Reevaluating standardized insurance policies

University of Chicago Law Review

Volumn 78, Issue 4, 2012, Pages 1263-1348

  Schwarcz, Daniel ^a  

^a UNIVERSITY OF MINNESOTA LAW SCHOOL   (United States)

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EID: 84860204503     PISSN: 00419494     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (326)

1. See Todd D. Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 Harv L Rev 1173, 1226 (1983)
2. W. David Slawson, Standard Form Contracts and Democratic Control of Lawmaking Power, 84 Harv L Rev 529, 546 (1971)
3. Friedrich Kessler, Contracts of Adhesion- Some Thoughts about Freedom of Contract, 43 Colum L Rev 629, 629 (1943).
4. See, for example, Jeffrey W. Stempel, 1 Law of Insurance Contract Disputes § 4.06[b] at 4-37 (Aspen 2d ed 1999)
5. See ISO, ISO: Enhancing Competition in the World's Insurance Markets (1999), excerpted in Kenneth S. Abraham, Insurance Law and Regulation: Cases and Materials 33-34 (Foundation 3d ed 2000). The ISO does have one moderately sized competitor-the American Association of Insurance Services (AAIS)-that often gets ignored in the literature.
6. See AAIS, Our Role in Insurance, online at http://www.aaisonline.com/ company/who.html (visited June 12, 2011).
7. See Kenneth S. Abraham, Insurance Law and Regulation: Cases and Materials 31 (Foundation 5th ed 2010): [T]he same standard-form policies often are used by many insurance companies. Thus, standardization in insurance not only involves a take-it-or-leave-it offer of the same policy by one company to all its customers, but (in the extreme case) a take-it-or-leave-it offer of the same policy, to all customers, by all companies.
8. Michelle Boardman, Insuring Understanding: The Tested Language Defense, 95 Iowa L Rev 1075, 1091 (2010)
9. (describing the "hyperstandardization" of insurance policies); Susan Randall, Freedom of Contract in Insurance, 14 Conn Ins L J 107, 125 (2007) ("[I]n some lines of insurance, all insurance companies provide identical coverage on the same take-it-or-leave-it basis.")
10. Stempel, 1 Law of Insurance Contract Disputes § 4.06[b] at 4-37 (cited in note 2)
11. Kenneth S. Abraham, A Theory of Insurance Policy Interpretation, 95 Mich L Rev 531, 534 (1996)
12. Jonathan R. Macey and Geoffrey P. Miller, The McCarran-Ferguson Act of 1945: Reconceiving the ederal Role in Insurance Regulation, 68 NYU L Rev 13, 18 (1993)
13. James M. Fischer, Why Are Insurance Contracts Subject to Special Rules of Interpretation? Text versus Context, 24 Ariz St L J 995, 996 (1992)
14. Kent D. Syverud, The Duty to Settle, 76 Va L Rev 1113, 1153 (1990)
15. See, for example, Daniel Schwarcz, A Products Liability Theory for the Judicial Regulation of Insurance Policies, 48 Wm & Mary L Rev 1389, 1404 (2007).
16. See, for example, Randall, 14 Conn Ins L J at 124 (cited in note 4)
17. Schwarcz, 48 Wm & Mary L Rev at 1404-12 (cited in note 4)
18. Eugene R. Anderson and James J. Fournier, Why Courts Enforce Insurance Policyholders' Objectively Reasonable Expectations of Insurance Coverage 5 Conn Ins L J 335, 359, 364-65 (1998).
19. See, for example, Michelle E. Boardman, Contra Proferentem: The Allure of Ambiguous Boilerplate, 104 Mich L Rev 1105, 1113-14, 1117 (2006).
20. Daniel Schwarcz, Deficient Consumer Protection in Form Regulation (unpublished presentation, Consumer Liaison Meeting, NAIC, Aug 13, 2010) (on file with author)
21. Mark E. Ruquet, Insurance Policies Do Not Serve Consumers' Needs, Advocate Says, Prop Casualty 360 (Natl Underwriter Aug 19, 2010), online at http://www.propertycasualty360.com /2010/08/19/insurance-policies-do-not-serve- consumers-needs-advocate-says (visited June 12, 2011). Prior to the next triannual meeting of the NAIC, Robert Hartwig, president of the Insurance Information Institute, wrote an op-ed in an industry trade journal arguing that differences in insurance policies reflected healthy competition
22. Robert P. Hartwig, Greater Choice Key to Homeowners Market, Natl Underwriter Prop & Casualty 42 (Oct 11, 2010)
23. See Daniel Schwarcz, Policy Transparency, Coverage Floors Needed for Homeowners, Natl Underwriter Prop & Casualty 34 (Oct 25, 2010).
24. See Mark E. Ruquet, NAIC to Review Personal Lines Contract Transparency, Prop Casualty 360 (Natl Underwriter Oct 21, 2010), online athttp://www. propertycasualty360.com/2010/10/21/naic-to-review-personal-lines- ontracttransparency- (visited June 12, 2011).
25. See Policy Forms Used by the Top 10 Homeowners' Insurance Groups in Nevada (Nevada Division of Insurance), online at http://doi.nv.gov/scs/ Homeowners.aspx (visited Nov 3, 2011)
26. Policy Forms Used by the Top 10 Private Passenger Automobile Insurance Groups in Nevada (Nevada Division of Insurance), online at http://doi.nv.gov/ scs/autoform.aspx (visited Nov 3, 2011).
27. See Lawmaker Wants Insurers to Develop "Homeowners Insurance Buyers Guide," NJ Today (Sept 21, 2011), online at http://njtoday.net/2011/09/21/ lawmaker-wants-insurers-todevelop-% E2%80%98homeowners-insurance-buyers- guide%E2%80%99/ (visited Nov 6, 2011).
28. See generally Brett H. McDonnell and Daniel B. Schwarcz, Regulatory Contrarians, 89 NC L Rev 1629 (2011) (exploring the role that regulatory contrarians can play in promoting more effective adaptation by financial regulators to changes in the marketplaces they are regulating).
29. See Thomas L. Wenck, The Historical Development of Standard Policies, 35 J Risk & Ins 537, 541 (1968) ("The first standard fire policy law was enacted in Massachusetts in 1873.").
30. See also George W. Goble, The Moral Hazard Clauses of the Standard Fire Insurance Policy, 37 Colum L Rev 410, 410 (1937)
31. See Wenck, 35 J Risk & Ins at 537-38 (cited in note 11) (discussing the Florentine statute of 1523, which created a special administrative agency to regulate insurers, and the development of a standard form policy.)
32. See Wenck, 35 J Risk & Ins at 539-41 (cited in note 11).
33. See also Tom Baker, Insurance Law and Policy: Cases, Materials, and Problems 7 (Aspen 2d ed 2008) (describing the lemons market problem in fire insurance policies and legislative solutions to problem of consumers being unable to distinguish between good and bad coverage)
34. Kenneth J. Meier, The Political Economy of Regulation: The Case of Insurance 54 (SUNY 1988)
35. See Goble, 37 Colum L Rev at 410 (cited in note 11). Standardization in automobile insurance policies followed a similar trajectory, with companies initially using their own distinctive policy forms but eventually finding that this created substantial consumer confusion.
