 47 $300 premium on $100K policy.
Insurance co says when he dies early, we would refund him $200 (premium price). The extreme view
favoring the insured is that they will pay the insured $66,6002/3 of the $100,000 policy.
Rule: Pay the beneficiary at what the premium would be at the right ageanother way to say itif the age
of an insured has been misstated, the benefit payable would be limited to such as the premium would have
bought at the proper age. SD would follow this rule regarding age misrepresentation.

Concealmentin ordinary contract cases concealment means an active intentional endeavor to prevent the other
party from discovering the truth. However, in insurance concealment just means not disclosing a fact proactively.
SD Statute (life insurance on misstatement of age and incontestability provision
SDCL 58-15 is devoted to Life Insurance and Annuities
58-15-9. Effects of misstatement in policy regarding age. There shall be a provision that if the age of
the insured, or of any other person whose age is considered in determining the premium or benefit has been
misstated, any amount payable or benefit accruing under the policy shall be such as the premium would
have purchased at the correct age or ages.
58-15-10. Incontestability provision in policy. There shall be a provision that the policy, exclusive of
provisions relating to health benefits or to additional benefits in the event of death by accident or accidental
means, shall be incontestable, except for nonpayment of premiums, after it has been in force during the
lifetime of the insured for a period of two years from its date of issue.
Thompson v. Occidental Life Insurance Co.
Term life insurance. Have an existing policy but was trying to get an extra $100K coverage. He filled out the policy
application 8/5/64 and the company had him submit to medical examination. Important: The doctor was
company supplied. He slipped and fell and died on 8/30/64. The policy will pay the accidental death double
indemnity but wont pay the extra $100K because didnt complete his application because they wanted him to take
another exam because they say he misrepresented himself. The alleged misrepresentation was that he failed to tell
them some things. The company says that they shouldnt have to pay for the misrepresentation. In Calif. Supreme
Court, the beneficiary wins, and affirmed in the appellate court.
4 ways in which this outcome could occur:
1. Told the Dr. and Dr. was in a hurry so didnt write it down
2. He was a lay person and didnt understand his injury was significant
3. If disclosed, wouldnt have changed the policy
4. Insignificant disclosure.
Materiality is determined solely by the probable and reasonable effect which truthful answers would have had
upon the insurer.
The misrepresentation must be a material one, An incorrect answer on an insurance application does not give
rise to the defense of fraud where the true facts, if known, would not have made the contract less desirable to
the insurer.
Court says that if the applicant didnt know of the facts sought or applicant didnt know they were
significant, his incorrect or incomplete answers dont constitute grounds for rescission.
Lettieri v. Equitable Life Assurance Society of United States
1. The insured bought life insurance policy in NY city, and went to a medical exam at a Dr. office, and didnt
disclose past drug use, and the exam didnt show liver disease problems. Death occurs soon after the
application due to alcohol-induced liver disease.
2. If apply NY law, the insurance company will win automatically (because very harsh on misrepresentation),
but if you apply CA law, the plaintiff would have a chance to explain the reasons for the misrepresentation
(by virtue of the Thompson case).
3. Klaxon doctrineIn a diversity case, a federal court applies the conflict (or choice) of law rules of the
state in which it sits, here California, to determine the substantive law to apply in a diversity action.
4. Trial court applied NY law found for ins co, and now on appeal. Affirmed.


Theory utilized by the beneficiaries: there was an arrangement where the Dr. was going to send a second
medical report to the insurance company because the decedent didnt want the family to know about his
medical condition. The Dr. is on the hook, because if he was in such bad shape, it would have be obvious.
Although court uses CA law, it finds for the insurer.

SDCL 58-15-10. Once a policy has been in effect for 2 years, an insurance company cant go back and look at the
application and say that something has been misrepresented. The policy is incontestable except for nonpayment
of premiums. Baron says this is the reason to stick with one insurance company and not move around. The reason
why the agents help coach you to get insured when you fill out the application, because they know of the 2 year
contestability bar.



General rules for K construction

A. Look to the intent of the parties to determine what a clause means.
B. Enforce the contract on its written face.
Contra Proferentem (See Comment (b) to Restatement 206)
A. Construe ambiguous language against the drafter.
B. Exception is where ambiguous language is created by statute, then contra proferentum doesnt apply.
Adhesion Contract Analysis
A. Beefed up version of contra proferentum (Baron: superman style)
B. Where court searches for ambiguities where one might not otherwise be found.
C. There is a big imbalance in the bargaining positions and courts go out of their way to construe
something against the ins co.
Doctrine of Reasonable Expectations
A. Doctrine has developed exclusively in insurance.
B. About 15 jurisdictions follow pure form, about 38 jurisdictions follow modified form. This is the most
common rule applied to insurance contracts.
C. Pure form is that the objectively reasonably expectations of applicants and beneficiaries will be
honored even though investigation of the policy would have negated those expectations. **Only way
to defeat this is with language that is 1) plain and clear and 2) conspicuous.
Wayfaring Fool Rule
A. Says that must use language that even a wayfaring fool can understand.
3 and 4 are the most prevalent in the United States, majority approach.
4 and 5 great benefit, you dont need to find any ambiguities to find coverage.

Steven v. Fidelity and Casualty Company of New York

Guy buys flight insurance policy out of a machine. He mails it to wife, no extra copies. He had some problems with
his flight. Airline rented him an air taxi. It crashed and he died. Insurance policy fine print said that insurance only
applies to a scheduled airline, air taxi is not a scheduled airline. Also insurance company said that this type of
substitute transportation wasnt covered under the policy (substitute on land was covered). He lost at trial court, said
he wasnt covered under the terms of the contract. Reversed CA SC he wins.
1. He got coverage because a reasonable person would expect all forms of transportation would be
covered (reasonable expectations doctrine).
2. Insurance company argued a rule of construction should apply to this policy (rule of construction:
expressio uniusby specifying land transportation it would have excluded charter airlines)if court were
to follow that, would have ruling for the insurance company.
3. The court says he couldnt see the stipulation (wasnt put on notice) because couldnt see the stipulation
from the machine. The language was not plain and clear.
4. **Although there is no ambiguity in the policy, the insured still wins. This case establishes the doctrine of
reasonable expectations.
Federal Insurance Co. v Stroh Brewing Co.
Price discrimination suit. They have an umbrella policy, looking for coverage under personal injury clause for
discrimination. Trial court insurer wins. Reversed in Federal Court for insured.


Insured is Strohs and they are sued for price discrimination. Ins co refuses to defend. Strohs ended up
Then Strohs sues the insurance company. The policy is an umbrella policy. The policy said that it would
cover discrimination. This indicates that there would be coverage.
Umbrella policies differ from standard excess insurance policies in that they are designed to fill gaps in
coverage both vertically (by providing excess coverage) and horizontally (by providing primary coverage).
Insurance company says that this wasnt meant to cover price discrimination.
Trial judge finds for insurance company and says that price discrimination is a term of art and if the policy
was supposed to cover it then the policy would have been specific.
Huge fight over whether the semi colon meant and or or in the policy exclusion.
Reversed. Strohs is covered.
What rule of construction used here? Used broad definition of discrimination. If the term is ambiguous it
will be construed against the drafter, i.e. against the insured.

Foremost Insurance Co. v. Putzier (Evel Kneivel case)

1. This is a third party insurance caseliability insurance.
2. Plaintiffs are the people that ran the concession stands destroyed by mobs. They are suing Evel Knievel.
Evel is seeking to be defended by his insurer, Foremost. Insurance policy had exclusion for damages
caused by mobs and riots. Trial court found that exclusion was valid, insurer didnt have to defend Evel.
3. It is agreed that the insurance does not apply to bodily injury or property damage arising out of riot, civil
commotion or mob action or out of any act or omission in connection with the prevention or suppression of
any of the foregoing.
4. Argument 1 on appeal (estoppel): The policy didnt represent the real agreement of the parties. What
they said on the phone was different than what was in the policy.
a. The insurance co wins. Evil loses because his attorney was there and it was read to him.
5. Argument 2 on appeal (void for public policy): State forced him to have insurance. So he says that any
exclusion against coverage required by the state is void for public policy. He loses. Public policy
arguments are found in statutes, and there was no statute that told him he had to have insurance. It falls
short because public policy is found in the statutes enacted by the legislature, so it is not quite a declaration
of public policy.
6. Argument: reasonable expectations.
a. Loses, because prior case that adopted it and then rejected it while the case was pending.
Public Policy is found in statutes enacted by the legislature.
Foremost Insurance Company v. Putzier, including Antonio Guanche (Evel Kneivel 2)
1. This is a first party insurance case. Guanche claims he is covered for his mob losses by his policy.
2. He calls agent to buy policy and the agent said he was covered, he was being added as a named insured
to Evil Knievals insurance policy. He never received a copy of the liability policy. Have a verbal assertion
and giving of $300 as a premium. However, policy still had the exclusion about mobs and riots.
3. The trial court used the reasonable expectations doctrine and held he could recover despite the exclusion.
4. Supreme Court rejects it on that level but affirms because there was a oral Kthe court says the insurance
agent telling him that he was covered was ambiguous.
5. The court actually adopts modified version of reasonable expectations doctrineBaron doesnt like it. If
it is ambiguous then move to the reasonable expectations of the insured.
This Court adopted a modified version of the Reasonable Expectations Doctrine which looks to the
expectations of a reasonable person only in the event there is an ambiguity. Baron prefers contra
The origins- Third Party Cases
This was created entirely through the common law.
The law is well settled and stable in the area of third party bad faith.

The scenario is always the same: liability ins co had the opportunity to settle the suit, but didnt and the award
came in above the policy limit.

Crisci v. Security Insurance Company

1. Mrs. Crisci is the home owner. Tenant fell through stairs and was injured.
2. Lawsuit #1 Tenant sued Crisci. There was an offer to settle for $9k or $10K from the tenant (the policy
limit was $10K). Ins co refused to settle.
3. Tenant was awarded $101K. The judgment in excess in the case is $91K (amount of the judgment over
the policy limitthe policy limit was $10,000)
4. Lawsuit #2- Crisci sues the insurance co. Her allegation was that the insurance company should have
settled the case at or below the policy limit. The third party bad faith is easy to prove. At the trial level,
she was awarded $91,000 plus another $25,000 for mental distress. In this type of case, the primary
damages are the excess. Affirmed.
5. Standard of care:
Whether a prudent insurer without policy limits would have accepted the offer.
The insurer must give the interests of the insured at least as much consideration as it
gives to its own interests.
6. Crisci doesnt have to prove fraud. All you have to show is simple negligence.
7. Generally, there doesnt need to be an offer to settle, the ins co actually has to seek settlement.
The size of the judgment recovered in the personal injury action when exceeds the policy limits, although not
conclusive, furnishes an inference that the value of the claim is the equivalent of the amount of the judgment and
that acceptance of an offer within those limits was the most reasonable methods of dealing with the claim.
Betts v. Allstate Insurance Company
1. injured by Betts. Betts policy limits = $100K. offered to settle for $100K, ins co refused based on
idea that if award came in above $100k Betts could filed bankruptcy. Jury verdict for $450K.
2. Lawsuit #2- Betts suing Allstate. Jury awarded $500K compensatory damages (most will go to Gallucci)
and $3M in punitive and $50K for lawyers wrong. Affirmed. Punitive damages allowed found malice,
intent to annoy, etc. Insurance company has a fiduciary duty to insured.
3. The obligation of good faith and fair dealing requires the insurer to settle a claim in an appropriate
case although the express terms of the policy do not impose such a duty.
4. In talking about third party coverage (liability insurance) strong analysis that liability insurance is there
for peace of mind of the insured. The whole idea of liability insurance is if get sued, dont have to worry
about this, and that makes it a little different.
5. The test to apply if there is a good faith and fair dealing case:
a. The governing standard is whether a prudent insurer would have accepted the settlement offer if
there were no policy limits. An insurer may be held liable for a judgment against the insured in
excess of its policy limits where it has breached the implied covenant of good faith and fair
dealing by unreasonably refusing to accept a settlement offer within the policy limits.

Obvious observation: If you represent the plaintiff in a case like this, watch outit might be accepted, then
need to ask if you are ready to release the tortfeaser for only $25K. Some lawyer might extend the offer to
attempt to have the company accept extensive liability.
This is the only COA a lawyer can create.
Conflict of interest for ins co attorneys in these cases. You get paid by an insurance company and you
represent the insured at the same time.
All these scenarios are where there is tort liability and decision to settle is made by the insurance company.
When they dont settle and the judgment comes back higher than the policy limits/settlement offer, either the
insured has a C/A against the insurance co or the insured can assign its rights to the .
Note 2 p. 213: What if before trial the s lawyer talks to the TF and they agree that TF will assign rights to the
action against the ins co in return for a release of liability from the TF? There is no C/A against the insurance

co because the TF has been released before the trial. To have the C/A be created, cant have assignment until
after the judgment. Therefore, s lawyer shouldnt talk with the TF before trial.
Courts can order that a assign his rights to a .
Question of whether this COA sounds in tort or K, so dont know which statute of limitations to use. Majority
rule is that the can use whichever statute of limitations he wants.
Because the insured can sue the ins co for punitives, etc but the can only sue the ins co for the excess, it is
better for the ins co if the claim is assigned.
Footnote 9: Allstate now challenges the sufficiency, competency, adequacy of the Gallucci offers. Allstate
summarily rejected these offers without any attempt to seek clarification it felt them ambiguous or incomplete.
Allstate cannot now in good conscience use its own failure to explore the settlement offer as a defense of its
own breach of duty to tender the policy limits exactly what the Galluccci attorneys were willing to accept.

