Insurance law's hapless busybody: A case against the insurable interest requirement

Yale Law Journal

Volumn 117, Issue 3, 2007, Pages 474-509

  Loshin, Jacob ^a  

^a YALE UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 37249035586     PISSN: 00440094     EISSN: None     Source Type: Journal    
DOI: 10.2307/20455799     Document Type: Review

References (113)

1. NIKOLAI GOGOL, DEAD SOULS (David Magarshack trans., Penguin Books 1961) (1842).
2. Id. at 45.
3. See Susan Lorde Martin, Corporate-Owned Life Insurance: Another Financial Scheme that Takes Advantage of Employees and Shareholders, 58 U. MIAMI L. REV. 653 (2004);
4. see also Ellen E. Schultz & Theo Francis, Worker Dies, Firm Profits - Why? Many Companies Insure Staff, Yielding Benefits on Taxes, Bottom Line, WALL ST. J., Apr. 19, 2002, at A1.
5. See Charles Duhigg, Late in Life, Finding a Bonanza in Life Insurance, N.Y. TIMES, Dec. 17, 2006, at A1.
6. Charity Rush, Comment, Corporate-Owned Life Insurance (a/k/a 'Dead Peasant' or 'Dead Janitor' Policies): Has Texas Buried the Insurable Interest Requirement?, 41 HOUS. L. REV. 135, 136 (2004).
7. Duhigg, supra note 4.
8. See infra notes 17-26 and accompanying text.
9. FRIEDRICH KESSLER, GRANT GILMORE & ANTHONY T. KRONMAN, CONTRACTS: CASES AND MATERIALS 627 (3d ed. 1986).
10. MORTON J. HORWITZ, THE TRANSFORMATION OF AMERICAN LAW, 1780-1860, at 237 (1977) (discussing the views of a nineteenth-century insurance treatise author).
11. The insurable interest doctrine has garnered the most attention in the context of controversial "corporate-owned life insurance" policies, with scholars arguing that the insurable interest requirement should be used to prevent companies from purchasing policies on the lives of their employees. See Michael J. Henke, Corporate-Owned Life Insurance Meets the Texas Insurable Interest Requirement: A Train Wreck in Progress, 55 BAYLOR L. REV. 51 (2003); Martin, supra note 3; Rush, supra note 5.
12. Two scholars have undertaken economic analysis of the insurable interest doctrine, but their analyses defend rather than criticize the doctrine. See Samuel A. Rea, Jr., The Economics of Insurance Law, 13 INT'L REV. L. & ECON. 145 (1993);
13. George Steven Swan, The Law and Economics of Company-Owned Life Insurance (COLI): Winn-Dixie Stores, Inc. v. Commissioner of Internal Revenue, 27 S. ILL. U. L.J. 357 (2003).
14. To the extent scholars have critiqued the insurable interest doctrine at all, they have merely lamented the doctrine's ambiguity or argued for a particular change in the substance of the doctrine as applied in particular instances. See, e.g., Franklin L. Best, Jr., Defining Insurable Interests in Lives, 22 TORT & INS. L.J. 104 (1986);
15. Emeric Fischer, The Rule of Insurable Interest and the Principle of Indemnity: Are They Measures of Damages in Property Insurance?, 56 IND. L.J. 445 (1981);
16. Bertram Harnett & John V. Thornton, Insurable Interest in Property: A Socio-Economic Reevaluation of a Legal Concept, 48 COLUM. L. REV. 1162 (1948);
17. Edwin W. Patterson, Insurable Interest in Life, 18 COLUM. L. REV. 381 (1918);
18. Peter Nash Swisher, The Insurable Interest Requirement for Life Insurance: A Critical Reassessment, 53 DRAKE L. REV. 477 (2005);
19. Note, Castle Cars, Inc. v. United States Fire Insurance Co.: The Bona Fide Purchaser's Insurable Interest in Stolen Property, 68 VA. L. REV. 651 (1982).
20. Harnett & Thornton, supra note 10, at 1163.
21. See FREDERICK H. COOKE, THE LAW OF LIFE INSURANCE § 58, at 91 n.1 (New York, Baker, Voorhis & Co. 1891) (listing cases) ("[I]t is worthy of note that the doctrine, though commonly supposed to be a common law doctrine, is not, viewed in the light of its origin, a common law doctrine at all . . . .").
