Car Insurance

I should start a reinsurance company. Whatever the 2006 hurricane season brings, rates are climbing and will be, well into 2007. Premiums up, claims down; hell, a fool could make money. I am therefore perfectly qualified. Here’s how it would work

You need a million dollars to kick things off. You put up some collateral and borrow it. It’s not that hard. My car cost almost that. Hock the kids. Then bang the million into a letter of credit trust, and borrow $50 million against it. Now we’re off to the races.

A fast dog-and-pony show for the private equity boys; a call to Stone Point Capital (motto: “Have we got millions for you!”); lunch with some hedge-fund heavyweights. Before you know it, you’re staring down the business end of a billion dollars.

You rent a crumbling rat hole on the wrong side of Hamilton, the reinsurance capital of the world. Telephone, the Internet, some desks and notepads; Bob’s your uncle.

You ask around for who’s looking for a fat raise and some share options (almost everyone). You hire a chairman with a famous face and a secret drug problem. He’s so grateful to be back in the business, he works for nothing. You hire two or three lukewarm bodies that go by the sobriquet of “underwriters,” find an accountant who hasn’t been struck off recently and a couple of secretaries. You buy the three catastrophe computer models and phone A.M. Best, who hand you an A-because they gave everyone else one. Besides, your prospects are rosy.

Then you take a long lunch because the hard part is coming up. You need a name for this venture.

Quite a few good ones are taken. You want something that indicates sturdiness, purpose, single-mindedness and a spot of pizzazz. You reject Lotta Re, Robber Re and Rocker Re, and settle instead on Forever Reinsurance Holdings. On the way back from lunch you hire an ad agency and tell them to come up with some pictures of forts and castles and a cutline. You settle on: “Re. Re. Re. Re. Re. Re. Re. Re-spect. When I get home.”

You fly to Monte Carlo and become epically drunk at all the parties. Everyone notices. They think, “Man, he must be on top of things if he can behave like that in public.” Back in Bermuda, you receive the brokers and their clients, and buy them all a boozy lunch. They buy as much reinsurance as you can dole out. Led Zeppelin plays your Christmas party.

I know what you’re thinking. You’re thinking, “This guy is an idiot. His low-quality approach is bound to fail. Within a year or two, he’ll be making huge losses and his name will be mud.”

Exactly.

You’re not in this for the long haul. That’s for truck drivers. Year One, you take a salary of $2 million, and award yourself a bonus of $3 million more. Share options all round. Dish out press releases about how great you are, and drop hints about acquiring Munich Re.

Here’s the beautiful part. If you fail, so what? You’ve got several million, everyone else gets jobs at other reinsurers, the backers shrug their shoulders and that’s the end of that. If the hurricane season is friendly and you actually make a profit, up your salary by 100 percent, your bonus by 200 percent, marry Paris Hilton, and 15 minutes later get divorced for even more millions.

You go on Oprah and cry. Time magazine puts you on the cover, “How it all went wrong.” Al Pacino plays you in the movie, “Reinsure This!” You consult on the movie, and for the Class of 2008, at $50,000 an hour. You live like a king. A year later, you do it all again. Sweet.

Here are the latest developments for contingent academic labor around the country.

At a recent conference, I met a woman who has been a visiting professor at her institution since 1998. She was hired before she finished her dissertation and thought the job would be a twelve-month stepping stone to a better position in a more geographically desirable location. Eight years later PhD in hand, she is still there with a renewable yearly contract, a husband who is tenured in the psychology department, and two children. She said that she, unlike her tenure-track colleagues, doesn’t feel pressured to publish or meet performance standards for tenure. Moreover, her university accommodated her need for maternity leave, and she feels secure in her job. But is she secure? By definition, this woman is one of the many “contingent” faculty members-full- and part-time non-tenure-track professors-increasing in number at universities around the country.

In 1999, the Coalition on the Academic Workforce (CAW), a group of higher education and disciplinary associations concerned about the dramatic rise in contingent faculty, surveyed staffing practices across eleven humanities and social science disciplines. The surveys found “compelling new evidence about the use and treatment of part-time and adjunct faculty, highlighting the dwindling proportion of full-time tenure-track faculty members teaching in undergraduate classrooms and providing solid evidence of the second-class status of part-time and adjunct employees in the academy.”

