Nyce - Foundations

• Uncertainty of outcome
• Possibility of a negative outcome

• An asset exposed to loss
• Cause of loss (peril)
• Financial consequence of that loss

• Peril
• Hazard
• Financial consequence of loss

• Moral hazard
• Morale hazard
• Physical hazard
• Legal hazard

• Property loss exposure
• Liability loss exposure
• Personal loss exposure
• Net income loss exposure

• Reduction in revenues
• Increase in expenses
• Loss of goodwill
• Failure to perform
• Missed opportunities for profit

• Number and size of competing insurers
• Existence of insurance substitutes
• Buyer's knowledge of the market
• Size and growth of the overall insurance market

• SUPPLY
• Capacity to assume new business
• Investment opportunities
• Production costs
• Regulatory environment

• DEMAND
• Insurance mandates and reguations
• Risk tolerance
• Financial status
• Real service rendered
• Tax incentives

• Written premium / policyholder surplus
• Indicates an insurers financial strenght by relating net premiums to policyholder surplus
• Regulators use as benchmark to indicate potential financial difficulty (ratio of 3-to-1 is considered to be a sign of financial weakness)

• Adverse selection
• Moral and morale hazard
• Actuarial vs social equity
• Timing

• Pooling is a risk sharing mechanism
• Insurance is a risk transferring mechanism
• Insurance companies have additional financial ressources which provide stronger guarantees that losses will be paid, further reducing risk

• Pure risk
• Fortuitous loss
• Definite and measurable loss
• Large number of similar exposures
• Independent and not catastrophic
• Affordable

• Courts looks for similar cases in its state
• If none, seeks similar cases in other states
• If still none, analyze rulings in similar cases
• Court will analyze current cases to find similarities and differences from prior cases
• If no prior cases law direclty applies, then case is a treshold case and judges will consult all applicable law in attempt to make a fair decision

• Acceptable law a century ago in many cases would not be acceptable now
• Courts finds that prior decision was clearly wrong and decides not to use it
• Earlier rule or law has lost its usefullness
• Original reasons for the rule no longer exist

• Criminal: must establish guilt beyond a reasonable doubt
• Civil: evidence supporting jurys decision must be of greater weight than evidence against

• Negligence
• Intentional torts
• Strict liability torts

• Defendant owes a legal duty of care to the plaintiff
• Defendant breached that duty
• Defendants breach of duty was the proximate cause of the plaintiffs injury or damage
• Plaintiff suffered actual injury or damage

Event that sets in motion an uninterrupted chain of events leading to a loss

• Compensatory damages
• Punitive or examplary damages
• Injunction

• Special damages: actual losses that the plaintiff claims resulted from the defendant wrongful acts
• General damages: damages that do not have an economic value and that are presumed to follow from the type of wrong claimed by the plaintiff (eg: pain and suffering, mental anguish, bereavement)

• Indemnity
• Utmost of good faith
• Contract of adhesion
• Exchange of unequal amounts
• Conditional
• Nontransferable

Insurance policies should compensate the insured only for the value of the loss; policyholder should not profit from insurance

• Most policies contain limits, deductibles, or other provisions or limitations
• Do not always indemnify the insured for inconvenience, time, and other non-financial expenses
• Valued policy: that pre-establishes a dollar amount the insurer will pay for an insured loss, (eg, life insurance policy, rare piece of art)

• Degree of sophistication of the insured should be taken into consideration in determining the intent of policy language that may be unclear
• Unsophosticated: insurer drafts policy; true of most personal insurances
• Sophisticated: drafts some or all of policy; negociate policy wording-> contact of adhesion doctrine may not apply

• Size of the insured
• Size of insureds management department
• Involvment of insurance broker or legal counsel on insureds behalf
• Relative bargaining power of the parties

• Insurance policy is interpreted to provide the protection that the insured might reasonably have expected, even though that expectation is not clearly expressed in or supported by the policy
• Can be applied to renewal policies because insured can reasonably expect that the provisions of the renewal are the same as the expired contract, unless there is some oral or written explanation

Something of value given by each party to a contract (offered by the insured is the premium, offered by the insurer is promise to indemnify the insured in event of covered loss)

• Declarations
• Definitions
• Insuring agreements
• Conditions
• Exclusions
• Miscellaneous provisions

• Eliminate coverage for uninsurable exposures (war, wear and tear, non-accidental events)
• Assist in management of moral and morale hazards (blatantly intentional acts)
• Reduce the likelihood of coverage duplications (personal liability usually excludes losses from business activities)
• Eliminate coverages that are not needed by typical insured (aircraft and watercraft loading and unloading)
• Eliminate coverage requiring special treatment (steam boiler explosions, product calls)
• Assist in keeping premiums reasonable