22. Act of 1746, 19 Geo. 2, c. 37, § 1 (Eng.).
23. Id.
24. Act of 1774, 14 Geo. 3, c. 48, § 1 (Eng.).
25. Id.; see also Act of 1746 § 1 (referring to "a mischievous kind of . . . wagering").
26. Act of 1746 § 1.
27. In both single-party and third-party situations, moral hazard may include not only the risk of loss due to carelessness, but also risk due to fraud or other willful actions.
28. See Swan, supra note 10, at 379-80.
29. Lord v. Dall, 12 Mass. (11 Tyng) 115 (1815).
30. Warnock v. Davis, 104 U.S. 775, 779 (1881).
31. Roy Kreitner, Speculations of Contract, or How Contract Law Stopped Worrying and Learned To Love Risk, 100 COLUM. L. REV. 1096, 1121 (2000). The presence of an insurable interest makes such contracts differ only in this respect: insurance compensates for loss, i.e., the lost interest; wagering seeks a pure "windfall" gain. Yet one quickly sees the circularity of this distinction. It defines wagering contracts as those lacking insurable interest, and thus not compensatory, but it does not explain why we should care whether or not a contract is compensatory. It thus merely restates the insurable interest requirement without justifying it. Naturally, then, the search for such justification collapses into the more substantial concern of moral hazard. A better way to distinguish insurance from wagering would emphasize the fact that insurance contracts aim to reduce overall risk, rather than merely allocate it. See infra notes 94-96 and accompanying text (discussing aggregation and segregation mechanisms for reducing risk). This better distinction, however, does not necessarily require an insurable interest. See infra Part V.
32. Grigsby v. Russell, 222 U.S. 149, 154-55 (1911).
33. Kreitner, supra note 22, at 1123. The primary cause of this shift probably involved the difficulty of analytically distinguishing insurance from wagering. The distinction simply could not be sustained in a meaningful way. See supra note 22 and accompanying text. Additionally, however, the shift likely reflected growing toleration of financial speculation (i.e., "wagering") as well as a growing acceptance of insurance as a legitimate means of savings and investment. Kreitner has noted that "the connection between gambling and insurance had at one time threatened the insurance industry directly by contaminating insurance, labeling it an illegitimate and destructive social force." Kreitner, supra note 22, at 1115. In order to legitimize insurance, advocates had to persuade people that insurance did not involve morally illicit "wagering," and the insurable interest doctrine was a means of avoiding the label. Yet, as insurance became more respectable and speculation became more tolerable, the need for this semantic game dissipated. Chronicling this shift, Kreitner concludes that today "the normative question of the legitimacy of specific types of transactions is not played out by arguing over whether they are gambling (everyone is willing to admit they are), but rather, is displaced into the question of how they should be regulated . . . ." Id. at 1137. The modern focus on moral hazard thus reflects this modern question.
34. See, e.g., Getchell v. Mercantile & Mfr.'s Mut. Fire Ins. Co., 83 A. 801, 802 (Me. 1912) ("A. should not be allowed to insure for his own benefit B.'s property in which A. has no concern, and by the loss of which A. would not be directly and financially affected. To hold otherwise would be to increase the moral hazard and to permit one man to profit by the losses of another."), quoted with approval in Tischendorf v. Lynn Mut. Fire Ins. Co., 208 N.W. 917, 920 (Wis. 1926); see also Teague-Strebeck Motors, Inc. v. Chrysler Ins. Co., 1999-NMCA-109, ¶ 29, 127 N.M. 603, 985 P.2d 1183, 1193 ("Given current societal attitudes toward gambling, the moral-hazard concern appears to be the stronger peg on which to hang the insurable-interest doctrine today.").
35. KENNETH S. ABRAHAM, INSURANCE LAW AND REGULATION 201 (4th ed. 2005).
36. Harnett & Thornton, supra note 10, at 1163.
37. Warnock v. Davis, 104 U.S. 775, 779 (1881).
38. Swisher, supra note 10, at 498-99; see also, e.g., Dixon v. W. Union Assurance Co., 164 S.E.2d 214, 218-19 (S.C. 1968) (noting that a parent has an insurable interest in a son); Tromp v. Nat'l Reserve Life Ins. Co., 53 P.2d 831, 833 (Kan. 1936) (noting that a wife has an insurable interest in a husband).