This project aimed to develop more complete information about the main classes of contingent faculty, a goal participating organizations certainly achieved. They collected comparable data from anthropology, cinema studies, English, folklore, foreign languages, linguistics, history, philology, philosophy, composition, and political science. Most of the professional societies that gathered data released independent reports. In addition, Robert Townsend, assistant director for research and publications at the American Historical Association (AHA), wrote a report comparing all the disciplinary data for CAW.

The comprehensive report showed a growing use of contingent faculty in most disciplines-but it also revealed inequality between part- and full-time contingent professors. Full-time faculty participated in departmental decision making and received support for professional development almost across the board, while part-time faculty saw little of these benefits, to say nothing of access to health insurance and technology.

This 1999 collection of data remains the only large-scale examination of part- and full-time nontenure-track faculty in the disciplines. In fact, since the 1999 surveys, little or no comparable data on contingent faculty have been gathered in the disciplines, although CAW organizations have continued to pursue the problem of contingency on a smaller, more fractured scale. (see “Disciplinary Research on Continent Faculty” on liages 47-49.)

When CAW distributed the surveys in spring 1999, the department of the eight-year “visiting professor” described above believed her to be on a one-year visiting contract and would have included her as such on its forms. It would do so again if the survey were repeated. Is she the only one? Has her institution even noticed the inequity of her situation, and would it care if it did?

An Upward Trend

In their independent reports, the associations involved in the CAW surveys use different terms to describe contingent positions, which makes comparison difficult. Data were gathered on five staffing categories: full-time tenure-track, full-time non-tenure-track, parttime tenure-track, part-time nontenure-track, and graduate student faculty. In its report, however, the American Sociological Association places graduate students in a “supplementary” faculty category and groups all categories of full-time faculty together for statistical analysis, including those considered contingent by the collective CAW report. AHA publications discuss full- and part-time faculty only, regardless of their tenure status, while several associations use both “contingent” and “part time” in their publications without distinguishing tenure status.

A cross-disciplinary analysis of data gathered since the CAW disciplinary surveys indicates that the recent rate of increase in part-time appointments is minuscule compared with previous years. However, full-time contingent positions are rising dramatically. The 2004 National Study of Postsecondary Faculty, which reports on staffing data gathered by the U.S. Department of Education in fall 2003, provides the most current numbers available on contingent positions across disciplines, as shown in the table accompanying this article.

In a 2003 issue of New Directions for Higher Education called “Exploring the Role of Contingent Instructional Staff in Undergraduate Learning,” Ernst Benjamin, a former AAUP general secretary, suggests that administrators find these full-time contingent positions attractive because they allow institutions to maintain the advantages of contingent academic labor (for example, lower costs and higher flexibility) along with a full-time workforce. Yet even though these faculty members contribute to the life of their departments and the education of their students outside of the classroom, they are still contingent. Their growing use-along with a continuing dependency on part-time contingent positions-should concern faculty on all sides of the tenure line, college and university administrators, and anyone else worried about the quality of higher education and the academic workplace.

Data collected since the CAW surveys show that the face of contingent labor has been changing over the past decade. Contingent labor consists increasingly of full-time faculty members whose jobs, benefits, and even office space are guaranteed from September to May. Administrators see these full-time instructors as a more stable workforce that is more physically present than part-time contingents. But these full-timers have heavy workloads, including labor-intensive introductory courses, and must get used to a new workplace while hunting for that next job. Is this situation really any better than hiring parttime faculty who face the same demands for less pay at more than one campus? This question is more than rhetorical and yet unanswerable; the outcomes of this kind of staffing on both the academy and the students it seeks to educate have not yet been observed.

In the end, voiceless, burdened contingent instructors, no matter how talented they are as teachers or researchers, cannot contribute fully to the life of their departments or to the education of their students. Moreover, the increasingly contingent academic labor force reduces the influence of faculty-important contributors to educational quality-on the structure and function of higher education.

Keeping our conversation about contingent faculty current is a must. requiring ongoing statistical reassessment that can produce a coherent picture of staffing across disciplines, in different types of institutions, and even by region-a full and complete picture of the problem. Many organisions include contingent issues in their regular research agendas, including the AAUP, but few have the resources to dedicate large amounts of staff time to the study of contingency in higher education.

The Humanities Indicators Project, sponsored by the American Academy of Arts and Sciences, is beginning to collect staffing and curriculum data in humanities disciplines using consistent terminology and categories. Although only a small portion of the data will inform conversations about contingent faculty (the main focus is the state of the humanities), the project recognizes the need to avoid fractured statistics that speak about the same faculty using different terminology with data from a variety of years, gathered with multiple survey instruments.

