Key Takeaways:
- Extends the “duty to read” principle typically applied to insurance policies to applications submitted by insureds for such policies
- Reasonable expectations doctrine only applies when the terms of the policy itself are ambiguous
After losing an extended coverage battle with its insurer that ultimately resulted in a finding of no coverage by the Fourth Circuit, the insured in Old White Charities, Inc. v. Bankers Ins., LLC, No. 18-1914, 2020 WL 290664 (4th Cir. Jan. 21, 2020) took aim at its insurance agent, asserting claims of negligence and fraud based upon alleged misrepresentations by the agent during the procurement process as to whether certain terms would be included in the policy. The Fourth Circuit ultimately affirmed the trial court’s grant of summary judgment in favor of the agent because the application for insurance signed by the insured included information related to the disputed terms, regardless of any alleged misrepresentations by the agent regarding such terms.
By way of background, thiscase involved a demand for coverage made by the policyholder, Old White Charities, Inc. (Old White), for payouts made as part of a promotional contest during a PGA Tour golf tournament after two golfers made holes-in-one on the 18th hole. The policyholder had secured an insurance policy through its agent, Bankers Insurance, LLC (Bankers), through which the insurer agreed to pay Old White $150,000 for the first hole-in-one made by any golfer, $750,000 for the second, and $1,4000,000 for the third.
The application completed by the agent, but signed by the policyholder, contained a warranty clause stating that the hole had to be at least 150 yards in distance for any hole-in-one to be covered under the policy. However, the policyholder presented evidence that it told employees of the agent that it could not agree to a distance requirement in the policy and specifically instructed the agent to procure insurance that did not include a minimum-distance requirement. As such, the agent included an addendum to the application stating that the 18th hole played an average of 175 yards, but that the policyholder had no knowledge of or control over the length of the hole during the tournament because the PGA determined placement of the tee boxes. Notwithstanding the alleged instructions to the agent and the addendum to the application, the final policy binder contained an exclusion requiring that a hole be at least 170 yards from the tee to be covered.
During the tournament, the 18th hole played at a distance of 137 yards and two golfers shot holes-in-one. The policyholder submitted claims under its hole-in-one policy and the insurer denied coverage. After the coverage denial was upheld on appeal to the Fourth Circuit, the policyholder filed suit against the agent, asserting claims of negligence and fraud on the theory that the agent had failed in its duty to procure the insurance requested and misrepresented that such coverage had been procured. Specifically, the policyholder argued that it had told the agent that it did not agree to a distance requirement in the policy and instructed the agent to procure insurance that did not include a minimum-distance requirement, and that the agent misrepresented the coverage that had been procured.
The Fourth Circuit affirmed the trial court’s grant of summary judgment in favor of the agent on the negligence claim because the application for insurance submitted by the insured included the distance requirement. Accordingly, the court held that regardless of any representations that may have been made during the procurement process, the policyholder should have been aware of the requirement. The Fourth Circuit also affirmed the dismissal of the claims under the reasonable expectations doctrine on the ground that such doctrine only applies when the terms of the policy itself are ambiguous, and the distance requirement in the policy was not ambiguous. Finally, given that the distance requirement was included in the application itself — regardless of evidence of subsequent communications between the insured and agent regarding the type of coverage that the insured required — the Fourth Circuit held that the fraud claim was properly dismissed.
The Old White case provides support for insurance agents faced with failure to procure claims by extending the duty to read principle typically applied to insurance policies to applications for such policies. When the information in the written application clearly sets forth the scope of coverage being requested, insureds will not be able to pursue failure to procure claims against their agents.