What is insurance? –
Insurance defined
Insurance is a form of risk
management primarily used to
hedge against the risk of a
contingent loss. Insurance is
defined as the equitable
transfer of the risk of a loss,
from one entity to another, in
exchange for a premium and can
be thought of as a guaranteed
small loss to prevent a large,
possibly devastating loss. An
insurer is a company selling
the insurance. The insurance
rate is a factor used to
determine the amount, called the
premium, to be charged
for a certain amount of
insurance coverage.
Insurance is a contract by which
one party, for consideration,
assumes particular risks on
behalf of another party and
promises to pay that person a
certain or ascertainable sum of
money on the occurrence of a
specified contingency.
Insurance Policies
Insurance Policies are a
form of a contract:
The primary
goal is to give effect to the
written expression of the
parties’ intent
When the
parties’ intent can be discerned
from the plain language, that
language will be given effect
If a policy
is worded so that it can only be
given one reasonable
construction, it will be
enforced as written
When terms
are defined in an insurance
policy, those definitions
control
A court must
view the contract in its
entirety, reading all parts of
the contract together
A court must
attempt to give effect to all
contract provisions so that none
will be rendered meaningless
Liability of Agents,
Adjusters, and Others
Agents may be personally
liable for their misdeeds, even
when acting on an insurer’s
behalf. In general, an agent is
individually liable for his or
her own tort or statutory
violation.
Insurer’s Vicarious Liability
Insurers can only act
through agents. Insurers rely on
agents to sell their policies,
to underwrite potential insureds,
and to investigate and adjust
claims. Insurers may be
vicariously liable for another’s
misconduct if that other person
is the insurer’s agent and if
that agent acted within the
scope of his or her authority.
Duty of Good Faith and Fair
Dealing
An insurer may violate its duty
of good faith and fair dealing
by:
1) failing to attempt in
good faith to effectuate prompt,
fair, and equitable settlement
of a claim with respect to which
the insurer’s liability has
become reasonably clear
2) refusing to pay a
claim without conducting a
reasonable investigation with
respect to the claim; or
3) canceling a policy
without a reasonable basis
Negligence
Negligence, in the insurance
context as in others, consists
of three elements:
1) a legal duty owed by
one person to another;
2) a breach of that
duty; and
3) damages proximately
resulting from the breach.
Under the Restatement (Second)
of Torts §552, negligent
misrepresentation may arise
when:
One who, in the course of his
business, profession or
employment, or in any
transaction in which he has a
pecuniary interest, supplies
false information for the
guidance of others in their
business transactions, is
subject to liability for
pecuniary loss caused to them by
their justifiable reliance upon
the information, if he fails to
exercise reasonable care or
competence in obtaining or
communicating the information.
Prompt Payment of Claims
Statute
Certain deadlines are imposed on
an insurer to acknowledge,
investigate, and accept or
reject a claim. An insurer that
violates the statute is liable
for attorney’s fees and an
additional 18% per annum in
addition to the amount of the
claim. No extra-contractual
recovery from a flood claim.
The Texas Insurance Code
§542.051 - §542.061 sets out the
steps an insurer must follow
when presented with a “first
party” claim by an insured. To
recover a penalty under the act,
an insured must establish that:
1) the insured had a
claim under an insurance policy;
2) the insurer is liable
for the claim; and
3) the insurer has
failed to comply with a
requirement of the Act.
