Legal Environment for Risk and Insurance: International

1
Legal Environment for Risk and Insurance
International

• We discuss some legal issues in an international
  environment

2
Summary

• International diversity in legal systems
• Civil and common laws
• Islamic Laws
• Socialist laws
• Others
• Tort laws
• product liability
• workers compensation
• automobile liability

3
Summary

• International variations in contract laws
• Environmental risks and the law

4
What is the problem?

• Diversity in legal systems
• Legal authority usually comes from cultural and
  traditional factors
• They differ enormously
• Some are built on religious authority
• National risk management can differ substantially
  from international ones

5
Systems of law

• Civil law
• Derived from ancient Roman law (Justinian)
• Codified (Roman, French and German)
• Most ex-colonies have civil law codes
• Russia and others in Eastern Europe have adopted
  civil law codes
• Based on abstract principles and the judiciary
  interprets the code, apply statutary rules to
  facts and then pass judgement

6

• Common Law
• derives authority from secular courts recognizing
  traditional usage and customs
• influenced by unwritten law of England
• successive courts respect previous court
  decisions (precedents)
• however, it can reject previous decisions if it
  is deemed outmoded
• autonomy of judiciary

7
Difference
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Civil versus common laws

• Civil law nations expect their legislators to
  codify laws that anticipate contingencies
• Common law nations expect their courts to make
  case by case decisions that together comprise the
  law of contracts and torts
• However, it is impossible to codify every
  possible contingency and it is impossible to
  leave all authority to judges

9
Countries

• Civil law countries
• Argentina, Brazil, Chile, France, Germany, Italy,
  Japan, Mexico, Poland, Russia, Sweden, Venezuela
• Common law countries
• Australia, Canada, India, Jamaica, Singapore, UK,
  US, Zimbabwe

10
Islamic Law

• One in four in the world is a Muslim
• Some very large countries have laws governed by
  Islam
• Many oil rich countries have Islamic laws
• The main source of Islamic law is governed by the
  Quraan (Koran)
• Koran lays down the rules by which a Muslim
  should live (Shariat)

11
What are the features?

• Contract disputes are resolved in a religious
  court or through arbitration if commercial in
  nature and agreed upon by the parties
• Injured party seek compensation for damages
• Some consequential damages are not recognized
• Personal injuries can be settled by diyaah or
  blood money

12
Examples

• BCCI went bankrupt
• Many of the directors were Saudis
• They were tried in Saudi shariat court
• But profit was not recognized
• No liability
• Case of the murder of a nurse was settled by
  payment of blood money (diyah)

13
Relevance

• Some Muslim countries are rich
• Therefore, many traded items might end up in
  countries with Islamic laws
• Saudi Arabia, Brunei, Iran, Afghanistan are prime
  examples of strict adherence to Islamic laws
• A risk manager from Singapore was found guilty of
  murder and was executed in Saudi Arabia

14
Socialist Laws

• Exist in China, Cuba, North Korea and Vietnam
• Mexico trades quite a bit with Cuba
• Typically have very little life insurance
• In China, most often private possession of
  property is not recognized
• Typically requires a joint venture role of
  foreign investor

15
Japans Legal System

• Traditional paternalistic view remains
• Government knows best!
• Japanese Civil and Commercial codes were modified
  in 1898 and 1899 after 1896 German Civl Codes
• They were considered necessary as Japan started
  to trade with the rest of the world
• Like the Germans, Japanese considered themselves
  as the chosen race

16
Japan

• 1947 Japanese constitution was modeled after the
  American one
• Even though formal civil codes exist, commercial
  codes are interpreted and enforced through
  administrative regulations enacted by highly
  respected career bureaucrats in different
  ministries
• Ministries provide unwritten laws to business

17
Why lawsuits are rare in Japan

• Lawsuits are socially considered unusual in Japan
• Ethical and religious barriers
• Legal Training Research Institute has a monopoly
  on supplying judges and lawyers in the country
• Losing party pays all the legal fees

18
Japan

• Typically, even with a formal agreement, it is
  understood that any dispute will be resolved by
  mutual agreement
• Flexible approach but slippery
• Spirit of business relationship is important
• But not the letter of the law

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Substantive vs Procedural Law

• Substantive law defines, creates and regulates
  rights
• Procedural law prescribes methods of enforcement
  of rights or obtaining redress for their
  violation
• Examples fraud, offer and acceptance (S)
• Framing the method to file lawsuits (P)