36. See Wenck, 35 J Risk & Ins at 546 (cited in note 11). Unlike with fire insurance, however, insurers independently developed various "standard provisions" that could be voluntarily inserted into policies. See id at 546-47.
37. Meier, Political Economy of Regulation at 59-60 (cited in note 12).
38. See Abraham, Insurance Law and Regulation at 31-32 (cited in note 4).
39. See Meier, Political Economy of Regulation at 59-60 (cited in note 12).
40. See Herbert C. Brook, Public Interest and the Commissioners'-All Industry Laws, 15 L & Contemp Probs 606, 612 (1950)
41. Clarence W. Hobbs, State Regulation of Insurance Rates, 11 Proc Casualty Actuarial Socy 218, 255, 267 (1925)
42. See Abraham, Insurance Law and Regulation at 32-33 (cited in note 4).
43. See, for example, Meier, Political Economy of Regulation at 60 (cited in note 12). Price setting remained remarkably persistent, with the ISO publishing "advisory rates" as late as the 1980s.
44. See Abraham, Insurance Law and Regulation at 34 (cited in note 4).
45. See Abraham, Insurance Law and Regulation at 32-34 (cited in note 4)
46. Macey and Miller, 68 NYU L Rev at 18 (cited in note 4)
47. Paul L. Joskow and Linda McLaughlin, McCarran-Ferguson Act Reform: More Competition or More Regulation?, 4 J Risk & Uncertainty 373, 383 (1991) (emphasizing "[t]he need for joint activities associated with loss costs and insurance forms").
48. See Abraham, Insurance Law and Regulation at 33-35 (cited in note 4).
49. See ISO, ISO: Enhancing Competition at 33-34 (cited in note 3) ("[I]f standardized coverages did not exist, consumers would face an unintelligible array of different insurance forms.")
50. Macey and Miller, 68 NYU L Rev at 53 (cited in note 4)
51. Joskow and McLaughlin, 4 J Risk & Uncertainty at 383 (cited in note 23).
52. Wenck, 35 J Risk & Ins at 550 (cited in note 11).
53. See Jeffrey W. Stempel, Unmet Expectations: Undue Restriction of the Reasonable Expectations Approach and the Misleading Mythology of Judicial Role, 5 Conn Ins L J 181, 257 (1998)
54. See also David Horton, Flipping the Script: Contra Proferentem and Standard Form Contracts, 80 U Colo L Rev 431, 461 (2009)
55. Schwarcz, 48 Wm & Mary L Rev at 1405 (cited in note 4).
56. See Jeffrey W. Stempel, 1 Stempel on Insurance Contracts § 2.06[j] at 2-114 (Aspen 3d ed 2006) ("Changing the standard form insurance policy is a somewhat arduous process, requiring contributions from legal, claims, actuarial, and other industry personnel as well as from customers and state insurance regulators.").
57. See Carrie E. Cope, Regulation of Policy Forms
58. Jeffrey E. Thomas and Martin F. Grace, eds, 2 New Appleman on Insurance § 10 at 10-1, §§ 10.01 to 10.08 at 10-5 to 10-53 (Lexis Law Library Edition 2010).
59. See Boardman, 104 Mich L Rev at 1113-14, 1117 (cited in note 6)
60. ISO, ISO: Enhancing Competition at 33-34 (cited in note 3).
61. See, for example, Hisaw v State Farm Mutual Automobile Insurance Co, 122 SW3d 1, 5-9 (Ark 2003)
62. Middlesex Insurance Co v Mara, 699 F Supp 2d 439, 447-48 (D Conn 2010). Several other factors contribute to the absence of a comparable network effects in the health arena. First, the Employee Retirement Income Security Act of 1974, Pub L No 93-406, 88 Stat 829, codified at various sections of 29 USC, allows employers to utilize discretionary clauses that relegate the role of courts simply to arbitrary and capricious review.
63. See Firestone Tire & Rubber Co v Bruch, 489 US 101, 115 (1989). Second, coverage disputes in the health insurance arena take place against an ever-changing landscape of medical knowledge and treatment protocols Third, there is a unique degree of factual specificity in the health insurance arena, meaning that cases often turn more on individual circumstances and expert testimony.
64. See ISO, ISO: Enhancing Competition at 33-34 (cited in note 3).
65. See Martin F. Grace, Robert W. Klein, and Paul R. Kleindorfer, Homeowners Insurance with Bundled Catastrophe Coverage, 71 J Risk & Ins 351, 355 (2004) (reporting that 93 percent of policies sold in Florida and 72 percent of policies sold in New York correspond to the HO3 form).
66. See ISO, Homeowners 3-Special Form ("HO3"), reprinted in Abraham, Insurance Law and Regulation 195-216 (cited in note 4).
67. See Eric M. Holmes and Mark S. Rhodes, 1 Holmes' Appleman on Insurance §§ 1.10-11 at 45, 53 (Lexis 2d ed 1996) (noting that in all states except Texas, "the insurer has the burden of proof to prove no coverage under an all-risks policy," whereas under a named-peril policy, "the majority American rule requires the insured to prove that the insured event has transpired, thatis, the specified risk (fire, windstorm, lightning, etc.) was the cause . . . of the loss").
68. See also Jeffrey W. Stempel, A Mixed Bag for Chicken Little: Analyzing Year 2000 Claims and Insurance Coverage, 48 Emory L J 169, 196 (1999).
69. See ISO, Homeowners 5-Comprehensive Form, reprinted in Abraham, Insurance Law and Regulation 10 (cited in note 4). Martin Grace and his coauthors incorrectly describe the differences between the HO3 and HO5 form as between "repair" and "replacement" coverage.
70. See Grace, Klein, and Kleindorfer, 71 J Risk & Ins at 353-54 (cited in note 33). In fact, the ISO HO5 policy provides actual cash value loss settlement for personal property, just like the HO3 policy.
71. See ISO, Homeowners 5 at 14 (cited in note 36). Grace, Robert Klein, and Paul Kleindorfer were likely misled by the fact that some individual companies' versions of the HO5 form include replacement cost settlement.
72. See Grace, Klein, and Kleindorfer, 71 J Risk & Ins at 354 (cited in note 33).
73. In 1999, these included 73 countrywide endorsements and 113 state-specific endorsements. See ISO, ISO: Enhancing Competition at 33-34 (cited in note 3) (touting the variety and flexibility of ISO standardized forms).
74. See Baker, Insurance Law and Policy at 312 (cited in note 12) ("[T]he difference between 'replacement cost' and 'actual cash value' may be one of the few aspects of property insurance coverage that is actually explained to consumers by insurance agents."). In some cases insurers simply maintain different base policies that provide different loss settlement procedures.
75. See, for example, Erik S. Knutsen, Confusion about Causation in Insurance: Solutions for Catastrophic Losses, 61 Ala L Rev 957, 979 (2010) (describing variations in terms dealing with concurrent causation)
76. Baker, Insurance Law and Policy at 277 (cited in note 12) (same)
77. TomBaker, Liability Insurance at the Tort-Crime Boundary, in David M. Engel and Michael McCann, eds, Fault Lines: Tort Law as Cultural Practice 66, 70 (Stanford 2009) (describing variation in criminal-act exclusions for liability coverage).