39. See Swisher, supra note 10, at 499.
40. Id. at 500-01.
41. Older precedents hold that a fiancé has a love and affection interest. See Green v. Sw. Voluntary Ass'n, 20 S.E.2d 694, 696-97 (Va. 1942) (holding that a fiancée has an insurable interest in the life of the insured). However, the premise of these old cases has since been undermined by modern abolition of actions for breach of promise to marry. See Swisher, supra note 10, at 508-10 (discussing the evolution and characterizing the older precedents as "archaic").
42. See Rakestraw v. City of Cincinnati, 44 N.E.2d 278, 280-82 (Ohio Ct. App. 1942) (concluding that a girlfriend has an interest in a live-in boyfriend, but mostly on account of her financial dependence); 3 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON INSURANCE § 43:23, at 43-27 (3d ed. 1995) ("[T]here must be indices of sufficient closeness between the two so that it can be said that the beneficiary has an interest in the continued life of the insured.").
43. The issue of insurable interest for same-sex couples, even if sanctioned by civil unions, remains "largely unresolved." Swisher, supra note 10, at 507-08.
44. Insurable interest in this instance usually requires some kind of special economic circumstances. See Carol Schultz Vento, Annotation, Insurable Interest of Foster Child or Stepchild in Life of Foster or Step Parent, or Vice Versa, 35 A.L.R.5th 781 (1996).
45. See Carl T. Drechsler, Annotation, Insurable Interest of Brother or Sister in Life of Sibling, 60 A.L.R.3d 98, 113-15, 118-20 (1974). Compare Century Life Ins. Co. v. Custer, 10 S.W.2d 882 (Ark. 1928) (finding brother's affection for his brother sufficient to establish insurable interest), with Lewis v. Phoenix Mut. Life Ins. Co., 39 Conn. 100 (1872) (finding brother's affection insufficient).
46. Rubenstein v. Mut. Life Ins. Co. of N.Y., 584 F. Supp. 272, 278 (E.D. La. 1984).
47. See Ferdinand S. Tinio, Annotation, Insurance on Life of Partner as Partnership Asset, 56 A.L.R.3d 892 (1974).
48. See, e.g., Block v. Mylish, 41 A.2d 731, 735 (Pa. 1945) (requiring "reasonable ground . . . to expect some [pecuniary] benefit or advantage from the continuance of the life of the assured" (quoting Warnock v. Davis, 104 U.S. 755, 779 (1881))).
49. Compare Atkins v. Cotter, 224 S.W. 624, 626 (Ark. 1920) (finding that insurable interest survives dissolution of a partnership), with Stillwagoner v. Travelers Ins. Co., 979 S.W.2d 354, 359 (Tex. App. 1998) (holding "that insurable interest does not survive the relationship that created it").
50. RUSS & SEGALLA, supra note 33, § 43:13, at 43-16; see also Mayo v. Hartford Life Ins. Co., 220 F. Supp. 2d 794 (S.D. Tex. 2002) (finding that Wal-Mart had no insurable interest in its rank-and-file employees).
51. WILLIAM R. VANCE & BUIST M. ANDERSON, HANDBOOK OF THE LAW OF INSURANCE § 32, at 201 (3d ed. 1951).
52. Swisher, supra note 10, at 521-22.
53. See id. at 523-24 (noting, but criticizing, the majority rule that an insurable interest need only exist at the inception of the contract).
54. See, e.g., Stillwagoner v. Travelers Ins. Co., 979 S.W.2d 354, 359 (Tex. App. 1998) (holding that "insurable interest does not survive the relationship that created it"). This approach also finds favor with academic commentators. See Swisher, supra note 10, at 523-31.
55. Compare Le Cras v. Hughes, (1782) 99 Eng. Rep. 549 (K.B.) (applying "factual expectation" test), with Lucena v. Craufurd, (1805) 127 Eng. Rep. 630 (H.L.) (applying "legal interest" test).
56. See Delk v. Markel Am. Ins. Co., 81 P.3d 629, 636 (Okla. 2003) (adopting the "factual expectations" test, but observing that American jurisdictions "are divided" on which test to use).
57. JOHN F. DOBBYN, INSURANCE LAW IN A NUTSHELL 82 (3d ed. 1996).
58. See, e.g., N.Y. INS. LAW § 3401 (McKinney 2007).
59. See RUSS & SEGALLA, supra note 33, § 42:1, at 42-5 ("[T]he resolution of an insurable interest dispute will turn on specific and unique facts as they pertain to the particular relationship. A single fact can alter whether one party to the relationship has an insurable interest.").