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Substantive laws

• Tort and contract
• Tort is sought to compensate for damage suffered
  where the liability is based on wrongdoing
• Damage for breach of contract is sought when a
  party fails to perform any promise which is a
  part of the agreement
• (Regulatory process)

21
International laws

• Substantive laws are covered by UN Convention for
  the International Sale of Goods (CISG)
• The rules of the convention apply to formation of
  the contract to be bound by the laws of a
  particular nation
• Many goods and services are not covered by the
  treaty

22
ICC

• Procedural laws
• International contracting parties often insert
  arbitration clauses which subject the parties to
  international arbitral tribunals such as the
  International Chamber of Commerce (ICC) of the UN
  commission on Intenational Trade Law (UNCITRAL)
• UNCITRAL rules are recognized widely

23
New York Convention

• UN Convention on the Recognition and Enforcement
  of Foreign Abritral Awards (also called the New
  York Convention)
• provides a procedural mechanism to enforce
  international contracts that contain arbitration
  clauses to resolve conflicts. It permits parties
  holding arbitral awards to seek enforcement of
  the award in the signatories national courts
• awards are encforeable inmost countries

24
New developments

• Commercial diplomacy
• WTO is one such forum
• NAFTA is another
• Some of these are bilateral, more and more are
  multilateral
• Mercosur
• AFTA

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Variations in Tort laws

• A tort is a civil wrong resulting in injury to a
  person or property
• Intentional assault, tresspass
• Negligence unreasonable risk of causing injury
  (speeding)
• Strict liability-liability without fault
• product liability of manufacturer or seller
• Tort cost is the highest in the US 2.2 of GDP

26
Product liability

• US
• assigns liability to manufacturer, supplier or
  their agent for injuries resulting from the use
  of their products that are defective or use
  involves unreasonable risk of harm
• strict liability has been adopted by most states
  and plaintiff only has to show that the product
  caused harm (McDonald example)

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Types of tort damages

• Economic lost wages or medical expenses
• typically involves finding the value of a person
• Non-economic pain and suffering
• in many countries, they are small awards, but not
  in the US
• Punitive to punish reckless behavior

28
New minefield mass tort

• Started with asbestos
• Next came the breast implant
• 480,000 women filed suits against the
  manufacturer Dow Corning-filed for
  bankruptcy-plaintiffs went after the parent
  company-Dow Chemicals!
• Now against cigarette companies
• It might be settled by a different deal

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How to survive Mass tort

• 1. spotting the first attack,
• 2. discovering whether a problem exists,
• 3. eliminating danger with strategic settlements,
• 4. avoiding bad publicity, especially large jury
  awards,
• example breast implant Pamela Johnson won 25
  million in Harris County, Texas, received live
  coverage on the cable channel Court TV

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Surviving...

• 5. Fighting all forms of consolidation if more
  lawsuits arise,
• 6. expanding the in-house team if lawsuits
  threaten to bring the company to a standstill,
• 7. going after appellate law, and
• 8. knowing the worst-case scenario.

31
Breast implant saga

• 1943 Dow Chemical and Corning Inc set up Dow
  Corning, at the request of the US military.
• The new company makes materials for military
  aircraft.
• 1964 Dow Corning markets its first silicon
  filled breast implants.

32
Breast implant saga

• 1977 A woman sues Dow Corning for disfigurement
  after her implants rupture. She wins 170,000 for
  pain and suffering.
• 1982 The allegation that implants cause illness
  appears in San Francisco. It is filed by Maria
  Stern.
• 1984 Discovery is granted in the Maria Stern
  case. Stern's Lawyer, Dan Bolton, visits Dow
  Corning.

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Breast implant saga

• 1984 Bolton seizes 20 years-worth of Dow Corning
  documents. Many are memos about implant safety.
• July 1985 Maria Stern wins 1.7 million.
• 1988 Legendary Houston attorney John O'Quinn
  accepts his first implant client, as a favour to
  a friend.

34
Breast implant saga

• 1990 Implant safety becomes a staple of US
  television magazine shows.
• September 1991 Bristol-Myers Squibb, the second
  biggest implant manufacture, closes its implant
  business.
• December 1991 Mariann Hopkins, another Dan Boton
  client, wins a 7.34 million verdict.

35
Breast implant saga

• 1992 Dow Corning announces yearly sales of 2
  billion on its range of 8,000 silicon products.
• January 1992 Bolton sends trial documents to a
  US government agency, the Food and Drug
  Administration (FDA).
• The move breaches a court order.

36
Breast implant saga

• January 6 1991 The FDA announces a moratorium on
  the use of silicon implants. Women with implants
  head to court in numbers.
• January 10 1992 John O'Quinn files 78 implant
  lawsuits in the state court of Harris County,
  Texas.

