Introduction to California Insurance Law
Insurance is a contract in which one party pays money, called a premium,
and the other party promises to reimburse the first for specified types
of losses such as illness, property damage, or death, if they occur. The
party agreeing to compensate for losses is called the insurer or underwriter,
who writes the policy. The party who pays for this protection is called
the insured. This is the person who takes out the insurance policy. Common
types of insurance are automobile liability insurance, homeowners'
insurance, life insurance, title insurance, malpractice insurance, and
workers' compensation insurance.
Insurance laws are highly regulated. A seller of insurance must be licensed
by the state or states in which it does business. States usually have
a governmental agency specifically devoted to regulating the business
of insurance. These agencies also investigate complaints against insurance
companies or insurance agents. State and federal laws limit and interpret
insurance agreements, as do decisions of each state's courts.
As with any controversy, there are attorneys on both sides of any insurance
issue. For example, in a personal injury matter the plaintiff's attorney
filing the lawsuit is usually referred to as "personal injury attorney"
or “plaintiffs’ counsel.” The attorney defending the
lawsuit is usually called an "insurance defense attorney" and
paid by an insurance company. Attorneys practicing in the area of insurance
law may be insurance defense attorneys, counsel for an insurance company,
or may be "captured counsel." Captured counsel refers to a law
firm that from the outside looks and operates like a regular law firm,
but does exclusive work for an insurance company.
Almost every legal practice touches insurance law issues in some context.
Real estate attorneys may recommend title insurance. Estate and elder
attorneys may recommend life insurance or long-term care insurance. Personal
injury attorneys may review automobile coverage to determine what compensation
their clients should receive. All attorneys are generally required to
have some form of malpractice insurance.
An insurance adjuster will usually handle the preliminary issues surrounding
a claim or loss. If an adjuster cannot settle a claim, or if a complaint
is filed in court, the case will usually be passed to an in-house attorney
or to outside counsel. The insurance adjuster will stay abreast of the
matter, but only in a supervisory capacity.
Liability coverage protects your business against situations such as slip-and-fall
accidents. A general liability policy, as opposed to a product liability
or vehicle liability policy, covers damages that your business is ordered
to pay to an individual who is injured on your property. A related, though
technically different, type of insurance is product liability insurance,
which protects you from lawsuits by customers who claim to be hurt by
a product you provided. If your business offers a product to the public,
you might consider this type of insurance. It can be expensive, but much
less so than a multi-million dollar award to a victorious plaintiff. Finally,
auto liability insurance covers damage that you or an employee cause in
a business-related accident. Auto liability coverage is generally not
included in general liability policies, and is legally required for drivers
in most states.
Commercial automobile policies cover the cars, vans, trucks and trailers
used in your business. The coverage will reimburse you if your vehicles
are damaged or stolen or if the driver injures a person or property.
Directors' and Officers' Liability Insurance
This type of insurance is generally purchased by corporations and nonprofit
organizations to cover the costs of lawsuits against directors and officers.
Errors and Omissions Insurance
Errors and omissions ("E & O") insurance covers inadvertent
mistakes or failures that cause injury to a third party. The act must
actually be an inadvertent error, and not merely poor judgment or intentional
acts. For example, an E & O policy would cover damages arising from
an insurance agent failing to file policy applications, or a notary forgetting
to fill out notarizations properly.
Malpractice insurance, or professional liability insurance, pays for losses
resulting from injuries to third parties when a professional's conduct
falls below the profession's standard of care. For example, if a doctor
makes a mistake that other doctors of his specialty would not have made,
his patient might sue him. A malpractice policy will pay his defense costs
and any judgment or settlement. Malpractice insurance is available for
doctors, dentists, accountants, real estate agents, architects, and other
Workers' Compensation Insurance
Workers' compensation insurance covers you for an employee's on-the-job
injuries. Businesses with employees are required by various state laws
to carry some type of workers' compensation insurance. In most cases,
workers' compensation laws prohibit the employee from bringing a negligence
lawsuit against an employer for work-related injuries.