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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
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.
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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