Murphy v. Allstate
Murphy sues TF for death of her son. Policy limits = $25K. There were 2 settlement offers made before trial for
$25K and $23.5K. Both rejected. Judgment at trial = $42K. Excess = $17K.
Murphy collected the $25K from the ins co. Murphy couldnt get money out of TF. So Murphy (original tort )
sues Allstate. The problem with this lawsuit is that Murphy didnt have an assignment of the s rights against
Allstate. Trial court dismissed the C/A because there wasnt an assignment therefore no C/A. Affirmed.
1. What damages are recoverable by the insured?
a. #1- excess (#1 element of damages)
b. #2- economic loss (attorney fees, loss of work, etc.)
c. #3- physical impairment these are not assignable due to public policy
d. #4- emotional distressthese are not assignable due to public policy
e. #5- punitive damagesthese are not assignable due to public policy
2. The COA belongs to insured not the plaintiff.
3. There has to be a consent of assignment in order for an assignment to take place.
4. She has 2 arguments on appeal: kicked out of court & couldnt sue Allstate.
a. Her first argument:
i. Insurance code. There is a statute that says as soon as this COA arose, the victim cant
sue the others insurance company unless you get a judgment. There is a statute that
says after have a judgment, then can sue the TF liability insurer. That doesnt help
her here, because the statute only covers up to the policy limit, so when she collected the
$25K she collected all that she could under the statute, and cant collect the excess.
ii. You can sue the insurance company after you get the judgmentthis is called
liquidating your tort claim into a judgment.
**--TESTABLE--Moreover, Allstate having paid plaintiff the policy limits, she has already received all benefits
contemplated by the policy.
b. Argument#2- When a plaintiff gets a judgment against the defendant, have a right to execute the
judgment on property owned by the TF. This includes being able to execute on rights to causes of
action, such as against an insurance co. However, court says that can only seize a cause of action,
if the cause of action is assignable. Because this COA isnt assignable, the can seize it.
c. In this case there is Hybrid COA because some are assignable and some arent. Court finds that
when it is hybrid, none of it will be seizable.
d. If something is assignable then it is siezable. Personal injury claims are not assignable. A
COA that is assignable is seizable and a COA that is not assignable then it is not seizable.
5. Once the COA is createdthe insured always has the right to assign. You can only assign after the COA is
6. The courts impose the duty to settle to protect the insurednot the injured party.
It is settled law in this state that a breach of duty may arise from a contractual relationship, and while matters
complained of may have their origin in Contract, the gist of an action maybe tortuousConduct which merely is a

breach of contract, but the contract may establish a relationship demanding the exercise of proper care and acts and
omissions in performance may give rise to tort liability.
Gray v Grain Dealers Ins page 247 US Court of Appeals 1989
Car accident. = Gray. = Speed. Policy limits - $25K. offered to settle for $25K. Offer never answered.
(ins co) never filed an answer to the lawsuit. So there is a default judgment against for $334K. assigns his
rights against ins co in return for a release of liability from .
sues ins co for the excess of $309K. Trial court found ins co liable for full amount of the $334K judgment.
Arguments on appeal:
1. Because there was no indication that Speed had ability to actually pay the $309K, he cant assign this C/A. Ins
co says that only the amount that Speed could possibly pay should be all that he can assign. This the Payment
Rule. Court disagrees and follows the Judgment Rule which says that can assign the full C/A created by
the judgment. Majority rule is the judgment rule.
2. Due to the nature of assignment and release, the release extinguishes the C/A because now the TF cant possibly
owe anything. Court rejects this and says that as long as the release/assignment happens after judgment, the
C/A is assignable.

****SD CASES*****
Kunkel (leading case). Plaintiff sued the defendant, and the policy limit was $25K. Offer to settle at $25K and
company said NO. Verdict was for $45K, so EXCESS: $18K. Insured that sues his own company, trial court
awarded the excess and awarded $10K for emotional distress. On appeal affirmed the excess but reversed the
punitives. SD Supreme Court and looks at Crisci case (CA) and adopts that language. Adopts the test saying the
insurance company has to look at the offer the same way it would if there was no policy limits. Has to give the
insured equal consideration.
Crabb v. National Indemnity: Offer to settle of $10K (policy limit). It was rejected. Verdict and judgment for $20K.
The excess is $10K. The defendant assigns the COA after the judgment to the plaintiff. sues the defendants
insurance company. Judgment for $10K. The judgment is affirmed, and the device is assignable.
Argument: Make the plaintiff show he could have collected the money from the insured. The Supreme Court
rejects that argument (majority rule).
Helmboat v. LeMars Mutual: The plaintiff had the same insurance company as the defendant (complicates things).
There was an offer to settle, and they rejected. Excess of $55K. Assigned to the plaintiff and successfully collected.
While this lawsuit was pending, the underlying claim against the defendant, the victim jumped into federal court and
sued the insurance company for diversity for bad faith. The federal judge dismissed the case and said you were too
early, have to wait until get a judgment for the excess.
Johnson v. Viking
Bad faith claim by injured party is premature if brought prior to judgment. In this case, the tort plaintiff sued the
tortfeasors insurer in federal court while the state court tort claim was pending. Case dismissed. An assignment
and release could fully release the tortfeasor and insurer from any excess liability if undertaken prior to judgment.
**You need an offer and a rejection and a judgment, before you can have a bad faith COA. The duty extends
to both before and after the judgment.
Nielson v. Boos
This happens a lot in the court systems today. The policy limit was $250K. There was an offer to settle for $250K
rejected. Judgment comes in at $650K. Minnehaha county is where the law suit was filed. This issue deals with

VENUE. This lawsuit by the insured against the lawyer was filed in Minnehaha County. The TF didnt live there
and defendants wanted a transfer to the defendants county. The trial court sent it to where the insurer resided.
Page 45 of the supplement: Up to now looked at cases where insured say to own insurance company should have
settled and didnt so now I sue you for excess. Now reverse. Malpractice liability, and the insurance settles the
cases (and they upset because makes them look like they were at fault). Can the doctor or the attorney sue the
insurance company for settling a case that shouldnt have been settled? Ultimate result is that there was no COA.
The policy gives the insurer the right to settle.
1st Party Coverage
Railsback v. Mid-Century Insurance Company - Supplement
C/a is for fraud, deceit and misrepresentation (statutory c/a). Trial court gave judgment for D and P appeals. Here it
is reversed.
a. P was passenger in car driven by Hauglin. Mid-Century is Hauglins insurance company. His
policy limit was $50,000 per person and $100,000 per accident. P negotiated a settlement
without the aid of counsel.
b. Tucek case quoted in paragraph 10. Victim was in coma. Father settled quickly and cheaply.
She signed it right after she woke up. Allegation was deceit. One of the Ds was the notary
he wasnt there at the time.
c. Quotes Maybee case in Paragraph 13. What is the purpose of the direct action rule? We dont
want jury to decide a case just because they know that an insurance company has a lot of
money. Let the jury decide who is at fault between the two drivers. C/a is not on the policy,
but rather on deceit. So she can sue (its not direct action).
d. Austin and Weller are agents of Mid-Century. They told P his limit was $25,000 so she would
settle. They knew P was misinformed.
e. Issue #1 Whether the insurer owes a duty to tell the truth to a 3rd party?
i. There is generally no duty to disclose policy limits.
ii. But she relied to her detriment on their representations.
f. Issue #2 Was her action permissible?
i. Hauglin should not defend the fraud claims in his case.
ii. Insurer has a duty of good faith and fair dealing.
No duty to disclose, if you let her you violate the ____
SC reverses both
No direct action here you can when the insurer, the cause of action is not based on the policy, it is based on another
tort cause of action
Beck v. Farmers Insurance
Beck gets hit by car owned by Kirkland. But car was stolen from her so no liability insurance was available to him
under her policy. So he seeks recovery under his own policy. 1 st looks to no-fault policy and does collect $5K in
meds +$1300 for last wages. He also seeks $20K (Policy limit) for UIM coverage.
1. Common scenario: Bills are piling up and insurance company wont pay and wont pay until they finally
dangle a little money in front of the insured so he takes it.
2. Three COAs here:
a. First, that by refusing to pay his uninsured motorist claim, Farmers had breached its contract of
insurance with him. Settled for $15,000.
b. Second, that by acting in bad faith in refusing to investigate the claim, bargain with Beck, or settle
the claim, Farmers had breached an implied covenant of good faith and fair dealing; TC
bifurcated this claim. Rationale: Insurer has no duty to bargain with.
c. Third, that Farmers had acted oppressively and maliciously toward Beck with the intention of, or
in reckless disregard of the likelihood of, causing emotional distress. TC dismissed this claim.
3. This court says there is not a tort claim going on here, it is breach of contract ( minority view), but we will
provide for a broad range of recoverable damages regarding breach of Contract.
4. SD LAW: Majority view 1st party bad faith COA is TORT




We use the term first-party to refer to an insurance agreement where the insurer agrees to pay claims
submitted to it by the insured for losses suffered by the insured. In contrast, a third-party situation is one
where the insurer contracts to defend the insured against claims made by third parties against the insured
and to pay any resulting liability, up to the specified dollar limit.
In the process of resolving a claim, the insurance company may do other TORTSmay have other COA.
If insurance company is so bad, that they commit fraud, it would be fraud. Ie: Severe emotional distress.
This Court holds that in a first party relationship between an insurer and its insured, the duties and
obligations of the parties are contractual rather than fiduciary (in third party cases is a fiduciary because ins
co is negotiating on behalf of the insured). Without more, a breach of those implied or express duties can
give rise only to a cause of action in contract, not one in tort.
Requirements to act in good faith in 1st party insurance cases:
a. The insurer will diligently investigate the facts to enable it to determine whether a claim is
valid, will fairly evaluate the claim, and will thereafter act promptly and reasonably in
rejecting or settling the claim.

(missing Feb 21)

First Party Bad Faith Intentional tort, in simple negligence
Note 4 p. 227
The law in South Dakota
SD adopted this language of Travelers v Savio: Defines difference between 1st and 3rd party bad faith cases.
Standard of care in 3 rd party bad faith scenario is simple negligence. If there is an offer to settle and the ins co says
no, you have a C/A just by showing that it was unreasonable to say no. For 1st party bad faith it is closer to an
intentional tort: need to have malicious or oppressive conduct. Whereas in 3rd party bad faith cases, the
almost always wins, in 1st party bad faith cases, the insurer wins a lot too.
Plaintiff must show For 1st Party Bad Faith
2 prong test to get to the COA (majority view) standard:
Plaintiff must show:
The absence of a reasonable basis for denying benefits of the policy (easy to prove)
Defendants knowledge of reckless disregard of the lack of reasonable basis for denial
For defense Insurer may challenge claims which are fairly debatable and will only be
liable if intentionally denied claim without a reasonable basis
The insurer knew of absence of Reasonable basis OR acted in reckless disregard of the
lack of reasonable basis (hard to prove) really mean defendant (Can be shown by
reckless indifference to facts or proofs of insurance. Ignoring the claim is considered
reckless disregard.)
Punitive Damages on 1st Party Bad Faith
Supplement p. 105
Ratio of Punitive Damages to the Actual Damages

South Dakota Case Law on First Party Bad Faith

Supplement pp. 106 to 108
Stoner v. State Farm
Stoner was a passenger in a car driven by someone who had insurance. Driver had a head on collision with tractor.
Stoner was a quadrapelegic as a result of the accident. Stoner had UM coverage and UIM coverage. She
collected$15,000 from driver. She wanted State Farm to pay the other $85,000. State Farm delays paying the claim
because she was suing the other car driver and wanted to see if they would get an award. She sues State Farm for
bad faith and underinsurance. On remand, insurance company was not found to have bad faith. This case holds
that South Dakota recognizes a 1st party bad faith cause of action which would allow recovery of
compensatory damages, as well as punitive damages on a tort basis. Interestingly, on remand the insurer was
found not to have acted in bad faith by the jury. Judgment for the insurer was affirmed on subsequent appeal.

Matter of CertificationChampion v. USF&G

Workers comp is a blend between 1st & 3rd (employer pays the premium for ins. co.) This case is the one that
adopted the Savio decision (and adopts the two prong test). This case proves the language saying the insurance co
has the right to be wrong and has the right to challenge claims that they think are unreasonable.

***Important: 1st party bad faith will lie even if there isnt an outright denial of a claim (see 1 st prong). Ex: 1st
party bad faith can be for things like removing benefits; or for removal of coverage without notice. It can
include any conduct taken by ins co without a reasonable basis as the 1st prong of the test.
SD has a Vexatious refusal to pay statute. Before had bad faith, the only thing available were statutes that
referred to vexatious refusal to pay. IF the company refused to pay in a vexatious manner, the insured could
collect a percentage of the claim AND attorney fees. SD very stingy (Baron quote), when enacted this act, it
took away the percentage, and would only give you the attorney fees.
Last sentence The allowance of
attorney fees hereunder shall not be construed to bar any other remedy whether in tort or K, that an insured
may have against the same insurance company or self-insurer arising out of its refusal to pay such loss.
Isaac v State Farm: Contributory negligence is NOT a defense to an intentional tort (1 st party bad faith).
Under 58-12-3 there was a reasonable attempt to collect attorney fees, Supreme court says this is usable on the
policy claim, but is not usable on a bad faith claim.
The insurance company is allowed to deny a claim that is fairly debatable, that is a broad area and gives them
lots of room to act badly.

