Practice Insurance Hypo

Below is a practice insurance hypo for my class to prepare for the exam.  Answers will be posted tomorrow.

 

Practice Insurance Hypo: 

Don purchased automobile insurance from Progressive.  He lives in a “choice” state and opted into the “fault” insurance program.  He purchased the state minimums for liability insurance, his own medical expenses, property damage, and uninsured motorist coverage.  Betty, his sister, lives in his home, and often lets Don use her car.   Don, while driving Betty’s car, gets into an accident with Joan, who also opted into the “choice” program for “fault” insurance and is covered at the state minimum requirements by GEICO.  Based on all of the evidence Don provides to Progressive, he appears to be the responsible party.

Joan sues Don in state court for the injuries to her car.  Progressive covers the litigation costs, but because Don neglects to appear at trial, Progressive refuses to cover Joan’s judgment against Don, for $75,000.  Don also damaged his sister Betty’s car, which will cost $10,000 to repair, and suffered injuries costing $100,000 in medical bills and a hospital stay.

Don also has a health insurance policy with Aetna Health.  When Don filled out the insurance forms prior to coverage, Aetna asked how often Don visited the doctor over the past year.  Don answered that he had been to the doctor only once, forgetting about two visits he had – a routine physical and a visit for heart palpitations.  Aetna issued Don a policy, but discovered the misrepresentation after his car accident.

Questions:

  1. Which of his many costs should Don expect Progressive or GEICO to cover? Analyze separately for each insurance company.
  2. Which of her costs should Joan expect Progressive or GEICO to cover? Analyze separately for each insurance company.
  3. Assume the Affordable Care Act is still in place. Is Aetna responsible for any of Don’s medical costs?
  4. Policy questions: Do you believe that either no-fault car insurance or the compulsory purchase of car insurance increases moral hazard?  Is it worth that cost?  Do you believe car insurance companies should be permitted to discriminate on the basis of age, gender, religion, or driving history when issuing car insurance (assuming these factors are correlated with risk of accident).

 

Answers:

1.       Which of his many costs should Don expect Progressive or GEICO to cover?  Analyze separately for each insurance company.

Progressive-

will cover defense costs in Joan’s lawsuit, but whether they cover judgment is dependent on the jurisdiction. In per se jurisdictions, Don’s refusal to cooperate means Progressive need not indemnify the judgment.  In jurisdictions like in State Farm v. Davies (and in jurisdictions that require a prejudice showing that the result would be different), Don’s refusal to cooperate wouldn’t have garnered any evidence on Don’s behalf – because he has no evidence of Joan’s culpability – so Progressive would have to pay the $75,000 judgment, up to policy limits.

will not cover the $10,000 damage Betty’s car because that car belongs to a family member who routinely allows the insurance to use the car.  This is an exception to the “driver of other cars” rules in automobile insurance.

will likely cover his medical bills up to policy limits, because he is the insured on the policy.

GEICO will cover nothing, because the two parties have “fault” insurance and Don is the responsible party for the accident.

2.       Which of her costs should Joan expect Progressive or GEICO to cover?  Analyze separately for each insurance company.

Progressive will likely cover Joan’s judgment against Don, to policy limits.  However, if Progressive is excused from coverage because of Don’s lack of cooperation, she can get coverage from GEICO for uninsured motorist, up to policy limits.  Even if someone has insurance, they can still be an uninsured motorist if the insurance company doesn’t cover the accident.  The rest she must get from Don.

3.       Assume the Affordable Care Act is still in place.  Is Aetna responsible for any of Don’s medical costs?

Although Don’s misrepresentation is likely material, in that heart palpitations may increase the risk of heart disease and thus would likely raise premiums, under the ACA health insurance contracts can be rescinded only if there is fraud on the part of the policyholder.  Don hasn’t demonstrated any scienter, so Aetna is likely responsible for medical costs, to be shared with Progressive.

4.       Policy questions:  Do you believe that either no-fault car insurance or the compulsory purchase of car insurance increases moral hazard?  Is it worth that cost?  Do you believe car insurance companies should be permitted to discriminate on the basis of age, gender, religion, or driving history when issuing car insurance (assuming these traits are correlated with risk of accident).

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s