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Monthly Archives: September 2008

I like insurance law for a lot of reasons. It has profound economic, social and linguistic issues, as well as the starkest depictions of human and organizational greed. It also has THE BEST cases of any of the courses I teach. In part, I think this is because the difficult language of insurance policies becomes this bizarre filter on the social and political events of the day. I have a new entry on my list of favorite insurance cases: Beley v. Pennsylvania Mutual Life Ins. Co., 95 A.2d 202 (Penn. 1953). The case involved a $1,000 life insurance policy that, among other things, provided that “in the event that the Insured engages in military service in time of war, the liability of the Company shall be limited to the return of the premiums paid hereunder ….”  Six years after having procured this policyand having named his mother as beneficiary, the insured, Andrew Beley, died in active combat in Korea. So, the question as it ended up in the Pennsylvania Supreme Court was whether the Korean War was a war. A majority of the court ruled it was NOT. While this might be startling in and of itself given the million plus combatants who died in that multi-year not-war that has somehow been mislabeled in all the history books, what is equally stunning is the court’s rhetoric in disposing of the issue. 

How often does one see phrases this excoriating or this forceful in a judicial opinion? Here are three quotes from the dissent of Justice Chidsey.

“How is it humanly possible to say that the Korean War is not war?” 

“With due regard for my colleagues who differ with me, a holding that under the provisions of this policy the Korean War is not War — in the face of 128,000 American casualties — is so unrealistic and legalistic as to be utterly unjustifiable.” 

“Equally important, how is it possible to ignore or distort those clear, unambiguous words ‘accidental death’? It is instantaneously offensive to our knowledge, our experience and all our senses to say that this was an accidental death.” 

But Justice Chidsey’s deserving excoriation of the majority opinion was an exercise in rhetorical restraint compared to Justice Michael Angelo Musmanno‘s concurrence. There the former Admiral, presiding judge at some of the Nuremberg Trials and witness in Jerusalem against Nazi Adolf Eichmann launches into a multi-page paean to the United Nations intervention– nay, Holy Crusade —  in Korea against the evil Soviet Union as well as a presagement of the Domino Theory of foreign relations. While the relevance of his comments to poor Mrs. Beley’s insurance claim was hardly apparent, the passion with which they were uttered is unmistakeable and seldom matched in judicial opinions. Here are a few excerpts. And, trust me, for everyone listed here, there are two others almost as forceful.

“It [war] may have a locale not ordinarily associated with its gunpowder connotation, as, for instance, Milton speaks of ‘impious war in heaven,’ and in Psalms (lv. 21) we find: ‘The words of his mouth were smoother than butter but war was in his heart.'” (emphasis in original)

“For five thousand years of recorded history the earth has run red with the blood of war. The people of the various nations convulsed by these wars were powerless to resist the orders of kings, queens, kaisers, sultans, emperors, pashas and other absolutists who ordered them into battle in order to achieve land, loot, power or glory or even to satisfy sadistic whim or caprice entirely foreign to the welfare of those who did the fighting.” (note superb use of meter)

“Following the termination of each war the monarchs or chieftains returned to their respective thrones or tribal mansions, leaving the dead to bury their dead and the maimed and crippled to manage their misery as best as they could. No impartial attempt was ever made, by any responsible body, to determine who was right and who was wrong, because both sides in so catastrophic a voluntary enterprise could not have been in the right.” (cf. Jesus Christ, “Let the dead bury their dead.”, Luke 11:60). 

“Humanity had been crucified between the thieves of Arrogance and Greed, and yet there was no adjudication anywhere as to who was guilty for driving the nails.” (theological metaphors continue)

“From time to time mankind pleaded for a cessation of this licentious extermination. Societies of brothers were formed pledged against armed conflict, religious bodies held aloft the holy symbols of peace, but these societies and organizations were scattered and trampled under the galloping hooves of Conquest and Domination when tyrants drew the sword to carve for themselves greater territories and greater power.”

“In the later part of 1950 Andrew Beley sailed from the shores of American under that [the UN] banner. He wore a soldier’s uniform, he bore a soldier’s arms, he was skilled in the art and science or war but his mission was Peace. Never was a sword drawn, a canon fired or a bullet discharged in a worthier cause than that to which Andrew  Beley dedicated himself as he neared the bleak and gnarled land of Korea. And never did one offer a holier tribute to that cause than did Andrew Beley when on March 7, 1951, he gave his life for peace and the preservation of the liberties which every American understands in the word Peace.”