Isacc v. State Farm

Recovery of $100,000 (uninsured motorist coverage) and $325,000 for 1 st party bad faith and $20,000 in punitive
damages affirmed. The two-pronged test from Savio which was stated in intentional tort of 1 st party bad faith
(insurer unsuccessfully asserted that insureds previous attorneys dropped the ball and if they had done a better job,
there would have been a recovery). Jury Instructions are set forth in the opinion and approved. Attorney fees in
conjunction with the prosecution of the bad faith claim held to be unrecoverable SDCL 58-12-3 does not apply to
the tort theory of bad faith.
Rumpza v. Donalar
sued right away for 1 st party bad faith and vexatious refusal to pay. But plaintiff entered a dismissal with
prejudice as to bad faith claim and vexatious claim. Ins co claimed that this claim was brought inappropriately, so
dismissed with prejudice (meaning cant bring them again). But later found all sorts of bad faith by ins co, so court
allowed claim to be brought again.
Brooks v. Milbank Insurance Co.
Trial court dismissed bad faith claim on basis of SDCL 15-6-12(b)(5) [failure to state a claim upon which relief can
be granted.]. Subsequent jury verdict was for plaintiff on the policy and also for the plaintiff on vexatious refusal
claim. Plaintiff stated a cause of action for 1 st party bad faith. Reversed (5-0) by SD Supreme Court. Plaintiff
stated a cause of action for 1st party bad faith. Basic elements of the bad faith cause of action were restated by the
court and the court cited, with approval, Roger M. Baron, When Insurance Companies Do Bad Things: The
Evolution of the Bad Faith Causes of Action in South Dakota. The attorney fee award of $77,287 was reversed
and remanded on the vexatious refusal to pay claim
Sawyer v. Farm Bureau
Action under all risks coverage
Biegler v. American Family Insurance
This case is actually a blend of both 3 rd party bad faith and 1st party bad faith, with a claim for fraud and deceit
thrown in. American Family refused to defend lawsuit against insured on basis of negligent supervision and
negligent management of employees. Underlying case settled for $25,000 when insured hired his own attorney.
Now insured sues American Family for failure to defend. Jury awarded Plaintiff $20,00 compensatory damages,
$25, indemnification, Fraud and Deceit damages of $100,000, and $100,000 punitive damages, after finding bad
faith. Trial judge awarded plaintiff some $40,000 in attorney fees for total award of $276,034.46 at the trial level.
SD SC reduced the award by $75,000 because the underlying case was settled for $25,000 and also awarded

appellate attorney fees to plaintiff of $2,850. Case holds, consistent with SD precedent, that insurers duty to defend
is indeed broader its duty to indemnify.

Assertion of Bad Faith Claim in Workers Comp Claim

In all of these cases deny that there is any bad faith claim in the Workers Comp cases. These decisions continue to
narrow any possible bad faith claim that can be asserted in workers comp claims
Hein v. Acuity
Employee insured on the job, she didnt have a lawyer. Filed workers comp without an attorney. Eventually the
company cut her off claiming that she didnt have any injuries. She filed, the ins. company filed a (frivolous)
counterclaim for money already paid under workers comp. She gets a lawyer, then lawyer sues for insurance
company for bad faith in asserting a frivolous counterclaim against the plaintiff. SD upholds [Failing to comply
with duty under insurance contract] everywhere but workers comp unless they denied a claim.
McDowell v. Citicorp
Mudlin v Hills Materials
N.A.I.C. National Association of Insurance Commissioners
Create proposed model statutes for the states
is an organization comprised of all the regulators across the 50 states. The chief officer of this (the director of
division of insurance belongs to it) NAIC creates the standards for the insurance industry. In 1970, the proposed
statutes were expanded by adding on a section called the Unfair Practices Act. This was designed to make up for
the regulatory powers given up in McCarren-Ferguson.
The following are defined as unfair methods of competition and unfair deceptive acts or practices in the business of
insurance (page 231) (highlighted sections are in the SD act against unfair practices):
1) Misrepresenting the claimants facts of insurance policy provisions relating to any coverages at issue
2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising
under insurance policies.
3) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claim
arising under insurance policies.
4) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been
completed and submitted by the insured.
5) This is the guts of first part bad faith claimsNot attempting in good faith to effectuate prompt, fair, and
equitable settlements of claims in which liability has become reasonably clear. (SD DOESNT FOLLOW)
6) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering
substantially less than the amounts ultimately recovered in actions brought by the insureds, when the insureds
have made claims for amounts reasonably similar to the amounts ultimately recovered.
7) Attempting to settle a claim by an insured for less than the amount to which a reasonable man would have
believed he was entitle by reference to written or printed advertising material accompanying or made part of an
8) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or
consent of, the insured, his representative, agent or broker.
9) Failure, after paying a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under
which payment has been made
10) _
11) _
12) Failure to settle claims promptly, where liability has become apparent, under one portion of the insurance policy
coverage in order to influence settlements under other portions of the insurance policy coverage.
13) Failing to provide promptly a reasonable explanation of the basis tbat is relied on in the insurance policy, in
relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.
14) Directly advising a claimant not to obtain the services of an attorney. (debated in South Dakota S.C. Case)
15) Misleading a claimant as the applicable statute of limitations.
State Farm v. Reeder

Kid runs into neighbors (Reeder) car port. Reeder (3 rd party) sues State Farm. Unusual because generally no direct
action allowed (unique to KY). 3 claims: 1) property damage; 2) $15K atty fees; 3) $250K bad faith claim (unfair
practice). State Farm made offer of $8471.


Jury trial returned $11K verdict. Unfair Practice Claim dismissed. Court also didnt allow pre-judgment
interest (this is highly unusual in most cases). This appeal is about the dismissal of the unfair practices
KY SC said that there is a private C/A for unfair practices claims. KY SC has to stretch a little to do this.
Majority rule only the state Ins. Commissioner has the right to enforce the Unfair Practices Act
statutes. It does not create a private cause of action. (Bad faith is the private COA.)
KY follows the minority rule and allows a private cause of action. What is really incredible about this
case is that the bad faith C/A doesnt extend just to the insured, but to the tort . Baron thinks this is the
only state that allows this. KY essentially allows a direct action because of bad faith.
Its one thing to say my house burned down and my insurance company wont pay, can I sue them, BUT
it is another thing to let the Tort plaintiff to sue your insurance co. This is an EXTREME case, because
opens up the insurance company for a claim by the other side.
South Dakotas Vexations Refusal To Pay Statute
Supplement p. 109

58-12-3. Attorney fees Recovery in action against self-insured employer or insurer failing to pay loss
Other remedies not barred. In all actions or proceedings hereafter commenced against any employer who is selfinsured, or insurance company, including any reciprocal or interinsurance exchange, on any policy or certificate of
any type of kind of insurance, if it appears from the evidence that such company or exchange has refused to pay the
full amount of such loss, and that such refusal is vexatious or without reasonable cause, the Department of Labor,
the trial court and the appellate court, shall, if judgment of an award is rendered for plaintiff, allow the plaintiff a
reasonable sum as an attorneys fee to be recovered and collected as part of the costs, provide, however, that when a
tender is made by such insurance company, exchange or self-insurer before the commencement of the action or
proceeding in which judgment or an award is rendered and the amount recovered is not in excess of such tender, no
such costs shall be allowed. The allowance of attorney fees hereunder shall not be construed to bar any other
remedy, whether in tort or contract, that an insured may have against the same insurance company or self-insurer
arising out of its refusal to pay such loss.
South Dakotas Version of the Unfair Claims Settlement Practices Act
Supplement p. 116 117

Pilot Life Insurance Co. v. Dedeaux (1987)

Is the bad faith COA under a statute that regulates insurance; if so, the can bring the case, if not, the COA is preempted by ERISA.
The analysis McCarran Ferguson Act, 1) whether the practice has the effect of transferring or spreading a
policyholders risk (NO), 2) whether the practice is an integral part of the policy relationship between the insurer
and the insured (MAYBE), and 3) whether the practice is limited to entities within the insurance industry (NO).
Baron likes the logical analysis, but not the result.
There is no bad faith COA against any insurer providing insurance under ERISA

Can the common law of the state ever regulate insurance?


Property Insurance
How coverage is extended:
specific coverage with add-ons (i.e. fire insurance that covers storms, earthquakes and tornados) Burden is on the
insured to show the loss was caused by a covered event
All risks coverage cover any loss, subject to exceptions of exclusions (burden shifts to the insurance company to
show that it is an exclusion)

Gardner-Denver Co. v. DIC-Underhill Construction Co. (1976)

D-U rented an air compressor and it was stolen
D-U filed a claim with American Home Assurance Co, the Port Authoritys insurer
Claim denied
D-U filed with St. Paul (20 months after loss)
St. Paul denied claim because it was not filed in a timely fashion
D-U says they filed the claim as soon as practicable after they found out they were not covered by American
Trial Ct held that it was not reasonable to wait 20 months
Affirmed on appeal
Majority View Well uphold notice provisions if the insurance company is prejudiced
Minority View (and NY law): compliance with the notice provision of an insurance contract is a condition precedent
to an insurers liability, and that an insurer need not show prejudice before it can assert the defense of
claims the notice was waived since they considered the claim and responded with a denial four months later
Definitely the minority view
Even if we got over the time concern, the property was not that of the insured, it was rented. So, there was a
bailment issue.
Insurable interest
Motive to go break it
South Dakota Cases policy provisions at variance with statute of limitations
Supplement p. 120
180 day notice provisions for suits against public entities or employees in SD
Supplement p. 121
Schreiber v. PA Lumbermans Mutual Insurance Company PA SC 1982
1. Policy written by statute. Statute said that needed to provide notice within 1 year of occurrence. Insured
provided notice after 2 years. Insurance co wins because the one year provision is statutory.
2. The insured tries to use prejudice argument that the insurer has to show prejudice of filing late. This
argument is reject.
3. The insured loses on the prejudice argument because there was a statutory requirement and was not a
contract of adhesion. This case makes an exception to the prejudice rule: when there is a statute that
sets the SOL and the insured files a suit after the statutory SOL, the insurance Co. does not need to
show that they were prejudiced in any waythey automatically win.
Closser v. Penn Mutual Fire Insurance Co.
1. Fire insurance policy. Statute provides that suit needs to be filed within 12 months. The suit was filed late.
Trial court ruled in favor of the insurance co.
2. argued: Inception of loss-one year provision should be tolled until the claim is declined and THEN run
the one year provision. One issue is that the policies have so many things you have to do (notice as soon as
practical, submit to oral exam, arbitration process, etc.) you can consume the entire 12 months with these
tedious details. If the date of the inception of the loss isnt the date that claim is denied, then its when the
fire occurred. Some courts would allow the SOL to be tolled until claim is denied.
3. The Court holds: Having found the policy appraisal procedures, if invoked, to be relevant to the issue of
whether Clossers suit is time barred, we reach the insureds further contention that Penn Mutual is
estopped by its conduct from invoking its twelve month suit limitation provision as a bar to this action.
4. Allowing the SOL to be tolled under a statutory ins policy until the insurer denies the claim is the minority
view. Schreibber above is the majority view.
SDCL 15-2-13 and SDCL 53-9-6: Every provision in a contract restricting a party from enforcing his rights under it
by usual legal proceedings in ordinary tribunals, or limiting his time to do so, is void.
South Dakota

South Dakota had the Statutory Fire Policy until 1966 when state repealed it
Insurance companies continued to use the policies
Leuning v. Dornberger Ins
Supplement p. 120
Fire policy modeled after the standard fire policy contained requirement that suit must be brought within 12 months
next after inception of loss. Policy was approved by SD Insurance Commissioner. Policy limitation held void by
virtue of SDCL 53-9-6, despite the fact the Insurance Commissioner had approved the policy language. It is the
public policy of this state that limitations on actions on a contract shall be established by the legislature and not by
contractual provisions or by the insurance commissioner. (Note: SDs previous statute which adopted the standard
fire policy was repealed in 1966). Very liberal decision.
Honesty False Swearing
Nagel-Taylor Automotive Supplies, INC. v. Aetna.
1. Nightclub destroyed by fire. There was a jury verdict that found for the plaintiff (insured). The jury
awarded: $125K for loss of building; $50K for contents of building; $0 Business income loss.
2. had estimated future lost business income at $100K, but jury returned $0 award on this piece. So ins co
says that made false claims of the level of business income it would have. Therefore wants to void the
entire award.
3. Court holds there is no false swearing here. Because he is making a MERE projection of future
earnings. False swearing only occurs when making a misstatement about a known fact (ie: I loss $50K on
the clock when in FACT it was only worth $4K)
4. Court also says you need to consider the nature of the claims process as a negotiation. Therefore the is
encouraged to start the estimates a little high.

False statements made during application are considered misrepresentations. For life and health policies
remember there is a 2 year incontestability clause where ins co cant void the policy over application
misrepresentations once the policy has been in effect for 2 years.
Once false statements are made during the claims process, then they are false statements (not
Misrepresentations that occur between the application phase and the claims phase are typically considered
When false swearing occurs the majority view is the void the entire policy. Minority view is to void just the
portion of the policy concerning the misrepresentation.
Insurance companies can be overly aggressive in trying to make a case for arson. If they get to aggressive they
can be held liable for bad faith. Dempsey, wife went to FL on vacation, and the H was having an affair on the
night of the fire.. In the claims process, the H lied about where he was, and the insurance co tried to make a
case of arson, which didnt work. They won 3.1M @ trial level, and was cut in on appeal.
Fine v. Bellefonte Underwriters Insurance Co.
1. Owner was trying to get rid of tenants and had turned off the heat. Fire ignited 3 buildings that were
burned down; fire insurance co investigated the claim. Fire sprinkler pipes froze, therefore no fire
protection when had fire. Insured got large recovery from ins co.
2. During the investigation process several different people were interviewed. The owner made statements
that were contrary to the statements made by a maintenance guy.
3. Trial court said the false statement was immaterial because the maintenance guy had set the thermostat
higher than he was told (different than what owner said) so the result would have been the same anyway.
4. Court says that the test is not whether the false swearing is relevant to the outcome, but whether the false
swearing is relevant to the investigation. This is a harsh view of false swearing and is the minority view.
5. False sworn answers are material if they might have affected the attitude and action of the insurer.
They are equally material if they may be said to have been calculated either to discourage, mislead or
deflect the companys investigation in any area that might seem to the company, at that time, a
relevant or productive area to investigate.


A better way for the ins co to have avoided coverage would have been based on the Protective Maintenance
Clause which says that protective systems need to be in working order or the Increased hazard Clause
which says that an owner cant increase any hazards on the property.

Raphitz v. St Paul Fire & Marine Insurance Co.

