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Legal Environment for Risk and Insurance: International


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 ... – PowerPoint PPT presentation

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Title: Legal Environment for Risk and Insurance: International

Legal Environment for Risk and Insurance
  • We discuss some legal issues in an international

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

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

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

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

  • 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

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

  • 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

Islamic Law
  • One in four in the world is a Muslim
  • Some very large countries have laws governed by
  • 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)

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

  • 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)

  • 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

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

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

  • 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 provide unwritten laws to business

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

  • 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

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

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)

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

  • 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

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

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

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
  • Strict liability-liability without fault
  • product liability of manufacturer or seller
  • Tort cost is the highest in the US 2.2 of GDP

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)

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

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

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
  • example breast implant Pamela Johnson won 25
    million in Harris County, Texas, received live
    coverage on the cable channel Court TV

  • 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.

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
  • 1964 Dow Corning markets its first silicon
    filled breast implants.

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
  • 1984 Discovery is granted in the Maria Stern
    case. Stern's Lawyer, Dan Bolton, visits Dow

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.

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
  • December 1991 Mariann Hopkins, another Dan Boton
    client, wins a 7.34 million verdict.

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.

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,

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

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

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
  • June 1993 Dow Corning wins a case in Colorado.
    The victory comes after an expert witness for the
    other side admits having

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.

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.

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.

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.

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.

Breast implant saga
  • October 31 1995 Charlotte Mahlum wins 14.1
  • 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.

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

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

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
  • UK combined health and safety
  • Japan Compulsory scheme

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

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

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.

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
  • An injunction is sought to prevent the defendant
    taking particular action in England.