Insurable Interest and Life Insurance

Man with paper bag on his headThere’s lots that has been and will be written about the changes in the definition of insurable interest in the context of life insurance. Traditionally, an owner of a life insurance policy had to have an insurable interest in the life of the person insured. Typically that meant the policyholder herself, or her spouse or child. The insured life could not be that of a stranger with no connection to the owner. Purchasing a policy on a stranger’s life is considered gambling on someone’s life and generally is not permitted in most jurisdictions.

But a lot has changed: the definition of insurable interest in various states has been amended, and life insurance policies are now frequently sold, either individually or packaged and sold as collateral for securities issued backed by these portfolios of life insurance policies. The traditional notion of an insurable interest on someone else’s life has been altered.

Recently, the Seventh Circuit Court of Appeals succinctly addressed a dispute where a bank sought life insurance proceeds on an individual’s life from a policy it purchased, acting as a securities intermediary, a few years before the person died. Upon acquiring the policy, the bank, in its intermediary capacity, was named as the beneficiary.

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The Dangers of Selecting an Exclusive Arbitral Forum

vipmembersArbitration clauses in commercial contracts often specify an arbitral forum before which any dispute must be arbitrated. Insurance and reinsurance contracts containing arbitration clauses are no different. Specificity about the arbitral forum (or the arbitral rules or the appointing authority in case of an impasse) in an arbitration clause has resulted in much case law over the years when the forum no longer exists or refuses to take the dispute (or where the rules referenced have changed or are outdated or the appointing authority does not exist or refuses to appoint). So while specificity is generally a good thing in a contract, sometimes too much specificity backfires when a dispute arises years later and circumstances have changed.

The Untied States Court of Appeals for the Second Circuit recently addressed the issue of an arbitral forum that refused to take an arbitration in a consumer contract. While not an insurance or reinsurance contract, the court’s pronouncements could have an affect on a dispute under an insurance or reinsurance contract where an arbitral forum is exclusively prescribed in the arbitration clause.

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Contractual Privity and Reinsurance

Close-up image of a firm handshake between two colleaguesIn most jurisdictions a policyholder cannot bring a direct action against a reinsurer because of the lack of contractual privity. Yes, there are some quirky statutes and jurisdictions that allow a direct right of action under certain circumstances, but the general rule is that where there is no contractual relationship between the reinsurer and the underlying policyholder, a direct action against the reinsurer will not withstand a motion to dismiss. Reinsurers typically like this rule because it prevents suits by policyholders against them when claims are denied by the direct insurer/cedent or where claims handling issues arise.

In a recent case, however, with unique factual and contractual circumstances, a reinsurer brought a direct action against a policyholder. How do you think the reinsurer’s action fared?

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Disclaimers and Late Notice When to Raise and When Waived

businesswoman waving goodbye from tentWhen an insurance company decides to disclaim coverage it has to be very careful about timing the notice and the substance of the disclaimer. Courts have been generally strict in finding that a carrier’s failure to specify a ground for disclaimer precludes the carrier from raising that ground subsequently as an affirmative defense in a coverage action. Disclaimers based on late notice add additional complexity given the carrier’s need to demonstrate prejudice in many states.

In a recent coverage case in New York, a carrier sought to amend its answer to assert the affirmative defense of late notice. The motion court granted the carrier’s motion, but on appeal, the appellate court reversed, holding that the carrier waived its right to assert the late notice defense. The carrier appealed, and the New York Court of Appeals reversed and reinstated the motion court’s order allowing the answer to be amended to assert the affirmative defense of late notice.

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Additional Insured By Written Contract Clause Construed to Bar Coverage

Business People Meeting

Commercial construction projects necessarily involve many moving parts, including multiple parties from the owners to the construction managers to the project financiers to the contractors and to the sub-contractors. These moving parts generally result in a web of interrelated insurance policies covering the project. Typically, when there is no controlled insurance program, contractors and sub-contractors are required to obtain liability insurance covering their potential negligence and very often are also required to add others, like the property owner or construction manager, as additional insureds onto those insurance policies.

But not all additional insured clauses are the same. In this post, we discuss what a New York appellate court recently called an “additional insured by written contract” clause. The language of an additional insured clause may make all the difference as to whether a party is covered as an additional insured or not.

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Delaware Supreme Court Clarifies New York’s Injury-in-Fact Trigger of Coverage for Asbestos Losses

danger-asbestosWhether coverage for asbestos personal injuries is triggered under an injury-in-fact theory or under an exposure theory makes a world of difference to which insurance policies must respond to the asbestos losses. Asbestos, as we know, causes asbestos-related diseases that often manifest 20 or 30-years after the initial significant exposure to asbestos fibers. Most experts agree that the cellular and molecular damage that leads to these diseases is a continuous process. Which insurance policies must respond to cover the bodily injuries that result from that disease process is hotly debated.

In a recent decision by the Delaware Supreme Court, the court had to determine which, if any, of 35 excess insurance policies in a 14-year tower of insurance must respond to asbestos personal injury claims in a dispute that has been winding its way through the judicial system of multiple jurisdictions since 2005.

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The Distinction Between the Duty to Pay Defense Costs and the Duty to Indemnify Defense Costs

Businessman Wearing Cape Stands Cofidently While Protecting Dollar SignCommon forms of commercial general liability policies typically include provisions requiring the insurer to defend the insured regardless of whether the claim is valid or not, as long as the claim is within the coverage grant of the insurance policy. The typical language provides that the insurance company has the right and duty to defend the insured against any suit seeking damages for bodily injury or property damage to which the insurance applies. Other policies, however, including excess policies, may not include a duty to defend and may only provide for indemnification of defense costs actually paid for a covered claim. In a recent Summary Order, the Second Circuit reviewed this distinction in a coverage dispute involving marine primary and excess polices covering an oil transport and storage facility in Panama.

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7th Circuit Affirms Waiver of Removal Because of Reinsurance Agreement Service-of-Suit Clause

Removing materials containing some asbestosIn December 2015, an Illinois federal court held that the language of a service-of-suit clause in a reinsurance contract was a voluntary removal waiver and sent a case removed to federal court back to state court. That case went up to the Seventh Circuit Court of Appeals for review. The Seventh Circuit has now affirmed.

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New York Appeals Court Holds No Allocation of Environmental Losses to Insurers for Uninsured Years

Polluted Water AnalysisIn a case of first impression, a New York intermediate appellate court has held that the policyholder, rather than existing insurers, must be allocated  environmental cleanup costs for periods of time when environmental cleanup insurance was not available in the marketplace. The decision reverses the denial of the insurer’s partial motion for summary judgment.

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Squire Patton Boggs Reinsurance Newsletter September 2016

The September 2016 edition of the Squire Patton Boggs Reinsurance Newsletter is out! In this issue, we cover the 6th Circuit’s decision on ex parte communications that resulted in an arbitration award being vacated. We also cover a Massachusetts federal court’s rejection of a pre-award challenge to an arbitrator and an Arizona federal court’s granting a motion for attorney fees on bringing a motion to confirm an arbitration award. Many more cases are discussed along with a list of our recent presentations and publications. To find prior issues of the Reinsurance Newsletter, just search “Reinsurance Newsletter” under Insights & Events tab on the Squire Patton Boggs webpage.