78. See generally Goble, 37 Colum L Rev 410 (cited in note 11).
79. See Property and Casualty Insurance Industry 2009 Market Share Report-Total Premium States, U.S. Territories, Canada, and Aggregate Other Alien: 04-Homeowners Multiple Peril 101 (NAIC 2009) ("2009 Market Share Report") (listing that in 2009, the top five insurers in homeowners arena had direct premiums written of approximately $15 billion, $7 billion, $5 billion, $3.5 billion, and $3 billion).
80. Baker, Insurance Law and Policy at 54-55 (cited in note 12).
81. Paolo Neirotti and Emilio Paoucci, Assessing the Strategic Value of Information Technology: An Analysis on the Insurance Sector, 44 Info & Mgmt 568, 573 (2007).
82. See Daniel Schwarcz, Regulating Insurance Sales or Selling Insurance Regulation? Against Regulatory Competition in Insurance, 94 Minn L Rev 1707, 1738 (2010) (noting that a similar collective action problem could negatively impact insurers' selections among competing regulators).
83. See NAIC, About SERFF, online at http://www.serff.com/about.htm (visited May 4, 2011).
84. See Baker, Insurance Law and Policy at 53 (cited in note 12) (noting that while "[t]here has been no systematic, scholarly study of the effectiveness of state regulation of insurance forms," most commentators assume that such regulation is inadequate)
85. Schwarcz, 48 Wm & Mary L Rev at 1424-26 (cited in note 4)
86. Robert E. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv L Rev 961, 967 (1970).
87. See NAIC, U.S. Insurance Product Requirements, online at https://eapps.naic.org/prl/do /search/dialog (visited May 4, 2011) (providing product requirements of specific states for various insurance lines).
88. Boardman, 104 Mich L Rev at 1107 (cited in note 6).
89. See Schwarcz, 48 Wm & Mary L Rev at 1448 (cited in note 4). 53 Although insurance markets are generally thought to be competitive with respect to nominal pricing, it is hardly clear that they are competitive with respect to policy content and design (and thus "true" price). See id.
90. The author also acquired policies in Texas. However, Texas's market made it difficult to compare carriers' policies with those found in other states, as the HO3 policy does not operate as the presumptive baseline in Texas. See Part III.B.2. However, policies in Texas seem more heterogeneous than policies in other states. See Texas Office of Public Insurance Counsel, Compare Policy Coverages, online at http://www.opic.state.tx.us/hoic.php (visited May 4, 2011).
91. See 2009 Market Share Report (cited in note 42).
92. See 2009 Market Share Report (cited in note 42). 63 The ISO designation of homeowners forms covers condo policies, policies for renters, and policies covering mobile homes. I did not systematically collect these policies.
93. Typically this meant selecting the form that provided actual cash value loss settlement for personal property. See 2009 Market Share Report (cited in note 42).
94. See Knutsen, 61 Ala L Rev at 965 (cited in note 40).
95. See Broussard v State Farm Fire and Casualty Co, 523 F3d 618, 623 (5th Cir 2008).
96. Lee R. Russ and Thomas F. Segalla, 7 Couch on Insurance § 101:45 at 101-65 to 101-67 (West 3d ed 2010) ("The majority of jurisdictions permit the parties to an insurance contract to contract out of the efficient proximate cause doctrine.").
97. ND Cent Code §§ 26.1-32, 530-33.
98. See Baker, Insurance Law and Policy at 251, 277 (cited in note 12).
99. See Stempel, 48 Emory L J at 195-96 (cited in note 35).
100. ISO, HO3 at 202 (cited in note 34).
101. Three Palms Pointe, Inc v State Farm Fire and Casualty Co, 250 F Supp 2d 1357, 1360 (MD Fla 2003).
102. See ISO, HO3 at 206 (cited in note 34).
103. See, for example, Tinucci v Allstate Insurance Co, 487 F Supp 2d 1058, 1059 (describing Allstate's insurance policy, which "provide[d] coverage only for 'sudden and accidental direct physical loss' to property described in the Policy 'except as limited or excluded' in the Policy").
104. See Kenneth S. Abraham, The Rise and Fall of Commercial Liability Insurance, 87 Va J Rev 85, 97-98 (2001).
105. See Tom Baker, On the Genealogy of Moral Hazard, 75 Tex L Rev 237, 239 (1996).
106. Abraham, Insurance Law and Regulation at 259 (cited in note 4).
107. Kenneth S. Abraham, Insurance Law and Regulation: Cases and Materials 245 (Foundation 2d ed 1995) ("The increase-of-hazard provision is notably absent from standard homeowners policies and often is not included in Commercial Property Insurance policies either . . . . Obviously the omission of this provision from a Homeowners policy makes that policy more favorable to the policyholder.").
108. See, for example, Estate of Luster v Allstate Insurance Co, 598 F3d 903, 906 (7th Cir 2010) (quoting the Allstate policy).
109. See, for example, Myers v Merrimack Mutual Fire Insurance Co, 788 F2d 468, 469 (7th Cir 1986) (quoting the Marrimack Mutual Fire Insurance policy).
110. Robert H. Jerry II and Douglas R. Richmond, Understanding Insurance Law 424 (Lexis 4th ed 2007).
111. See Kenneth S. Abraham, The Liability Century: Insurance and Tort Law from the Progressive Era to 9/11 21-26 (Harvard 2008).
112. Jerry and Richmond, Understanding Insurance Law at 424 (cited in note 94)
113. Abraham, Insurance Law and Regulation at 263 (cited in note 4). 97 For a discussion of this issue, see notes 165-66 and accompanying text.
114. See generally John T. Waldron III and Timothy P. Palmer, Insurance Coverage for Mold and Fungi Claims: The Next Battleground?, 38 Tort Trial & Ins Prac L J 49 (2002). The controversy stemmed from a case in which a jury awarded a massive award in response to Farmer's refusal to cover toxic mold, Allison v Fire Insurance Exchange, 98 SW3d 227, 233 (Tex App 2002).
115. See Tod I. Zuckerman and Mark C. Raskoff, 3 Environmental Insurance Litigation: Law and Practice § 24:3 at 24-21 (West 2010) ("In addition to California, New Jersey, Florida, Maryland, Ohio, and New York are among the states that have enacted either statutes or state insurance commissioner rules/regulations on mold coverage.").
116. See Liristis v American Family Mutual Insurance Co, 61 P3d 22, 25-26 (ArizApp 2002). Such policies were coded as providing an "absolute exclusion" for mold. 102 ISO, HO3 at 203 (cited in note 34).
117. See Kenneth S. Abraham, Cleaning Up the Environmental Liability Insurance Mess, 27 Valp U L Rev 601, 604 (1993).
118. Jeffrey W. Stempel, Reason and Pollution: Correctly Construing the "Absolute" Exclusion in Context and in Accord with Its Purpose and Party Expectations, 34 Tort & Ins L J 1, 2 (1998) (reviewing the standard form CGL's absolute pollution exclusion).
119. For evidence of the importance of this exclusion in homeowners insurance cases, see United Policyholders, Amicus Library, online at http://www.uphelp. org/library/amicus (visited June 12, 2011).
120. ISO, HO3 at 203 (cited in note 34).
121. See, for example, Baugher v Secretary of Housing and Urban Development, 623 F Supp 1228, 1229 (D Kan 1985) (citing this theft coverage provision in an insurance policy).
