The best bets are those that are guaranteed winners, as they aren’t truly bets at all. Insurance companies would prefer a scenario where it’s “heads I win, tails you lose.” One doesn’t need an actuarial degree to understand that collecting premiums on risks that will never result in payouts is a profitable strategy.

What occurs when an insurance company denies coverage due to the condition of a building, is aware that the insured building doesn’t qualify for additional coverage, yet continues to accept premiums? Does this act of accepting premiums negate the original grounds for denial?

These facts and issues were presented in a recent Mississippi case.1 The original denial was based on these facts:

By letter dated March 23, 2021, Ohio Casualty denied plaintiff’s claim for policy benefits for the loss, citing the following policy provision:

COVERAGE LIMITATION

‘We’ only cover a vacant ‘existing building’ for 60 consecutive days from the inception date of this policy unless building permits have been obtained and rehabilitation or renovation work has begun on the ‘existing building’.

The company concluded there was no coverage for the loss, as its investigation confirmed that at the time of the loss, Sinjel had not commenced renovations nor had building permits been issued, and more than sixty days had passed since the policy took effect on April 15, 2020. 

After the denial, the insurance company kept billing, and the insured kept paying the premiums. The building was vacant and in a fire loss condition. The insurance company never returned the premiums.

The policyholder made the following argument:

Sinjel maintains, however, that Ohio Casualty waived Sinjel’s noncompliance with the vacancy clause or any defense to coverage by continuing to accept Sinjel’s premium payments after it was aware that Sinjel had not timely obtained permits and commenced rehabilitation/renovation work.

The court disagreed and found that no waiver of the exclusion or denial ever occurred:

The fact that Ohio Casualty received and retained Sinjel’s premium payment cannot reasonably be found to operate as a waiver in light of the undisputed fact that Ohio Casualty not only had already unequivocally denied Sinjel’s claim for the November 2020 fire loss before receiving the premium payment but it also did so again after receiving the premium payment. Ohio Casualty’s actions plainly do not ‘evidence[e] an intention permanently to surrender the right’ to deny/defend Sinjel’s claim.

Some may question if the doctrine of waiver did not apply, what about estoppel?  The court made this finding in a footnote about estoppel:

“Sinjel refers in its memoranda to principles of both waiver and estoppel. There is no factual basis for estoppel. Estoppel, unlike waiver, ‘involves some element of reliance or prejudice on the part of the insured before an insurer is foreclosed from raising a ground for denial of liability that was known at an earlier date.’ Pitts By and Through Pitts v. American Sec. Life Ins. Co., 931 F.2d 351, 357 (5th Cir. 1991) (citing Restatement (Second) of Torts § 894(1) (1977). There is no allegation of any factual basis to support a finding of such reliance by or prejudice to Sinjel.”

Ohio Casualty appears to be collecting premiums without any risk of ever paying on that bet. How sweet that must be for Ohio Casualty.

Thought For The Day

I’ll bet this, though: in a hundred years, people will be writing a lot more dissertations on Harry Potter than on John Updike.

—Brent Weeks

1 Sinjel v. Ohio Cas. Ins. Co., No. 3:22-cv-419 (N.D. Miss. Sept. 14, 2023).