60. ROBERT E. KEETON & ALAN I. WIDISS, INSURANCE LAW § 3.1(a), at 135 (1988) ("Almost all types of insurance are designed to provide no more than reimbursement for an insured. . . . The concept that insurance contracts shall confer a benefit no greater in value than the loss suffered by an insured is usually referred to as the 'principle of indemnity.'").
61. See Fischer, supra note 10, at 462-66 (discussing three different methods of valuation used by judges).
62. See, e.g., Cecil v. Nationwide Ins. Co., No. 83-966, 1984 U.S. Dist. LEXIS 23209, at *4 (W.D. Pa. Sept. 28, 1984) ("The law of Pennsylvania in this area is somewhat confused, and there appears to be no clear statement in the cases as to which theory governs in Pennsylvania.").
63. Best, supra note 10, at 112.
64. COOKE, supra note 12, § 58, at 90.
65. Patterson, supra note 10, at 381-82.
66. Harnett & Thornton, supra note 10, at 1164.
67. Best, supra note 10, at 106.
68. Loomis v. Eagle Life & Health Ins. Co., 72 Mass. (6 Gray) 396, 399 (1856).
69. Harnett & Thornton, supra note 10, at 1182-83.
70. The term "third-party insurance" is often used to refer to liability insurance. This Note, however, uses the term more broadly to describe any insurance policy under which one person is entitled to receive payouts upon the death of another person (i.e., the third party), or the destruction of another person's property. This is the situation in which the insurable interest requirement becomes relevant.
71. Compare, e.g., Am. Mut. Life Ins. Co. v. Mead, 79 N.E. 526 (Ind. App. 1906) (refusing disgorgement of premiums), with Commonwealth Life Ins. Co. v. George, 28 So. 2d 910 (Ala. 1947) (permitting disgorgement of premiums). See generally KEETON & WIDISS, supra note 51, § 3.3(d), at 160-62 (discussing the issue and noting "relatively few judicial decisions" on the question).
72. In order to simplify the analysis, I put aside transaction costs, such as the costs of litigation. Litigation costs would raise the cost to the insurer of invalidating an insurance contract for lack of insurable interest. However, contracts with questionable insurable interests would still remain more valuable to the insurer than contracts with clear insurable interests so long as the reduction in the contract's expected cost (due to the prospect of invalidation) is positive, even taking into account the expected cost of litigation. Moreover, even where the insurer's litigation costs may exceed the benefits to be gained by challenging the contract, litigation costs will also raise the cost to the beneficiary of enforcing such contracts. Hence, even where litigation costs are great, the parties are likely to settle, and the amount of the settlement is likely to be less than the full value of the contract.
73. Discussing the implications of uncertainty in a different context, one scholar has explained that "uncertainty occurs whenever people cannot be sure what legal consequences will attach to each of their possible courses of action." John E. Calfee & Richard Craswell, Some Effects of Uncertainty on Compliance with Legal Standards, 70 VA. L. REV. 965, 968 (1984). Hence, in an uncertain situation, "from the [potential litigant's] point of view the rule of law is that distribution of probabilities." Id. at 970.
74. If one posits a perfectly competitive insurance market, the incentive for insurers to overinsure may diminish somewhat. In such a situation, the insurer's gain from the potential invalidation of the insurance contract would be passed along to insurance purchasers in the form of lower premiums. Insurers may not capture the full value of the subsidy, and their incentives to overinsure may thus be reduced. However, this objection probably does not go very far for two reasons. First, the underlying assumption of a perfectly competitive insurance market is highly unrealistic. Courts and commentators have long observed significant information asymmetries between insurers and purchasers in the insurance market, and such asymmetries make it possible for the insurer to capture a significant amount of the subsidy. See infra notes 75-77 and accompanying text. Although even consumers who do not understand the terms of an insurance contract have good information about the contract's price, the competitiveness of the insurance market may still be limited by consumer search costs and by tacit collusion. Second, even under the unlikely assumption that the insurer passes the entire subsidy on to the policyholder, the insurable interest requirement would have a neutral effect at best. Insurers would be indifferent to the absence of insurable interest, but they would still not be averse to it. Hence, even if it did not actively encourage moral hazard, the doctrine would still fail to discourage it.