37
Breast implant saga

• February 1992 Stanley ChesLey, of Cincinnati,
  has implanted women declared a "class". Lawsuits
  are consolidated before Judge Stanley Pointer in
  Alabama. Texas cases are not affected.
• February 1992 Dow Corning, the Largest
  manufacturer, officially quits the implant
  business.

38
Breast implant saga

• February 1992 Houston Lawyer Michael Gallagher
  sets up a toll free implant phone Line.
• Autumn 1992 Settlement negotiations start in
  Alabama. Baxter Healthcare, Dow Corning and
  Bristol-Myers Squibb are involved. Later, 3M
  joins.

39
Breast implant saga

• December 1992 John O'Quinn wins 25 million for
  his second client, Pamela Johnson. Bristol-Myers
  Squibb's defeat is watched, live, by viewers
  across the US, courtesy of cable channel Court
  TV.
• June 1993 Dow Corning wins a case in Colorado.
  The victory comes after an expert witness for the
  other side admits having

40
Breast implant saga

• May 1994 The 425 billion global settlement plan
  is announced.
• Summer 1984 Reaction to the settlement is muted.
  Texas lawyers see no reason to join. Seven
  thousand plaintiffs opt-out. Over half are based
  in Texas.

41
Breast implant saga

• Autumn 1994 Rumours that Dow Corning faces
  financial ruin prompt plaintiff lawyers to
  interview Dow Chemical staff.
• Autumn 1994 Dow Chemical becomes co-defendant in
  a Texas lawsuit.
• March 1995 Judge Stanley Pointer rules that the
  proposed 4-25 billion settlement is
  insufficient. He says over 480,000 women have
  staked claims.

42
Breast implant saga

• April 15 1995 Judge Pointer adds Dow Chemical to
  the implant class action.
• May to 1995 Dow Corning runs full-page
  advertisements in 19 US newspapers. Readers are
  offered copies of recent medical studies.
  Plaintiff lawyers protest. They say the company
  is contamination jury pools.

43
Breast implant saga

• May 15 1995 Dow Corning files for bankruptcy.
• June 1995 Lawyers across the US re-file Dow
  Corning Lawsuits as Dow Chemical Lawsuits.
• June 1995 Harvard University publishes a study.
  It suggests that implanted women are slightly
  less likely to fall ill than other women.

44
Breast implant saga

• July 1995 Dow Chemical tries to freeze more than
  13,000 Lawsuits. It argues the trials would
  interfere with Dow Corning's bankruptcy.
• October 2 1995 The Charlotte Mahlum action
  begins in Washoe, Nevada. Dow Chemical is sole
  defendant. Frederic Ellis represents Mahlum.

45
Breast implant saga

• October 31 1995 Charlotte Mahlum wins 14.1
  million.
• November 2 1995 The Texas Supreme Court unlocks
  Texas Law suits involving Dow Chemical.
• November 6 1995 Forbes magazine ranks John
  O'Quinn second richest lawyer in US. It says
  implant clients have earned O'Quinn 40 million.

46
Product liability EU

• Civil and criminal liability for damage caused by
  defective products to individuals have been
  enacted in most EU countries in accordance with
  the Product Liability Directive
• UK Consumer Protection Act similar for Germany
• France has no guidelines similar to PLD

47
Product liability Japan

• Very few cases arisen so far
• Proof required is very stringent
• Very few lawyers (bengoshi)
• New law in 1995
• Suppliers are not manufacturers
• Product only damage is not covered

48
Workers compensation

• It varies from country to country
• US states have their own laws
• Germany has the oldest law 1881 but (like many
  other countries) it is part of social security.
  There is no private Workers compensation in
  Germany
• UK combined health and safety
• Japan Compulsory scheme

49
Auto

• US liability is a state matter
• EUpart of the directive
• Japan upper limit on damage

50
Internet tort

• When the activity complained of takes place over
  the Internet it will have to be decided where the
  events constituting the tort actually occurred
• It could be the place where the relevant data was
  uploaded to make it available to potential
  readers.

51
Internet tort

• It could be the place, if any, to which it was
  specifically directed.
• It could be the place where it happened to be
  accessed, although not deliberately targeted
  towards the readership of that country.

52
Internet issues English case

• The contract was made in England.
• The contract was made for a foreign principal by
  or through an agent in England.
• The contract is governed by English law.
• The breach of contract complained of occurred in
  England.
• An injunction is sought to prevent the defendant
  taking particular action in England.