Vermillion, SD. Evidence of Arson (difficult to prove). There were 9 jugs of gasoline, with wicks. The evidence of
arson was incredible, but it couldnt be proven. The trial court denied coverage based on violation of the increased
fire hazard clause.
Insurable Interest Doctrine
The insurable interest doctrine developed in the late 1700s and early 1800s. This doctrine was to protect ships
being captured.
Where a person has a legal interest, but essentially no chance that the interest will ever become possessory, they do
have an insurable interest. But where a person has no legal interest but is almost guaranteed of becoming an owner
of the property (sole heir of a 99 year old man with property), they dont have an insurable interest.
You have an insurable interest if:
1. You have legal title.
2. You have equitable title.
3. Property or possessory right (bailee)
4. Has mere possession or right of possession.
5. Have no possession or legal interest, but stand in such relation that may suffer from its destruction.
Hypo: Taking out an insurance policy on peoples lives in a nursing home.
1. This is considered gamblingevil.
2. Might give the insured a motivation to help cause the loss. Creates a moral hazard.
Hypo: AAA Insurer insures A for $2000 with a $100 deductible. Insured in accident with TF. AAA uses right of
subrogation and sues TF on behalf of A. How does insurer avoid being named as a party in interest in the suit?
1. By requiring a deductible so that the insured retains an interest in the action.
2. By giving a loan receipt when payment is made under the policy. The insured signs an agreement that
the payment is a loan to be repaid if there is a recovery against the TF.
G.M. Battery & Boat Company v. LKN Corp.
LKN is tenant of property and has option to purchase the property. LKN is supposed to have insurance policy for
$75K on the building with loss payable clause. Tenant didnt, but instead gets $125K policy on the building and
$70K on contents with St Paul. Building burns.

GMB sues LKN and GMB sues St Paul. Trial court finds that LKN is liable to GMB for $75K. Trial
court also finds that St Paul is liable to LKN for $125K (more than required by the contract). Affirmed.
Ins co claims that LKN doesnt have an insurable interest. However, LKN and GMB say that LKN has
an insurable interest because of its option to purchase the property. Court agrees with this.
Ins co stance is that the insured hasnt exercised the option, so they have no interest also that have no
interest when is just a tenant. Court disagrees. This court uses more liberal rule and says if you stand to
lose something upon destruction, then you have an insurable interest. Therefore court finds an
insurable interest in 3 places:
Option to purchase, even when havent exercised the option.
Tenancy (because you want to stay in the building until the lease is over)
Contract said they had to provide insurance.

Court cites case where insured used to own the property, sold it, lied to ins co and told them he still owned it.
Court finds no insurable interest.
Court cites case where husband and wife divorce. He owns house. She lives in house and pays insurance and
she is obligated to make loan payments. House burns. Court finds she has an insurable interest because: 1) she
has obligation to make loan payments and 2) she lives there.
Court cites case where a straw person has an interest in property and found that they did have an insurable
Court also says that a life tenant can insure property to the full value of the property.
Contractor had an insurable interest in a house he was building. The Court held that a building contractor had
an insurable interest in an uncompleted house which he was required by contract to complete.

No Insurable Interest
Stolen Automobiles
Edmister Case
Hunter v. State Farm Fire and Casualty Company
1. Hunter owns house. Gets sick goes to hospital, never goes back to live in the house. Thinks shes going to die
so she deeds house to kids. She expected to get it back if she lived. At the time of the fire she was in a senior
citizens living center, grandson was living in the house. She kept paying taxes and ins. Fire. Ins co denies
claim. After all of this the kids deeded house back to her.
2. She had neither title nor possession of the house.
3. An insurable interest exists where insured would suffer a loss from the propertys destruction. Therefore
the old lady wins. Court found sufficient evidence that she didnt really intend to transfer title to the house.
4. You should look if the use of insurance for illegitimate (gambling) purposes, it should not be extended
beyond the reasons for it by an excessively technical construction. If you are gambling then you have no
insurable interest.
Tublitz v. Glens Falls Insurance Co.
1. Tublitz owns building and is going to have it demolished. Building burns 10 days before demolishing
2. Insurance co says the building was going to be demolished anyway, so we dont have to pay on the fire policy.
There is no insurable interest. Court disagrees and allows recovery under the policy.
3. Held: The existence of an executory contract for demolition of a building does not deprive the owner of
an insurable interest in the property. The mere fact that an executory contract exists for demolition does
not render a structure worthless nor deprive it of its value as a matter of law. The existence of such a
contract does not deprive the owner of an insurable interest in his building.

M owns house. A wants to buy house for $80K. A pays $10K, and signs note and deed of trust with bank. A
has title. A wants to move and sell the house. So A sells the house to B, on a CFD. B pays $10K and agrees to
pay the REM payments that A owes. B is legal owner of property. A is still on the note. A still has insurance
because it is a requirement of the REM. B is supposed to have insurance, but because it is a hypo, he doesnt.
Some courts find that there is no insurable interest in A!
Case holds that there is an insurable interest in inventory when a person doesnt own it, but is supposed to get
payments from its sale.
Hight v. Maryland Ins. Co. Insurable interest upheld in the owner of a tax sale certificate on piece of real estate.
Even though the original owner still has a right of redemption, the holder of the tax sale certificate has an
insurable interest.
St. Paul v. Tolman Man had a mobile home, and insured for $28K. Had K to sell it for $3K but hadnt
transferred title yet. Fire. SD Supreme Court allowed recovery by the insured for the full value of $28K.
UCC 2-501Insurable interest in Goodsthis statue deals with sellers and buyers and there is a period when
you dont know when title passes, this period is protect by insurance for both seller and buyer.
SDCL provides that the seller retains an insurable interest even when property is under a K to be sold.
Insurable interest ceases upon sale.

Following up on Yvettes question concerning recission. How is it possible an insurance company can extend
insurance and collect premiums yet later claim there is no insurable interest? It is understandable if there is a
misrepresentation. Is there any recourse for an insurance company who continuously extends insurance and collects
premiums then claims no insurable interest, isnt that almost equivalent to an intentional fraud on the part of the
insurance company?
South Dakota Law on Insurable Interests
Supplement p. 124
Hight v. Maryland Ins. Co., 10.N.W.2d 285 (S.D. 1943)
Insurable interest upheld in the owner of tax sale certificate on piece of real estate. Recovery of the valued policy
amount plus attorneys fees affirmed.
St. Paul Fire & Marine Ins. v. Toman, 351 N.W.2d 146 (S.D. 1984)
Froiland v. Tritle, 484 N.W.2d 310 (S.D. 1992)
Sawyer v. Farm Bureau, 200 SD 144, 619 N.W.2d 644 (also on pgs. 108 and 110 of Supplement)
Holding that the plaintiff/insured had an insurable interest in all cattle which was insured even though he lacked
100% ownership interest in each head of cattle. Plaintiff possessed at least a 25% interest in the cattle destroyed and
insurer knew that plaintiffs interest was less than 100%.
Froiland v. Trittle
Tritle was a dentist and sold business to new younger dentist for $50K; and the new dentist was going to pay $12K
cash; so Dr. Tritle took a note for $38K. After the K was made, Tritle wanted the new Dr. to take a life insurance
policy on self in case he died, so T would still get paid. New Dr. said No, so Dr. T took life insurance on new Dr.
He bought a face value policy for $38K. New Dr. Dies (1/2 way through the term of the note); at that time, the
balance was $24K. Insurance Co, didnt contest anything, so $38K was paid to Dr. T. The widow of the estate of
new Dr. sues, she wants the balance of the $24K due and the $38K paid. T had to give the balance to the widow.
1. The trial court and the South Dakota Supreme Court held for the estate, allowing the selling dentist to
collect only the balance due on the loan. Found had insurable interest only for value of remaining loan.
a. The South Dakota Supreme Court relied on SDCL 58-10-3 and 58-10-4. A person who is a party
to a contract has an insurable interest in the life of each individual party to the contract and for the
purpose of the contract only.
2. Baron suggests that court should also consider that he get repaid for the premiums he paid on the portion of
the policy paid to the wife.
The Personal Nature of Insurance
Christ Gospel Temple v. Liberty Mutual
Westminster owned church and had ins policy with Liberty. Merged with Presbyterian and Presbyterian took over
building and ins policy. Then sold church to Christ Gospel for $9000, plus $750 for an assignment of the remaining
ins policy. Pres retained an option to purchase it back. No one told the ins co about the assignment or sale. Fire.
Claim denied.
1. is Christ Gospel seeking coverage from Liberty and also sued Presbyterian and Pres. cross-claimed
Liberty. Liberty claims defense that Gospel was not an insured and to have an assignment it must be
done with the companys consent. Against Presbyterian, Liberty claimed defense that Presbyterian had
no insurable interest.
2. Christ Gospel has an insurable interest, but it isnt the insured.
3. Pres is the insured, but has no insurable interest. Court here says that an option to buy the property back
is not enough to constitute an insurable interest.
4. You dont construe the clause that assignments must be approved in writing against the ins co because it
is mandated by statute, so insurer didnt write it.


It is well settled that a fire insurance policy is a personal contract of indemnity, and is on the
insureds interest in the property, not on the property itself. Property insurance is not on the
property itself, but on the insureds interest in the property.
This is majority rule.

Loss not Caused by Covered Risk

a. Substantive v. Evidentiary Condition
Cochran v. MFA Mutual Insurance Co.
Insured car was stolen. A jiggle key was used to steal the car. There is no coverage because there is no evidence of
forcible entry. Wants to characterized this requirement as an evidentiary issue.
1. Tools stolen from his car. Theft done with skeleton key so there were no marks on car. Insurance company
doesnt want to pay because there had to be marks of forcible entry.
2. The court holds that the theft exclusion is unambiguous and the provision requiring visible marks of
forced entry is not unconscionable. Therefore finds for insurance company. Court holds that is the way
coverage is defined, evidence of forcible entry.
3. Some courts would allow recovery based on reasonable expectations doctrine or as a rule of evidence if the
owner could prove that it was theft.
Baugher v. Sec of H.U.D. 632 F.Supp. 1228 (Kan. 1985)
1. Storage facility. Renter put two padlocks on door. Everything was stolen, and the padlocks he put on were
gone. Is the absence of these padlocks visible evidence of forced entry? This court said YES!
2. Issue: Whether the removal of the padlock constitutes visible evidence of forced entry? YES
3. Hopson store owner thought EE was stealing inventory. Put tape on door. Tape was broken and
inventory was gone. This was the only evidence of a visible mark of forced entry. No coverage allowed.
4. Some forms of life ins require visible marks of accidental death (often have higher recovery for accidental
death vs natural). These cases have similar issues.
5. Some policies allow for marks of felonious exit to find recovery.
Loss not Caused by Covered Risk
b. Implied Exceptions (To Coverage)
Idea of an implied exception is unusual because the insurance company writes the policy so why should we
imply exceptions when they write the policy? Because a fire policy is written by statute, not the insurance
Engel v. Redwood County Farmers Mutual Insurance Company
1. Guy owns hog barn with a furnace. Thermostat breaks and hogs die from over-heating. No fire occurred.
Insured wants to claim on fire policy.
2. Ins co company denies claim because was this was a friendly fire, NOT hostile fires.
Court follows minority rule and allows recovery. Minority Rule a fire can be found to be
hostile even though it is intentionally set and stays where it was set if it is excessive or
uncontrolled. Here it was excessive.
3. Majority Rule is to follow the Hostile Fire Doctrine. Hostile Fire Doctrine = a fire that is intentionally
kindled and which remains contained to the place where it was intended is a friendly fire and will not
subject the insurer to liability.
4. Court concerned because the exception is implied so the normal insured wouldnt know that this type of
loss isnt covered.
Only other implied exception: Joint Ownership. The insurance co doesnt have to pay, even though not stated in the
policy; if 2 people own property, and one is insured, and one destroys the property by arson or other means wont let
either if them recover (ie: H & W living together, H burns down house, and W didnt do anything from it, wont let
the W recover). Destruction of property by co insured or co owner will not allow recoverythis rule of implied
exception seems to be breaking down. Some courts allow innocent owners to recover.
Proximate Cause

Bird v. St. Paul Fire & Marine Insurance Company (Cardozo)

1. Looks like typical Marine Policy. Loss by Fire only. There was an explosion that was caused by fire.
2. Issue: If this is a loss caused by fire under the insurance policy?
3. If the loss was caused by the fire then the insurance company has to pay.
4. The Court holds that there is no coverage and shouldnt be recoverable because the loss is caused by the
explosion, not the fire.
5. As a matter of tort law, if this was started by a TF, it would be covered. You can go farther back in time to
see what actually caused the loss. There is different test for insurance than tort law. In insurance need to
consider the direct cause.
Remote Cause

Direct Cause



Pan American World Airways, Inc. v. Aetna Casualty & Surety Corp.
1. Insurance co. wants to say the loss of the plane was because of war. The plane was destroyed by hijackers.
2. Exclusions: military, war, warlike operations, civil commotion, or riot.
3. In the background of this hijack is the Middle East War, and the general unrest of the Middle East.
4. The court holds it was caused by hijacking and not caused by war, they are different. There is
coverage in this case. Opinion cites to the Bird case. The test is that we have to look at the cause
nearest to the loss.
Remote Cause
War/warlike operations

Direct Cause



Graham v. Public Employees Mutual Insurance Co.

1. Homes destroyed by a mud slide . No coverage for earth movement. Question is whether the damage to
the homes was caused by the eruption/explosion (covered) or earth movement (not covered).
2. Supreme court by steps the mud slides, and says that the homes were destroyed by the eruption explosion.
If the explosion was caused by the earth moving, then have coverage. The court goes out of its way to find
3. This case adopts the tort approach of proximate cause.
a. We have defined proximate cause as that cause which, in a natural and continuous sequence,
unbroken by any new, independent cause, produces the event, and without which that event would
not have occurred.
b. The Majority Rulewhen the loss is sustained by the insured it is necessary that the loss be
proximately, rather than remotely, caused by the peril insured against.

