Start Here: 5 Things You MUST Know
Common law = court precedent (49 states). Civil law = written codes (Louisiana only).
Stare decisis means courts follow past decisions for consistency and predictability.
Federal diversity cases use state substantive law + federal procedural law (Erie doctrine).
The Commerce Clause is why Congress COULD regulate insurance but chose not to.
Due Process (5th/14th Amendments) and Equal Protection (14th) apply to both federal AND state governments.
1. The Two Legal Systems
The United States uses two different legal traditions. Understanding which one applies — and why — is the starting point for everything else in this course.
Civil-Law System
Built on a comprehensive written code. Judges look up answers in the code rather than relying on what previous judges decided.
Where used: Louisiana (French influence), most of continental Europe, Latin America
Think of it as: A detailed employee handbook — if a situation arises, check the handbook.
Common-Law System
Built on court decisions (case law). Judges look at how previous courts ruled on similar cases and follow those rulings.
Where used: 49 U.S. states, England, former British colonies
Key concept: Stare decisis ("to stand by things decided") — follow precedent for predictability.
How Courts Use Precedent
Apply — Follow the precedent directly (most common)
Distinguish — Find meaningful differences from the precedent
Discard — Reject precedent that has lost its usefulness
Depart — Make a landmark decision that breaks new ground
Equity: The Fairness Safety Valve
When the strict letter of the law produces an unfair result, courts of equity step in. Courts of law give money damages. Courts of equity give orders (injunctions, specific performance).
Real-World Scenario: The One-of-a-Kind House
The Setup: You contracted to buy a historic, one-of-a-kind home.
What Happens: The seller refuses to complete the sale.
The Result: Money damages would not make you whole because the home is unique. An equity court orders specific performance — forcing the seller to complete the sale.
2. Classifications of U.S. Law
Criminal Law
Acts so harmful that the government prosecutes.
Who brings the case: The state/prosecution
Penalties: Fines, imprisonment, probation
Standard: Beyond a reasonable doubt (very high)
Civil Law
Everything that is NOT criminal. Protects individual rights.
Who brings the case: The injured party
Penalties: Money damages, injunctions
Standard: Preponderance of evidence (more likely than not)
Insurance Example
If an agent commits insurance fraud (filing fake claims), the state can prosecute criminally AND the insurer can sue civilly. Both can happen from the same act.
Substantive Law
The "WHAT" — the actual rules that create rights, duties, and obligations.
Example: "It is illegal to drive over 65 mph" = substantive
Procedural Law
The "HOW" — rules for how legal proceedings are conducted.
Example: "You must file your complaint within 30 days" = procedural
CRITICAL Exam Point: Erie Doctrine
In federal diversity cases, federal courts apply STATE substantive law but FEDERAL procedural law. This comes from Erie Railroad Co. v. Tompkins (1938). This is one of the most tested concepts in the course.
3. Sources of U.S. Law
The Supremacy Clause (Article VI)
The federal Constitution, federal statutes, and treaties are the "supreme law of the land." When state and federal laws conflict, federal law prevails.
Key Constitutional Provisions
Commerce Clause (Art. I, Sec. 8)
Gives Congress power to regulate interstate commerce.
Insurance connection: In South-Eastern Underwriters (1944), the Supreme Court ruled insurance IS interstate commerce. Congress COULD regulate it but chose to let states do it via McCarran-Ferguson.
Due Process (5th & 14th Amendments)
Fair procedures before government takes life, liberty, or property.
Two types: Substantive (the law itself must be fair) and Procedural (the process must be fair). 5th = federal, 14th = states.
Equal Protection (14th Amendment)
No state shall deny any person equal protection of the laws.
Laws CAN treat people differently, but only with a rational basis. Eye color, random traits = no rational basis = unconstitutional.
Supremacy Clause (Article VI)
Federal law is supreme. State law cannot conflict with it.
This is the foundation for understanding when federal law overrides state insurance regulation.
Court Systems
Federal Courts
U.S. Supreme Court
Highest court, chooses cases via certiorari
Circuit Courts of Appeals
13 circuits, review for legal errors
District Courts
Trial courts, at least 1 per state
Federal Jurisdiction
Federal Question
Case involves a federal law, treaty, or the Constitution
Diversity Jurisdiction
Parties from different states AND amount in controversy exceeds $75,000
Conflicts of Law
When multiple states are involved, a choice of law clause in the contract specifies which state's law governs.
Real-World Scenario: Cross-State Contract Dispute
The Setup: A New Jersey company signs a contract with a Texas company. The contract says "Texas law governs this agreement."
What Happens: A dispute arises and the NJ company sues in New Jersey.
The Result: The NJ court applies Texas substantive law (contract says so) but NJ procedural law (forum state controls procedure).
Other Sources of Law
Legislative Bodies: Create statutes. Uniform laws (like UCC) aim to minimize state-to-state confusion.
Executive Branches: President/governors recommend legislation, sign/veto bills, and appoint heads of administrative agencies.
Cheat Sheet
Print this page for quick referenceExam Trap Alerts
1. Erie Doctrine — Do NOT Mix Up the Laws
Federal diversity cases: state SUBSTANTIVE law + federal PROCEDURAL law. The state tells you the rules; the federal system tells you the process.
2. Due Process Applies to STATES Too
The 5th Amendment originally only applied to the federal government. The 14th Amendment extended it to states. Both must provide due process.
3. Equal Protection Needs "Rational Basis"
A law CAN treat people differently, but only if there is a rational reason. Arbitrary distinctions (like eye color) will be struck down.
4. Conflicts of Law — Choice of Law Clause is the Easy Fix
When parties are in different states, the simplest solution is a choice of law provision specifying which state's law governs.
Quick Reference Summary
Civil-Law System
Written codes. Louisiana only in the U.S.
Common-Law System
Court precedent. 49 states. Stare decisis.
Equity
Fairness safety valve. Injunctions, specific performance.
Commerce Clause
Congress can regulate interstate commerce including insurance.
Due Process
5th (federal) + 14th (states). Substantive + procedural.
Erie Doctrine
State substantive law + federal procedural law.