“Americans generally believed in 1945 that the blossomtime of Hope had arrived, and that the Four Horseman of the Apocalypse would never again gallop their martial steeds across the bleeding face of the earth.” (more theological metaphors)

The other remarkable aspect of the case is, in some sense, the skill of the justices in making their points. The opinions evidence a stunning amount of research on issues of history and international law. I doubt the Pennsylvania Supreme Court contained many of the materials cited in the case. Bill Gates, Tim Berners-Lee, and other progenitors of the electronic research revolution had yet even to be born. And, bizarre as at least certain aspects of the Musmanno concurrence may appear to modern eyes, it, and to only a somewhat lesser extent the other opinions are written with a meter and verve seldom seen outside the works of Benjamin Cardozo or, in his own way, Richard Posner. To have done this without the opportunity for continual revisions afforded by word processors induces the same sense of grotesque inferiority as a reading of Shakespeare, Austen or Nabokov.

So, why should we care about this 55 year old opinion? It exemplifies the phenomenon of insurance law turning into crucible for debate over the cares, neuroses, conceptions and misconceptions of public good that tend to prevail at any point in time. At that time, poor Andrew Beley was unlikely to have alternative ways of providing for his family’s support in the event of his premature death in combat. The SGLI program that since 1965 has incentivized the recruitment of soldiers, even children soldiers, by offering highly subsidized life insurance did not exist in the Korean conflict. Moreover, it is possible that the major reason for life insurer’s exclusion of military death — adverse selection — was not actually present in the case given the significant possibility that Beley had purchased the policy at the age of 21 or 22 when his future military service was not yet contemplated. Moreover, insureds who want to take advantage of private information about their life trajectories usually buy policies larger than $1,000, not a huge sum of money even in 1945. And here we had an insurer “chintzing” over a $1,000 to help a family when the country needed, it was perceived, to help servicemen in a life-or-death struggle against communist aggression in Korea. 

Perhaps from today’s perspective, we can view Beley with mixtures of awe, puzzlement or even smug amusement. The rhetoric does seem way, way over the top. And yet, may we not be writing, right now, opinions, that will be similarly regarded 55 years from now. One wonders, for example, what will be made by the law professors of 2063 when they study judicial opinions that take seriously the issue of whether something is a  “flood” when land areas ordinarily dry are submerged by storm surge. Or, perhaps, the readers of this blog can submit other candidates from today that our grandchildren will read with equivalent amazement.

Footnote. If anyone wants an example of an absurd argument made by an insurer in liigation, consider this one. The insurer argued that because Congress had never technically declared World War II over as of March, 1951, the battle against the Axis Powers was, within the meaning of the insurance contract, still going on at the time of Andrew Beley’s death and barred his claim. An interesting reconceptualization of history that did not impress even the dissent.

Some of the many readers of this blog may have noticed that we’ve been off the air for a bit. I’m afraid Ike took a significant toll on the attention of most Houstonians. So, at the risk of digressing a bit, here are some stray thought.

1. Houston exists. It is a major American city. I understand that Wall Street melted down while we were struggling, but still it did feel like a bit of a kick to be relegated to the back pages of the New York Times and other national media — CNN seemed to think the fate of an attractive victim of a possible serial rapist was particularly interesting a la Natalee Holloway, while others thought more intriguing Round 359 of Obama responds to Palin attack on Biden statement on media report of trooper investigation — while 2 million people were without power, food, water, gas and other things that separate us from the conditions in which many people in the world live daily. 

2. We need a better electrical utility infrastructure. The Houston Chronicle has an interesting story in which regulators and regulatees collaborate in an explanation of why so much of our power infra-structure remains vulnerable to hurricane. The argument appears to be that it is costly to reinforce power poles to the needed level and that some sort of cost-benefit analysis needs to be done. I’m all for cost-benefit analysis, but given the economic costs of shutting down this city for a week, not to mention the monetizable cost of misery and stress, there is no possible way that even gold-plated utility polls (although probably gold would not be the best material) would outweigh the costs of the status quo. I will cheerfully pay what it takes.