The 1999 CAW surveys aimed to avoid these problems and produce comparable, discipline-specific data on the role of contingent faculty in higher education. They did-in 1999. As noted above, more recent data show that the use of contingent faculty is changing quickly, in response, at least in part, to the work of CAW and other organizations. More vigilance, altered awareness, and current and complete data are needed, however, to maintain a productive conversation about the constantly changing academic labor force.

Understanding the causes for legal action can help facility executives keep their organizations out of trouble

Consider the following: A building owner converts a warehouse into an office building and begins leasing space. During construction, designers had neglected to consider new air handlers for the building’s new use. Almost immediately, the owner hears complaints that occupants are constantly sneezing and the air always smells funny.

Busy with other matters, the owner puts those complaints on the back burner. After a few months, the owner is served with a lawsuit over personal injuries allegedly resulting from poor indoor air quality. For good measure, a request for damages for “business interruption” is also tacked on.

Or how about this: A developer builds a trendy new “live, work and play” mixed-use development in the heart of downtown. The complex includes retail space, restaurants, gyms, bars and condos. Within weeks, odors from a seafood restaurant begin seeping into an office space located directly above. The disgusted residents slap together a class-action lawsuit and the developer finds himself in court.

It seems that there is no definition for a “typical” air quality case, says W. Elliott Horner, a principal consultant with Air Quality Sciences and an expert in dealing with moisture and mold-related issues in commercial buildings.

“Lawsuits over indoor air quality are common and increasing,” Horner says. “The traditional construction defect lawsuit is still the most common, but indoor air quality lawsuits are becoming more mainstream.”

And just who is suing whom? That’s part of the changing characteristics of these suits.

“All parties are bringing suits: occupants filing against owners, contractors suing suppliers, owners suing insurance companies and contractors-just about anyone owning or occupying a building,” he says.

Personal injury is a familiar basis for the suits where the tenant of a space sues the building owner. Many of these cases stem from the suitability of the building for its current use.

“The air quality is not what they expect in that building,” Horner says.

Product liability is another angle creeping into air quality lawsuits, said Tony Worthan, president and chief operating officer of Air Quality Sciences.

“There is a rise in suits over issues such as VOCs (volatile organic compounds), product failures and adverse noxious odors,” he says.

Horner says lawsuits can emerge from seemingly the most innocuous types of buildings. In addition to the mixed-use example, other examples include cigar shops and beauty salons located next to almost any other kind of retail store space in a mall setting. Manufacturing facilities with any sort of emissions also are open to these kinds of complaints, especially if they’re adjacent to office spaces.

Public buildings are particularly vulnerable to complaints about poor indoor air quality. But these buildings don’t necessarily have “tenants” in the traditional sense of the word, says George DuBose, vice president of Liberty Building Diagnostics Group.

“In the case of assisted living centers, schools, and courthouses, their relationship is not the same as an office building. There is greater potential for occupant outrage over issues such as temperature and odors,” DuBose says. “There is the potential to lose trust.”

Just how often do plaintiffs win these types of lawsuits?

“They win enough to stay in the headlines,” says Horner. “They are increasing in visibility.”

Many times, the lawsuit isn’t about poor indoor air quality itself, but about what caused poor indoor air quality.

“What we’re seeing in relation to poor indoor air quality are issues related to design deficiencies,” says Horner. For example, high moisture and humidity in a building are linked to a specific construction deficiency.

Not all lawsuits are the result of smoldering, unresolved complaints. Some complaints stem from accidents and disasters. When these kinds of problems emerge, they tend to escalate rapidly.

“In our experience, it depends upon the population that occupied the building. When there is a higher level of trust in the building owner, the outrage of occupants escalates quickly,” DuBose says. “There is a loss of trust in the management company or facility executive and the building itself, and now the technical fix becomes more expensive. You can’t deny the problem. You really have to respond quickly to complaints.”

Horner agrees. “If an accident does happen, have contacts in place. Know ahead of time how to respond appropriately. This is crisis planning. Think about it in advance. It’s like fire safety. You want to know before the need arises.

