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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (16691)	1/25/2009 11:00:08 AM
From: carranza2	6 Recommendations Read Replies (2) \| Respond to of 71456

Again, in insurance world, there is no such thing as "overinsurance". You have set off a legal bulb in my mind that needs mentioning. There is indeed "overinsurance" in the legal world as often there is more insurance on property than the property is worth. However, the law, unlike markets, abhors windfalls and limits recovery from insurers to the value of damaged property. It's a legal doctrine referred to as the 'indemnity principle'. It means that recovery is not permitted via insurance in excess of the actual value of the damaged property, regardless of the amount of insurance or the number of insurers who cover the same thing. No windfalls, in other words. There are a few exceptions, most notably Valued Policy statutes, but these are not germane to my point. If I were a lawyer for a counterparty to a CDS which is 'overinsured' because there are many other similar instruments protecting the underlying obligation, I would make sure all of them get called in and argue that, as is the case in property insurance, there is only one value which should be compensated, i.e., the value of the underlying obligation. If this is successful, the notional value of exposures goes down to the value of the underlying stuff, whatever that may be.