An Insured’s Duty to Review and Understand Policy Coverage

An Insured’s Duty to Review and Understand Policy Coverage

By: Jonathan H. Krol

May 2016 - On March 30, 2016, in a case captioned Amankwah v. Liberty Mut. Ins. Co., 1st Dist. Hamilton No. C-150360, 2016-Ohio-1321,the First District Court of Appeals of Ohio (Hamilton County) issued a well-reasoned decision that should prove favorable to insurance companies and agents defending against negligent procurement or equitable reformation claims. The court addressed the specific question of how an insured’s failure to review his/her policy affects the negligent procurement analysis.

The coverage dispute arose from an accident in which the insured’s vehicle was totaled, and the insured’s policy contained no collision coverage.  The insured sued his auto insurance carrier (Liberty Mutual) and his insurance agent for negligent procurement and contract reformation.  The insured argued that collision coverage was inadvertently dropped when he asked his agent to “roll over” his prior comprehensive auto coverage to a new vehicle he purchased.

The insured stated that the first time he knew about the lack of collision coverage was once Liberty Mutual denied his claim for lack of coverage.  The insured testified that although he “skimmed” through the policy once he received it, he did not review the declarations page, which explained that there was no collision coverage on the new vehicle.  He received annual renewal policies which also indicated the lack of collision coverage.  The trial court granted summary judgment in favor of the carrier and insurance agent.  The Court of Appeals reaffirmed Ohio’s precedent recognizing a duty on the part of an insured to review the insurance policy and know the nature and extent of insurance coverage.  Id. at ¶10. 

In procurement cases, the question often becomes whether the insured’s failure to review the terms of a policy is a matter of comparative negligence for the factfinder, or whether the insured’s failure is a bar as a matter of law.  The First District reviewed precedent from various Ohio courts and acknowledged that these courts often differed in their treatment and analysis of this issue.  The First District could not discern any particular legal rule explaining the different outcomes, but instead stated that “the unique facts of each case” guide the analysis.  Id. at ¶13. 

As for the facts before it, the court noted that the insured was a sophisticated individual (a “highly-educated” professor at a university), should have noticed that his premiums decreased (when he expected them to increase), and “fail[ed] to read the policy declarations for two years, when a simple glance would have revealed the absence of collision coverage.”  Id. at ¶21.  Based on these facts and Ohio law, the court determined that reasonable minds can reach only one conclusion: that the lack of coverage in this case was proximately caused by the insured’s own negligence.  Id. at ¶24. 

The court declined the insured’s alternative request to reform the insurance policy because: “Reformation is an equitable remedy available to a complaining party who has acted with reasonable diligence, so where a complaining party has failed to read a contract, equitable relief in the form of contract reformation is generally prohibited.”  Id. at ¶26 (citations omitted).

While the First District did not go so far as to create a bright-line rule barring insureds from recovering in procurement cases where they fail to review the terms of the policy at issue, the court reaffirmed the insured’s legal duty to do so. 

The court’s rationale also provides guidance on facts and circumstances to weigh in determining whether to bar an insured’s claim, such as the sophistication of the insured, the length of time that the insured has had to review his/her policy, and the amount/type of notices the insured receives relating to coverage.  The Amankwah decision can be used to bolster dispositive motions in favor of carriers and insurance agents prior to trial, especially under analogous circumstances.

If you would like a full copy of the Amankwah opinion, or if you have any other question regarding insurance agent liability, please contact one of our Professional Liability Practice Group Members.