75. See infra Part V.
76. See infra notes 85-88 and accompanying text.
77. Undermining the traditional economic justification for the insurable interest requirement, this phenomenon supports the theory that "when [the certainty] assumption is abandoned . . . many traditional conclusions of the law-and-economics literature can no longer be defended on economic grounds." Calfee & Craswell, supra note 64, at 965-66. It also casts doubt on the more general economic justification for striking down contracts as against public policy. Dismissing the objection that the potential for contract invalidation creates incentives for sophisticated parties to make unenforceable contracts with ignorant parties, one scholar notes that "[c]ourts can mitigate this behavior . . . by allowing damages against parties that knew or should have known better." Note, A Law and Economics Look at Contracts Against Public Policy, 119 HARV. L. REV. 1445, 1460 (2006). Uncertainty makes it impossible to know better.
78. See supra notes 17-19 and accompanying text.
79. Swisher, supra note 10, at 540.
80. The New York Times stated that insurance executives worry that such practices "may cripple [the] industry," and noted that insurance companies have attempted to block such practices by raising the insurable interest doctrine to prevent payouts. Duhigg, supra note 4.
81. See IAN AYRES, OPTIONAL LAW: THE STRUCTURE OF LEGAL ENTITLEMENTS (2005) (discussing how option theory can explain the structure of legal rights);
82. see also Robert E. Scott & George G. Triantis, Embedded Options and the Case Against Compensation in Contract Law, 104 COLUM. L. REV. 1428 (2004) (applying option theory to contract remedies).
83. The relationship between option theory and the invalidation of contracts as against public policy does not yet appear to have garnered scholarly attention. However, the discussion here builds on a useful recent article applying option theory to the interpretation of vague and indefinite contracts. See George S. Geis, An Embedded Options Theory of Indefinite Contracts, 90 MINN. L. REV. 1664 (2006).
84. Geis, supra note 72, at 1669-1703, 1669 n.21.
85. Cf. id. at 1698 (noting how such an option differs from a conventional option).
86. See James M. Fischer, Why Are Insurance Contracts Subject to Special Rules of Interpretation?: Text Versus Context, 24 ARIZ. ST. L.J. 995, 1047 (1992) (noting a "general understanding that the average insurer is much more sophisticated and knowledgeable than the average insured"). Indeed, asymmetric information, caused by the fact that insurers are repeat players and insurance contracts are highly complex, has been one common justification for the rule that ambiguous terms in insurance contracts should be interpreted against the insurer. Id. at 1047-59.
87. See id. at 1047 n.201 ("The insured's use of an attorney to review a proposed insurance contract is unheard of at the level of consumer insurance contracts.").
88. Geis, supra note 72, at 1704.
89. One might argue that the policyholder need not understand the value of the contract's terms so long as she knows its price. In a perfectly competitive market, insurers would bid down the price until it reflected the actual low value of the contract given its dubiously enforceable terms. There are two problems with this objection. First, consumer search costs and tacit collusion may still limit the competitiveness of the market. Second, even if price competition ensures that a policyholder gets what she pays for, imperfect information about contract terms would still mean that the policyholder does not get what she bargains for. The policyholder may pay a lower price for a policy that is worth less, but the policyholder's failure to realize that it is worth less will cause her to rely on the insurance to her detriment. Assuming that the insurance will cover the insured risk, the policyholder will not avail herself of insurance substitutes, such as savings and investment, to cover the unknown, uninsured risk. Hence, even with perfect price competition, the policyholder would incur this reliance cost.
90. See supra text accompanying notes 55-59.
91. See supra notes 46-48 and accompanying text.
92. In an article whose title called for a "socio-economic reevaluation" of the "legal interest" test, two scholars worried that "legal rules will calcify and become divorced from basic social values." Harnett & Thornton, supra note 10, at 1162. They added: "In order to prevent this deterioration into a set of fixed and unyielding 'principles,' constant and vigilant reevaluation of concepts is necessary to enable legal concepts to keep pace with adjustments in external variables." Id.
93. See generally Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557, 569 (1992) ("[A] standard requires a prediction of how an enforcement authority will decide questions that are already answered in the case of a rule.").
94. Cf. Carol M. Rose, Crystals and Mud in Property Law, 40 STAN. L. REV. 577, 580 (1988) (observing the cyclical nature of common law shifts between standards and rules, the inevitable "blurring of clear and distinct property rules with the muddy doctrines of 'maybe or maybe not'" followed by "the reverse tendency to try to clear up the blur with new crystalline rules").
