courts should defer to a state insurance department’s approval of a form are big questions, too big for this
essay. But we can at least outline a few factors that a court might take into account in deciding how much
to defer and under what circumstances.
Obvious factors to consider would include the need for insurance-specific expertise and agency-
style fact-finding authority to make a good decision about the enforceability of an insurance policy term,
the presence of the relevant expertise and fact-finding authority in the particular insurance department that
approved the term at issue, and the quality of the insurance-policy review process that was in place for the
term being litigated.
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VI. Rules Versus Standards in the Drawing the Mandatory/Default-Rule Boundary
Courts that seriously consider these factors and give strong deference when
appropriate, and little or no deference when not, could help improve the efficiency of the insurance
market by encouraging insurance departments to invest additional resources in the policy review process.
The argument here is analogous to an argument sometimes made in connection with judicial deference to
federal agency decision making. That is, some commentators have suggested that the decision by courts
to defer to federal agency interpretations of statutes should depend to some extent on whether the agency
is applying is special expertise in a genuine effort to carry out congressional purposes. (Eskridge & Baer,
2008).
The distinction between rules and standards in law is familiar, and the economic analysis of this
distinction is well known. Rules require the lawmaker to have a great deal of information ex ante, before
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Two kinds of rules for which insurance regulators have less expertise than courts and, thus, for which significantly
less deference by courts may be due are (a) rules that are merely the insurance-specific instantiation of ordinary
contract law rules, such as interpretation, waiver and estoppel, misrepresentation, the duty of good faith, and
remedies, and (b) rules that relate to the involvement of insurance in the civil justice system. Courts, judges in
particular, have substantial relevant expertise regarding both sets of rules, especially the first. With regard to the
second, courts are most likely to have insurance-specific expertise in the context of liability actions, and they are
more likely than insurance departments to prioritize access to civil justice. Thus, to the extent insurance law rules
should take into account such civil justice externalities as victim compensation and civil recourse, courts have
greater institutional competence, since courts decide not only insurance contract cases but also tort cases. This
obviously is a concern only with respect to insurance law doctrines as they are applied to liability insurance, where
there are injured victims who (a) are not a party to the insurance contract, and thus will not necessarily be well
protected by the terms of the agreement between insurer and insured, and (b) are not an active and engaged
constituency of the insurance regulator, and thus will not necessarily be well protected by the decisions of the
agency.