Schwarcz on a Unified Theory of Insurance Law

Daniel Schwarcz has posted to SSRN A Unified Theory of Insurance Law:  The Clarification, Production, and Dissemination of Coverage Information.  The abstract provides:

The central goal of insurance law is to clarify, produce, and disseminate information about the scope of insurers’ coverage obligations to policyholders. This Article examines how insurance law and regulation seek to achieve these objectives, and to what ends. To do so, it distinguishes among three different types of coverage information: (i) purchaser information, or coverage information that is communicated to policyholders at the time they purchase coverage; (ii) policy information, or coverage information that is contained within the four corners of the insurance policy; and (iii) judicial information, which is coverage information that is ascertainable only after researching judicial opinions resolving coverage disputes. The Article shows how each of these three forms of coverage information can promote more efficient insurance markets, frequently in ways that are largely overlooked or under-appreciated by courts and commentators. This framework not only helps illuminate the underlying structure of insurance law. It also sheds new light on various long-standing disputes in the field, which often require prioritization and trade-offs among the three different types of coverage information. For instance, the Article suggests that one important reason for embracing a sophisticated policyholder exception to the ambiguity rule is that doing so produces judicial information at the expense of policy information, a sensible tradeoff with respect to sophisticated policyholders. Similarly, the Article argues that, contrary to the ordinary rule, courts should generally refuse to admit extrinsic evidence to disambiguate policy language when it comes to consumer-oriented policies, because doing so can undermine the production of policy information when purchaser information is present. Yet these two types of information serve very different purposes in the insurance context. More generally, the Article suggests that a substantial number of perennial disputes in insurance law can be helpfully analyzed by reference to their impact on purchaser information, policy information, and judicial information.