95. See Kaplow, supra note 82, at 590-93 (noting that the shift from standards to rules trades uncertainty for over- and underinclusiveness).
96. This can be considered a stronger version of the controversial doctrine holding that insurers can be estopped from raising an insurable interest defense if they acted in some way that amounted to a waiver of the insurable interest requirement. See, e.g., McGehee v. Farmers Ins. Co., 734 F.2d 1422 (10th Cir. 1984) (holding that knowledge of insurer amounts to waiver of insurable interest requirement). Many courts, however, refuse to apply waiver and estoppel doctrines to contracts against public policy. See, e.g., Beard v. Am. Agency Life Ins. Co., 550 A.2d 677, 687-88 (Md. 1988); Liverpool & London & Globe Ins. Co. v. Bolling, 10 S.E.2d 518, 522 (Va. 1940); see also RUSS & SEGALLA, supra note 33, § 41:7, at 41-15 ("[T]he rule prevails in many jurisdictions that where a life insurance policy is void at its inception because the beneficiary lacks insurable interest, it cannot be rendered valid or enforceable by waiver or estoppel . . . .").
97. See Roger C. Henderson, The Tort of Bad Faith in First-Party Insurance Transactions: Refining the Standard of Culpability and Reformulating the Remedies by Statute, 26 U. MICH. J.L. REFORM 1, 26-30 (1992);
98. see also Ben Kingree & Louise Tanner, Life Insurance as Motive for Murder, 29 TORT & INS. L.J. 761, 764 (1994) (discussing cause of action against insurers for negligent issuance of insurance, where insurers "unreasonably imperil the lives of their insureds").
99. Cf. Christian v. Am. Home Assurance Co., 577 P.2d 899, 905 (Okla. 1977) ("We recognize that there can be disagreements between insurer and insured on a variety of matters such as insurable interest, extent of coverage, cause of loss, amount of loss, or breach of policy conditions.").
100. Anderson v. Cont'l Ins. Co., 271 N.W.2d 368, 376-77 (Wis. 1978).
101. A negligence standard would be no better. Under even a negligence standard, an insurer's inability to predict that a court would find an insurable interest would likely be a sufficient defense. So long as there remains some uncertainty, it would be difficult to hold that a reasonable insurer should have known that an insurable interest did not exist.
102. Texas has the most well-established system. See, e.g., Mayo v. Hartford Life Ins. Co., 220 F. Supp. 2d 714, 784-85 (S.D. Tex. 2002); see also Rush, supra note 5, at 155-57 (explaining the mechanics of the Texas approach).
103. See ROBERT H. JERRY, II, UNDERSTANDING INSURANCE LAW § 47[b], at 328 (3d ed. 2002); KEETON & WIDISS, supra note 51, § 3.3(c)(1), at 156; Swisher, supra note 10, at 532-37.
104. See, e.g., Hicks' Estate v. Cary, 52 N.W.2d 351 (Mich. 1952).
105. See Swisher, supra note 10, at 532.
106. Consumers generally value certainty because they are risk averse. See generally ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS 48-52 (5th ed. 2008) (explaining how risk aversion drives the demand for insurance).
107. They can do this by switching to another insurer who can insure them for lower premiums, or by abandoning insurance in favor of other methods of risk avoidance. See id. at 65-67.
108. George L. Priest, The Current Insurance Crisis and Modern Tort Law, 96 YALE L.J. 1521, 1545 (1987).
109. ABRAHAM, supra note 26, at 7.
110. Id.
111. See, e.g., id. ("Insurers attempt to combat . . . moral hazard with a variety of devices."); COOTER & ULEN, supra note 94, at 53 ("Every insurer is aware of this [moral hazard] problem and has developed methods to minimize it."); George L. Priest, Insurability and Punitive Damages, 40 ALA. L. REV. 1009, 1025 (1989) ("No one would contest that it is in the interest of an insurer (as well as of the society) for the insurer to encourage all feasible precautions to reduce the likelihood of unintended harm.").
112. Cf. Priest, supra note 99, at 1023-26 (explaining why insurers, out of concern for moral hazard, exclude intentional action from liability insurance coverage).
113. Although "omni-present," the exclusion is typically limited to two years. Id. at 1024 & n.56. It remains unclear whether this limitation arises from insurers' decision that two years is enough to control moral hazard, or instead from regulatory or judicial pressure to expand coverage. Id. at 1024 n.56.