Robert S. Bloink

Abstract

The long-dormant insurable interest doctrine is being revisited as banks and investment funds increasingly purchase life insurance policies. Some industry commentators object, accusing Wall Street of engaging in schemes that resemble impermissible gambling on the lives—and deaths—of others. In response, Wall Street financiers maintain that they comply with state insurable interest statutes and that their efforts to build a secondary market for life insurance expand consumer options and dismantle the longstanding monopsony of insurance companies. A workable compromise between the insurance industry and Wall Street must modernize the insurable interest doctrine in a way that preserves the free assignability of life insurance policies while preventing a revival of the long-condemned practice of wagering on lives. Developing such a proposal requires a comprehensive examination of the doctrine’s history, the modern context in which it operates, and the leading modernization proposals advanced to date.

Claire A. Hill

Abstract

People making decisions under uncertainty may need to justify those decisions to their reputational community. This Essay considers when and how the potential need for justification may lead a decision-maker to choose a methodology that is better suited to yielding a defensible choice rather than the best choice. When uncertainty is present, outcomes and probabilities are unknown, and broad consensus on what constitutes a “good” decision-making methodology may be lacking. Yet norms often emerge regarding acceptable methodologies—those that will be viewed as justifiable if justification becomes necessary. These norms develop considerable “stickiness,” as the easiest way to demonstrate that something is appropriately done is to show that others do it. This Essay identifies a particular pathology arising when decision-makers favor a justifiable decision over a genuinely good one and argues that this dynamic can produce significant negative consequences. The primary example examined is the volume of subprime securities purchased, with additional examples including how CEOs are selected and how contract terms are chosen in complex business agreements.

Paul Rose

Abstract

This essay, prepared for the “Regulating Risk” symposium of the Connecticut Insurance Law Journal, reviews the connection between risk and corporate governance and then examines the “Strengthening Corporate Governance” provisions of Subtitle G of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. These provisions, which address proxy access and the separation of the roles of CEO and board chairman, seem likely to have one of two effects. On one hand, they may be pernicious: by further enhancing shareholder power without a clear justification—particularly without demonstrating that increased shareholder power functions as an effective risk management device—they may undercut the risk-management goals of the broader statute. The provisions assume that enhanced shareholder authority will improve monitoring of managerial behavior and thereby help prevent future crises, but theory and evidence suggest that diversified shareholders often prefer levels of corporate risk-taking that other constituencies, including taxpayers, would not. On the other hand, Dodd–Frank’s governance reforms may have minimal impact on investor behavior or risk management. Recent increases in shareholder power, largely due to expanded federal regulation, have already made management more responsive—perhaps too responsive—to shareholder concerns about agency costs, and many of the proposed reforms have either already been adopted or were likely to be adopted by most public companies. If private ordering is functioning effectively, the essay asks, what is gained by imposing uniform governance structures across the entire market, particularly when most affected firms were victims rather than contributors to the Financial Crisis?

John F. Rosato

Crystal Fraser

Andrew Amer & Linda H. Martin

Peter Nash Swisher & Richard C. Mason

Andrew Verstein

Abstract

Article 9 of the Uniform Commercial Code excludes from its scope any transfer of an interest in a life insurance policy, meaning that any lender whose security is a life insurance policy may not look to the UCC to determine her rights. This Article argues that the exclusion should be eliminated because it leaves insurance governed by antiquated and problematic law. Three specific problems are considered: non-UCC law does not have a satisfactory alternative to UCC perfection; non-UCC law is insufficient to prevent lenders from abusively taking more than their share of value from defaulted policies; and non-UCC law allows insurance companies to hinder securitization through the “reservation problem.” As a result, Americans borrow $121 billion worth of policy loans, almost all of which occurs without serious competition. Eliminating the life insurance exclusion would rationalize the law of lending in this area and improve prospects for a secondary market.

Taylor Meehan

Abstract

The following note discusses the Price-Anderson Nuclear Industry Indemnity Act as a model liability insurance system for future clean energy technologies such as carbon sequestration and geothermal energy. The Price-Anderson Act implements a tiered insurance system requiring individual commercial nuclear power plants to secure private insurance for site-specific incidents up to a certain threshold, supplemented by an industry-wide pooling system that indemnifies losses exceeding the primary layer. If the industry pool is exhausted, the federal government serves as the final indemnifier, providing additional compensation when appropriate. This note examines the history, development, and amendments of the Price-Anderson Act since its 1957 enactment and highlights aspects of the system that should be adopted in the future. It argues that carbon sequestration and geothermal energy technologies are presently in a position similar to that of the nuclear industry in the early 1950s. The parallels—particularly the low probability of industrial accidents but extensive potential consequences—support analyzing whether the nuclear indemnity model is transferable to emerging clean energy technologies. Ultimately, the note contends that several core components of the Price-Anderson Act, including its liability cap, federal involvement, no-fault liability structure, federal jurisdiction, and continuously updated policies, are not only suitable for future systems but should be implemented by the insurance industry when underwriting carbon sequestration and geothermal energy risks. The note concludes that the United States urgently needs to restructure its national energy policy, and a key aspect of this effort is creating an adaptable liability system for new clean energy sources; the framework provided by the Price-Anderson Act is America’s best solution.

Wyatt R. Jansen