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35 U. Brit. Colum. L. Rev. 91 (2001-2002)
Escape Hatches in Life Insurance Policies: Rights and Fiduciary Responsibilities

handle is hein.journals/ubclr35 and id is 99 raw text is: ESCAPE HATCHES IN LIFE INSURANCE POLICIES: RIGHTS AND FIDUCIARY RESPONSIBILITIES* LEON E. TRAKMAN' Escape hatches in life insurance policies are exculpatory clauses life insurers use to avoid or limit liability. These hatches can have a significant impact on the protection accorded to the insured party (or their beneficiaries) when they make a claim under a life policy. This article explores sample universal life insurers' escape hatches. It demonstrates the contractual and legal significance of different types of hatches, including that they are subject to only limited legal and industry regulation. It argues that lawyers can provide their clients with valuable investment, tax, and estate planning advice in choosing insurance on the basis of different insurance providers' escape hatches. I. INTRODUCTION Competition in the sale of life and disability insurance is ordinarily based on price. Consumers shop for insurance according to the price of coverage and the benefit of a successful claim; they do not usually contemplate non-price considerations at the time of purchase. Generally, a consumer will choose between Insurance Policy A and Insurance Policy B based on which one provides the same coverage at a lower premium. A consumer traditionally does not choose life insurance on the basis of its fine print exclusion or disclaimers of liability. Thus, the price-based approach is problematic, as it fails to account for non-price competition in determining the true value of a life insurance product. From a competitive standpoint, Policy A, which devises a fine print clause to deny 25% of claims, provides a less valuable service than does Policy B, which has a fine print clause denying only 10% of similar claims, all other factors being the same. Unfortunately, disclaimers and limitation of liability clauses are usually difficult to identify amidst a host of fine print clauses, and are The author developed this article while serving as Distinguished Visiting Professor of Law at the University of California, Davis in the fall of 1999. Thanks are owed to the Social Sciences and Humanities Research Council of Canada for supporting this research project. B.Comm., LL.B. (Cape Town), LL.M., S.J.D. (Harvard). The author is a Commercial Arbitrator and Mediator and a Professor at the Dalhousie Law School. He specializes, inter alia, in insurance law.

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