Date of this Version
5 Conn. Ins. L.J. 505 (1998), or
Connecticut Insurance Law Journal 5 (1998), pp. 505-673.
This article has two principal ambitions. The first is to rescue understanding of the operation of claims-made liability formats from the stylized and often misleading descriptions found in the insurance decisions and much of the professional commentary. In this, my effort is not to root out all errors nor to provide a complete systematics of claims-made formats, but rather to suggest a conceptual structure and vocabulary that will permit a more nuanced examination of the very real issues posed by various claims-made formats. The second is to suggest that our understanding of the problems posed by claims-made policies and of the legal responses that may be possible will be enhanced by drawing on the literatures of neo-institutional economics and relational contracting. Neo-classical economic and legal models that use spot market transactions as their paradigm, and that regard each insurance policy as a fully-presentiated contract that speaks clearly to dictate a specific allocation of risks for a specific term, operate from much different premises than the new institutional models grounded in behavioral assumptions concerning "bounded rationality" and "opportunism" and informed by a methodological sensitivity to the vulnerabilities that sequential performances and transaction-specific investments can create. In the neoclassical tradition, a condition is a condition, and there is no reason to inquire why it was included in a contract, why one party failed to satisfy it, or whether the other party was adversely affected by the failure. In this world, defense lawyers understandably regard any unhappy judicial decision as a "refusal to enforce" the policy by a court that has strayed into efforts to "rewrite the contract," and lawyers representing insureds, struggling to find an explanation for why failure to satisfy a policy condition should not be fatal to their client's claim, end up casting their challenges as broad-gauge assertions that claims-made forms contravene public policy or violate the reasonable expectations of insureds. By contrast, neo-institutional economics and its legal analogs permit the focus to move from whether claims-made forms on balance are a good thing or a bad thing to how they operate in a particular context, and offer a conceptually coherent explanation for judicial policing of the application of claims-made formats that the neo-classical tradition simply cannot provide.
The organization of this essay mirrors this agenda. Part I begins with a brief field guide to insurance policy triggers, the variety of triggers to be found in nominally "claims-made" policy formats, and recent claims-made litigation; here we encounter insurance policy exotica so dense that legal taxonomy using traditional classification tools can only hint at the problems claims-made insureds encounter with their claims-made formats and the problems their attorneys encounter with the inadequate doctrinal tools insurance law puts at their disposal. Part II follows with a primer on the law of insurance policy conditions, with particular attention to differences between dominant ex ante perspectives summarized by traditional insurance law efforts to vindicate the hypothetical objective reasonable expectations of insureds and subterranean ex post policing designed to excuse nonoccurrence of conditions to avoid disproportionate forfeitures; here we seek to identify a fuller array of tools than usually will be found in the insurance lawyer's kitbag. Part III then offers a preliminary exploration of how these doctrinal tools might operate if applied to some of the peculiar challenges of clairns-made formats.
The result is an academic's exercise, part polemic decrying continued debasements of insurance law by uncritical application of the acontextual formalisms of neo--classical economics and contracts, part homiletic preaching that contextualization requires us to acknowledge that both bounded rationality and opportunism contribute to the special challenges of insurance law, and part speculative meditation about what the problems posed by claims-made formats might tell us about how such an enriched version of insurance law might work in practice. Thus it should not surprise that the focus throughout is less about who should prevail in specific disputes in this small slice of the insurance market than about the different habits of mind that constrain and channel the rhetorical resources that can be brought to bear in controversies throughout insurance.