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Property rights have long been given extensive legal protection under both English and U.S. law. In the United States, the right to own property is closely associated with liberty, the pursuit of happiness, and other concepts that have played an integral role in American life. At the same time, conflicts often arise over who owns what and over how property should be used. In this Focus on Ethics feature, we explore some of the ethical dimensions of the laws pertaining to property, insurance, and inheritance
The children's adage "finders keepers, losers weepers" is actually written into law-provided that the loser (the rightful owner) cannot be found, that is. A finder may acquire good title to found personal property against everyone except the true owner.
An early English case, Armory v. Delamirie,1 is a landmark in Anglo-American jurisprudence concerning actions in trover-an early form of recovery of damages for the conversion of property. The plaintiff in this case was Armory, a chimney sweep who found a jewel in its setting during the course of his work. He took the jewel to a goldsmith to have it appraised. The goldsmith refused to return the jewel to Armory, claiming that Armory was not the rightful owner of the property. The court held that the finder, as prior possessor of the item, had rights to the jewel superior to those of all others except the rightful owner. The court said, "The finder of a jewel, though he does not by such finding acquire an absolute property or ownership, yet... has such a property as will enable him to keep it against all but the rightful owner, and consequently maintain trover."
The Armory case illustrates the doctrine of the relativity of title. Under this doctrine, if two contestants, neither of whom can claim absolute title to the property, come before the court, the one who can claim prior possession will likely have established sufficient rights to the property to win the case.
Bailee's Duty of Care
The standard of care expected of a bailee clearly illustrates how property law reflects ethical principles. For example, a friend asks to borrow your business law text for the weekend. You agree to loan your friend the book. In this situation, which is a bailment for the sole benefit of the bailee (your friend), most people would agree that your friend has an ethical obligation to take great care of your book. After all, if your friend lost your book, you would incur damages. You would have to purchase another one, and if you could not, you might find it difficult to do well on your homework assignments and examinations.
The situation would be different if you had loaned your book to your friend totally for your own benefit. Suppose that you are leaving town during the summer, and your friend offers to store several boxes of books for you until you return in the fall. In this situation, a bailment for the sole benefit of the bailor (you) exists. If your books are destroyed through the bailee's (your friend's) negligence and you sue the bailee for damages, a court will likely take into consideration the fact that the bailee was essentially doing you a favor by storing the books. Although bailees generally have a duty to exercise reasonable care over bailed property, what constitutes reasonable care in a specific situation normally depends on the surrounding circumstances, including the reason for the bailment and who stood to benefit from the arrangement.
Land-Use Regulations and the "Takings Clause"
When property owners claim that a "regulatory taking" has occurred, the courts usually decide the issue on a case-by-case basis. In other words, there is no general rule that indicates whether a specific situation will be deemed a taking.
In a case decided in 2010, a group of Florida beachfront property owners challenged the constitutionality of the state's decision to add seventy-five feet of sand to the shoreline. Under Florida law, the boundary between private beachfront property and state-owned land is ordinarily the average high-water line. The state owns any land submerged beneath the ocean or other navigable waters. It is common for storms to cause some fluctuation in the shoreline, however, as sand is deposited or washed away by waves. A change that occurs gradually and imperceptibly over time is called an accretion, whereas a sudden change is called an avulsion. If an accretion deposits more sand on the shore, the owners of private beachfront property automatically acquire ownership rights to more land-to the new high-water line. If an avulsion occurs, however, the property owners' boundaries remain the same, so the state owns the land abutting the water's edge.
As a result of several hurricanes, 6.9 miles of beach were eroded (an avulsion) in the city of Destin and Walton County. The state therefore requested and received a permit from the Florida Department of Environmental Protection to add seventy-five feet of dry sand on its side (the seaward side) of the highwater line. Owners of the private beachfront property in the area formed a nonprofit corporation to fight the proposed addition of sand, but they lost at an administrative hearing. They then filed a lawsuit claiming that the state's action constituted an unlawful taking of their beachfront property.
The Courts Disagree A Florida appellate court agreed with the property owners that the state had taken their rights to receive accretions and to have their property remain in contact with the water. The Florida Supreme Court reversed, and the United States Supreme Court granted certiorari.
The Supreme Court held that Florida had not engaged in an unconstitutional taking. According to the high court, there was no taking because the property owners did not show that their rights to future accretions and to contact with the water were superior to Florida's right to fill in its submerged land. The state did not relocate the property line to take private property, but simply added sand to property that it already owned (on the side toward the water). Therefore, the state had a right to restore the beach even though the addition of sand interfered with the property owners' rights to have their property touch the water. 2 Although a majority of the Supreme Court justices concurred in the result, there were substantial differences in their reasoning.
A Question of Fairness The question of whether private landowners should be compensated when their land is essentially "taken" for public use by environmental and land-use regulations clearly involves issues of fairness. On the one hand, states, cities, and other local governments want to preserve their natural resources and need some authority to regulate land use to achieve this goal. On the other hand, private property owners complain that they alone should not have to bear the costs of creating a benefit-such as more sandy beaches for recreation or environmental preservation3-that all members of the public enjoy.