Brunner case-Car runs down hill and hits something. Before it ran down the hill it lost control because of ice.
Exclusion for collisions. Court found no coverage. This case was later overruled by Graham.
Crane. Policy doesnt cover latent defects. There is a defective weld. But weld broke because a bunch of earth
fell on top of the crane. Court found that loss was due to earth collapse and allowed coverage.
CA had rule that said that if you could say that a loss might have multiple causes, as long as one of the causes is
covered, then there is coverage. Very pro-insured. So consider CA earthquake case where house destroyed by
earthquake and earthquakes are excluded. But if could say that architect was negligently designed, then would
allow coverage. This was eventually overruled.
Guy exporting beans. Direct cause of loss is they were detained by customs (not covered). Reason they were
detained is they were sprayed with fumigant (covered). Coverage allowed.
Wind case. High winds, cold outside. Cattle went to low ground to et out of wind (covered), stood on pond, ice
broke, drowned (not covered). No coverage.
Meat in freezer. Wind loss is covered. High winds knocked down electric lines. No electricity. Food ruined.
Yes, coverage.
High winds. Bring horse inside where food is. Horse eats too much and dies. No coverage.
Sump pump. Policy covers accidental water leak from household appliance. Doesnt cover floods. Sump
pump hose breaks. Coverage.

Boat (Bird)
Ships during War
Graham Homes
Salad Dressing
Basement Flooded

Direct Cause
Remote Cause
Volcano (Explosion)
Defective Weld
Earth Collapse
Customs Detention
Customs Detention
(electricity) Freezer Failure
Wind Storm
Placement in front of house
(physical contact)
Saturated Foundation
Tropical Storm
Sump Pump
Water Below Surface
Bleeding Hemophiliac Fall in Bathtub
Drowning in Bath Tub on Fall Cerebral aneurism

Graham Homes


Majority Rule: loss needs to be nearest proximate cause, rather than remote cause for coverage.
Minority Rule: will find coverage when a remote cause is covered.
Lummel v. National Fire Insurance (SD Case)this is the only South Dakota case that deals with causation.
Supplement p. 131
1. Truck skid down embankment; and there was a fire and they want to recover on the fire policy. The total
damages was $800, and the jury gave plaintiff $800. On appeal, it was reduced to $400 because the value
of the truck after gone down the embankment was the value as it was before it caught fire.
2. The jury should have been asked to decide the value of the truck before the fire and after the skidding.
3. 3 statements (pro insured):
a. In the case of the concurrence of two causes of loss, one at the risk of the assured and the other
insured against, if the damage by the perils respectively can be discriminated, each party must bear
his proportion.
b. When the damage by each cause of loss cannot be distinguished, the party responsible for the
dominating efficient cause is liable to bear the loss. (Tort approach)
c. When an efficient cause nearest the loss is the peril expressly insured against, the insurer is not to
be relieved from responsibility by his showing that the property was brought within that peril by a
cause not mentioned in the contract.
Cain v. Fortis Ins. Co.
Supplement p. 132
Suit against health insurer for money paid by insured for Gastric Bypass Surgery. Insurer relied on policy exclusion
which disallows coverage for surgical treatment for weight control. Trial court ruled for Insurer. Affirmed (5-0).
One of the arguments made on appeal by the insured was that under the doctrine of efficient proximate cause the
surgery should be covered because it was necessary to deal with the insureds hypertension and joint deterioration.
It was not just a weight loss surgery. This argument is rejected by the SD SC stating, there is almost no case law to
support its [ the doctrine of efficient proximate cause] application to health insurance policies. This opinion also
cites the 1926 case of Lummel v. National Fire Ins. as applying the dominating efficient cause doctrine to an action
on a fire policy covering a truck which burned after going over embankment.

Insured Breaches Conditions of the Policy
Traditional warranties say, it is hereby warranted that. Aka conditions precedent, conditions to coverage.

Things that the insured represents falsely before the policy is made are called misrepresentationsif they are
material then the insurer can void the policy.
False statements or fraud during the claims process.
Warrantieshappen between the making of the policy and the time of the loss.
The law of Warranty is particularly harsh. Breach of warranty completely precludes recovery.

Violin v. Firemans Fund

1. There was $10K insurance on a violin. The insurance Co. claims that the insured lied on his application
because he lied in answering the question on whether he has ever been canceled or refused insurance by
another policy. However the insured had a policy canceled by this same insurer previously. Therefore ins
co denies claim based on breach of warranty.
2. The insured wants to argue that the insurance company knew about this (doctrine of WAIVER). Since
youre the ones that refused me earlier, I should be able to use waiver against you. Insurer says that waiver
shouldnt be applied because different departments handle cancellation and issuance of new policies. Court
says that if the ins co can figure out that they canceled a policy once there has been a loss, they can figure it
out at application.
POLICY, together with such other provisions, agreements, or conditions as may be endorsed hereon or
added hereto, and no officer, agent or other representative of this company shall have power to waive
unless such waiver, if any, shall be written upon or attached hereto
4. Statement above applies to conditions in the policy.
5. Court holds that this was a misrepresentation because it was made on the application. The application
wasnt attached to the policy so it did not become a warranty. Misrepresentation doesnt automatically void
6. The Supreme Court of Nev. Allows recovery for the insured based on Waiver.
7. The traditional view is that a warranty must be strictly complied with and, once a breach of
warranty has occurred, the insurer may avoid the policy.
8. Cannot use the Doctrine of Waiver on Warranties.
SDCL specifically says that representations in applications are not warranties.
Reid v. Hardware Mutual Insurance Company of the Carolinas
1. In the application insured made statement that house was owner-occupied. It was owner-occupied at
application, but at time of loss it is occupied by tenant.
2. Insurance company denies claim because it says that this is a warranty. Find for insured.
3. Court clarifies there are two types of warranties:
a. Affirmative warranty- descriptivethis is one which asserts the existence of a fact at the time
the policy is entered into, and appears on the face of said policy, or is attached thereto and made a
part thereof. Statement of existing fact when made
b. Promissory warranty- continuing (ongoing obligation)this may be defined to be an absolute
undertaking by the insured, contained in a policy or in a paper properly incorporated by reference,
that certain facts or conditions pertaining to the risk shall continue, or that certain things with
reference thereto shall be done or omitted. Promise to continue be as warranted.
4. It was said that if the language is in the past or present tense, then affirmative warranty. In order for it to
become promissory, must say the owner Will ALWAYS live there. Affirmative warranties are like alleged
5. The general rule is that the tendency is to construe a statement in the past or present tense as
constituting an affirmative rather than a continuing warranty.
6. Case demonstrates that courts are starting to soften the harsh Warranty Doctrine.
Vlastos v. Sumitomo Marine & Fire Insurance Company (Europe) Ltd.
1. Coverage: $345K. There is a warranty that the 3 rd floor of building is occupied by janitors residence.
However 3rd floor occupied by janitors residence and massage parlor.



Insurance company denies claim that she breached the warranty. In order to find for the insurance company,
you have to have the word solely occupied by the janitor, and no one else, because others had been living
there also.
At the trial Court the insurance Co. argued that only the janitor could live on the third floor. Found for ins
co. Reversed.
Court finds that this is an affirmative warranty and wasnt meant to be continuing.
Magic words: a representation unlike a warranty, is not part of the insurance K but is collateral to
it. If a representation is not material to risk, its falsity does not avoid the K. On the other hand, the
materiality of a warranty the risk insured against is relevant; if the fact is not as warranted, the
insurer may deny coverage.
In case of doubt, courts normally construe a statement in an insurance contract as a representation
rather than a warranty.
Because the provision is ambiguous, it must be construed in a manner favorable to insurance coverage.
Vlastos should have coverage.

American Home Assurance Co. v. Harvey Wagon Wheel, Inc.

1. Warranty provided that the casino/restaurant always maintain a sprinkler system. There was construction
so sprinkler system was turned off. Ins co denies claim saying breached warranty. Court finds for ins co.
2. If the business didnt have the sprinklers than the premium would have been eight times higher.
3. argues that it wasnt a warranty it was just a factor used in the calculation of the premium. They say
well pay the higher premium, if you pay the claim. Court rejects this.
4. The ins agent knew that the sprinkler system was turned off so the argued waiver. Courts will never
allow waiver for a promissory warranty. Affirmed without opinion.
5. Stronger argument edited out of case: Construction had already started when the insurance was issued.
From the get go the insurer knew or should have known that the sprinklers werent working. Insured
argument was that the doctrine of waiver should have applied. More likely to have waiver applied in an
affirmative warranty but not as likely with a promissory or continuing warranty. As in this case it was
promissory or continuing warranty and not applicable.
Some South Dakota Statutes on Warranties
Supplement p. 134 135
SDCL 58-11 relates generally to all insurance policies. SDCL 58-11 is entitled, Form and Contents of Insurance
SDCL 58-15 is devoted to Life Insurance and Annuities
SDCL 58-16 is entitled Group Life Insurance Policies
SDCL 58-18 is entitled Group an Blanket Health Insurance Policies
South Dakota Case Law on Warranties
Supplement p. 136
Ranger Insurance Company v. Macy (pro insured decision)
Economic Aero Club v. Avemco Ins.
Commercial insurance policy issued for jewelry store; when display, dont put out more than $500 of jewelry,
and if have a high security case, no more than $14.5K worth of jewelry. It was violated, there was a loss.
Recovery was denied, even though the loss itself was not more than the limit, the condition was breached.
Law firm; class action lawsuit of bad faith. Condition precedent, that files not in use be maintained in steel
cabinets. Fire loss, insured lost.
Some policies have garaging requirements that the vehicle must be kept in a certain area. Jurisdictions are
split on whether this is a warranty.
SDCL 58-11-44 all statements in applications are representations, not warranties. Misrepresentations dont
prevent recovery unless: 1) fraudulent; 2) material to acceptance of risk; 3) insurer would not have issued the

policy or not issued it at the same rate (this clause generally means that insured always loses because it is so
Lots of litigation over airplane insurance because insurer often finds a lot of things that are wrong that have
nothing to do with the cause of loss.
Policy had clause that couldnt lease out the plane. Plane was leased for a while, but then later lease was
cancelled. Court held that once the lease was terminated, coverage was reinstated (very liberal).
Economic Aero Club (SD) pilot didnt have a required medical certificate. Coverage denied by SD SC.
However everybody agreed that pilot would have qualified for the medical certificate. Breach of the warranty
had nothing to do with the crash. A lot of jurisdictions would have allowed coverage.

Insured fails to Meet a Condition: Increasing Hazard & Vacancy or Unoccupancy Clause
Honesty Clauses:
2 Limitations in Inventory Insurance Policies:
I. If delinquent in reports, cannot recover more than last report (Limit of last reported value).
II. You cant collect MORE than the proportion of the last report to the ACV (actual cash value)/Last
Reported Value of the inventory. (Last Reported Value/Actual Cash Value of Inventory) = % of Loss
then take this times the loss = what you can actually claim.
Midwest Office Technology v. American Alliance Ins. Co.
1. This is business insurance covering inventory. Insured is supposed to complete form monthly reporting the
differing levels of inventory. Then premium would be calculated based on the inventory level.
2. Insured hadnt filed reports in a couple of months. Last report valued inventory at $480K. Actual value of
inventory lost was $600K. Ins co willing to pay $480K.
3. The trial court gave coverage and ruled for the insured because they say the failure to file the report did not
cause the loss. There is actually a statute that deals with situations like this. The Supreme Court of Iowa
4. The reporting clause says you cant collect more than you last reported. Furthermore the IA statute
only applies to situations where there is a total loss of coverage, this was a partial loss of coverage.
1. $100K limit. The report for April was timely filed with $65K value. May and June no report. July there
was a loss of $100K. Now after the fact, the insured tries to go in and file the report. Court says no held to
last report filed, only allows recovery of the $65K.
Amount Payable = Amount of Insurance x Loss
__% x ACU
Coinsurance % = 80%
ACU = $100,000
Loss - $8,000
AM1 = $50,000
(50,000/80% x 100,000) x Loss
=(50,000/80,000) x Loss
=(5/8) x 1000
(90,000/80% x 100,000) x Loss
=(90,000/80,000) x Loss
= 100% of Loss
(Cannot collect more than 100% of the loss)
Boyd v. Aetna Insurance Company
Supplement p. 137

Insured sought to protect his home by placing signs on the doors, Beware of trap gun in this House. When insured
had a fire loss, the insurer denied recovery on the basis that the insured had increased the hazard. The relevant
policy provision stated, Unless otherwise provided in writing added hereto this Company shall not be liable for loss
occurring (a) while the hazard is increased by any means within the control or knowledge of the insured; What
result? Why?
Increased Hazard Moral Hazard
North Carolina Grange Mutual Insurance Company v. Johnson
Supplement p. 138
1. Moral hazard clauseThis is a protection from over insurance. Insurance companies dont want the
insured to collect too much insurance. It can give an insured an incentive to cause a loss. Traditionally,
seen in fire policy. If have a building insured for $30K by 7 insurance companies, think you can profit 7X.
This clause is designed to stop that from happening.
2. Farmer had crops insured with hail insurance. Had 2 policies covering hail. Both had provisions not
allowing other coverage. Hail loss. Ins co denies claim because he has 2 policies.
3. Insured says that should enforce the moral hazard clause because with hail the insured cant create the loss.
Public policy should void the provisions. Insurance company wins.
4. This clause doesnt appear too much today; have another clause that deals with that. If have 2 policies,
they are prorated, and each would pay .
Courts tend to be lenient in not enforcing a moral hazard clause when there is overlapping coverage because of
either : 1) a change in policies or 2) change in ownership.
Note: Moral Hazard Warranties
Since 1943, moral hazard as distinguish from physical hazard warranties have virtually disappeared from
property insurance forms. A residue exists in the other insurance condition, the use of which is permitted but not
required in standard fire policies. Occasionally, a once popular moral hazard warranty or condition that makes the
policy void if the interest of the insured by other than unconditional and sole ownership, will still appear. See,
National Security Fire and Casualty Company v. London
Cancellation of and Refusal to Renew Insurance Policies
This area (cancellation of insurance policies) is HIGHLY regulated by statute- Baron
Once a policy is issued, it is difficult for the insurance company to cancel a policy; if they want to cancel it, they
have to follow the statutes. It is difficult for a company to not renew your policy, it has to follow statutes also.
# of days of notice (Generally in SD it is 20 days or more; statutory)
Refusal to renew (30 days notice; statutory, auto policy: 60 days; statutory)
Moore v. Farmers Insurance
Supplement p. 141
1. Auto policy. Premium not paid, so notice sent out on 12/9/77 saying you will be canceled on 12/24/77.
Under the statute (SDCL 58-11-49), only needed 10 days for cancellation noticenow the statute
requires 20 days.
2. Premium was not paid; on 12/27 there is an accident. Insured paid premium on 12/28 and insurance
company accepts it.
3. wins judgment against TF. On appeal reversed and remanded. Now sues insurance company.
4. The only issue is whether there was good notice. Notice was sufficient per statute.
5. argue that because ins co accepted the payment, they waived their right to claim cancellation. Court says
although there MIGHT be a waiver argument, the tort plaintiff is not allowed to argue it, only the insured
would. Waiver is contractual in nature, and the didnt have the contract with the ins co.
6. Court says its a valid cancelled. The insured may or may not be able to rely on the waiver; the tortfeasor
cannot rely on the waiver.