“It’s a lot easier and cheaper to work this out before there’s an emergency. And indoor air quality issues become an emergency very quickly: from mass hysteria all the way to people really being exposed to agents that can give them permanent debilitating illness,” Horner continues. “As soon as the TV truck shows up, it becomes an emergency. It’s the same as having a natural gas pipe burst. You have to have a communications plan in place.”

amount due under the policy but may include consequential damages extending beyond the policy limit when such damages are foreseeable.6

appellate division modified the lower court’s decision by reinstating the breach of contract, bad faith, and unfair practices claims and remanded the case for further proceedings.15

incentive to settle claims in good faith if they are held liable for the policy amount-they have nothing to lose and much to gain in delaying payment to insureds.21 Conscious of all these concerns, the court concluded that foreseeable consequential damages exceeding the policy limits, including damages for emotional distress and inconvenience, may be awarded to a plaintiff who has proved a bad faith breach on the part of his insurer.

recovery of an award beyond the stipulated contract amount.31 Such consequential damages should be permitted in the case of an insurer’s bad faith breach because such breach could cause injury to policyholders in amounts above those set in the policies.32 Finally, insofar as insurance contracts are executed to provide and secure “peace of mind” for the insured, damages for emotional distress may be foreseeable and properly awarded.33

The plaintiff even failed to allege facts, the dissent contended, that would make out a bad faith claim under the standard adopted by the majority.39 The dissent, therefore, would have affirmed dismissal of the plaintiffs bad faith claim. The majority, on the other hand, concluded that dismissal pursuant to N.Y. C.P.L.R. 3211 based on the defendant’s documentary evidence was inappropriate as a matter of procedure.

It is submitted that the Acquista court was correct to expand damage awards to include consequential damages, including damages for emotional distress, when an insurer commits a bad faith breach of a policy. The court, however, in focusing on the insured, did not consider the repercussions of its decision on insurance companies. This Comment contends that because insurance companies provide important benefits to policyholders, expanded awards could have a detrimental effect on society. It is submitted that, while an award of consequential damages would be appropriate in certain cases, the contours of such an award should be more sharply defined than they were in Acquista.

1.Hadley v. Baxendale in New York

Because insurance policies traditionally have been regarded as contracts to pay money, damages for breach of a policy have been limited generally to the amount of the policy plus interest.41 As stated above, limiting damages to the amount of the policy may be insufficient to place the nonbreaching policyholder in the position in which it would have been if the insurance company had not breached the contract.42 Since the seminal case of Hadley v. Baxendale,43 decided in 1854, the common law has recognized that damages for a loss that would not naturally flow from a breach is recoverable as consequential damages only when such a loss was reasonably contemplated by the parties at the time they entered into the contract.44 Modern courts express the Hadley v. Baxendale test in terms of “foreseeability”; they allow damages only insofar as the possibility of the loss for which they are sought was foreseeable by the contracting parties at time of contracting.45 In order to meet the requirement of foreseeability, it is sufficient that the breaching party had been aware of the facts that rendered the loss foreseeable.

2.Justification for Applying Hadley v. Baxendale Principles to Insurance Policies

issue against the insurer.56 It is submitted, therefore, that courts must provide an incentive to the insurance companies in the form of consequential damages to encourage settlement of meritorious claims in good faith.

The assumption that a policyholder will have access to funds to pay what the insurer refuses to pay is unfounded.57 In fact, the aggrieved party may indeed suffer losses that exceed the policy amount. Such losses could include litigation costs, losses due to bankruptcy, foreclosure of mortgaged property, interest debt on money borrowed from a lending institution, interest lost on money used to pay the amount the insurer did not pay, and penalties imposed for early withdrawal of a retirement plan or CD.58 If courts are to give effect to the recognized goal of contract damages-to place the nonbreaching party in as good a position as it would have achieved had the contract been performed-they must consider these extra-policy losses as possible consequential damages.

3.Limitations on Consequential Damages

Insurance is a significant component of our business, personal, and social lives upon which most of us have come to depend and rely.59 It is of great import, then, that excessive damage awards do not unduly burden insurance companies. It is submitted that strict adherence to Hadley v. Baxendale principles would serve to protect both the honest insurer and any maltreated insured. Furthermore, if New York were to adopt the expanded contract remedy, insurance companies would not be subject to damage awards in excess of the policy amount unless a plaintiff proved bad faith on the part of the defendant insurer.

determining whether this foreseeability with particularity test is satisfied, courts should thoroughly examine the circumstances, correspondence, and discussions between the parties.