Discrimination in Housing
The Fair Housing Act also presents issues of fairness. The act prohibits mortgage lenders from refusing to lend funds for the purchase of homes in certain areas. Prohibiting this practice, known as redlining, severely restricts lenders' ability to choose freely where (or where not) to invest their money. Should lenders be coerced by law into lending funds toward the purchase of homes that are located in neighborhoods where criminal activity is on the rise and property values are rapidly declining? The lender is in business to make a profit on its loan; it is not a charitable organization. The public policy expressed in the Fair Housing Act protects disadvantaged borrowers, in this context, by making more housing available to them. Lenders, however, are forced to extend credit in areas that may increase their risk of loss.
A number of ethical issues arise in the area of insurance, a few of which we examine here.
Insurance Agents and Fiduciary Duties When a person applies for insurance coverage through an insurance company's agent, is the agent obligated to advise that person as to what coverage she or he should obtain? If the agent does not advise a client about certain types of coverage, has the agent breached a fiduciary duty owed to the applicant? For example, suppose that someone applies for auto insurance, and the insurance agent does not advise her that she should obtain uninsured motorist coverage. Later, the client is involved in an accident with an uninsured motorist, and the insurance company refuses to compensate her for her injuries and losses. The client claims that the insurance agent was negligent in not advising her to sign up for uninsured motorist coverage. Was the agent negligent? Did the agent breach a duty owed to the client?
The answer to this question is no. As mentioned in Chapter 51, an insurance agent is an agent of the insurer (the insurance company), not of the party who applies for insurance. As such, the agent owes fiduciary duties to the insurer, but not to the insured. The agent's only duties to the insured are contractual in nature. Although this rule may seem unfair to insurance applicants, who may know less about the need for certain types of insurance coverage than the agent does, a contrary rule might create even more unfairness. An insurance agent could be held liable for failure to advise a client of every possible insurance option, and the insured would be relieved of any burden to take care of his or her own financial needs and expectations. Also, as one court noted, if the state legislature does not require such coverage, why should the courts require insurance companies to offer or explain available optional coverage? 4
Life Insurance Policies on Rank-and-File Employees Nearly 20 percent of the life insurance policies issued each year are sold to corporations to cover the lives of their employees. These policies-known as dead peasant policies, corporate-owned life insurance (COLI), or bank-owned life insurance (BOLI)- cover rank-and-file employees rather than key employees. Since the 1990s, insurance companies have marketed COLI plans as a way for businesses to reap profits and significant tax deductions from a small investment. The businesses could use the profits from the plans to fund employee benefits. For years, employers were allowed to take out dead peasant policies without notifying the employees whose lives were being insured. Then, some employees (or their families if the employees were deceased) who had been insured through these plans started bringing lawsuits, claiming that their employers lacked an insurable interest and had obtained the policies without the employees' consent. For example, Wal-Mart Stores, Inc., which purchased more than 350,000 COLI policies between 1993 and 1995, has faced numerous lawsuits (and no longer obtains COLI policies). Wal-Mart settled one class-action suit in 2004 for $10.3 million and another in 2006 for $5 million including $1.7 million in attorneys' fees.5
In 2006, Congress responded to the controversy by enacting a law that requires an employer to obtain an employee's consent before purchasing life insurance on her or him and to notify the employee of the maximum amount of the policy. Litigation over COLI policies continues, however. In 2009, Wal-Mart lost an appeal in a class-action case fi led by a Louisiana widow whose late husband had been covered by a COLI plan.6 Another case against Wal-Mart was dismissed in 2009, however, on procedural grounds. The federal district court found that Wal-Mart had lacked an insurable interest in the life of Rita Atkinson, a rankand- file employee, and therefore the $66,000 insurance policy on her life was void. Consequently, the amount in controversy did not exceed $75,000, as is required for a federal court to exercise diversity jurisdiction. 7
New applications of technology often present thorny issues for the courts, from both a legal and an ethical perspective. A challenging issue has to do with the inheritance rights of posthumously conceived children-children conceived through the use of a decedent's sperm that had been previously collected and stored in a sperm bank. Do such children have inheritance rights under state intestacy laws? Should they? 8
The laws on this issue vary from state to state. A handful of states (including California, Colorado, Delaware, Florida, North Dakota, Texas, Virginia, Washington, and Wyoming) have enacted statutes that specifically address the inheritance rights of posthumously conceived children. Many of these state laws specify that a deceased person is not a parent of any posthumously conceived biological child-unless he or she consented in writing to being a parent after death. California further requires that the child be in utero within two years from the date of the decedent's death for a probate court to consider it a child of the deceased parent.9 Courts in four states (Arizona, Massachusetts, New Jersey, and New York) have held that posthumously conceived children are heirs who are entitled to benefits under the Social Security Act.10 Several states (including Colorado, Delaware, Texas, Virginia, and Washington) have amended their intestacy laws to allow posthumously conceived children to inherit.
Do you believe that it is fair for courts to decide whether a regulatory taking has occurred on a case-by- case basis and not to articulate a general rule on which landowners can rely? Why or why not?