On a warm summer’s evenin’, on a train bound for nowhere . . . is a dispute over insuring a stranger’s life

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Gambling

I know it is a little obvious, but I couldn't write a post about gambling without using lyrics from "The Gambler." Fortunately, the case this post discusses — Sun Life Assurance Co. of Canada v. U.S. Bank National Association — is anything but obvious. Sun Life involved gambling on another person's life but not in a Deer Hunter, Russian roulette kind of way. In Sun Life, the U.S. Court of Appeals for the Seventh Circuit addressed the enforceability of an insurance policy that insured a stranger's life.

In Sun Life, Judge Posner began his decision by discussing the common law principle that "forbids a person to own an insurance policy that insures someone else's life unless the policy owner has an insurable interest in that life." A wife can have an insurable interest in her husband's or children's lives, a creditor can have an insurable interest in a debtor's life, but "you cannot own an insurance policy on the life of a stranger who you happen to know is in poor health and likely to die soon." The reason is that, by doing so, you are essentially gambling on another person's life, and gambling contracts are generally unenforceable as a matter of public policy. 

Continue reading “On a warm summer’s evenin’, on a train bound for nowhere . . . is a dispute over insuring a stranger’s life”

Rova Farms – From Born to Run to Bad Faith

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

SpringsteenI am in the middle of reading “Born to Run,” Bruce Springsteen’s memoir. I am about one-third of the way through and so far, so good. I just finished reading about “the only full-scale truly scary bar brawl [of Bruce and the band’s] club lives.” It happened in Rova Farms, a “Russian social club on the outskirts of town.” (In Springsteen’s life, like in his songs, the important things always seem to happen on the outskirts of town.) The brawl started right before the band broke into “Santa Clause is Coming to Town,” and ended with the police being called and several people being taken out on stretchers.

Like nearly all New Jersey lawyers, I know Rova Farms as a thing – a “Rova Farms letter” or a “Rova Farms claim” – not a place. It was interesting to read a story about the place behind the thing. For the uninitiated, Rova Farms Resort v. Investors Ins. Co. of America, was a case involving a visitor to Rova Farms who was injured, not in a bar brawl, but from diving into a shallow portion of a lake on the resort. He sustained serious spinal cord injuries and was paralyzed. The resort’s insurance carrier refused to tender the full, $50,000 policy limit to settle the claim. The case went to trial and the jury returned a $225,000 verdict. The resort then sued its carrier for the full amount of the judgment, alleging that it acted in bad faith by not settling the claim within the policy limits.

The New Jersey Supreme Court agreed, holding that an insurer’s bad-faith failure to settle within policy limits renders it liable for the full amount of the judgment, including any portion in excess of the policy limits. As a result of this decision, defendants in New Jersey will usually send a “Rova Farms letter” to their carriers when a plaintiff offers to settle a case within policy limits. The letter puts the carrier on notice that, if it does not settle within the policy limits, the insured will look to the carrier to pay the entire judgment. Of course, the obligation to do so only arises when the carrier acts in bad faith, but, needless to say, this letter tends to change the dynamic between insured and insurer.   

Back to Bruce . . . As far as New Jersey courts are concerned, Rova Farms is far more popular than Springsteen. The case has been cited more than 3,800 times in New Jersey alone. A search of all state and federal court opinions for Bruce Springsteen yields 87 hits, and only 5 of those are from New Jersey courts. Local hero indeed.