122. See, for example, C & J Fertilizer, Inc v Allied Mutual Insurance Co, 227 NW2d 169, 176-77 (Iowa 1975).
123. ISO, HO3 at 204 (cited in note 34).
124. See generally Hugh L. Wood Jr, The Insurance Fallout Following Hurricane Andrew: Whether Insurance Companies Are Legally Obligated to Pay for Building Code Upgrades Despite the "Ordinance or Law" Exclusion Contained in Most Homeowners Policies, 48 U Miami LRev 949 (1994).
125. ISO, HO3 at 202 (cited in note 34).
126. See Michelle E. Boardman, Known Unknowns: The Illusion of Terrorism Insurance, 93 Georgetown L J 783, 812 (2005).
127. ISO, HO3 at 203-04 (cited in note 34).
128. See Stempel, 1 Law of Insurance Contract Disputes § 11.01 at 11-3 (cited in note 2).
129. See generally Alan O. Sykes, Subrogation and Insolvency, 30 J Legal Stud 383 (2001) (arguing that first-dollar subrogation is likely optimal and that, for this reason, courts should refrain from interfering with contract terms specifying this rule). (Pubitemid 33648829)
130. Consider Brendan S. Maher and Radha A. Pathak, Understanding and Problematizing Contractual Tort Subrogation, 40 Loyola U Chi L J 49, 82-90 (2008) (arguing that first-dollar subrogation provisions in insurance contracts may be inefficient).
131. See Sykes, 30 J Legal Stud at 385 (cited in note 125).
132. ISO, HO3 at 216 (cited in note 34).
133. Interestingly, several related companies from the same underwriting group, but operating in different states, do not resolve this issue. This is true even though Nevada law explicitly permits opting out of the default make-whole rule. See Canfora v Coast Hotels and Casinos, Inc, 121 P3d 599, 604 (Nev 2005).
134. ISO, HO3 at 195 (cited in note 34).
135. See Martha S. Kersey, Duty to Indemnify-Bodily Injury and Property Damage, in Thomas and Mootz III, eds, 3 New Appleman on Insurance § 18 at 18-1, § 18.02[3] at 18-12 (cited in note 29)
136. Jeffrey W. Stempel, 2 Law of Insurance Contract Disputes § 14.03 at 14-10.4 to 14-10.7 (Aspen 2d ed 1999).
137. See Kersey, Duty to Indemnify § 18.02[3][d] at 18-13-18-14 (cited in note 130).
138. Stempel, 2 Law of Insurance Contract Disputes § 14.04 at 14-10.7 (cited in note 130).
139. ISO, HO3 at 196 (cited in note 34).
140. See, for example, Continental Insurance Co v Bones, 596 NW2d 552, 556-58 (Iowa 1999) (holding that the loss of use of leased premises resulting from wrongful eviction did not result from property damage and thus was not covered)
141. Guelich v American Protection Insurance Co, 772 P2d 536, 537-38 (Wash App 1989) (finding that obstruction of a neighbor's view does not qualify for coverage under a homeowners policy because the loss of use did not involve physical damage).
142. ISO, HO3 at 196 (cited in note 34).
143. See Appleman, 3 New Appleman on Insurance Law § 18.02[6] at 18-27 to 18-28 (cited in note 130)
144. Stempel, 2 Law of Insurance Contract Disputes § 14.02 at 14-9 to 14-10.4 (cited in note 130).
145. See James A. Fischer, The Exclusion from Insurance Coverage of Losses Caused by the Intentional Acts of the Insured: A Policy in Search of a Justification, 30 Santa Clara L Rev 95, 124-27 (1990).
146. ISO, HO3 at 211 (cited in note 34).
147. For an exploration of how even very small differences in the language of intentional acts exclusions can have substantial consequences on coverage, see Hazel Glenn Beh, Tort Liability for Intentional Acts of Family Members: Will Your Insurer Stand by You?, 68 Tenn L Rev 1, 33-36 (2000) (explaining that coverage could depend on the subtle distinctions between "an," "any," or "the" in the intentional act exclusion).
148. See Gray v Zurich Insurance Co, 419 P2d 168, 170 (Cal 1966) (involving an insurer refusing to defend an insured sued for assault, despite his claim that he was acting in self-defense, because the insured's acts were nonetheless intentional).
149. See generally Baker, Liability Insurance at the Tort-Crime Boundary (cited in note 40).
150. See, for example, Martin v Thrifty Rent A Car, 1998 WL 211786, 1 (6th Cir) (explaining that Thrifty's standard rental agreement required renter to indemnify Thrifty)
151. Hertz Corp v Zurich American Insurance Co, 496 F Supp 2d 668, 671-72 (ED Va 2007) (noting that Hertz's equipment rental contract required renter to indemnify rental company)
152. ISO, HO3 Policy at 212 (cited in note 34).
153. See Stempel, 2 Law of Insurance Contract Disputes § 14.14 at 14-140 to 14-152 (cited in note 130) (noting that this coverage does not violate the principle of fortuity).
154. See Stempel, 34 Tort & Ins L J at 1 n 1 (cited in note 105).
155. Bonnieview Homeowners Association vWoodmont Builders, LLC 655 F Supp 2d 473 498-99 (D NJ 2009) (dismissing CERCLA claims against homeowners under the innocent owner defense).
156. See ISO, Scheduled Personal Property Endorsement, reprinted in Abraham, Insurance Law and Regulation 217, 217-19 (cited in note 4).
157. See Amy Monahan and Daniel Schwarcz, Will Employers Undermine Health Care Reform by Dumping Sick Employees?, 97 Va L Rev 125, 133-36 (2011) (describing indirect risk classification). 158
158. See Jason Scott Johnston, The Return of Bargain: An Economic Theory of How Standard-Form Contracts Enable Cooperative Negotiation between Businesses and Consumers, 104 Mich L Rev 857, 864-76 (2006) (describing situations in which firms grant agents authority to depart from standard-form contracts ex post).
159. See Jeffrey W. Stempel, The "Other" Intermediaries: The Increasingly Anachronistic Immunity of Managing General Agents and Independent Claims Adjusters, 15 Conn Ins L J 599, 618-19 (2009).
160. See Schwarcz, 94 Minn L Rev at 1761 (cited in note 45). 161 Of course, many deviations-such as those purporting to preserve the insurers' right to first-dollar subrogation-raise difficult issues regarding optimal coverage design
161. See Sykes, 30 JLegal Stud at 396 (cited in note 125).
162. But see Jerry and Richmond, Understanding Insurance Law at 423 (cited in note 94) (arguing in favor of insurers maintaining substantial discretion to deny claims via an increase of hazard clause, as it operates as a "modern day warranty" that policyholder will not increase risk).
163. See Daniel Schwarcz, Redesigning Consumer Dispute Resolution: A Case Study of the British and American Approaches to Insurance Claims Conflict, 83 Tulane L Rev 735, 742 (2009).
164. It is precisely because of the importance of the role that courts play in policing insurer abuse that discretionary clauses in insurance policies-which purport to give insurers discretion to deny claims with only limited judicial review-are so troubling. See John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials under ERISA, 101 Nw U L Rev 1315, 1340-42 (2007) (discussing the problems created by discretionary clauses).
165. See Schwarcz, 83 Tulane L Rev at 746-50 (cited in note 163). By contrast, these barriers to courts are much less of a problem in commercial insurance lines, in which increase-in-hazard clauses, for instance, are not uncommon.
