Comments: The Inverted Pyramid of Identity

The legal state needs to change in order for the "show disputes" concept to work, but it's for a different reason: if a company shows its disputes, and either itself or one of its watchdogs informs them of a pattern... does that pattern-recognition go into the dispute log, as well? What about people who have no legitimate dispute, but the only difference between 'legitimate' and 'illegitimate' lies in the wording of a verbal conversation?

i.e., does recognition and notification of a general pattern create additional liability? If so, is there any legal way to know what the cap of that liability is without dispute resolution (i.e. court)?

(I'm using as part of my basis for this question the curious case of the Prudential Life Insurance "Variable Appreciable Life" life insurance policies sold in the 1980s. Prudential's agents were alleged to have said, very commonly, that after a few years these policies would "pay for [themselves]". A class-action suit was filed against Pru; I don't know if Prudential's liability or risk was capped in any meaningful fashion.)

Posted by Kyle H at January 15, 2010 02:17 PM

Kyle asks:

> does that pattern-recognition go into the dispute log, as well?

I guess that would depend on the detailed design of the system. In CAcert's system, yes, it does (but that's because other parts dictate it so). Other systems may prefer to put in an external appeal or overriding body.

(I would see your suggested case more as useful input, and a way to prove its functioning than a challenge to the system.)

Posted by Iang (CAcert's Arbitration Forum) at January 16, 2010 12:11 PM

> i.e., does recognition and notification of a general pattern create additional liability?

Possibly. I know the American school ("a lawyer in every family") would treat any liability with fear&loathing, but Economics-wise, it needs to be balanced with the alternate. The use of dispute resolution solves problems, and if the greater part of the problems are solved, and this is greater avoided cost, then we are in profit overall; this applies broadly to the organisation and to the participants.

Litigation-wise, liability of this nature is difficult to predict. We do know that any open evidence can establish that pattern and liability, any open information gives the enemy weapons. The difference with the dispute approach is that when the event arises, there is no lone voice; in a dispute, the the service of dispute resolution systems *must look at it*. Else, shame on the resolver and the organisation.

E.g., to mention an un-named list we know, there are exactly those patterns, and potential for liability. And, because there is no effective way to resolve disputes, the lone voice goes unanswered (and worse) so I would say that the liability for inappropriate dealings does rise. But it is very much a speculation as to whether it rises from $1 to $10 or $100k to $1m, because in that business, all the liability is effectively dumped anyway.

Posted by Iang (CAcert's liability disclaimer) at January 16, 2010 12:26 PM

to paraphrase:
> "these disputes would pay for themselves"

:-) that's a cheeky statement, and in an sales environment it would be seen as quite a claim. I suppose if the dispute system were to make a claim such as "every dispute returns profit ..." or "rub out your mobster enemies with our smiling disputers" then this could be treated as a sales pitch.

But if the dispute systems says "we resolve disputes" then that doesn't necessarily tilt in favour. As it happens, CAcert's system has the ability to fine members, and also the ability to levy fees, but none has ever happened to date. It's a membership group, I don't think it is meant to be a profit department.

Posted by Iang (CAcert's formal policy for Dispute Resolution) at January 16, 2010 12:35 PM

I think you misread what I said... I was referring to the specific details of the life insurance policies/contracts that were issued under the "VAL" name. I do think that this would be an excellent test for any alternative dispute resolution system.

My original quote was: "these *policies* would pay for themselves", not disputes. Additional background for the scenario:

The Variable Appreciable Life policy was designed as a kind of non-annuity annuity. The way they work:

1) The policy owner is -guaranteed- that the contract will remain in full force and will receive the face value of the policy upon the death of the insured if and only if she pays her premiums, in full, until it becomes paid up.
2) She has the opportunity for more than the face value because the premium goes into an investment fund.
3) Each month, the commission is taken out of the fund. If the fund performs well, the value of the contract goes up, and as long as the value of the contract is above the pre-determined minimum value during monthly processing, no problem.
4) If the value of the fund ever drops below that pre-determined minimum value during monthly processing, the policyowner must make up the deficiency (unless the full premium payments have been made for the entire length of the policy).

If condition 4 is triggered, there are two ways to resolve it: make up the deficiency (and run the risk of the market underperforming), or pay the entire back balance of premiums.

The allegation was that the consequences of trigger 4 were never explained, and people who hadn't thought about these policies since the '80s were suddenly receiving notices of deficiency for hundreds of dollars, with a statement that they could guarantee the full face value of the policy if they paid the back premiums -- which could be in the range of tens of thousands of dollars.

(and to cover my rump: I am not licensed as an insurance agent in any state, I am not trying to sell any insurance product, and I am bringing this example up for educational and discussion purposes only. I cannot offer financial advice; if you feel that you need such advice, please contact a licensed financial advisor.)

Posted by Kyle H at January 16, 2010 04:43 PM

Once you've grasped the above, try automating the top layers...

Posted by Modria at May 26, 2015 08:22 AM
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