Read Your Policy or Else
An insurance application is nothing more than a request presented to an insurer seeking an offer of insurance. It is not a contract. It is not even an offer. It is a request for an offer. An insurance contract will only come to be if the insurer accepts the application and makes an offer to the insured. If the insured accepts the insurer’s offer and pays a premium there will be a policy of insurance. Any lawyer or insurance broker understands that an application is nothing more than a request for an offer.
Over the last 50 years in the business of insurance I have found one constant: No one reads their policy. They pay the premium and ignore communications from the insurer. Some don’t even check the declarations page to see if the insurance requested was provided. When a lawyer doesn’t read communications from his insurer, the policy or declarations page and doesn’t even comment on a reduction in premium of almost $2,000 a year, should be ashamed of his stupidity rather than sue the insurer and agent.
In Sicari v. Hartford Insurance Company of the Midwest, Superior Court of New Jersey, Appellate Division, Not Reported in A.3d, 2017 WL 1908541 (May 10, 2017) Plaintiff Vince A. Sicari, Esq., Attorney at Law, LLC, appealed from the Law Division orders granting defendant The Harford Insurance Company of the Midwest’s (Hartford’s) summary judgment motion and denying his own motion for summary judgment.
Plaintiff is an attorney who operates his own law practice. Hartford issued plaintiff an insurance policy effective July 31, 2010 through July 31, 2011 (the 2010 policy), which included coverage for commercial general liability, business personal property liability, and lawyers’ professional liability. Plaintiff paid a premium of $2728 for the 2010 policy.
On May 31, 2011, two months before the 2010 policy expired, Hartford mailed plaintiff a letter advising there would be a “[r]eduction in [c]overage” regarding “[l]awyer’s [p]rofessional [l]iability.” Attached to the letter was a notice stating Hartford was “no longer writing [l]awyer’s [p]rofessional [l]iability coverage as an endorsement to its … policy.”
Plaintiff testified at his deposition that he never received the May 31, 2011 letter and was unaware it existed until he received a copy in discovery. However, plaintiff admitted the letter was addressed to his office. In addition, plaintiff claimed his routine practice upon receiving an insurance policy was to review it and then call the insurance broker to ask whether he needed to take any additional action “in furtherance of [the policy.]” The facts seem to establish he did not follow his routine practice.
On June 21, 2011, plaintiff signed a renewal application for lawyers’ professional liability insurance coverage and submitted the application to the insurance broker. On July 13, 2011, the broker e-mailed the application to Hartford and requested Hartford to review the application and contact the broker with any questions. Hartford received plaintiff’s application, but never notified the broker whether it contained any deficiencies or that it “was not going to be processed[.]”
Without responding to plaintiff’s renewal application for lawyers’ professional liability insurance, Hartford issued a policy for the July 31, 2011 to July 31, 2012 period (the 2011 policy). Except for the lawyer’s professional liability coverage, which Hartford no longer provided, the 2011 policy provided substantially the same coverage as the 2010 policy. The premium for the 2011 policy was $649, a $2079 reduction from the 2010 policy.
Plaintiff renewed the Hartford policy for the July 2012 through July 2013 period (the 2012 policy) at a premium of $663. Like the previous year’s policy, the 2012 policy contained no reference to lawyer’s professional liability coverage. The 2011 and 2012 polices provided coverage for commercial general liability and business personal property only. The record does not reflect plaintiff filed a renewal application for lawyers’ professional liability insurance for the 2012 policy period.
In June 2013, when plaintiff began receiving mass mailings from insurance providers regarding malpractice coverage, he contacted his insurance broker and inquired about his own malpractice insurance. A few weeks later, the insurance broker informed plaintiff his malpractice coverage had lapsed. Thereafter, in July 2013, plaintiff discovered a potential malpractice claim against him.
Plaintiff filed three more complaints against the insurance broker and Hartford seeking the same relief as alleged in the first and second complaint.
Plaintiff eventually moved for summary judgment, and Hartford cross-moved for summary judgment the following day. The trial court ultimately found Hartford’s May 31, 2011 letter “sufficient to notify [p]laintiff that Hartford would not renew the professional liability coverage in [p]laintiff’s policy” and “Hartford fully complied with the regulatory requirements for notification of nonrenewal.” That, coupled with “the drop in the premium and the absence of any mention of lawyers’ professional liability coverage in the text of the 2011 and 2012 policies,” proved plaintiff had “statutory and sufficient notice of the change in [his] coverage and cannot argue … [he] was reasonably unaware” he lacked coverage. Lastly, the court noted plaintiff’s renewal application did not create a contract between plaintiff and Hartford. The court denied plaintiff summary judgment and granted Hartford summary judgment.
Where an insurance company purports to issue a policy as a renewal policy without fairly calling the insured’s attention to a reduction in the policy coverage, the insurance company remains bound by any greater coverage afforded in the earlier policy. Stated differently, an insured is not bound by a change in a renewal policy when the insurance company fails to notify the insured of the change. An insured’s failure to examine the renewal policy until after the event insured against occurs is immaterial.
Here, by way of notice on May 31, 2011, two months before plaintiff’s 2010 policy expired, Hartford duly notified plaintiff it would no longer provide coverage for lawyer’s professional liability. The May 31 notice complied with the regulatory requirements for non-renewing the professional liability coverage in plaintiff’s policy. The fact that plaintiff was unaware of the contents of the notice does not render Hartford non-compliant with the law.
Moreover, plaintiff was charged with knowledge of the policy’s contents. A court must expect that a conscientious policyholder, upon receiving the policy, would likely examine the declaration page to assure himself that the coverages and their amounts, the identity of the insured risks and the other basic information appearing thereon are accurate and in accord with his understandings of what he is purchasing.
In addition, while the trial court acknowledged Hartford received and should have responded to plaintiff’s renewal application, plaintiff himself should have noticed the absence of lawyers’ professional liability coverage on his declarations page and the sharp drop in premiums for his 2011 and 2012 policies. That large premium drop should have been a “red flag,” and plaintiff’s apparent failure to take notice weakens his argument for coverage.
Plaintiff’s renewal application did not create a contract between himself and Hartford because Hartford did not offer lawyers’ professional liability coverage as part of plaintiff’s renewed insurance policy. An offer to constitute a contract must be in a form which is intended of itself to create legal relations on its acceptance. It must contemplate the assumption of legal rights and duties and must show a clear intention to assume liability. Since an application is merely a request for an offer ignoring it and failing to make an offer cannot conceivably be considered a contract.
The record clearly reflects that Hartford did not intend to provide plaintiff with continued lawyers’ professional liability coverage. In fact, Hartford intended the opposite. Its May 31, 2011 notice to plaintiff manifested its intent to discontinue lawyers’ professional liability coverage. Thus, contractual principles do not compel the result that Hartford retroactively provide plaintiff lawyer’s professional liability coverage.
Plaintiff had ample notice that his 2011 and 2012 polices did not include lawyers’ professional liability coverage. His renewal application did not obligate Hartford to provide coverage it no longer offered. The trial court did not err in granting Hartford summary judgment.
Vince A. Sicari, a lawyer, tried to make an application an insurance policy. He failed because he was negligent in dealing with his insurance program, failed to recognize that an application is nothing more than a request for an offer, and did not even ask his insurance broker why the premium Hartford charged him was reduced by more than $2,000. The lawyer plaintiff failed to protect himself and deserved to have his claim denied.
This article and all of the blog posts on this site digests and 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 the first annual Claims Magazine/ACE Legend Award.
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