The Basics of Insurance

This fall I am taking a course that clearly does not get the respect that it deserves. I say this, because Insurance is something that everyone deals with, and most attorneys work with.

I mean, if you’re a patent attorney or a family attorney you might not, but the “bread and butter” attorneys work in insurance, whether for defense, plaintiff’s work, or even in a non-litigation facility. I think something like 18% of the United States GDP is from insurance holdings. However, this course is only offered for 2 credits. What a shame. Maybe my opinion is skewed because insurance companies essentially pay my paycheck. 80% or more of our office comprises of auto accident cases or other serious injury claims, all to be paid by insurance companies. We handle criminal defense cases, but those clients rarely pay, and it represents an ever-dwindling percentage of our overall caseload, especially with the new marketing that we’ve done since April.

That being said, I look forward to the rest of this course. Even at 2 credits, I’ll probably get as much if not more out of this course than any of the others that I am taking this fall.

Week 1’s Cases:

GAF Corp. v. County School Board

(Hey, I think that linked to the case. Whee!) This is a case of what is insurance? GAF is a company out of Delaware that manufactures, distributes and installs(unclear as to whether this is part of what they do or not) roofs and roofing shingles. They contract with a school in Virginia for roofing work. Among the work was a guarantee as follows:

“The contracts contained a guarantee in which GAF agreed to repair damage to the roofing membrane and base flashing resulting from leaks caused by natural deterioration of the roofing membrane or base flashing, blisters, bare spots, fish mouths, ridges, splits not caused by structural failure, buckles and wrinkles, thermal shock, gravel stop breaks, plastic pans, workmanship in applying the membrane and base flashing, and slippage of the GAF products. The guarantee excluded leaks caused by natural disasters, structural defects, damage to the building and certain other events unrelated to any defect in GAF’s products.”

The case is on appeal for a decision to quash service on GAF. In Virginia, there is a procedural method of effecting service on an insurance company that is not authorized as an insurer in Virginia. This action also allows for additional damages, including attorney’s fees, which would not be applicable in a simple breach of contract/breach of warranty issue.

The issue is whether or not the guarantee provided by GAF constitutes insurance or a mere guarantee. This case is somewhat unique, as the wording and terms of the guarantee, as above, appear to go “beyond the normal scope” of a quality of product warranty but the court finds that it does not rise to the level of insurance. The case was remanded back to the district court with instructions to quash service.

Rawlings v. Apodaca

Bad faith! This case represents the evil swinging hammer that is lurking in some jurisdictions behind insurance companies, in an effort to make sure that they do what is right to protect their insureds. In this case, there is a farm owned by Rawlings that has insurance on some or all of the buildings. There is a fire, that is suspected to have been caused by the neighbor, Apodaca, which spreads to the Rawlings farm and destroys a building. The building is insured through Farmer’s insurance for $10,000, however, the damage is much more extensive. Farmer’s orders a fire investigation, and Rawlings asks whether or not they will have access to the report, or if they should order one of their own. Farmer’s states that they will share the report.

The report reveals that Apodaca is the cause of the fire and that they, too are insured with Farmer’s, except for $100,000.00. Too late to hire a fire investigator, Rawlings is denied the report from Farmer’s. They sue both Apodaca and Farmer’s both in tort(Apodaca) and Bad faith(Farmer’s). An insurance company has a duty to protect its insured, and can not “screw over” their insured to protect their own interest. Rawlings wins the claim, both against Apodaca, and against Farmer’s, for punitive damages. Moral of the story, which doesn’t see to really be learned, is that insurance companies can not(shouldn’t) screw people over, especially their insureds. However, my experience tells me that they will push this issue as long and far as they can, just to save a buck. In jurisdictions with bad faith and punitive damages, not paying claims is dime smart, and dollar foolish.

Deschler v. Fireman’s Fund American Life Insurance

This case delves into the intricate language of insurance policies, specifically when they pertain to exclusions in a policy. This is a case in which party Deschler has a life insurance policy, and dies in an accident involving a water ski kite. The case goes into the technical details of how the water ski kite operates, and how he came to pass. There is an exclusion in the policy, negating payout if death arises as a result of use of a “device for aerial navigation”. The question the court tackles is more of a semantic definition of the wording, and what the water ski kite is. The decision states that the water ski kite is a device for aerial navigation, and the dissent disagrees with an interesting argument. Its the battle of engineers, when most of the judges probably are not engineers. The majority defines the aerial navigation devices by 2 broad criteria: (1) the aerodynamic principles which affect its ability to become and remain airborne, and (2) the degree of control which the operator has over its direction, speed, and the timing and place of landing.

The dissent interestingly concludes that by this theory that an amusement park ride would be a device for aerial navigation, which is clearly untrue:

“The question presented by this appeal is restricted to whether a device which is tethered to the earth is a device for aerial navigation. Like many amusement park rides which remain tethered to the ground by cables and other mechanical means, a water ski kite depends for its operation upon its tether to the boat which it trails. Clearly, amusement park rides are not devices for aerial navigation. Similarly, water ski kites cannot be so considered. There is no legitimate distinction between them.”