Payment of Renewal Premium is Acceptance of Policy as Written

In Ronald Morgan and Cheryl Morgan v. Dickelman Insurance Agency, Inc., Dickelman Insurance, Inc., Jason Dickelman, and State Farm Fire and Casualty Co., No. 22A-PL-892, Court of Appeals of Indiana (December 30, 2022) the Court of Appeal of Indiana made clear that an insured is required to protect their rights by reading the renewal notice of a policy.

FACTS

The facts most favorable to the Morgans as the nonmovants show that in 2007, they purchased a log home in Lafayette, Indiana. In 2008, they acquired homeowners insurance with State Farm. The Morgans paid insurance premiums through escrow funds held by their mortgage company.

Each year, State Farm mailed the Morgans “renewal notices.” The insureds did not recall looking at the notices.

Dickelman, the State Farm agent, contacted the Morgans several times between 2011 and 2014 “to sit down and meet” with him, but they did not respond, and they never met with Dickelman to discuss their insurance coverage.

In May 2012, Cheryl read that log homes could have higher replacement costs than ordinary houses and became concerned that their home might be underinsured. Cheryl called Dickelman Insurance and spoke with a female insurance representative. Cheryl initially requested a $250,000 increase in dwelling coverage, but the representative told her “that’s way too much, way too much.” There was no evidence in the record as to the amount of the higher premium. Cheryl never confirmed with Dickelman’s office whether the requested additional coverage had been procured.

In 2015 the Morgans submitted a claim to State Farm for extensive water damage to their home with a repair estimate of $712,000 to $800,000. Ultimately, State Farm paid the Morgans $330,034.88 for the claim, which represented their dwelling coverage limit for the policy period April 4, 2015, to April 4, 2016, plus inflation guard protection and the cost of debris removal.

On September 20, 2017, the Morgans sued Defendants alleging breach of contract, promissory estoppel, negligence, and fraud. The trial court issued an order granting summary judgment for Defendants on all of the Morgans’ claims.

DISCUSSION AND DECISION

In their complaint, the Morgans alleged that Defendants breached an oral agreement to increase their dwelling coverage by $150,000. In an affidavit, Dickelman attested that the Morgans never authorized Dickelman Insurance to increase the dwelling limits. Thus, Defendants’ designated evidence established that they did not commit breach of contract.

The basic requirements of a contract are offer, acceptance, consideration, and a meeting of the minds of the contracting parties.

The general rule is that the delivery of a policy by the insurer to the insured upon the expiration of a policy without request by the insured is an offer which must be accepted by the insured before a contract of insurance is effective.

In this case, State Farm mailed renewal certificates to the Morgans that clearly and unambiguously informed them of the amount of their policy dwelling coverage.

In Indiana, “[I]nsureds have a duty to read and to know the contents of their insurance policies.” [Safe Auto Ins. Co. v. Enter. Leasing Co. of Indianapolis, 889 N.E.2d 392, 397 (Ind.Ct.App. 2008).]

A casual scan by an unsophisticated customer of the first page of the two-page 2013 renewal certificate would inform that person that the dwelling coverage was limited to $297,100 and that the premium charged was for this amount of coverage. By retaining the policy and paying the premium through an escrow account held by their mortgage company, the Morgans accepted the offer to renew.

DUTY TO READ

Insureds have a duty to read and to know the contents of their insurance policies. The traditional rule is that reliance upon the representation of another is not justified where the injured party has a written instrument available and fails or neglects to read it. The rationale for this exception to the general rule that one has a duty to read and know the contents of one’s insurance policies is that an insurance contract is a detailed and complex instrument, drafted by expert legal counsel, and has been called a “contract of adhesion” for the reason that the insured is expected to ‘adhere’ to it as it is, with little or no choice as to its terms. In addition, as I explained in my new book, A Compact Book on How Judges Read, Understand, Interpret and Rule on Insurance Policy Issues, an insured rarely reads the insurance contract, and even if the insured did read the policy, it is doubtful that he or she would gain more knowledge “because of the technical language” yet the insured is obligated to know the non-technical parts like the policy limit and premium.

This case involves an unambiguous dollar amount that appears on the first page of the renewal certificates. At least under the facts of this case, the dollar amount does not qualify as technical or complex language.

If the Morgans had glanced at the first page of the renewal certificates, they certainly would have immediately recognized the coverage limit of their policy. As a matter of law the traditional rule that reliance is not justified where the injured party has a written instrument available and fails or neglects to read it, applies.

The renewal certificates were simple and the amount of dwelling coverage was unambiguous. Had the Morgans looked at them, they would have seen that their coverage had not been increased by $150,000. Therefore, we conclude as a matter of law that the Morgans’ reliance on Defendants’ alleged statements was not justified.

ZALMA OPINION

My new book is available at Amazon.com as a hardcover here; a paperback here; and as a Kindle Book here explains why an insured is obligated to read and understand, at the very least, the non-technical part of their policy. Ignoring renewal notices, paying premium based on those notices, and ignoring the fact that the limits were not increased nor was the premium increased, is not the basis for a claim of breach of a clear and unambiguous contract that after paying the full policy limits was still sued claiming breach of contract and fraud because the insureds refused to acknowledge their own error and lack of concern for their obligations as insureds.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]

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