Monday, March 3, 2014

Fraternities and insurance

The Atlantic is running an article called "The Dark Power of Fraternities."  The article mostly discusses the dangers -- injuries from binge drinking, hazing, and overall stupidity -- that are an all-too-common feature of frat life. 

The article also contains a discussion of insurance.  As the article describes, liability insurance for fraternities had become "both ruinously expensive and increasingly difficult to obtain." 

Some fraternities banded together to create what the article calls reinsurance (but is more likely excess insurance).  Fraternities also developed a risk-management program.  Under the program a violation of the risk management alcohol program means that the participants are outside the fraternity's regulations and therefore not covered by its insurance. 

The article adds a rather snide aside: "It's a neat piece of logic: the very fact that a young man finds himself in need of insurance coverage is often grounds for denying it to him."

The author apparently believes that insurance policies should never be able to contain exclusions.  Liability policies issued to general contractors should not contain builder's risk exclusions.  Liability policies issued to day care centers should not contain intentional act exclusions.

But the coverage an insured purchases is (or should be ) the result of a risk/benefit analysis.  Fraternities need coverage if they are sued if someone slips and falls on ice on their steps, or if their building is damaged by a tornado.  Coverage for that type of negligence or act of nature has a price.  As the article points out, the price for coverage for injuries caused by irresponsible alcohol use may be  astronomically higher.  It is no shame to either a fraternity or an insurer to enter into a contract under which some events are covered and others are not.  Moreover, according to the article, fraternities inform members clearly that they will not be covered if they don't follow the alcohol policies. 

The other alternative may be to simply shut down fraternities as uninsurable. 

(According to the article, in the absence of coverage from insurance policies issued to fraternities, plaintiffs injured at fraternities go after the homeowner's policies of the parents of fraternity members who are named as defendants.  The article claims that the defendant and his parents then have to pay their costs of defense, but that makes no sense.  If there is coverage under homeowner's policies, then the homeowner's insurers will pay the costs of defense.) 

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