166. See id at 746. See also Schwarcz, 48 Wm & Mary L Rev at 1456-59 (cited in note 4) (explaining how judicial regulation of insurance can be effective for nonlitigants only if extracontractual damages reflect the likelihood that an insurers' behavior will not be challenged in court). 168 See Part II.A.2.f. Another example of this is, once again, the increase-in-hazard clause, which resembles the historic barratry defense in insurance law that courts generally abandoned because of its indeterminacy
167. See Abraham, The Liability Century at 21-26 (cited in note 95).
168. See Schwarcz, 48 Wm & Mary L Rev at 1451-52 (cited in note 4) (comparing the Hurricane Katrina litigation to the Atwater litigation).
169. See Florencia Marotta-Wurgler, Competition and the Quality of Standard Form Contracts: The Case of Software License Agreements, 5 J Empirical Legal Stud 447, 475 (2008) (noting the difficulty involved in assessing the efficiency of contract terms).
170. But see generally George L. Priest, A Theory of the Consumer Product Warranty, 90 Yale L J 1297 (1981) (arguing that consumer product warranties efficiently allocate responsibility between manufacturer and consumer so as to maximize product life and insure against loss).
171. For a list of their product requirements in homeowners insurance, see NAIC, U.S. Insurance Product Requirements (cited in note 49). Apart from regulations governing cancellation, declination, and nonrenewal, North Dakota has a valued-policy law, ND Cent Code § 26.1-39-05
172. Natural Disaster Risk Profile, online at www.inscenter.com/info-center/ disasterplanning/ risk-profile (visited Nov 6, 2011).
173. See 2009 Market Share Report at 109 (cited in note 42).
174. See Florencia Marotta-Wurgler, What's in a Standard Form Contract? An Empirical Analysis of Software License Agreements, 4 J Empirical Legal Stud 677, 690 (2007)
175. Marotta- Wurgler, 5 J Empirical Legal Stud at 475 (cited in note 171)
176. Florencia Marotta-Wurgler, Are "Pay Now, Terms Later" Contracts Worse for Buyers? Evidence from Software License Agreements, 38 JLegal Stud 309, 312-13 (2009). Florencia Marotta-Wurgler's important empirical work is based on asample of software license contracts. From these contracts, she selects twenty-four important terms and codes them according to whether each term was the same, more, or less favorable than the UCC default. The resulting consumer-friendliness scores figure prominently in much of her work. Marotta-Wurgler's approach for selecting terms mirrors my approach in Part II.A.2.i. In this Part, by contrast, I rely on the contract's internal structure to define each term and attempt to capture virtually all meaningful terms in the contract.
177. See Priest, 90 Yale L J at 1347 (cited in note 171)
178. Todd J. Zywicki and Joseph D. Adamson, The Law and Economics of Subprime Lending, 80 U Colo L Rev 1, 71-72 (2009) (explaining that heterogeneity in subprime mortgage terms may be explained simply by heterogeneity of subprime borrowers).
179. See Russell Korobkin, Bounded Rationality, Standard Form Contracts, and Unconscionability, 70 U Chi L Rev 1203, 1237-38, 1243-44 (2003) (noting that standard models suggest that the term heterogeneity reflects different consumers' perspectives but that "heterogeneity of terms is also possible if buyers have identical preferences for the content of certain terms but those terms are salient for some buyers and non-salient for others");
180. See Daniel Schwarcz, Differential Compensation and the "Race to the Bottom" in Consumer Insurance Markets, 15 Conn Ins L J 723, 733-41 (2009). This intuition is supported by the relative knowledge of captive and independent agents regarding policy variability, reported in Part III.
181. See Laureen Regan and Sharon Tennyson, Agent Discretion and the Choice of Insurance Marketing System, 39 J L & Econ 637, 640-46 (1996) (describing the factors that lead insurers to select a captive or independent distribution system).
182. See Adam J. Levitin, Hydraulic Regulation: Regulating Credit Markets Upstream, 26 Yale J Reg 143, 196-97 (2009) (explaining the role of secondary market purchasers of mortgages in shaping the rules that apply in the underlying mortgage transaction).
183. Fannie Mae, Selling Guide: Fannie Mae Single Family: General Hazard Insurance Coverage 863 (Jan 27, 2011), online at https://www.efanniemae.com/sf/ guides/ssg/sg/pdf /sel012711.pdf (visited May 4, 2011).
184. See, for example, State Farm Insurance, Goldsboro, North Carolina Advertisement, online at http://admin.iadsnetwork.com/images/DisplayAds/27557. pdf (visited June 12, 2011)
185. State Farm Insurance, West Des Moines, Iowa Advertisement, online at http://www.sunprairie.com/documents/pdfs/Renters-Insurance-Sun-Prairie- 929BDD72F3061.pdf (visited June 12, 2011)
186. State Farm Insurance, Albuquerque, New Mexico Advertisement, online at http://www.yellowbook.com/profile/bermudez-michelle-state-farm-insurance-agent- 1821782950.html (visited June 12, 2011).
187. See, for example, Allstate, Allstate Insurance 2010 Commercial "I'm Your Lucky Team Flag . . .", (2010), online at http://www.youtube.com/ watch?v=WJaj-Dtbn3k (visited June 12, 2011)
188. Allstate, Washington DC Agent Advertisement, online at http://agents.allstate.com /USA/DC/rudy-alston-iii.html (visited June 12, 2011).
189. See Farmers Insurance Group, Home Insurance, online at http://www.farmers.com/ (visited June 12, 2011).
190. See generally Tom Baker, Constructing the Insurance Relationship: Sales Stories, Claims Stories, and Insurance Contract Damages, 72 Tex L Rev 1395 (1994) (arguing that insurers tell radically different "sales stories" and "claims stories").
191. Consumers would also find it impossible to comparison shop on the basis of different insurers' claims-handling practices, as regulators have refused to make insurer-specific data on this-which they collect to facilitate market conduct regulation-publicly available. See Schwarcz, 94 Minn L Rev at 1761 (cited in note 45).
192. See Alan Schwartz and Louis L. Wilde, Intervening in Markets on the Basis of Imperfect Information: A Legal and Economic Analysis, 127 U Pa L Rev 630, 682 (1979).
193. See Marotta-Wurgler, 38 J Legal Stud at 314-17 (cited in note 179) (reviewing the literature on rolling contracts that followed ProCD)
194. Clayton P. Gillette, Rolling Contracts as an Agency Problem, 2004 Wis L Rev 679, 690-92.
195. See Korobkin, 70 U Chi L Rev at 1265 (cited in note 186).
196. But see Robert A. Hillman, Rolling Contracts, 71 Fordham L Rev 743, 757-58 (2002).
197. In other words, there is no reason to suspect homogeneity in the preferences of consumers generally, much less readers and nonreaders. See Gillette, 2004 Wis L Rev at 691-92 (cited in note 207).
198. See Daniel Schwarcz, Regulating Consumer Demand in Insurance Markets, 3 Erasmus L Rev 23, 25-30 (2010) (exploring various influences on consumer demand in insurance markets).
199. See also generally Levon Barseghyan, Jeffrey Prince, and Joshua C. Teitelbaum, Are Risk Preferences Stable across Contexts? Evidence from Insurance Data, 101 Am Econ Rev 591 (2011) (showing differences in consumers' risk aversion in different contexts).
