In response to a couple of cases rendered earlier this year, the Tennessee legislature has adopted Senate Bill 2271, which has two important impacts. The statute was signed into law by Governor Haslam on May 10, 2012. For a PDF copy, click here.
The new law provides that the signature of an applicant for or party to an insurance contract which states the type, amount, or terms of condition of coverage actually creates a rebuttable presumption that the statements provided by the person so signing bind all insureds and that the person signing such document has read, understands, and accepts the contents of the document.
Secondly, the new law provides that the payment of premium by an insured also creates a rebuttable presumption that the coverage provided has been accepted by all insureds.
This should have some immediate impact in coverage cases dealing with the knowledge of an insured as to certain coverages.
One of the most commented upon topics presented by this Blog has been the question of co-insurance, or insurance to value, and where liability lies when there in an improper valuation. Although not specifically dealing with co-insurance, I commend to your reading the case of English Mountain Retreat, LLC. et. al. v. Suzanne Crustenberry-Greg, et. al., a case decided by the Eastern Section Court of Appeals on September 21, 2010. In this case, a building owner had contacted an agent and inquired about insurance. The agent made a couple of visits to the property and, during one visit, presented a proposal with her recommendations as to different coverage limits for the various buildings involved. With respect to one of the buildings, which was subsequently destroyed by fire, the agent used what she described as the “accepted practice" of multiplying the square footage of the building by the cost to replace one square foot to obtain the replacement cost. The agent testified that she typically requires the customer to provide the square footage of the property, but in this case could not recall how the square footage figure was determined. As it turns out, her proposal included an estimate of the square footage of the property that was only off by approximately 4000 square feet, resulting in the building being underinsured.
The Trial Court dismissed the case upon directed verdict by finding, in part, that the building owner’s reliance upon the insurance agent's recommendation was not justified because the owner should have had independent knowledge of the value of the building. The trial court also found that there was an absence of proof of financial loss. The Court of Appeals reversed and remanded for a full trial.
Click here for a full PDF version of the opinion (PDF).
In litigating coverage cases on behalf of insurance carriers, I often hear – “But, my agent said…” or “But, I told the agent that…” In Tennessee, juries still hold litigants to a degree of personal accountability and responsibility, particularly when they have had the opportunity to read the document about which they may be claiming ignorance. Often, I have been successful in convincing juries that an insured was simply incorrect about the representations of an agent (either by innocent failure of recollection or otherwise), or that is was simply unreasonable for an insured to have relied upon the representations of an agent when faced with application provisions or clear policy provisions in documentation they have received. .
Our appellate courts have aided this cause in the past two years, through two significant cases imputing knowledge to applicants and insureds when information was readily available. Most recently, in the case of Tennessee Farmers Mutual Insurance Company v. Farrar, No. E2008-00779-COA-R3-CV, filed April 30, 2009, the Tennessee Court of Appeals held that an unintentional misrepresentation regarding the ownership of property was material, and increased the risk of loss, such that the policy could be voided from inception. In this case, the applicant had failed to disclose the existence of a life estate, and the testimony from the underwriter for the carrier was that, had the life estate been disclosed, the holder of the estate would have been required to complete a form entitled “additional named insured application for insurance,” and the form would have been submitted to the company’s home office. The policyholder argued that it would be speculation as to how the policy form would have been answered. The court did not accept the argument, however, noting:
The point, however, is not what he might have answered; the point is that because the life estate was not disclosed, the Company never had an opportunity to ask him questions so it might evaluate the risk associated with the dual ownership of interests of the Claimant and Mr. Volheim. As a holder of a life estate, Gary Volheim has a right to possession and enjoyment of the property to the exclusion of Mr. Farrar….As the company puts it, ‘Based on [the Claimant’s] application, [the Company’s] Underwriting Department had no knowledge that the right to present possession and enjoyment of [the property] was actually vested in Gary Lee Volheim, a man that [the Claimant] described as mentally ill, an alcoholic, and a paranoid schizophrenic.’
The court also noted that the applicant had signed the application, but apparently did not read it. The court held:
The Claimant’s signature binds him as a matter of law to the representations in the signed document and he may not now attempt to rely upon alleged oral statements to or by the insurance agent to avoid the effects of his own negligent failure to read the application.
The Tennessee Court of Appeals has also addressed a situation where an agent allegedly made a representation that coverage would be provided for particular losses, when the policy issued did not provide such coverage. The Court noted:
In this case, the commercial fire policy with Shelter states that its terms “can be amended or waived only by endorsement issued by [Shelter Insurance Company] and made a part of this policy.” Ms. Finchum admitted that she received the policy. The terms of the policy unambiguously excluded coverage for damage or loss due to theft, and stated clearly that only Shelter Insurance had authority to alter or amend the terms of the policy. This language was clear notice to the Plaintiffs that neither Davenport nor Patterson had the authority to alter the provision in the policy excluding coverage for damage or loss due to theft. Moreover, the Plaintiffs do not allege that Davenport misrepresented that she had authority to alter the policy. They assert only that they did not read the policy. The plaintiff in Reed made a similar assertion; in response, the Reed court stated: “While the plaintiff alleges that he did not read the documents, it is settled law in Tennessee that he is nonetheless charged with knowledge of their contents.” Id. at *3 (citations omitted). We agree.
Finchum v. Patterson, 2008 WL 2019408, 7 (Tenn.Ct.App.,2008)
These cases emphasize than an applicant or insured has a duty to read materials, and will be presumed to know the contents of documents available to or signed by them. These holdings reflect reality, in my opinion. Many times during jury selection, I have asked “How many of you have ever read your insurance policies?” For many years, nary a hand was raised. However, in recent trials, particularly after Hurricane Katrina, I have seen quite a difference. In fact, in one trial, every single member of the jury indicated that he or she had actually read their insurance policies.