Policy will expire 11/2/97 4:02pm

Monday, 11/3/97 there is an accident
After insured runs to insurance agent and pays premium on same day as accident
SC says under our statute the insured could lawfully pay his premium on Monday because if policy runs
out on a Sunday, insured may pay for policy on the following day, Monday.

Ways to handle notice provisions:

Some jurisdictions say notice is when mailed (not fair to the insured)- not enough of a burden on insurance
Another extreme is to say there is no notice until the insured is personally served too hard of a burden on an
insurance company, and to make them hire someone it would be too much
SD Cancellation Statute: Cancellation is not effective unless notice is mailed or delivered 20 days before
cancellation date.
SD Non-Renewal Statute: Ins co needs to give notice 30 days before non-renewal. However for auto policies
need to give notice 60 days before non-renewal.
SD SC has held that if the cancellation date is on a Sunday or holiday, then insured has until the next business
day to make the payment.
There are only certain statutory reasons that an insurance co can cancel a policy.
Measure of Recovery
Titus v. West American Insurance Co.
1. Titus bought car for $400 and insured it. Then, he invested $1,722.12 into upgrading his Mustang. He
got liability coverage. After doing more work to it, he wanted to add comprehensive (covers stolen cars)
the car was stolen. Insurance company refuses to pay full value; they say they will only pay the actual
cash value- (ACV).
2. Issues: What is the actual cash value? Whether to use the standard description or the upgraded car?
3. Ways to calculate ACV:
a. Fair Market Value (FMV)
b. Replacement or repair (reproduce) less depreciation.
c. Broad evidence ruleunder this any evidence is received which logically tends to establish
actual cash value, and some courts have held that actual cash value is an independent test to be
applied without reference to other criteria.
4. Court decides to use FMV. Insurance company argues that FMV is double the book value $750. Insured
says FMV is $2000 because that is what he could sell car for.
5. Court says that insured can recover only for the car that was described in the policy, and that car would
be worth $1000.
6. The insured should have gotten a stated value policy- the insured and insurer agree up front to the
value. The Court awards the value of the car as it was stated in the policy.
South Dakota Supreme Court Case (will be questions on test)
63-3-2. Rights and remedies of employees limited. The rights and remedies herein granted to an employee subject
to this title, on account of personal injury or death arising out of and in the course of employment, shall exclude all
other rights and remedies of such employee, his personal representatives, dependents, or next of kin, on account of
such in jury or death against his employer or any employee, partner, officer, or director of such employer, except
rights and remedies arising from intentional tort.
Mcanarney v. Newark Fire Insurance Company
1. Fire insurance policy. Subject was 7 buildings used to make liquor during prohibition. The plaintiff bought
the property for $8,000. Insured had been trying to sell them for $12K. Jury found the loss to be $55K, the
trial judge instructed the jury to use the ACV by determining the cost of replacement.


On remand, the court uses the Broad evidence rule. The Broad Evidence Rule tends to be used for unique
types of property; in this case, the BER helps insurance companies; they dont want to be tied to Market
You use Broad Evidence Rule for property that is hard to value.
a. The rule applies every fact and circumstance which would logically tend to the formation of a
correct estimate of the loss. It may consider original cost and cost of reproduction; the opinions
upon value given by qualified witnesses; the declarations against interest which may have been
made by the assured; the gainful uses to which the buildings might have been put; as well as any
other fact reasonably tending to throw light upon the subject.

Where to use the BER: In Titus, unique property, heirlooms, unique clothing; worth a lot more to you than if
sold at a rummage sale, heirlooms, growing fruit trees and crops, minks, chinchillas.
Valued Policies Most states (incl SD) have statutes that say if you insure a house for $x, and you have a total
loss, then you will collect $x. The insurance co cant reduce the coverage (there are exceptions, see below).
This statute applies only to real estate. This is very pro-insured.
Person selling mobile home. Buyer bought it and hadnt taken it yet. There was a fire, and company had to
pay full amount not the amount it was sold for because of this statute. UCC say that sellers retain an
insurable interest during this gray period of selling.
Exception to having the policy limits be the value of the property and the loss is if the fire is within 90 days of
issuance of the policy.
If there are multiple policies on the property, then each company will only be responsible for its pro-rata share
that its policy bears to the total amount of insurance covering the loss.
Replacement Insurance insurance companies offer full replacement value insurance. This works well for old
properties that may have a much lower market value than it would cost to re-build. There is still a moral hazard
issue here.

Capital Indemnity Corp. v. Bank of Hoven

Supplement p. 147
Case: 9/15/86 binder issued for coverage for $175K bldg, $25K contents. 11/4/86 policy issued. 12/14/86 fire
total loss. There was 91 days between binder and loss, only 40 days between policy and loss. Question here is
whether issuance of the policy is considered to happen when binder is issued. Split of authority, SD SC said that
binder is not a policy. Insured loses and only ended up collecting part of the loss (value was determined other than
as the face value of the policy).
Zochert v. National Farmers Union Property & Casualty
Supplement p. 148
Citation to another case that adopted the BER in SD, so see that discussed in the case, then there was an 88 opinion
where there was a jury instruction defined ACV to be Fair market value. So this case talks about that. This was a
farm owners policy and the subject of the loss was silos. There was $35K coverage on each silo, and destroyed by
wind damage, the payoff under the policy was the cost to replace less depreciation. The cost to replace them each
was $15K, but the insurance co had an expert who said each depreciated $5K. so cost to repair was $15K by the
time took off deductible and depreciation =$9K each. Insured sues insurance company trying to collect the
difference. Trial court gave the insured the $5K and reversed on appeal. SD Supreme Court held the depreciation
so insurance company won. Court used replacement cost less depreciation to determine ACV.
Co-Insurance (There will be a short answer to calculate on the exam!!!!)
Co-insurance clause: There are situations where insured doesnt insure a commercial building for 100% of its value.
Often dont insure a commercial building for 100% of its value because the likelihood of a total loss is minimal. So
insurance companies have added a co-insurance clause to the policies. Co-insurance has nothing to do with having
multiple insurance companies. Formula:
Amt Payable = Amt of Insurance x loss
____% of ACV
Hypo 1:

Loss = $800
Insured bought insurance of $50,000.
Actual Cash Value (ACV) of building is $100,000
Co-insurance % (set in policy) is 80%.
Amt payable =

x $8000
(80% x $100,000)

Insured would only collect $5000 of the $8000 loss in this case.
Hypo 2:
Loss = $8000
Insurance = $90,000
ACV = $100,000
Co-insurance % = 80%
Amt payable = $90,000

x $8000

Because % is over 100%, you keep coverage at 100%. Insured collects $8000, the total amount of the loss.
Jefferson Insurance Co. v. Superior Court
1. Coinsurance percentage is 70%. The amount of insurance the insured bought was $45K. FMV = $65K.
The loss is $24K. So the only thing left to argue about is the ACV of the property. The larger the
denominator (what the insurance company wants), the smaller they have to pay.
2. The insurance company says the ACV is the replacement cost. It benefits the insurance company to use the
highest value for ACV. $45k/70% of $170K (replacement cost) X $24,102 = 45K/119K X 24,102 =
38% of the loss 38% x 24,102 = about $10,000
3. The insured wants to use the ACV as the fair market value, NOT the replacement cost. 45K/70% of
$60K (FMV) X $24, 102= $45K/45K X $24,102=100%, so the insured gets $24K (100% of his loss).
4. The insured wins on appeal. Court holds that ACV = FMV.
5. Definition of FMV- price that a willing buyer will pay a willing seller neither being under compulsion to
buy or sell.
Apportionment Among Partial Interests
Joint Tenants
Russell v. Williams
1. Couple owns property JT and they get divorced. Divorce didnt provide for property settlement so they
continued to own it JT. He insured property. Fire loss. He died (unrelated). Ins co paid his estate, not
her. She claims she is entitled to the proceeds because it is proceeds of the property. (The house is gone,
the money has now replaced the house.) Court says this argument isnt valid.
2. It is a personal contract and insures the insureds interest in the property, the insurance isnt on the
property. So the insurance is on the husbands interest in the property and it is payable to the estate.
3. There are exceptions to the rule:
A. If there is a contractual obligation (includes owner/mortgagor situations where there is a CFD).
B. Equitable considerations. (Ex: where insurance is bought by lessee but held in trust for the
owner. Ex: where intent of decedent is that legatee gets car and car destroyed proceeds of ins
policy should go to legatee.)
4. The ins was only for $8K. She doesnt get this, it goes to his estate. However, she still owns the land (13
acres) so court doesnt feel too sorry for her.

2 ways to transform JT to TIC: if parties agree they can deed to themselves as TIC or one party can bring a
partition action.
Life tenant has no duty to insure for benefit of remaindermen. Baron thinks this also means that remaindermen
wont succeed to the proceeds.

Contrary law in SD Estate of Jackson 508 NW2d 574 (SD 1993) hail damage to house, then life tenant dies.
Who gets proceeds? Estate of life tenant or remaindermen? Remaindermen get proceeds under philosophy that
it is the duty of a life tenant to keep property in good repair.

Creditors rights and deficiencies if bank repos vehicle and sells for less than debt then bank has deficiency
judgment against debtor. There are situations where a bank may agree to forgive a deficiency. A deed in lieu of
foreclosure is a deed given by a debtor to a bank and is full satisfaction of the debt.
Assume buy house for $70K. DP = $10K. Bank loan = $60K. Insured for $65K (land is still worth something so
dont insure full value). In this case bank would be paid $60K, owner gets $5K. If owner doesnt get their own
policy and bank force-places insurance, bank will get a mortgagee-only policy and insure only its own interest.
Mann v. Glens Falls Insurance Company 9th Cir 1976
1. Mann owns property. Insured for $15K. Sold to Bates for $25K. Gave her $2K, and Mann financed the
remaining $23K. Bates didnt insure property. Mann continued to have policy, but never told insurer
about the switch. Fire.
2. Trial court allowed Mann to recover $15K plus damages from ins cos refusal to pay. Reversed.
3. Reason #1 why insurer wins: Ins co doesnt have to pay $15K because her status changed from owner to
mortgagee and then she would need a mortgagee only policy. Court held that if she had had a mortgage
only policy her insurable interest would have been $23K (amount of the loan). However, when she took
the deed in lieu she wasnt owed anything any more, therefore there insurable interest went to $0. Court
didnt allow her to restore her position as owner.
4. Policy contained a subrogation clause that required an assignment which would allow ins co to pay her
out and then subrogate against the Bates (for the money that the Bates owe Mann). So Mann would get
the first $8K of any subrogation and then ins co gets anything left. [Of course, house has burned down
so Bates arent going to pay anything.]
5. Reason #2 why insurer wins: But Mann screwed up and took a deed in lieu of foreclosure from the Bates,
which excuses the Bates from having to pay under the note. She destroyed the ins cos right of
subrogation against Bates. Destroying right of subrogation avoids an ins cos responsibility to pay.

In the long run this type of decision encourages ins cos to delay payment because they might get lucky and have
the insured do something that will destroy their insurable interest or otherwise screw up their right to recovery.
Bank had loan for $426K. Fire. Ins policy was for $75K. Ins co delays. Bank forecloses. At foreclosure sale
if no one shows up, how much should the bank bid? The value of the loan so that you dont create a deficiency
against the borrower. But if you create a deficiency you jeopardize the sale because the sale may be considered
to not be commercially reasonable. This causes borrowers insurable interest to got to $0. Ins co doesnt have
to pay.
Some courts hold that you measure the ins cos liability on the date of loss. This prevents the problems like in
the Mann case.

Whitney National Bank of New Orleans v. State Farm Fire and Casualty Co.
1. Fire destroyed car parts place. Fire caused by arson of owner. Ins co wont pay owner because they started
the fire. Bank brings suit to enforce insurance policy because they have security interest in the inventory.
So question is whether ins co has to pay lender. Result is that ins co doesnt have to pay bank.
2. A standard mortgagee clause protects mortgagees of buildings (real property). But lenders for inventory
arent protected.
3. NY Standard/Union Mortgage clause this helps banks (mortgagees) and protects them even if insured
cant recover.
4. Simple Loss Payable/Open Mortgage clause does not protect banks. The banks right to recover is
contingent on insureds right to recover.

Helicopter destroyed; seller wants to be paid as mortgagee but unusual because insurance company says as
mortgagee we pay you, but the helicopter was defective, and youre the seller, so we have right to subrogate
against someone that causes the loss.

Case where there was property loss and insured repaired the property right away. Ins co denied claim saying
that there was no loss to the bank because property was already repaired. Court ruled that ins co had to pay.

