The Insurance Policy as Social Instrument and Social Institution

ABSTRACT This Article suggests that insurance policies are not merely contracts but also are designed to perform particular risk management, deterrence, and compensation functions important to economic and social ordering. Recognizing this fact has significant implications regarding the manner in which insurance policies are construed in coverage disputes. From this insight flow interpretative consequences suggesting that policy construction can be improved by not only performing traditional contract analysis of disputed policies but also appreciating the particular function of the insurance policy in question as part of the insurance product's larger role as a social and economic instrument or institution. Applying this broader analysis, the Article examines in some detail the longstanding and frequently litigated issue of how many "occurrences" have taken place within the meaning of liability insurance, as well as examining issues of "business risk," "accidental" events, liquor liability exclusions, claims for inherent diminished value of vehicles involved in automobile collisions, trigger of coverage, and the workers' compensation implications of post-injury suicide. Appreciating the social instrument status of insurance vindicates some judicial decisions while exposing the shortcomings of others. TABLE OF CONTENTS INTRODUCTION I. THE CONCEPT OF THE INSURANCE POLICY AS SOCIAL INSTRUMENT AND SOCIOECONOMIC INSTITUTION II. APPLYING THE SOCIAL INSTRUMENT PERSPECTIVE: THE PERPETUALLY PERPLEXING PROBLEM OF DETERMINING THE NUMBER OF "OCCURRENCES" UNDER A LIABILITY POLICY A. Addison Insurance Co. v. Fay B. Plastics Engineering Co. v. Liberty Mutual Insurance Co C. Baumhammers and Koikos III. CONSTRUING INSURANCE POLICIES IN LIGHT OF THEIR SOCIAL INSTRUMENT FUNCTION: ADDITIONAL APPLIED EXAMPLES A. Business Risk Exclusions in General Liability Policies B. What Constitutes a Sufficiently Fortuitous "Occurrence" or "Accident," and the Problem of "Expected or Intended" Injury C. Liquor Liability D. Inherent Diminished Value Automobile Damage Claims E. Trigger of Coverage and the Asbestos Mass Tort F. Workers' Compensation and Post-Injury Employee Suicide CONCLUSION: THE NET BENEFITS OF PRUDENT USE OF THE SOCIAL INSTRUMENT PERSPECTIVE INTRODUCTION Long gone is the day when contracts were individualized agreements, negotiated separately through personal interaction between the principals. Almost forty years have passed since Professor Slawson famously observed that 99 percent of the contracts in use were in fact standard form contracts rather than customized agreements reached after significant bargaining. (1) This fact is widely recognized, but legal scholars still debate the empirical or normative consequences of this development. Recognition of the absence of particularized bargaining over contract terms should logically impact judicial approaches to standardized contracts used en masse. But although the degree to which contracts have become "things" has not gone unnoticed, (2) and insurance policies have been analogized to statutes, (3) these perspectives remain in the minority. Mainstream legal opinion continues to characterize insurance policies as contracts rather than products and to apply longstanding classical or neoclassical contract doctrine to contract disputes, often with no acknowledgment of the degree to which insurance departs from the classic bargain model of contracting. (4) In many cases, courts compound this narrow view of insurance by taking a similarly narrow view of contract--focusing excessively on only the text of the policy. More sophisticated courts take a broader view of contract law and endeavor to correctly interpret the policies at issue by reference to policy text, party intent, policy purpose, the reasonable expectations of the parties, (5) and public policy considerations. …