Insurance law is the collection of laws and regulations that relate to insurance. Insurance is a contract between two parties. It transfers the risk of loss to the other party to the contract in exchange for a fee called a premium. Insurance laws and regulations manage and control how insurance contracts are formed and enforced. Insurance laws manage the offering, buying, selling and claims processes for insurance in the United States. In the United States alone, insurance is a trillion dollar industry.
What does insurance cover?
There are a number of types of insurance that cover many different things. You might have one insurance policy for your home and another for your car. You might receive a health insurance policy through your work, or you might purchase a health insurance policy independently. Insurance policies cover personal property, life, disability and even identity theft.
Most insurance regulations are state regulations
The U.S. government doesn’t regulate insurance very much. The vast majority of insurance regulation in the United States happens on the state level. The U.S. government runs a few public insurance programs like social security, disability programs and Medicare. However, the field of insurance law relates more to private insurance companies than government programs.
Most states have a law that creates an insurance administrator’s office. The state insurance administrator’s office creates rules and regulations that insurance companies have to follow to conduct business. The administrator’s office may also investigate rule violations and bring enforcement actions. Insurance law and administrative law often intertwine.
What do insurance laws regulate?
Insurance laws regulate a variety of aspects relating to insurance:
- Whether the insurance company has enough capital to have a sound and secure business
- What premiums a company can charge for a policy
- Requirements for inclusions in an insurance policy
- Measures to ensure that insurance companies engage in fair competition without price fixing
- Penalties for bad faith practices
- When people must buy insurance like auto insurance minimums in some states
Major U.S. insurance laws and decisions
Even though most insurance regulation in the United States happens at a state level, there are some significant pieces of U.S. insurance legislation. There are also notable court decisions. From initially ruling that insurance contracts are not commercial products subject to insurance regulation, the U.S. Supreme Court upheld federal insurance regulations in the 1944 United States v. Southeastern Underwriters Association case.
- Affordable Care Act – The Affordable Care Act is actually two laws: the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The laws expand Medicaid and other government health insurance programs. They create subsidies for private health insurance policies based on income and also create requirements for certain mandated coverage in private insurance policies.
- National Flood Insurance Act of 1968 – The purpose of the National Flood Insurance Act of 1968 is to help property owners protect their investment in flood zone areas. The national flood insurance program allows people who live in flood zones to purchase insurance for their properties. The laws calls for controlled rates as well as floodplain management. The Flood Disaster Protection Act of 1973 amended the National Flood Insurance Act of 1968.
One of the key principles in insurance is the concept of good faith. Insurance as a contract and as a financial product only works when both parties are honest with each other and work to fulfill the terms of the contract based on the true facts of the situation. Failing to apply for an insurance contract in good faith is a form of cheating. Refusing to pay a fair claim is another form of cheating. The opposite of good faith is bad faith.
For example, a person applies for life insurance. They answer on the form that they don’t have any pre-existing medical conditions and that they have never been hospitalized. In fact, that isn’t true. The person was hospitalized last year with a serious illness. Five years later, the insured dies of the same illness.
The life insurance beneficiaries try to make a claim on the insurance policy. The insurance company refuses the claim and refunds the premium. The contract is null and void because the insured didn’t enter into the insurance policy in good faith.
An insurance company can also act in bad faith. They can refuse to pay good claims. When an insurance company doesn’t have a good argument for denying a claim, they can face administrative penalties as well as a lawsuit for failing to handle the claim good faith. The penalties they face are in addition to legal actions to force them to pay the claim according to the terms of the contract.
Who practices insurance law?
There are a number of ways to practice insurance law in the United States:
- Insurance defense – If you’re in an automobile accident and you’re sued as a result, your insurance company might send an attorney to defend you against the claim. Insurance lawyers work on behalf of insurance companies in order to defend these claims for the insurance companies. You might work as in-house counsel for the insurance company, or you might work in private practice. Most lawyers that work for an insurance company work as in-house counsel, or they work in a mid-size or large law firm. Insurance defense work is trial practice. Lawyers in the field can expect to spend a great deal of time appearing in court, conducting discovery and filing and defending legal motions.
- Bringing insurance claims on behalf of litigants – Just as the insurance companies need lawyers to defend claims against their insured, the people who have insurance policies also rely on lawyers to bring claims if they believe that the insurance company isn’t paying fairly. Insurance lawyers who work on behalf of insured parties to bring claims for lack of payment often work in both personal injury law as well as insurance law. Working on behalf of insured parties is litigation law as well as contract law. Insurance lawyers that work for private companies work for law firms of all sizes, and they might work throughout the United States.
- Compliance – When the states pass regulations relating to insurance, the insurance companies rely on lawyers to help them implement those laws. That implementation process is called compliance. Insurance lawyers work on behalf of companies to help them understand the laws and follow them in the best possible ways. Compliance lawyers typically work as in-house counsel, but they may also contract with the insurance company from a mid-size or large law firm.
- Lobbying – Insurance companies depend on lobbyists to work towards favorable insurance laws. When legislators on the state and federal level consider making changes to insurance regulations, the insurance companies rely on lobbyists. Lawyers who work as insurance lobbyists present the position of the insurance company to the legislators, and they explain why they think their position is sound public policy.
Because most insurance regulations occur at the state level, lobbyists work throughout the United States. Full-time lobbyists might live and work primarily in one state for their entire career. Lobbyists primarily work as in-house counsel, or they work for larger firms located within the state. Often, lobbyists work in the capital city of the state where they advocate.
Why Become an Insurance lawyer?
Insurance law is a complex body of law that often occupies an attorney’s entire career. An attorney who chooses insurance law has the opportunity to become an expert and practice their chosen area of law for an entire decade. Attorneys may have the opportunity to contribute to changes and updates in the law.
When an attorney wants a stable career in one specialty, they might consider insurance law. An insurance company might employ an attorney for their entire career. There may be opportunities for advancement. For attorneys who work with an insurance company on a contract basis, the contract might last for decades. Insurance work often provides ongoing, stable work.
Insurance companies and insured parties need lawyers
Consumers rely on insurance to protect their financial assets. Both insurance companies and consumers rely on the other party to be fair and honest. Attorneys facilitate the process. Insurance attorneys are often litigators, but they may also work in compliance or lobbying. For attorneys in the field, insurance law may provide a stable career that allows them to use their litigation and communication skills in order to advance their client’s interests and contribute to a trillion dollar industry.