Insurance company pays money to the insured and has the right to step into the shoes of the insured and sue
someone else (TF).
Conventional Subrogation granted by insurance K
Equitable (legal) subrogation where subrogation is permitted by the court because it would be inequitable to
allow insured to recover under policy and also against tortfeasor.
Statutory right of subrogation allowed under workers compensation
Property Insurance Subrogation
Brew & Co. v. Auclair Transportation, Inc.
1. Shipper purchased insurance; there was a loss, so insurance company paid the insured $18K. Insurance
company brings subrogation action against the common carrier (Auclair).
2. Common carrier relies on bill of lading that says that the carrier gets the benefit of insurance as long as it
doesnt invalidate the ins policy and all they have to do is pay the premium. Common carrier wants the
benefit of the insurance company although the shipper paid for the premiums, not the carrier. Says that
they (carrier) are only responsible for the premium. Essentially try to make themselves, a co-insured.
3. The court holds that the bill of lading does not relieve the defendant of all damages and the liability is not
limited to the insurance premium. Subrogation allowed.
Sutton v. Johndahl
1. Leased property, and the tenants son caused a fire and the property burned down. The LLs insurance
company paid the Landlord for the damage.
2. Insurance company sought to sue in name of LL against the T for being negligent. LL is not real party in
interest, so the insurance company has to sue in own name. Tenant won.
3. Holding: consider the Tenant as a co-insured under the policy, even though tenant didnt pay premium
directly to insurance company. Tenant considered a co-insured because part of his rent goes toward the
payment of the premium. Cant subrogate against your own insured, therefore subrogation not allowed.
Duell v. Greater New York Mutual Insurance Co.
1. Water damage. Apparently LL was at least partially at fault. In first lawsuit, the T sued the L for the water
damage; and the T won that lawsuit. This is a lawsuit by the L against his attorney for malpractice in the 1 st
lawsuit. The attorney didnt raise provision in the lease that says T is responsible for buying property
insurance, and the L & T were to be co-insured.
2. Trial court held that even if the LLs attorneys had properly brought the argument that T didnt insure the
property, after paying Ts judgment, the ins co would have had a right of subrogation against the LL.
Therefore find for atty.
3. However, there was an effort in lease to create coinsurance and therefore DEFEAT subrogation. So if loss
was paid by insurance company, shouldnt allow to them to sue their own insured. Therefore appeals
reversed, if T had done what was supposed to do and purchase the policy, it would have protected the L
also. Ins co cant have a right of subrogation against its own insured.
Note 2 page 588 suggests that a lease should contain a clause that tenant and LL waive all subrogation claims
against each other if covered by insurance. This destroys subrogation and creates status of co-insured. Ins cos
wouldnt like this.
Reeder v Reeder page 589 SC NE 1984
1. Ted owns house in Omaha. Moves to TX. Allows brother to live in house for a few months. No rent paid.
Ted kept insurance. Fire - $140K damage. Ins co paid owner of house. Then ins co sued brother (through
subrogation). NE SC didnt allow subrogation.
2. Brothers argued that there was a landlord-tenant type of relationship (so that court would follow Jondahl).


Ins co argued that there was a licensee-licensor relationship so that subrogation would be allowed against
the brother.
Court finds that the relationship was that of guest-host. Court says that guest-host is even more favorable
to brother. Ins co has no right of subrogation. Idea is that host took out ins policy so that he would not
have to look to guest for payment.

Wimberly v Am Cas page 595, TN SC 1979

1. Wimberly owns restaurant. TF drives car into restaurant. Damage = $44K. Wimberlys have $15K policy
and collect under this policy. TF ins policy was $25K. Settled for policy limits. Question is how to
distribute the $25K.
2. Ins co says that there is subrogation clause in policy so Wimberlys should get $10K and ins co should get
their $15K back (that they already paid to Wimberlys). Wimberlys would end up with total of $25K
recovery. Wimberlys signed a form when the ins co paid them originally that if there was recovery the ins
co would get the recovery.
3. Wimberlys argue that they arent fully covered for their loss so they think they should get the entire $25K
from the TF. They would get $25K + $15K = $40K, still not fully covered.
4. Subrogation is a doctrine of equity. Equity requires that the insured be covered for their loss. They paid
premiums and ins co assumed some risk for that, therefore insured so get first crack at the proceeds.
Therefore court found for Wimberleys and gave them the entire recovery. No right of subrogation here.
Insured must be made whole prior to insurer getting the right of subrogation. (make whole doctrine)
5. Here, even though there is conventional subrogation (created by K), court still applies equitable
Make Whole doctrine. Before subrogation is allowed, insured should be made whole. At least 25 jurisdictions
have adopted make whole doctrine.
Westfield Ins v Rowe
Supplement p. 157 - 158
1. Gallant killed in car accident. Ins co pays property claim of $144K. Then collect $750K from TF liability
ins. Ins co wants to get at the settlement and says they need to be reimbursed for $144K. Court allows the
2. Court didnt allow collection under UIM coverage. Daughter claimed that they werent made whole by
$750K so deserved UIM coverage. Not allowed.
3. SD SC explicitly rejects the make whole doctrine. Ins co gets entirely reimbursed. Daughter ends up
with approx $606K
Stetina v State Farm
Supplement p. 159 - 163
1. Here the 1st party insurer delays payment of 1st party benefits until after there has been a recovery.
2. negotiates a settlement and release with TF. State Farm agent was involved because State Farm insured
TF (and ). Now sues State Farm under his own insurance for some medical bills (not a property ins
3. State Farm denies the claim saying that released TF from future claims so prejudiced the insurers
right of subrogation against the TF.
4. Holding is that because insured () and TF were both insured by State Farm, State Farm doesnt have
any subrogation rights at risk. State Farm is complaining about losing the right to sue itself. Further, its
own agent had negotiated and settled the release for the TF. Therefore the right of subrogation hasnt been
impaired. Where no subrogation exists, there can be no impairment of subrogation rights.
5. Where the TF is either uninsured or else insured by a different insurer than the , a general release
given to the TF destroys and prejudices the insurers right of subrogation and consequently releases
the insurer from liability to the insured.
6. Problem with this is that insureds dont know about these rules. Worse, this kind of rule encourages the
insurer to delay payment because they hope that the insured will settle with the TF and sign a release thus
destroying subrogation rights and avoiding coverage under the policy.

Majority Rule: when an insured settles with the TF and signs a release, the has destroyed his insurers
subrogation rights. This allows the insurer to avoid payment of any 1 st party claims to the insured. SD
follows this.
SD Law:
Hart v State Farm (SD 1977): car accident. TF settled with for $4242 and signed release. Actual medical
bills = $1847. After atty bills insured collects $2828. Now insured sues State Farm for med pay. Court said
that insureds release of the TF destroyed State Farms right of subrogation and didnt allow additional recovery
under the policy.
Amert v Continental Casualty (SD 1987): subject of ins is recreational building in apt complex. There was
property ins with both Continental and Travelers. Building suffered damage from rust due to defective
insulation. Insulation provided by Ziebarth and US Fiber. Insured sues the manufacturers. Insured also sues
both ins cos. 1st party ins denies coverage and TF denies liability. Sued TF first and collected $95K.
Meanwhile, the s lawsuit against the ins co was pending. Both ins cos move for SJ because insurers
subrogation rights have been impaired. Court grants SJ for both insurers. Baron finds this case particularly
Baron dislikes the general rule for two reasons:
1. What do we pay premiums for anyway? To get coverage.
2. Also we buy insurance expecting fast settlement of claims.
Home Insurance Co. v. Hertz Co.
1. Insured driving vehicle. Insurer paid $2K to insured. Then insured sues TF and obtains judgments for $6K
and sign a release. This case is the insurer suing TF to get their $2K back and TF defense is that they have
been released.
2. Issue: Whether a release by an insured bars a subrogation by an insurer when the TF procures the release
from the insured with knowledge of the insurer interest.
3. Holding: Knowledge by the TF that there is an ins co with subrogation rights means that a release by the
doesnt impair the insurers right to the sue the TF. TF will have to pay the $6K plus the $2K paid by
insurer to the insured.
4. This result will discourage a TF from settling unless they are able to settle with everyone at once.
5. If the TF didnt have knowledge of the insurers interest, the insured would have to pay the money back to
the insurer.

Some cases hold that if a TF and insured settle, the ins co has the right to collect from either the TF or insured.
Brickajlik: Insurer paid $to inured for car stolen from gas station. Insurance company then sues gas station to
recover. Insured wouldnt sign the papers to allow suit to go forward. The insurance company then sues its
insured for the $3K and wins because he breached the duty to cooperate. The Court holds for the insurer.

Executive Jet Aviation, Inc. v. United States

1. TF is FAA because didnt warn there were seagulls on the runway, and they got into the engine and plane
crashed. This is suit against the United States, so in Federal Court. Insurer pay Ex Jet right away.
Executive Jet signs loan receipt saying they will pay it back if we collect from TF.
2. Insurer sues US under Exec Jet name. The court dismissed this saying that the lawsuit should have been
brought in the name of the insurance company because they are the real party in interest. Insurers dont
like to sue in their own name because it prejudices the jury.
3. Because of the loan receipt, insured says that Exec jet is the real party in interest (it ha this theoretical loan
to pay off). Court holds that the loan receipt doesnt create a valid interest and is a fiction.
4. Lawsuit dismissed. Unfortunately dismissed with prejudice between statute of limitations passed.

Some jurisdictions do uphold loan receipts.

Other way to keep an interest in the insured is to have a mandatory deductible.

Equitable Subrogation
Frost v. Porter Leasing Corp.




Car accident; law suit filed by Frost and his W against TF. Things included in the claim: Medical expenses,
impaired earning capacity, pain and suffering, future medications, loss of consortium (to W), property
damage. Seeking $600K . Actual medical expenses $26K+. Ins co pays $22K in medical bills. Insured
settles with TF for $250K. Insurance company trying to assert right of subrogation for claims paid and get
the $22K back. There is no subrogation clause in the policy, insurer wants to imply a right of subrogation.
Trial court holds that ins co can collect from insured for the payment made, less a share of the attys fees
incurred. Reversed on appeal. Court finds there is no equitable right to subrogation in personal
insurance when there isnt a subrogation clause in the policy.
Purpose of subrogation is to avoid duplicative recovery by the insured. This makes some sense in property
ins cases where you can calculate the damage to the property. However, this doesnt make as much sense
in medical cases where it is really hard to know if the insured ever fully recovered for his loss.
Second purpose of subrogation is that it helps to lower ins rates. Baron doesnt believe this.
Why dont we try to figure out if the insured is made whole (is there a windfall); and there is a lot of courts
that wont let subrogation occur until the insured is whole FIRST. One important question; NOT does
$250K make them whole, but does 2/3 (the amount they will get after attorney fees) make them whole.
When insured is looking at a settlement, they are BELOW the actual damages. 2 reasons why:
a. Difficult to put dollar amount on unliquidated damages
b. Damages arent absolute (what if he wasnt wearing a seatbelt, or he was going too fast); its a
The reason for implied subrogation under contracts of insurance is to prevent an unwarranted windfall to
the insured. Courts have not recognized implied rights of subrogation in the area of personal insurance, a
category that has included medical expense benefits as well as life insurance and other forms of accident
insurance. However courts will imply subrogation in property ins policies.

Shumpert v Time Insurance Co.

1. There is no subrogation clause. Time paid insured $18K in medical bills because of car accident. Insured
settles with TF for $75K.
2. Ins co says that they have equitable right to subrogate. Court holds that subrogation will not be allowed
for medical claims when there isnt an express subrogation clause in the policy.
3. Subrogation can arise by statute, equitably, or by law.
4. Common law said that there was no subrogation on health ins because:
a. This was an assignment of a personal injury C/A which is not allowed by law.
b. Splitting a C/A
5. Cant assign personal causes of action. This is one of the reasons that subrogation on personal injury
claims isnt permitted.
Lee v State Farm
Supplement p. 168- 173
1. Policy has reimbursement provision saying that ins co can get reimbursed for payments it makes to
insured under the policy out of any other payments received by insured for the related medical claims.
Insured claims that this is an assignment of a personal injury claim and the provision is void.
2. Trial court requires insured has to reimburse the insurer but that ins co needs to pay its pro rata share of the
attys fees incurred by insured when recovering from TF. Court uses the common fund theory to reach this
result. The idea is that if one person brings a suit on behalf of a class, all in the class have to share in the
attys fees. Affirmed.
3. Concurring opinion says that the cumulative effect of this is to create subrogation. In this case, the court
says that reimbursement isnt the same thing as subrogation (Baron thinks they are mighty close, especially
in some cases when the reimbursement clause requires the insured to bring a claim against the TF if
required by the ins co.) Here the court says that it might not allow subrogation, but it will allow
reimbursement. Court finds that this clause is mere reimbursement, not subrogation.
4. Collateral source rule = if ins co pays the insured, the TF should still pay the insured 100% of the damages
(TF still responsible even if the insured is compensated from collateral sources). Issue here is whether the
insured has to reimburse that money to the ins co.
Health Insurance Cases
Frost Mass. 1982

Shumpert SC 1998
Ill 1990
Main 1985
Wisc. 1985
Ark 1988
Automoblie Policies Med Pay
Calif. Lee 1976
SD 1975
Subrogation is when the ins co sues on behalf of the insured. Reimbursement requires that when the insured
sues the TF and recovers, the insured has to reimburse the ins co for any payments the ins co made to insured.

Reason that ins cos have reimbursement clauses is to step around the C/L rule that you cant assign a personal
injury claim.
Minority view is that you dont allow subrogation on medical payments claims. NV says not allowed because
against public policy because there is no such thing as a double recovery for the plus insureds deserve to get
the benefit that they have been paying for. (Baron loves this). Some states prohibit it at C/L, other prohibit it
Majority view is to allow subrogation on medical ins claims.