3. We are in for some major insurance battles in Texas. These will include (A) is surge an excluded flood for purposes of coastal property insurance policies? The early smart money will join the Texas Windstorm Insurance Association (TWIA) in saying it is excluded, see cases like this and this. If I’m correct, many surge victims will be relegated to their flood insurance policies, if they have one, and its $250,000 cap and other limitations. (B) TWIA liquidity issues. The Texas Windstorm Insurance Association is going to have some significant claims against them. To pay then, they are likely going to need to get their 63 reinsurers, many of whom have offices in Bermuda, promptly to write a 1.5 billion check. In my experience, reinsurers don’t write checks terribly swiftly and, given all the surge flood issues (see above), I’d be pleasantly surprised if they did so here. Right now, all that stands between TWIA policyholders and an insolvent insurer is the $370 million remnants of the TWIA catastrophe fund and a $430 million assessment that hopefully Texas insurers will actually pay swiftly notwithstanding the aforementioned Wall Street meltdown and the demands on cash flow imposed by non-TWIA policies. (C) Gory Business Interruption claims. These are policies that insure businesses not against physical loss but basically against loss of income occasioned by disaster. They are always difficult to adjust and given the special complexities here of interdependent power losses, government restrictions such as curfew, closures of areas, etc., are likely to provide fodder for insurance litigators for years to come.

4. Much more to say, but my day job beckons. Well, actually one more comment. While it is generally bad form to explain a joke, I have to remark that the opening sentence “Houston exists” is indeed a pun. It is a response to the appearance that we have been forgotten by major media outlets headquartered on the coasts. Do you think if New York got hit by a hurricane (not an impossibility) and all Manhattan lost power and Staten Island was uninhabitable media coverage would be subordinated the way it has been?  It is also an assertion that we are gradually clawing our way back.  We’re down, but not out. And let us hope that we really learn something from this experience. OK, now back to work for real.

I know it’s just the cases I read as part of my profession, but it is amazing how many people appear to drop dead within a few days of applying for life insurance. Perhaps agents should have an actionable duty to warn prospective insureds of this phenomenon 😉 Seriously, though, I guess the reason that there does seem to be a disproportionate number of cases is that the insurer is more likely to deny these claims on account of fraud or imperfect contract formation. When you couple the higher denial rate with the confusing state of “temporary life insurance” and the absence of any incontestability barrier to the denial of a life claim, the source of the illusion of a mortality spike becomes clearer.

I digressed in class last week to mention Wordle, a lovely web site that permits you to convert words into computer-generated word art. In seconds. And it does a very nice job. Here’s a Wordle of this blog.

Wordle of this blog
Wordle of this blog

A lot of computations needed to support the life insurance industry rely on mortality tables. These include computations embedded in accounting rules and various statutes regulating life insurance such as non-forfeiture laws. These mortality tables predict for various groups of people (such as female smokers who have obtained insurance) certain probabilities relating to death. These probabilities can be measured in various ways such as “survival”, the probability that someone will still be alive at time a specified age, ” or the “force of mortality,” the probability that someone alive at a specified age will die the following year.  Those wanting to explore these tables can look here.

But the tables are discrete-valued. They usually give answers only for integer values of age. That creates three issues. First, it does not tell you what the probability that someone alive at 50.5 will be alive at age 57.3. This isn’t too bad of a problem since one can interpolate between function values and make a pretty useful guess. Second, however, discrete-valued functions are often harder to work with mathematically than their continuous counterparts. Regular Issac Newton/Leibniz style calculus is actually often easier than the discrete calculus. Various computations that are useful in life insurance thus become difficult when all one has is a table. And third, the tables don’t tell us much about the physical process of aging and why people die at various rates.

And thus the quest for continuous mortality functions. These are functions like B c^x that predict the force of mortality for any positive value of x (age). There are a variety of these functions that have been developed over a few centuries of actuarial science, including the Gompertz model, the Gompertz-Makeham model, the Penna model, and the Weibull model. Generally, these functions have been derived from a feedback loop in which various theories about how aging might occur are guided by experience from mortality tables. And, usually, they are the solution to a differential equation based on a biological or physical model of aging. All well and good, and quite successful.