200. See Schwarcz, 48 Wm & Mary L Rev at 1410 (cited in note 4).
201. See Marotta-Wurgler, 38 J Legal Stud at 315 (cited in note 179)
202. Gillette, 2004 Wis L Rev at 691 (cited in note 207).
203. A recent survey of leading software vendors found that thirty-four of one hundred did not make their end user license agreement available on their website. Robert A. Hillman and Ibrahim Barakat, Warranties and Disclaimers in the Electronic Age, 11 Yale J L & Tech 1, 5 (2008).
204. See Marotta-Wurgler, 38 J Legal Stud at 319 (cited in note 179).
205. See Hill v Gateway 2000, Inc, 105 F3d 1147, 1149 (7th Cir 1997) (emphasizing the difficulty that over-the-phone sellers would have in disclosing contract terms).
206. See, for example, Gillette, 2004 Wis L Rev at 691 (cited in note 207)
207. Robert A. Hillman, Online Boilerplate: Would Mandatory Website Disclosure of E-standard Terms Backfire?, Mich L Rev 837, 843-45 (2006).
208. See Jeffrey E. Thomas, An Interdisciplinary Critique of the Reasonable Expectations Doctrine, 5 Conn Ins L J 295, 314 (1998).
209. A substantial majority of personal lines insurance products are sold through captive agents. See Schwarcz, 15 Conn Ins L J at 728-29 (cited in note 189).
210. See Gateway, 105 F3d at 1149
211. Gillette, 2004 Wis L Rev at 691 (cited in note 207)
212. Marotta-Wurgler, 38 J Legal Stud at 315 (cited in note 179).
213. See UClaim, Products, online at http://www.uclaim.com/products.asp (visited June 12, 2011).
214. See Thomas and Grace, 2 New Appleman on Insurance Law § 10.04 at 10-20 to 10-23 (cited in note 29). 226 In a recent survey of state insurance departments, 89 percent of respondents reported such a requirement. See Filing Access Working Group, SERFF, Results from Filing Access Survey (June 30, 2010) (on file with author).
215. See Ken Ross, Order Rescinding 1997 Exemption Order (Jan 26, 2010), online at http://www.michigan.gov/documents/dleg /Order-Rescinding-Exempt- 308923-7.pdf (visited June 12, 2011).
216. See SERFF, Results from Filing Access Survey (cited in note 226).
217. See NAIC, SERFF Homepage, online at http://www.serff.com (visited May 4, 2011).
218. See AAIS, Open Files: Information from Filings Moves onto Public Websites, 32 Viewpoint 10, 10 (Fall 2007) ("While public access is intended to benefit consumers and citizens, few non-specialists can navigate through the categories of filing documents and make sense of the technical information found therein.").
219. See SERFF, Results from Filing Access Survey (cited in note 226).
220. Some insurers, such as Allstate, allow policyholders to access copies of their own policies online. See Allstate, Allstate Customer Care: General Overview, online at http://www.allstate.com/customer-care/overview.aspx (visited May 3, 2011).
221. See Schwarcz, 83 Tulane L Rev at 744 (cited in note 163).
222. See Korobkin, 70 U Chi L Rev at 1226 (cited in note 186).
223. Although many consumer contracts are hard to understand, insurance policies are often singled out as being uniquely indecipherable. See Boardman, 104 Mich L Rev at 1107 (cited in note 6) (quoting a recent South Carolina Supreme Court decision as stating that "[a]mbiguity and incomprehensibility seem to be the favorite tools of the insurance trade in drafting policies").
224. See Boardman, 104 Mich L Rev at 1106-07 (cited in note 6).
225. Edward B. Fry, The Varied Uses of Readability Measurement Today, 30 J Reading 338, 340 (1987)
226. Conrath Doak C. Doak L.G. Root J.H.Teaching Patients with Low Literacy Skills 6 1996 Lippinott 2d ed.
227. Cecilia Conrath Doak, Leonard G. Doak, and Jane H. Root, Teaching Patients with Low Literacy Skills 6 (Lippinott 2d ed 1996). See also Alan M. White and Cathy Lesser Mansfield, Literacy and Contract, 13 Stan L & Policy Rev 233, 237-38 (2003) (reviewing research demonstrating that many, if not most, consumers are unable to understand complex contracts or to extract critical pieces of information from mandated disclosures).
228. Boardman, 104 Mich L Rev at 1107 (cited in note 6) ("[T]he insurers' audience from start to finish is the courts, a practice that leaves policyholders by the wayside, and one that courts unwittingly encourage.").
229. See Schwarcz, 48 Wm & Mary L Rev at 1415-16 (cited in note 4).
230. See Schwarcz, 15 Conn Ins L J at 727-29 (cited in note 189).
231. Schwarcz, 48 Wm & Mary L Rev at 1416 (cited in note 4) ("[I]nformation intermediaries generally tend to focus on basic coverage terms and avoid coverage nuances that cannot be altered with supplemental coverage."). But see Abraham, Insurance Law and Regulation at 56 (cited in note 3) (noting that insurance intermediaries can assess a customer's exposure to risk and help to secure insurance adequate to the customer's needs).
232. Agent 2 Interview (cited in note 192);
233. Confidential interview with Agent 3, captive (MN) (2010) ("Agent 3 Interview")
234. Confidential interview with Agent 6, captive (MN) (2010) ("Agent 6 Interview");
235. Confidential interview with Agent 11, captive (MN) (2010) ("Agent 11 Interview").
236. Confidential interview with Agent 5, captive (MN) (2010) ("Agent 5 Interview")
237. Confidential interview with Agent 7, captive (MN) (2010) ("Agent 7 Interview").
238. Confidential interview with Agent 8, captive (MN) (2010) ("Agent 8 Interview")
239. Confidential interview with Agent 9, captive (MN) (2010) ("Agent 9 Interview").
240. Agent 5 Interview (cited in note 265)
241. Agent 7 Interview (cited in note 265).
242. Agent 7 Interview (cited in note 265).
243. For a discussion of the distinction between claims "stories" and sales "stories," see Baker, 72 Tex L Rev at 1396-98 (cited in note 202).
244. Agent 6 Interview (cited in note 264).
245. Agent 9 Interview (cited in note 266).
246. Confidential interview with Agent 1, independent (MN) (2010).
247. Confidential interview with Agent 4, independent (MN) (2010).
248. Confidential interview with Agent 10, independent (MN) (2010).
249. See also Boardman, 95 Iowa L Rev at 1093-98 (cited in note 4)
250. Baker, 72 Tex L Rev at 1403-07 (cited in note 202). 276 This is consistent with the finding that carriers with the least generous forms employ acaptive distribution system whereas carriers with more generous forms tend to employ an independent distribution system. See Part II.B.3.
251. See Schwarcz, 15 Conn Ins L J at 725-26 (cited in note 189)
252. Daniel Schwarcz, Beyond Disclosure: The Case for Banning Contingent Commissions, 25 Yale L & Pol Rev 289, 291 (2007).
253. Schwarcz, 48 Wm & Mary L Rev at 1419 (cited in note 4) (describing role and importance of marketing information).
254. See Schwarcz, 48 Wm & Mary L Rev at 1419 (cited in note 4)
255. See also Michael B. Rappaport, The Ambiguity Rule and Insurance Law: Why Insurance Contracts Should Not Be Construed against the Drafter, 30 Ga L Rev 171, 240 n 187 (1995) (noting concern that insurers' marketing materials may be misleading).