For example, assume an individual with a catering business whose van is destroyed in an accident and whose insurer breaches his physical-damage policy in bad faith. If the caterer is unable to cater an affair due to the insurer’s breach– assuming, of course, mitigation of damages by the insured was unreasonable-the insurer should be held liable for the caterer’s lost profits as foreseeable consequential damages. If, however, the caterer is unable to acquire additional culinary equipment that he intended to purchase with the profits he expected to earn on the cancelled affair, and he thus consequently must cancel a future catering job for lack of the necessary equipment, the insurer should not be held liable for the lost profits relating to the subsequent job. The damages in the latter case are too remote to have been foreseeable by the insurer, absent special circumstances and communications that indicate the contrary.

Two of the jurisdictions cited by the Acquista court as having adopted the contract rationale for bad faith insurance breaches-New Jersey and Maine-have not adhered strictly to Hadley v. Baxendale principles. In Pickett v. Lloyd’s,63 the New Jersey Supreme Court allowed the recovery of consequential damages for an insurance company’s bad faith breach of a physical-damage policy on a Mack tractor-trailer truck.64 The plaintiff owned the truck, which he used to haul freight for a carrier.65 Because he had attained seniority, the plaintiff had the ability to choose among the more lucrative and desirable assignments.66 In the event of an accident, the carrier permitted senior “owner/operators” a sixty-day grace period in which to replace their trucks and return to work and thereby avoid losing their seniority status.67 The plaintiff, however, lost his seniority due to the fact that his claim was not settled within this grace period and, as a result, he suffered reduced earnings.

work until he repaired his truck,69 it was not aware of the plaintiffs seniority status or of the benefits the plaintiff received due to seniority, nor was it aware that a grace period existed after which the plaintiff would lose seniority and its related benefits.70 The court sustained the consequential damages award, which included both the plaintiffs lost profits and the difference between what the plaintiff would have earned as a senior operator over four and a half years (the time remaining until he reached retirement age) and what he would have earned working for the lower pay as a non-senior operator.71 The court then held that it was sufficient that the insurer knew that plaintiff was out of work,72 concluding that the insurer “could reasonably have apprehended that a truck driver in this situation might lose an economic advantage such as his seniority entitlement.”73 The court also dismissed, without discussion, the fact that the plaintiff had not considered leasing a truck, which would have allowed him to retain his seniority, although he did attempt to obtain a bank loan for the purpose of purchasing a new truck.

It is important to emphasize that, under Acquista, insurance companies will be subject to adverse judgments for consequential damages only if they breach a policy in bad faith. New York must take care to adopt a bad faith standard that will not affect insurers who breach “honestly.”82 The Acquista court would find bad faith “where an insured demonstrates more than merely a denial of benefits promised under a policy of insurance,… [where] the insurer’s denial of the claim was deliberately made in bad faith, [and] with knowledge of the lack of a reasonable basis for the denial.”83 This articulation of the bad faith standard is too vague to prove useful. The majority, in effect, stated that bad faith will be found when an insurance company deals in bad faith, without defining or describing the parameters of bad faith. Courts and juries need a more specific, objective standard when they review facts to indicate bad faith dealing. The majority’s loose description allows for too subjective of an examination on the part of the fact finder, which could lead to inconsistent decisions. Without uniform decisions, insurance companies will be unable to determine whether they are acting in good faith when dealing with policyholders, and plaintiffs will be encouraged to litigate unfounded claims if they are lead to believe that a finding of bad faith is solely within a sympathetic jury’s discretion.

dealing, it must “diligently investigate the facts to enable it to determine whether a claim is valid,… fairly evaluate the claim, and … thereafter act promptly and reasonably in rejecting or settling the claim.”86 The insurer must also ” `deal with laymen as laymen and not as experts in the subtleties of law and underwriting’ and refrain from actions that will injure the insured’s ability to obtain the benefits of the contract.”87 The Beck or some similar standard should be adopted and fully articulated by the New York courts. This Comment asserts that a several-pronged approach, such as the one advocated by the Utah court in Beck, will protect insurance companies (and the courts) from frivolous claims. Insurance companies will have a standard against which to measure their own actions. If they conform to each of the prongs, they can expect to be protected against bad faith claims. Plaintiffs, too, will be better able to judge whether their claims have merit. If plaintiffs are presented with a more precise standard, they will be less likely to bring frivolous suits. If they cannot allege facts that show a violation of at least one of the prongs of the bad faith test, they will be hard-pressed to sue.

insured in the third-party context is fiduciary,92 and the relationship between these parties in the first-party context is essentially contractual,93 some courts and commentators have declined to employ a third-party analysis to a first-party situation.94 Therefore, it is submitted that Pavia does not govern the bad faith contract claim in Acquista.