Until recently, however, this might have been the only methodology with which to derive useful mortality functions. It occurred to me recently, however, that this might not be the only way, or even the best way to proceed anymore. The key idea is to use “Genetic Programming,” a method developed about 1992 by John Koza in his book Genetic Programming: On the Programming of Computers by Means of Natural Selection 

What’s genetic programming? It’s brute force guided in the same way that nature guides evolution. The idea is to represent mathematical formulas as mathematical objects called “trees.” Here’s an example of a formula you might recall represented as a tree.  

formula for the area of a circle represented as a tree

formula for the area of a circle represented as a tree

Formulas that are “successful” in some way — such as those that are short and/or correctly predict mortality levels — get to mutate and mate (what fun!) with other successful formulas. The picture below attempts to depict the mating ritual of the formulae.


gravity with einstein formula substituting for m as a tree

Newtonian gravitation formula mates with Einsteinian mass formula to produce a expression displayed as a tree

The process of natural selection continues until one has a family of formulas that actually do a good job. The process does exercise the CPU of your computer, but it also works remarkably well on a diverse range of problems. My idea is that if one found good formulas that had heretofore been missed, one might then be able to “reverse engineer” information about the process of aging or at least perform more accurate and effective actuarial computations. And, if the best formulas turned out to be the existing ones, that would provide some confirmation that the physical and biological processes that inform them indeed have some validity.

Until very recently, however, doing genetic programming correctly and effectively was extraordinarily difficult. Turns out that while the idea is extraordinarily powerful, the details of implementation are often considerable. We are talking pages and pages of complex code that then has to be integrated with the rest of one’s computing environment. Not a job for a law professor, even a geeky one. In my view, that obstacle is now overcome. There is a product soon to be on the market that I have had the privilege of beta testing called DataModeler that does an unbelievable job of genetic programming and one of its subcategories used in statistical analysis: “Symbolic Regression.” The product is an add-on to Mathematica, my favorite programming language. Mathematica is a natural environment for genetic programming because it already represents mathematical expressions (and everything else) as just the sort of trees demanded by genetic programming. DataModeler is designed right. Its architecture is stunningly clean, leading to just the sort of flexibility and adaptability users will demand; it is beautifully integrated with the rest of Mathematica; it is well documented; and, OMG, it actually works! You don’t need to know a heck of a lot about the details of genetic programming or even Mathematica to get the package to produce remarkable results, often in just a few minutes. I’ve used it on several earlier projects (here and here) and I am once finding the ever-growing versatility of DataModeler as it heads for release to be nothing short of astonishing.

In a future post, I’ll discuss some results of this project, but I think I can disclose that I’ve made some interesting discoveries.

After reading Tuesday’s assignment (specifically, the Appleman Treatise) I was left with several questions concerning exactly when insurable interest is established and the policy behind determining the rights of those said to possess such an interest.  

First, I found odd the case law establishing an individual’s right to purchase a life insurance policy on an ex-spouse.  From my understanding, according to Novern it is allowable for an ex to benefit from her former husband’s policy, assuming she did have insurable interest at the time of its inception (if they were married, affianced, living together, etc.), as long as he does not change her as his beneficiary.  That being said, it would make sense if her insurable interest in her ex would cease at the time of their divorce, again minus any pre-existing policies.  How does the court then rationalize the Meerwarth decision?  From the excerpt of this case we have in our reading, it seems that the court finds the requisite insurable interest though the marriage was dissolved before she attempted to obtain the policy; instead, the court disallowed her to obtain the policy on the ground that it would violate her ex’s right to privacy by forcing him to submit to a physical.  How would she have an insurable interest at the inception of the policy?  The reading mentions the “role of wife as creditor” before going on to discuss this case.  Are we to assume that she was obtaining the policy for his benefit and that is what gives her the interest?  

Second, in terms of the debtor-creditor relationship, I would be interested in learning more in depth the policy used to support the “creditor takes all” theory.  Why should a creditor take a windfall pay-out of a debtor’s policy?  How do “advances subsequent to the issuance of the policy,” as stated in  Baum, validate such a windfall?  Sure I may be biased, but the approach of Texas seems more in line with the public policy underlying both life insurance and contracts.  The creditor should have to account for the precise amount owed by the debtor and the collateral policy should serve only to reimburse them for that amount.  Also, I find it really interesting that a spouse can be a creditor.  Would a child support lien have the same effect of the judicially decreed settlement in Urguhart to make the owing spouse a debtor of the custodial spouse? 

In sum, I have been fairly impressed with how practical the law is in this area.  So far, it seems equity plays a more vibrant role than strict contractual interpretation.  I would not be surprised, however, if that statement becomes untrue in the context of business/employment theories.

