Steven Plitt & Aeryn Heidemann

Abstract

This article examines the effectiveness of state court garnishment actions compared with federal declaratory judgments, focusing particularly on timing issues in insurance coverage disputes. The jurisdiction of Article III federal courts in these cases is shaped largely by the Brilhart and Wilton analyses, which guide courts in determining whether garnishment actions are removable to federal court. The article also discusses federal abstention doctrine as a discretionary mechanism rooted in considerations of comity, equity, and federalism, drawing on precedent from the mid-twentieth century through the present. State court garnishments can impede federal jurisdiction, and the removability of such actions in insurance disputes remains contested, creating significant uncertainty for insurers. As a result, abstention doctrine pushes insurers to file declaratory judgment actions early—regardless of whether a garnishment action would ultimately be removable or non-removable.

William Pitsenberger

Abstract

This article examines state constitutional concerns arising from the 2002 Supreme Court decision Rush Prudential HMO v. Moran, which granted external review entities—not preempted by ERISA—the authority to determine medical services for health organizations. The decision raises significant procedural fairness issues, particularly when viewed in light of state constitutional requirements. External review laws of this kind may be constitutionally infirm, though judicial review and ERISA preemption could mitigate some negative effects. The article explores state external review laws in detail, categorizing them within broader questions of appealability and the binding nature of external review decisions. Many states have “open courts” provisions and embrace separation of powers doctrines, yet the Rush decision complicates these principles. The recent Hawaii Management case adds further uncertainty: allowing judicial review risks ERISA preemption, but disallowing it may violate constitutional separation of powers. Ultimately, resolving this tension may require either accepting the dichotomy created by Rush or adopting mandated benefits systems to avoid the conflict altogether.

Yu Lei & Joan T. Schmit

Abstract

Medical malpractice insurance is a highly specialized and risky business, and over the past three decades the market has experienced three dramatic periods of rising prices and shrinking supply. In response to such volatility, many medical care providers have turned to physician-owned and physician-run entities as their insurers. Regulators and rating agencies, however, have expressed concern about the geographic and business-risk concentration of these entities, encouraging diversification across state lines and lines of business. This article hypothesizes that physician-directed insurers are inherently more conservative and better informed than non-physician-directed insurers, calling into question the value of diversification, which may erode their informational advantage. An analysis of insurer loss-reserving practices supports this hypothesis: physician-directed insurers are more likely to over-reserve and less likely to under-reserve than non-physician-directed insurers, and when they do under-reserve, their errors are smaller. The article also finds that rapidly growing insurers have exhibited risky reserving practices. These results, the authors argue, are important for regulators and rating agencies when assessing the riskiness of medical malpractice insurers.

Michael Faure & Véronique Bruggeman

Abstract

Although the insurance industry has expressed growing concern over the sharp rise in losses from natural disasters, only about one third of potential victims have purchased first-party catastrophe insurance. Despite the several advantages of first-party insurance, there is in practice little demand for or supply of such coverage. This article therefore asks, from a behavioral law and economics perspective, why first-party insurance is so underutilized and why it could serve as a viable alternative to government compensation. It further considers whether compulsory first-party disaster coverage might offer a solution. The article concludes by examining the circumstances under which expanding the availability of first-party catastrophe insurance should be encouraged as a way to give potential victims greater control over their compensatory resources while also strengthening incentives for loss prevention.

Daniel Schwarcz

Abstract

This contribution to a symposium on insurance intermediaries analyzes insurers’ compensation of independent agents and brokers in consumer markets. It focuses on various forms of “differential compensation,” in which an intermediary’s payment varies depending on the insurer with which the consumer ultimately purchases coverage. The article argues that such differential compensation undermines competition among consumer insurers on non-price product attributes, thereby increasing the risk of a “race to the bottom” as insurers concentrate on offering the cheapest coverage that still complies with legal requirements. To address these concerns, the article proposes that insurers relying on independent agents to sell consumer lines of insurance should be prohibited from paying different rates of compensation to different agents for selling the same line of insurance.

Jeffrey W. Stempel

Abstract

This article addresses the “other” intermediaries involved in administering insurance policies—specifically the “downstream” intermediaries who handle insurance claims. It focuses on managing general agents, third-party administrators, and independent contractor claims adjusters, who perform the essential, day-to-day tasks of the insurance industry and are generally less well compensated than commercial insurance brokers. Because these intermediaries are immune from judicial claims by policyholders, they have fewer incentives to perform their duties competently. The article argues that improving the claims process requires holding these intermediaries accountable for misconduct, at least in tort and potentially even for “bad faith” in a manner similar to insurers. It reviews the benefits of imposing accountability and proposes a workable standard under which an intermediary may be held liable when a policyholder alleges negligence or more serious wrongdoing.

Hazel Beh & Amanda M. Willis

J. Gabriel McGlamery

Abstract

This casenote explores the reasons why industrial life insurance—and the use of racial discrimination within it—disappeared. It reviews the history of industrial life insurance and the problems it posed, including discriminatory underwriting practices. The 2005 case Guidry v. Pellerin Life Insurance Company, although a minor lawsuit, is the only industrial life insurance case to address directly the use of race in underwriting. While the Guidry court held that no rule, law, or statute prohibits a life insurer from using race as an underwriting criterion, the decision is best understood as a provocative artifact, given that industrial life insurance had already effectively died out. The casenote evaluates several theories explaining this decline, including legislation barring the use of race in underwriting, social pressure discouraging racial discrimination, the narrowing of the racial mortality gap, and the growth of group life insurance. It concludes that no single theory is sufficient on its own, but collectively they provide insight into why industrial life insurance ultimately disappeared.

Steve Cooper

Abstract

This case note discusses whether biotechnology should be endorsed by federal crop insurance. It reviews the history and goals of the Federal Crop Insurance Corporation and the role it plays in the American agricultural system. Although genetically modified crops are becoming increasingly prominent in U.S. agriculture, they have not yet been addressed by federal crop insurance. The U.S. Department of Agriculture recently created the Biotech Yield Endorsement pilot program to connect the federal crop insurance system with the expanding industry and market for genetically modified seeds. The note also critiques agricultural policymaking as economically inefficient. It argues that a permanent biotechnology endorsement program should not be implemented until it is proven that the environmental and economic consequences do not make lower crop insurance premiums inadvisable.

Thomas Plotkin & Tarae Howell