If you Don’t Read Policy at Least Read Notice

Pretending to Be Ignorant Does Not Toll Statute of Limitations

In my experience, and in the experience of the Supreme Court of Rhode Island, no one reads insurance policies. Even professionals, whether physicians or lawyers, fail to read the policy. They rely on insurance agents or brokers without obtaining the promise of the agent or broker to act in a fiduciary capacity. In so doing the person  insured refuses to accept blame for their own error and attempt to recover from their ignorance and stupidity by suing the agents and brokers.

In Faber v. McVay, — A.3d —-, Supreme Court of Rhode Island, 2017 WL 924153 (3/8/17) the Rhode Island Supreme Court dealt with a doctor’s claim that the statute of limitations did not apply to him because he failed to read his policy or the summaries provided to him by his insurers and agents.

FACTS

Charles S. Faber, M.D. and Karen M. Faber (collectively, plaintiffs), appealed from a grant of summary judgment in favor of the defendants, his agents and brokers (collectively, defendants), on the plaintiffs’ claims of insurance malpractice. The Superior Court directed the entry of summary judgment on the basis that the plaintiffs’ claims were time-barred by a three-year statute of limitation for insurance malpractice claims.

According to both Dr. Faber and agent McVay, Dr. Faber expressed a desire to obtain the best and maximum insurance coverage. For the October 2002 to October 2003 term, Dr. Faber’s automobile insurance was written by Vigilant Insurance Co.  (Vigilant) and included $5,000,000 of underinsured motorist bodily injury (UM) coverage.

Dr. Faber inquired with McVay as to whether a different carrier could provide the same coverage for a reduced premium; it is further alleged that McVay reported to Dr. Faber that he could obtain the same coverage and lower his premium payments by contracting with Progressive Insurance for $250,000 in UM coverage and with Vigilant for an umbrella policy of $5,000,000 that also included UM coverage. McVay relayed a different version, stating that she informed Dr. Faber that the policies were different and that they would “come back and bite him in the a**.” Nonetheless, Dr. Faber directed McVay to make this change, which reduced his premium by $4,951. The policy changes became effective on December 11, 2002. The umbrella policy with Vigilant provided for $5,000,000 in excess liability only, but it did not include UM protection.

Although Dr. Faber was sent notice of these changes, which included succinct summaries of his coverages, it is undisputed that he failed to read the coverage update. Over the years, he also received notices that detailed his automobile insurance coverage, usually after he added or removed vehicles from his policies. Nonetheless, Dr. Faber testified at his deposition that he did not read these notices but filed them in a drawer because he relied on McVay’s insurance expertise. Doctor Faber maintained that he assumed that his automobile policies provided maximum coverage for UM.

On April 24, 2007, Dr. Faber was injured in a motor vehicle accident that occurred in Scottsdale, Arizona. After he exhausted the tortfeasor’s insurance in the amount of $250,000, he attempted to submit a claim to Vigilant for his excess damages. He was informed that his Vigilant policy did not provide UM coverage, but only excess liability.

Plaintiffs filed an action against defendants, alleging that defendants negligently failed to adequately provide the insurance coverage that he expected.

Summary judgment was granted in favor of all defendants. Dr. Faber appealed.

ANALYSIS

In Rhode Island, a cause of action for insurance malpractice “shall be commenced within three (3) years from the time of the occurrence of the incident which gave rise to the action[.]”   The plaintiffs’ argument is two-fold: First, plaintiffs maintain that the limitation period was tolled until Dr. Faber was injured in an automobile collision and sought UM benefits because he could not reasonably have discovered his claim for damages until he was denied coverage under the Vigilant policy. Second, plaintiffs aver that, to the extent that the discovery date hinges on notice of the wrongful conduct as opposed to the injury, Dr. Faber did not discover, nor should he have discovered, the wrongful conduct because a reasonable person does not read his or her insurance coverage updates.

The Rhode Island Supreme Court decision in Burns v. Connecticut Mutual Life Insurance Co, 743 A.2d 566 (R.I. 2000) is instructive. In Burns, the plaintiff purchased a disability insurance policy from the defendants in 1988, but his application for the policy contained inaccurate information.  The focal point of the inquiry was not on when the plaintiff learned of the extent of his damages, but rather when the plaintiff discovered or should have discovered the liability causing conduct.

Under the interpretation that plaintiffs urge upon the Court, an insured would be free to ignore deficiencies in his or her policies or coverage and be relieved from taking corrective action unless and until there was a denial of coverage. The discovery rule does not toll the limitation period until the point when damages reasonably are discoverable, but when the negligent conduct is or should have been reasonably discovered.

In this case the issue of possible insurance malpractice arose in late 2002, when, in an effort to reduce Dr. Faber’s premiums, McVay changed carriers and failed to obtain additional UM insurance coverage for her client. Doctor Faber received a coverage update of the changes made to his policy, which indicated that the policy was effective on December 11, 2002.  This new coverage is described as “EXCESS LIABILITY ONLY.” This coverage stands out even more because the previous coverage for the two deleted vehicles is listed as “VEHICLE LIABILITY, UMBI, UMPD.” It was clear that the coverages in the policies were not identical.

Dr. Faber neglected to read the coverage update. The second allegation of malpractice occurred in February 2006 when Albright and M & S allegedly failed to obtain adequate UM coverage. Doctor Faber also received notice of this renewal, which included a summary of his coverage, but he failed to read this notice as well.

The plaintiffs urged the Supreme Court to hold, as a matter of law, that a reasonable person exercising reasonable diligence does not read his or her coverage updates. Doctor Faber was not charged with reading every iteration of insurance jargon in his policies. In fact, the Supreme Court recognized that the detailed provisions of insurance contracts are seldom read by the consumer. Doctor Faber was bound to act as a reasonably diligent insured—to at least peruse a personalized summary of the policy’s coverage.

To accept Dr. Faber’s present assertions of assuming the coverage was the same could leave an insurer exposed to whatever risks an insured could later persuade a jury he had been thinking were covered — so long as he had been careful not to read the policy.

The Supreme Court also relied upon the fact that the changes in Dr. Faber’s policies reduced his premium by $4,951, not an insignificant savings. Such a substantial reduction should have likewise alerted this busy and successful professional that something was amiss, such that he would have read the declarations page or contacted his agent. A reasonable person would have, at a minimum, perused the summary pages of the coverage update to ensure that the policy changes were correct and adequate, especially in light of the sizable reduction in the premium.

Because the complaint was filed nearly seven years after the first notice the suit was untimely. As a result, plaintiffs’ claims  were untimely and summary judgment was appropriate.

ZALMA OPINION

I have examined under oath hundreds of people who were making claim on an insurance policy. I always ask if they had read their policy. Most laughed and admitted they had not read their policy. Only two claimed they read the policy and understood it – Both Lied. Dr. Faber told the truth – he did not read the policy nor did he read the advice of his agents of the coverage available. Rather, he wanted his lack of attention to cause the court to allow him to avoid the effect of the statute of limitation.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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