Has anyone else been struck by the remarkable similarity between the facts of the more-than-century-old United States Supreme Court case of Warnock v. Davis and the 2008 decision of the Southern District of New York in Life Product Clearing, LLC v. Angel, 530 F. Supp. 2d 646 (S.D.N.Y. 2008)? Both cases involve elderly tradesman insureds (tanner, butcher) holding large life insurance policies purchased with the intent of assigning it to a trust owned by others as well as deaths coming remarkably soon after the issuance of the policies. Perhaps it’s because there are really only a few ways to do one of these STOLI (stranger owned life insurance) transactions; and, of course, its a Bayesian truth that we would only see the case if the insured died. But still, one almost wonders if the Life Product Clearning people read the Warnock decision and wanted to see if it was still good law, particularly in light of Grigsby v. Russell, 222 U.S. 149 (1911) (Holmes, J.). Unfortunately for them, it was.

Today, as you know, we are looking at the insurable interest doctrine and at the related issue of the insurer’s liability for having issued life insurance policies that motivate the murder of the insured. One case we did not take a close look at is Life Ins. Co. of Georgia v. Lopez, 443 So. 2d 947 (Fla. 1983). There, the plaintiff alleged not that the insurer should have known about a lack of insurable interest or should have known about the beneficiary’s homicidal intentions towards the insured, but that the insurer DID know and did nothing about it. The Florida Supreme Court shocked few, I imagine, when it held that allegations to this effect stated a claim for relief.

What is perhaps surprising is that there was a dissent. 

“The majority opinion, in holding that the insurer had a duty to investigate, places a tremendous burden on life insurers. They will now be required to launch investigations upon receipt of unsubstantiated reports from their insureds and perhaps also from disinterested and even anonymous persons. Such investigations, by their very nature, pose a danger to insurance companies in that they may become subject to accusations of invasion of privacy and slander. Moreover, if the investigation turns up inaccurate information, the insurer may be led to wrongfully cancel a policy that should be kept in force.”

While ordinarily I am sympathetic to burden arguments and bundling up contracts with all sorts of judge-created ancillary duties, here I think I would prefer ex ante that my life insurer assume such a burden and charge me an appropriate premium for the service. I’d be willing to waive my privacy rights (such as they are) ex ante if someone phoned in and said my wife was plotting to kill me. On the other hand, if I really thought a beneficiary were trying to kill me, I might not wait for the insurance company to agree with me following its investigation. I’d name a new beneficiary or cancel the policy and so advise my prospective assassin. No?

One of the activities I enjoy is creating interactive visualizations of legal (and other) concepts. My preferred medium for this endeavor is the Wolfram Demonstrations site ( I write up some Mathematica code inside a notebook and submit it the site editors. They review it for both content and appearance — pretty darned carefully in my experience — and then, after a few iterations of ironing out bugs and issues, it is made available on the Demonstrations website. People all over the world can then use my creation. And it’s free and not much more challenging than downloading a PDF file. Just as right now you interact (passively) with a PDF file my downloading a PDF reader such as Adobe Acrobat (just once) and then downloading usually concise PDF files with particular information, so too with Demonstrations. You do a one-time download of the free Mathematica Player. Then, you can download content (.nbp files) from the Demonstrations site. There are now over 3,000 Demonstrations on topics ranging from biology to chemistry to math to economics and — yes — to law. 

Which brings me to the Adverse Selection Demonstration. The idea is that we have a bunch of prospective insureds that have different degrees of risk and different degrees of risk aversion. The Demonstration lets you see how classification systems affect the well-being of these insureds. You can set various parameters such as the heterogeneity of risk and risk aversion amongst the pool as well as the classification system used. I used it in class and I think it shows pretty well the issues associated with insurance classification.

One of the nice things about getting to teach what you write about is that it gives you an interactive feedback loop that lets you improve your product. And one of the nice things about the Demonstrations project is that you are able to revise your work easily. Try that with a law review article! So, some of my experiences in actually using the Demonstration in a classroom setting gave me ideas on how to improve the interface and, to a lesser extent, the content.

Indeed, my experiences teaching it this time around have given me an idea for a new Demonstration — Adverse Selection With Inaccurate Risk Perception, in which we’ll take a look at how insurer and insured misperception of risk levels affects the purchase and underwriting of insurance. 

By the way, I love collaboration on Demonstrations. If anyone wants to work with me on insurance-related stuff or other material, let me know.