Part 5- Property, Chapter 27: Insurance Law, Doc 7

This section discusses issues related to liability insurance, focusing on insurers’ obligations to defend and indemnify the insured and the conditions under which insurers might be liable for bad faith breaches of contract. It includes several hypothetical case problems illustrating key concepts in insurance law. Key Points 1. Duty to Settle: o Insurers often settle liability claims to avoid the high costs of litigation, even if they believe the insured would prevail at trial. If the cost of defending a claim exceeds the settlement amount, insurers may prefer to settle. o Settlements allow insurers to avoid the expenses of a full trial, including attorney fees and other litigation costs, which the insurer must cover regardless of the trial outcome. 2. Liability Insurance Market Trends: o Premiums for liability insurance, especially for business and professional policies, have risen sharply, with some insurers ceasing to offer specific types of coverage. o Insurers argue that high premiums are due to excessive tort claims and large damage awards, while critics contend that poor investment and business practices by insurers are to blame. 3. Bad Faith Liability: o Courts may hold insurers liable for bad faith if they unreasonably refuse to fulfill clear obligations under a policy or deny claims without a legitimate basis, effectively "stonewalling" the insured. o Bad faith claims can result in substantial punitive damages against insurers, designed to punish the insurer and deter future misconduct. o Cases involving liability insurers refusing to defend the insured or property insurers unjustifiably denying claims may lead to bad faith liability. Case Problems 1. Intoxicated Individual's Liability (Problem 1): o Issue: Whether GICOM has a duty to defend the insured under a homeowners' policy when the insured's son intentionally resisted arrest, causing injuries to officers. o Consideration: GICOM’s policy excludes coverage for “bodily injury or property damage which is either expected or intended by the insured.” Because Arthur’s actions were intentional, GICOM might argue they were not accidental, thus not an “occurrence” as required by the policy. 2. Insurable Interest and Property Claims (Problem 2): Issue: Whether Harber and U.S.A. Properties had an insurable interest in a destroyed building when the partnership agreement was in dispute. o Consideration: The court would likely examine if Harber had an economic stake in the property at the time of loss. Without a confirmed legal interest or ownership, Harber may lack the necessary insurable interest to recover under the policy. Personal Trip and Business Coverage (Problem 3): o Issue: Whether Cope’s recreational trip, which included a business associate, was sufficiently related to his business to trigger coverage under the business policy. o Consideration: POI may argue that the trip was personal, unrelated to business operations, thus excluding it from coverage. However, Cope could contend that the presence of a business associate made it incidental to his business, potentially creating a question for the court to decide. Deceptive Advertising and Unfair Competition (Problem 4): o Issue: Whether Aamco’s liability policy covers claims under the Pennsylvania Unfair Trade Practices statute as “unfair competition.” o Consideration: The district court held that "unfair competition" in Aamco’s policy referred to common law claims, not statutory violations, so coverage did not apply to the class action suit. Aamco would argue on appeal that the policy language is broad enough to include statutory claims. Increase of Hazard and Insurance Claim Denial (Problem 5): o Issue: Whether the Goods’ insurance policy exclusion for an “increase of hazard” applies due to an illegal still found in their home. o Consideration: The insurer, Continental, may argue the illegal still created a higher risk of fire, which the insured controlled, thus invoking the “increase of hazard” clause. If proven, this would exclude coverage for the fire damage. Arson Allegation and Punitive Damages (Problem 6): o Issue: Whether the Plummers can recover compensatory and punitive damages after their insurer, IIC, refused coverage, claiming arson. o Consideration: If the jury found IIC’s denial to be in bad faith without a reasonable basis, IIC could be liable for both compensatory and punitive damages, emphasizing the court's disapproval of bad faith denial practices in insurance. o 3. 4. 5. 6. Summary This section highlights the insurer’s complex obligations, including the nuances in duty to defend and liability for bad faith, and illustrates potential outcomes with case problems. Courts assess these obligations based on policy language, factual circumstances, and the insured's reasonable expectations under the policy.