There are a bunch of compromise solutions regarding allowing subrogation in medical ins claims in different
jurisdictions. These include (these are in order of benefit to the insured):
1. Completely prohibit subrogation in medical claims.
2. Make whole doctrine subrogation only allowed in medical claims when the insured has been
made whole. (Wimberly). Some federal courts follow the make whole doctrine. Two
approaches to this:
A. Look at what the insured actually receives (after attys fees). (This is best for the insured.)
B. Look at the total received. (This is best for the ins co because it disregards attys fees.)
2. Pro rata loss sharing. Idea is that ins. co pays $40K on medical bills to insured. Insured reaches
settlement with TF for $50K. Insured says Im only getting $50K, paying you $40K, just doesnt seem
right. So assume they can come to an agreement that the insureds total damages were really $100K.
This would mean that if insured collects $50K of the $100K, he is getting 50%. Then ins co will agree
to take just 50% and will have insured reimburse them for $20K. This typically happens in settlement
3. Pro rata attorney fee assessment/common fund theory. This is one step better than just allowing
subrogation 100%, at least the court can order that the ins co pay their portion of the atty fees. (Bowen v
American Family)
4. Always allow subrogation in medical claims.
What happens when the judgment specifies exactly what the damages are for? Ex: judgment for $50,000, of this
$20K is for pain and suffering and $30K is for lost wages. Nothing here for medical bills, so does ins co not get to
subrogate because there is nothing designated as a medical payment?
SD Subrogation:
Supplement p. 179
SD allows subrogation of medical claims (Schuldt v State Farm).
SD rejects the make whole doctrine in work comp setting.
SD SC (Zoss case) found that damages attributed to loss of consortium is not subject to subrogation. Money
designated for pain and suffering is subject to subrogation.
In Zoss II, court further clarified this and said that any damages received for a pecuniary loss is not subject to
subrogation. Pecuniary loss includes loss to spouse or child of things like protection, guidance, loss of
Bowen v American Family

Supplement p. 174
1. Ins co pays insured $2K. Insured receives $16.5K settlement from TF. Atty fee from settlement is approx
$5500. Ins co wants to get its entire $2K back. Atty would get $5500. Insured would get $9K (55% of
2. Trial court orders that ins co has to share in the atty fees. So ins co only gets $1333. Affirmed. (Keep in mind
this is a big fight over only $667.) Court based decision on the common fund theory.
3. If you apply the make whole doctrine, and decided that the insured wasnt made whole by $11K, then insured
would get $11K and ins co would get $0.
Possible way that insurers will try to avoid taking atty fees out of their subrogation rights is to have the TFs insurer
pay the insureds insurer directly without subtracting lawyer fees.
America Family

$9.000 (55%)
$9,667 (57%)

$5,550 American Familys View
$5,550 Bowen Result
$5,500 No Subrogation
$4,8333 Justice Amundson Give Atty 1/3 of $14,500

In re Estate of Scott
1. Ins co pays $200K to insured. Insured receives judgment of $121K, but only receives $82K after payments
of attorney fees. The court allowed the entire award to be reimbursed to the ins co. Court upholds because
it is a contractual subrogation, they wont look at equitable principles here where there is contractual
2. Main reason case is here is because of the concurring opinion,w hich says this is an ERISA case and ERISA
is preempted by state law. Federal law in this cases is whatever the plan documents says here.
There are 3 statutes in ERISA to consider:
1. Preemption clause ERISA preempts all states laws.
2. Savings clause if there is a law that regulates insurance, then that law will not be preempted.
3. Deemer clause cant take a self-funded EE benefit plan and call it an insurance company. Therefore,
ERISA preempts state law regarding self funded plans.
502(a)(3) of ERISA, found at 29 U.S.C. 1132(a)(3)
Supplement p. 186
1132 Civil Enforcement
(a) Persons empowered to bring a civil action
A civil action may be brought
1) by a participant or beneficiary
A. For the relief provided for in subsection (c) of this section, or
B. To recover benefits due to him under the terms of his plan, to enforce his rights under the terms of
the plan, or to clarify his rights to future benefits under the terms of the plan;
2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of
this title;
3) by a participant, beneficiary, or fiduciary
A. to enjoin any act or practice which violates any provision of this subchapter or the terms of the
plan, or
B. to obtain other appropriate equitable relief
i. to redress such violations or
ii. to enforce any provisions of this subchapter or the terms of the plan; (emphasis added)
NOTE: 502(a)(3)(B) [codified at 19 U.S.C. 1132(a)(3)(B)] only permits a claim by the ERISA plan for
appropriate equitable relief.

The U.S. Supreme Court has, on two occasions over the last 6 years, been required to decide whether or not this
language authorizes an ERISA plan to file a lawsuit in federal court seeking reimbursement (for payments made on
medical expense
Ninth Circuit View (contrary to all other circuits) prior to Knudson
Existing case law in the Ninth Circuit had established that an action seeking a judicial decree of reimbursement was
not equitable relief under this statutory provision and that such an action was, therefore, not authorized by ERISA.
1Mcintosh v. Pacific Holding Co., 992 F.2d 882, 885 (8 th Cir. 1993), cert denied, 510 U.S. 965, 114 S.Ct. 441, 126
L.Ed.2d 375 (1993). (appeal from federal district court in Omaha)
[Erisa plan which paid over $430,000 in medical expenses held to have the right of reimbursement to entire
$250,000 settlement]
Great-West Life & Annuity v. Knudson, 534 U.S. 204, 122 S. Ct. 708, 151 L.Ed.2d 635 (2002)
decided on January 8, 2002 arose in California
Janette Knudson was injured in a car accident / rendered a quadriplegic. ERISA plan paid $411,157.11 of her
medical expenses. (actually, the plan covered $75,000 of the expenses and the remainder was paid by Great-West
Life & Annuity Insurance pursuant to its stop loss agreement maintained with the plan.)
Knudson sued the manufacturer of the car in which she was riding and other alleged tortfeasors in California state
court. A settlement of $650,000 was negotiated. Proceeds were allocated as follows:
$373,426 for attorneys fees and costs,
$256,745.30 to a Special Needs Trust which, under California law, exists to provide for continuing medical
care for Knudson,
$5,000 to the California state Medicaid program, and
$13,828.70 for reimbursement to the ERISA plan and its insurer
(Not close to covering the $411,157.11 paid by plan)
The 9th Circuit held that the ERISA Plan and its insurer were not permitted to bring suit against the beneficiary,
Janette Knudson.
The U.S. Supreme Court affirmed the Ninth Circuit
U.S. Supreme Court Affirmed the 9th Circuit holding that ERISA Plan and its insurer were not permitted under
ERISA statute to bring suit for reimbursement. The custodian of the funds (the Special Needs trustee) was not a
defendant in the suit, so there was no money or res upon which the court could impose a lien or constructive trust.
This is a 5/4 opinion with the majority opinion by Justice Scalia who construed the ERISA provisions narrowly
restating the Courts view that there is strong evidence that Congress did not intend to authorize remedies that it
simply forgot to incorporate expressly.
Court rejected the argument that this was a suit for equitable restitution, pointing out that this was a suit for
personal liability, a suit for money damages and, as such, was really a suit for legal restitution.
The Court also rejected various arguments which sought to characterize the relief sought as injunctive or as some
other form of equitable relief
No discussion of any policy considerations as to whether or not reimbursement should or should not be
Sereboff v. Mid Atlantic Medical Services, Inc., 126 S.Ct. 1869, 74 USLW 4240, 164 L.Ed.2d 612 (May 15, 2006)
The ERISA plan sought reimbursement of $75,000 paid in medical bills from a tort settlement of $750,000. The
plan sued the beneficiaries who had possession of the settlement funds and who agreed to preserve the funds in an
investment account.
The U.S. Supreme Court permitted the suit, holding that the ERISA plan was authorized to pursue an equitable claim

for constructive trust or equitable lien on a specifically identified fund in the defendants possession to enforce the
ERISA plans contractual right of reimbursement.
Unanimous decision by C.J. Roberts, distinguishing Knudson by saying, Great-West did not seek to recover a
particular fund from the defendant. Mid Atlantic does.
Collateral Source Rule
Collateral source rule says that TF shouldnt benefit from the payment that insured receives from ins co. There is
one exception to this rule. Exception allowed for doctors and hospitals. They are allowed to introduce into evidence
any amount received by insured and then wont be responsible to pay that back. This is created by statute.

CA Statute 3333.1 on page 718 statute allows TF to show the jury that the doctors bills were paid by
someone else (insurance). This goes against the collateral source rule. This is unique to medical mal
claims. CA statute says that the ins co doesnt have the right of subrogation (denied across the board
against healthcare providers).
Compare to SDCL 21-3-12 (supp page 201) SD law is very similar except it does allow right of
subrogation against med mal insurers (can show jury only bills paid by others which are not subject to
subrogation). Cant show the bills if it is subject to subrogation.

OBar v MFA Mutual

1. Set off clause in ins policy. Set off clause is similar to subrogation clause. If you receive money
elsewhere, then ins co doesnt have to pay.
2. H dies during work accident. W applies for $5K in accidental death benefits. Policy had set off clause.
She had received $5K in work comp benefits.
3. Trial court found for ins co. Reversed. Court held that accidental death benefits are analogous to life
insurance. Therefore, there is no subrogation allowed (cant subrogate life ins claims - ever).
Life insurance is more in the nature of an investment, it is a K to pay a sum on death of insured. If you have a life
ins policy, on your death, it has to pay. It doesnt matter if there is a TF. There is no subrogation on life ins
policies. The generally accepted principle is that one can buy as much life insurance as one can afford and the
insurance companies are willing to sell, and expect full payment.
Generally Accepted Principle:
One can buy as much life insurance as one chooses (so long as the insurers are willing to sell the coverage)
and expect full payment to beneficiary(ies) upon death. (Attempts to assert subrogation/reimbursement and to argue
double recovery have failed in the area of life insurance.)
Intentional Tort Exclusions
Pachucki v. Republic Insurance Co.
1. Plaintiff was seriously injured by a rubber band that was shot at him during a rubber band war with his
friend. (Its always fun until somebody loses an eye.) directly sues the friends insurers (direct action
allowed in WI). Homeowners policies extend coverage to many things that dont happen at home.
2. Insurance company denies claim based on two reasons:
a. Policy has exclusion when injury occurs in the course of a business pursuit. Court doesnt buy this
and says that although they were at work, this was not in the pursuit of business.
b. Policy has exclusion when damage or injury is expected or intended to occur. This is the argument
that courts agrees with. argues that no one intended for an injury to occur, therefore there
should be coverage.
3. There is an exclusion found in almost all policies for intentional torts. The reason for this philosophyIf I
have coverage, I might have a reason to cause harm to youknowing that I will not have to pay, because
my insurance company will pay.
4. Three general views that have emerged with respect to the construction of an intentional tort exclusion:



The minority view follows the classic tort doctrine for looking to the natural and probable
consequences of the insureds act;
b. The majority view is that the insured must have intended the act and to cause some kind of bodily
injury. Court follows this view. Said that the boys knew that someone was probably going to get
hurt, even though they didnt intend for anyone to be hurt this badly. Therefore, exclusion applies
and there is no recovery under the policy.
c. A third view is that the insured must have had the specific intent to cause the type of injury
Precedent cases mentioned in main case:
a. made a fist but never intended to actually hit the . He accidentally hit the and caused injury.
Court found coverage because there was no intent to hit.
b. Student intended to hit , but intended to just cause a little bit of pain. Instead caused serious
damage. Court found there was no ins coverage because there was some intent to hit, even if no
intent to cause serious harm.
c. Guy intended to throw a cherry bomb into a room to scare someone. Guy lost his hearing. Court
found there was coverage

If a plaintiff only brings an intentional tort, then the ins co does not have to defend because it will not be liable.
However, the should bring both a negligence and an intentional tort case. If there is an allegation of
negligence, then the insurance company has to defend against a claim, because there is a possibility that the ins
co will have to pay a claim.
The duty the defend is broader than the duty to indemnify.
Tri State v Bollinger. Guy gets assaulted. Atty files claim against for assault. Later amends complaint to
include negligence. Trial court says that cant amend because it appears that amendment was solely for the
purpose of finding ins coverage. SD SC reversed.
North Star v Kneen H and W, broken arm. SD SC said that ins co has a duty to defend when negligence is
alleged in addition to an intentional tort.
State Farm v Wertz guy kidnaps girl. Police trying to catch this guy. When they are closing in on him. He
drove his car into a parked semi intentionally at 55mph. Injured girl sues and wants coverage under his ins
policy. Trial court required insurer to defend him in the lawsuit. SD SC reversed and said that the facts are so
obvious that this is an intentional act, there wont be any coverage.

Sexual misconduct cases

Supplement p. 86
If the conduct is just negligence and not intentional, then there will be coverage. WI and MN have developed
coverage under homeowners policies
Most home owners policies now exclude sexual misconduct.
Punitive Damages
Dairyland Ins v Wyant - hit by drunk driver. Trial court said ins co had to also pay punitive damages owed by
TF. Reversed. Ins policies dont cover punitive damages against a TF. Punitives meant to punish the TF, when
ins co pays for them there isnt any punishment.
Insurers will sell policies where it does cover punitive damages. This are usually sold in vicarious liability
situations. Often school districts, etc will purchase this coverage.
Stoebner v. South Dakota Farm Bureau
Supplement p. 217
1. The insured was sued for assault. Insured claimed that the allegations were fraudulent and that they were
acting in self defense. Ins co refused to defend. Insured won the assault case, then sued ins co for costs to
defend and for bad faith.
2. The court remanded and said if the insured won the case because it was found that they acted in self
defense, then ins co must pay expenses (If what you did was acting in self defense and had no intent to hurt


the plaintiff then there is coverage.) If insured won the case because couldnt prove damages, then ins co
didnt have to pay expenses.
When in doubt about insureds conduct, then ins co has a duty to defend.

American Family Mutual Insurance v. Kostaneski

Supplement p. 217
Declaratory judgment action concerning insurance coverage for loss of vision/permanent eye.
State Farm v. Harbert
Supplement p. 219

Final Exam
This Exam consists of the following two components:

Multiple Choice (2 hours)

108 Questions worth 2 pts


Short Answer (30 minutes)

2 Questions (with subparts)


Total Raw Score


Go over Supreme Court Cases we discussed in class

Insurance contract between unequals
Rural juries are as good or better than urban juries at giving awards
Small case loads
Everything makes sense, if things are confusing go back and get more information
Case names will be sent out
Co-insurance (multiple choice question)