256. An example from the American Family website, which was comparatively quite comprehensive, follows: If you are legally responsible for a covered accident that injures another person or damages someone else's property, your policy will provide liability coverage up to the amount specified in your policy. We are also required to defend you against a suit for damages payable under the policy until your liability limit has been offered or paid. See American Family Insurance, Learn & Plan: Coverage Options, online at http:// www.amfam.com/learn-and-plan/learning-center/tours-of-insurance/homeowners- tour/coverageoptions.asp (visited May 4, 2011). The "Liability" tab also provides several examples of losses that liability coverage "may" protect the insured against, including "[l]iability to others such as sports activities" and "[a]cts of pets." See id. By comparison, the Nationwide website explains simply that the policy includes "[p]rotection against claims you're legally obligated to pay," "[p]ayment of the cost of defending claims against you," "[m]edical expenses of others," and "[a]ccidental death benefits."
257. See Nationwide, Home Owners Insurance Quotes and Coverage, online at http://www.nationwide.com/homeowners-insurance-quotes.jsp (visited May 4, 2011).
258. See, for example, Metlife, Home Insurance Overview, online at http://www.metlife.com/individual/insurance/home-insurance/index.html#overview (visited May 4, 2011) (explaining what is and is not covered under the "FAQ" tab)
259. Liberty Mutual, Home Insurance Coverages, online at http://home- insurance.libertymutual.com/home-coverages-and-benefits/home-insurance- coverages (visited May 4, 2011). The FAQ section in the Liberty Mutual website includes a lot more details as to what the policy covers (the questions detail coverage for bursting pipes, freezing pipes, vandalism, living expenses, damaged trees, debris removal, and items not covered by the personal property coverage). See id.
260. See, for example, Travelers Insurance, Optional Home Coverages, online at http://www.travelers.com/personal-insurance/home-insurance/optional-home- coverages.aspx (visited May 4, 2011).
261. Farmers Insurance Group, Homeowners Insurance Coverage, online at http://www.farmers.com/home-owners-insurance.html (visited Mar 18, 2011).
262. Auto-Owners Insurance, Home Insurance, online at http://www.auto-owners. com /home.aspx (visited May 4, 2011).
263. State Farm, Manufactured Homeowners Insurance, online at http://www.statefarm.com/insurance/homeowners/manufactured-homes.asp (visited May 4, 2011)
264. Weston Arnold, Home Insurance, online at http://www.westonarnold.com/ home.html (visited Mar 27, 2011).
265. See Erie Insurance, Broadcover Xtra Features, online at http://www.erieinsurance.com /homeowners/Broadcover-Xtra.aspx (visited May 4, 2011). The extra features listed include "upto $3,000 for theft of jewelry, watches, and furs" and "payment for replacement of stolen automatic garage door transmitters." Id.
266. See Chubb Insurance Company of Canada, Homeowners: Chubb Personal Insurance, online at http://www.chubb.com/international/canada/cpi/chubb4340. html (visited May 4, 2011).
267. See Chubb Group of Insurance Companies, Chubb Masterpiece Coverage Comparison, online at http://www.mullerinsurance.com/resources/ ChubbHomeownerComparison.pdf (visited June 12, 2011).
268. See Texas OPIC, Sunset Self-Evaluation Report 3 (Aug 24, 2007), online at http:// www.opic.state.tx.us/docs/487-sunset-self-evaluation.pdf (visited May 4, 2011) (describing OPIC's history and mission, among other things). OPIC was created by Act of June 21, 2003,2003 Tex Gen Law ch 1274, title 5, codified at Tex Ins Code Ann § 501 et seq. For discussion of the value that institutions such as OPIC can provide in the regulatory process, see McDonnell and Schwarcz, 89 NC L Rev at 1657-61 (cited in note 10).
269. See Texas OPIC, Compare Policy Coverages, online at http://www.opic. state.tx.us /hoic.php (cited in note 54).
270. See Texas Watch, Overview of Texas Homeowners Policy Coverage, online at http://www.texaswatch.org/wordpress/wp-content/uploads/2010/02/ Overview-of-Texas-Homeowners-Policy-Coverage1.pdf (visited May 4, 2011).
271. See Schwarcz, 83 Tulane L Rev at 756-59 (cited in note 163).
272. See Richard Craswell, Interpreting Deceptive Advertising, 65 BU L Rev 657, 720-25 (1985) (providing an overview of credence goods). For a broader discussion of the limits of reputation in consumer insurance markets, see Schwarcz, 48 Wm & Mary L Rev at 1413-15 (cited in note 4)
273. Schwarcz, 83 Tulane L Rev at 743-44 (cited in note 163). For a contrary vie
274. see Alan O. Sykes, "Bad Faith" Breach of Contract by First-Party Insurers, 25 J Legal Stud 405, 418 (1996).
275. See Korobkin, 70 U Chi L Rev at 1240 (cited in note 186) ("In the large majority of transactions in which the content of the boilerplate never becomes an issue, there is no reason to believe a non-salient term would suddenly become salient to a repeat buyer, or to anyone with whom the buyer communicates."). 301
276. See Boardman, 95 Iowa L Rev at 1093-98 (cited in note 4).
277. See Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness 78 (Yale 2008) ("Most of the time, competition ensures that price serves as a good signal of quality.").
278. See William M. Sage and Peter J. Hammer, Competing on Quality of Care: The Need to Develop a Competition Policy for Health Care Markets, 32 U Mich J L Ref 1069, 1080-83 (1999).
279. But see Thaler and Sunstein, Nudge at 78-80 (cited in note 303) (suggesting that price may be a reasonable proxy of quality in some insurance markets).
280. See Schwartz and Wilde, 127 U Pa L Rev at 638 (cited in note 204).
281. See ALI, Principles of the Law: Software Contracts § 2.02(e) (2010) (discussing various third party watchdog groups that idenitfy and publicize "dangerous terms" in online contracts).
282. See generally Omri Ben-Shahar and Carl E. Schneider, The Failure of Mandated Disclosure (University of Chicago Law & Economics John M. Olin Working Paper No 516, Mar 2010), online at http://ssrn.com/abstract=1567284 (visited May 4, 2011). The limitations of disclosure as a solution to market problems have traditionally held substantial weight in the insurance domain.
283. See Howell E. Jackson, Regulation in a Multisectored Financial Services Industry: An Exploratory Essay, 77 Wash U L Q 319, 342 (1999).
284. But see Hillman, 71 Fordham L Rev at 753-55 (cited in note 208). Hillman suggests that online boilerplate may do little to correct market failures but will insulate companies from claims of procedural unconscionability. See id at 855. This is a reasonable concern and is a legitimate reason for considering some of the more interventionist reforms discussed in this Part.
285. See Schwarcz, 48 Wm & Mary L Rev at 1440-45 (cited in note 4) (arguing that adequate disclosure requires disclosure of "the basic ways in which [insurers'] policies deviate from any existing industry norms").
286. For a broad overview of principles that should guide regulators in designing effective insurance disclosures, see Brenda Cude and Daniel Schwarcz, Consumer Disclosure as an Insurance Regulatory Tool (unpublished manuscript, 2011) (on file with author).
287. See Boardman, 104 Mich L Rev 1105 at 1107 (cited in note 6).
288. See Jesse A. Hamilton, Property/Casualty Concerns Mount at NAIC's Seattle Meeting, BestWire (AM Best Company Aug 16, 2010), online at http://www3.ambest.com/frames /frameserver.asp?site=news&tab=1&AltSrc= 62&refnum=140499 (visited May 4, 2011) (quotingDavid Snyder, vice president and associate general counsel at the American Insurance Association, as stating that "[t]he policies themselves are legal instruments that reflect case law and statute. In many ways, it's impossible to make them simple").
289. See Hansen v Continental Insurance Co, 940 F2d 971, 982 (5th Cir 1991) ("[T]he summary plan description is binding, and that if there is a conflict between the summary plan description and the terms of the policy, the summary plan description shall govern.").
290. See Cigna Corp v Amara, 131 S Ct 1866, 1876-78 (2011).
291. See, for example, Watson v United Services Automobile Association, 566 NW2d 683, 692 (Minn 1997) (citing a fire insurance policy that excluded a spouse from coverage based on the acts of the other insured spouse).
292. See generally Abraham L. Wickelgren, Standardization as a Solution to the Reading Costs of Form Contracts (University of Texas at Austin School of Law Working Paper, July 2010), online at http://works.bepress.com/abraham- wickelgren/23/ (visited June 12, 2011).
293. See Thaler and Sunstein, Nudge at 103-16 (cited in note 303) (exploring the importance of defaults generally)
294. Schwarcz, 3 Erasmus L Rev at 38-45 (cited in note 210) (exploring a range of libertarian paternalistic interventions in insurance markets, including setting defaults consistent with the prescriptions of expected utility theory).
295. But see Sharon Tennyson, Rethinking Consumer Protection Regulation in Insurance Markets, Policy Brief 2010-PB-07 10-11 (Networks Financial Institute, Sept 2010), online at http://www.networksfinancialinstitute.org/Lists/ Publication%20Library/Attachments/165/2010-PB-07-Tennyson.pdf (visited June 12, 2011) (suggesting that regulators restrict product approval to a narrow range of "plain vanilla" products and require insurers to offer these products, but that they also allow insurers to offer additional, non-approved products, subject to clear disclosure).
296. See Schwarcz, 3 Erasmus L Rev at 44-45 (cited in note 210).
297. See Ian Ayres and Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L J 87, 98 (1989). But
298. see Eric A. Posner, There Are No Penalty Default Rules in Contract Law, 33 Fla St U L Rev 563, 585 (2006) (arguing that the positive claim that penalty default rules exist in contract law is incorrect). 333
299. See Schwarcz, 48 Wm & Mary L Rev at 1401-25 (cited in note 4) (proposing this parallel). For extensions of this work
300. see Jeffrey W. Stempel, The Insurance Policy as Thing, 44 Tort Trial & Ins Prac L J 813, 828-40 (2009).
301. Schwarcz, 48 Wm & Mary L Rev at 1441 (cited in note 4).
302. See ProCD v Zeidenberg, 86 F3d 1447, 1451-53
303. Hill v Gateway, 105 F3d 1147, 1151 (7th Cir 1997).
304. See Keeton, 83 Harv L Rev at 966-74 (cited in note 47).
305. See, for example, Schwarcz, 48 Wm & Mary L Rev at 1426-35 (cited in note 4)
306. Thomas, 5 Conn Ins L J at 324 (cited in note 216)
307. Kenneth S. Abraham, Judge-Made Law and Judge-Made Insurance: Honoring the Reasonable Expectations of the Insured, 67 Va L Rev 1151, 1152-54 (1981).
308. See Boardman, 95 Iowa L Rev at 1099 (cited in note 4) (proposing that "[i]f an insurer uses consumer research to test policy language before adopting it, the insurer can present the results of the research to rebut a finding of ambiguity").
309. Robert A. Hillman and Jeffrey J. Rachlinski, Standard Form Contracting in the Electronic Age, 77 NYU L Rev 429, 492-93 (2002) (noting that the best case for procedural unconscionability is when sellers employ strategies to discourage buyers from becoming aware of terms).
310. See Hillman, 104 Mich L Rev at 854 (cited in note 215).
311. See Jackson, 77 Wash U L Q at 334-35 (cited in note 309).
312. See Hamilton, Property/Casualty Concerns Mount at NAIC's Seattle Meeting (cited in note 318) (noting that David Snyder, vice president and associate general counsel at the American Insurance Association, emphasized the lack of consumer complaints in arguing against enhanced readability protections).
313. See McDonnell and Schwarcz, 89 NC L Rev at 1641 (cited in note 10).
314. See Schwarcz, 83 Tulane L Rev at 753 (cited in note 163).
315. See McDonnell and Schwarcz, 89 NC L Rev at 1635-46 (cited in note 10) (discussing the various reasons why financial regulators have difficulty evolving along with the markets they regulate).
316. See generally id; Daniel Schwarcz, Preventing Capture through Consumer Empowerment Programs: Some Evidence from Insurance Regulation, in Daniel Carpenter, Steven Croley, and David Moss, eds, Preventing Capture: Special Interest Influence in Regulation, and How to Limit It (Tobin Project, forthcoming 2012).
317. See McDonnell and Schwarcz, 89 NC L Rev at 1641 (cited in note 10) Schwarcz, Preventing Capture through Consumer Empowerment Programs (cited in note 349).
318. See Schwartz and Wilde, 127 U Pa L Rev at 662-65 (cited in note 204) (rejecting the notion that firms may discriminate among consumers on a mass basis because price would ultimately reflect quality). To be sure, the risk of mass segmentation may be elevated in the insurance context, where price is not necessarily a good proxy for quality. See Part III.B.3.
319. See Korobkin, 70 U Chi L Rev at 1234 (cited in note 186) ("[N]on-salient attributes are subject to inefficiencies driven by the strategic behavior of sellers attempting to increase their profits at the expense of unknowing buyers."). One interesting distinction between insurance policies and other standard form contracts is that the insurance policy is the sole product in the insurance context.
320. See Schwarcz, 48 Wm & Mary L Rev at 1397-98 (cited in note 4). For this reason, more of its terms are likely to be salient to the ordinary consumer.
321. See Korobkin, 70 U Chi L Rev at 1229-30 (cited in note 186). These are likely to include terms that are listed on the declarations page, as well as certain other basic terms.
322. See Korobkin, 70 U Chi L Rev at 1225 (cited in note 186) ("[P]urchase decisions involving products with form contracts are sufficiently complex that buyers usually will be selective in their consideration of product attributes. That is, at least some attributes will be non-salient.").
323. See Richard A. Epstein, The Neoclassical Economics of Consumer Contracts, 92 Minn L Rev 803, 819 (2008).
324. See, for example, Marotta-Wurgler, 5 J Empirical Legal Stud at 475 (cited in note 171) (expressing doubt that standard terms are a function of lack of competition in the software industry)
325. Oren Bar-Gill, Seduction by Plastic, 98 Nw U L Rev 1373, 1376 (2004)
326. Oren Bar-Gill, The Law, Economics, and Psychology of Subprime Mortgage Contracts, 94 Cornell L Rev 1073, 1107-18 (2009).