The title to this post would almost certainly be answered “no” by any insurance regulator or consumer advocate. But Liberty Mutual Insurance Company argues this is exactly what it can do with no consequence because the fraudulent and deceptive statements in the declarations should have been found by the policyholder reading the fine print in the policy endorsement—which is anything other than an enhanced product.

This post was going to start very differently had I just read the article about the case,1 Still Another Example of Why You Should Read Your Policy, and the conclusion by Law.com’s “expert” Hannah Smith who stated:

As we all know, it is vital to read and understand an insurance policy prior to bringing action against an insurer. As we all also know, courts will construe clear and unambiguous insurance policy language by giving it its ordinary and plain meaning.

Right next to her article is another Law.com “expert” listed as Louis Castoria, who wrote a Law.com article questioning the conclusion of Hannah Smith in, Is There a Duty To Read Insurance Contacts? He stated:

Where is this ‘duty’ found? Certainly not in most insurance policies. Policies expressly require policyholders to pay their premiums, give their insurers prompt notice of losses and claims, and cooperate with the insurers in defending lawsuits. Where is it engraved, ‘Thou shalt read thy policy’? (Some policies do recite, ‘I have read this policy,’ but even they don’t state it as a condition to being covered.)

If there were truly a ‘duty to read the policy,’ the transcripts of most insurance coverage trials would fit on a cocktail napkin:

Insurer’s counsel: ‘Mr. Policyholder, did you, at any time before your loss, read your entire insurance policy?’

Policyholder: ‘Well, um, no.’

Judge: ‘Case dismissed.’

In real life, very few people completely read their insurance policies, mortgage closing papers, or those tissue-paper thin warning scrolls that come with prescription medications. The ‘duty to read’ is a legal fiction, perhaps better stated as policyholders being deemed to know the essential terms of their contracts.

I wrote about this issue in, Nobody Should Be Expected To Read Every Insurance Contract They Purchase. The very learned insurance expert, Barry Zalma, then wrote a reply guest blog, There is an Obligation For The Insured to Read an Insurance Policy. Zalma also pointed to the consequences of not doing so, confirming Hannah Smith’s conclusion and practical title to her article:

From my 52-years’ experience I can only say that those people who did not read their policy get very upset when their insurance agent or broker told them they acquired the best available policy and that it covers almost everything does not mean the policy covered every possible contingency. When an adjuster or lawyer points out that there is no available coverage for the claim, they are making they claim they were deceived. Had the insured read the policy before it was acquired, they would know that no insurance policy covers every possible risk of loss faced by a person or business. Some risks of loss are difficult, if not impossible, to insure. Consider the risk of loss by war, atomic attack, earthquake, flood, etc. can be insured but only for extremely high premium and deductibles or self-insured retentions so expensive to make such coverages unsaleable.

Most insurance policies, as a result, exclude – in clear and unambiguous language – coverage for those extreme risks. The person insured who does not read the policy will be upset when his property is destroyed by a flood or earthquake. Had he read the policy and wanted coverage for earthquake or flood would have been directed to a specialty policy – probably expensive – that provides that coverage.

Maybe so, but how come all the policyholders who do not read everything that is sent to them by their insurance company—including every renewal notice and renewal policy—are required to read the insurance policy after we purchase it? Why can’t we rely upon our licensed insurance agent? Seriously, why does Liberty Mutual have insurance agents that explain to us what we purchase if we cannot rely upon them? Why do we have licensed insurance agents at all if the law and insurance companies require us to read the policy and understand all the fine-print terms? Why do people need to be licensed to sell insurance if it is really so easy to understand?

These questions are food for thought. But, after reading the case decision cited in Ms. Smith’s article, I then read some of the briefing before the trial judge. There the Plaintiff stated, in part:

Plaintiff Murray Richelson, like most responsible homeowners, purchased replacement cost insurance coverage from Defendant Liberty Insurance Corporation for many years. Replacement cost is simple and easily understood by ordinary consumers – if my property is damaged, the insurance company pays the full cost to repair or replace it. The declaration page of Plaintiff’s policy, which is the most accessible and important part of the policy from the customer’s perspective, told him that he had a deluxe policy providing ‘Expanded Replacement Cost’ coverage. It said nothing about his roof being exempted from the ‘Expanded Replacement Cost’ coverage. In fact, instead of saying his roof was in any way excluded, it told him that he was receiving ‘Additional Coverage’ for his roof.

That was a lie. He did not receive ‘additional’ coverage; instead, in convoluted and impenetrable language, containing undefined terms foreign to ordinary customers, the relevant endorsement reduced his coverage. It paid him ‘actual cash value’ (‘ACV’) coverage, but ordinary consumers do not know what ACV means. That is an insurance term of art that is not defined anywhere in Liberty’s policy, so customers would not recognize that they were not getting “Replacement Cost” for their damage. That they were not getting ‘Additional Coverage.’ That they would only receive the depreciated value of their roof instead of the full cost to repair or replace it. Defendant’s sleight of hand cost Plaintiff over $4,600 out of his own pocket when his roof was damaged in a wind storm.

Plaintiff filed this class action lawsuit for Ohio customers who purchased a ‘Replacement Cost’ homeowners policy from Defendant, only to later find out that they did not have replacement cost coverage for their roof, due to a policy endorsement that Defendant intentionally and falsely described as ‘Additional Coverage.’ Plaintiff relied on the misleading coverage description provided by Liberty on the declaration page, which was false, and resulted in his loss of over $4,000, asserting a claim for fraud in Count One of his Amended Complaint. Plaintiff has stated a claim for breach of contract in Count Two, because Defendant represented Plaintiff would receive additional coverage but did not provide it….

…

On October 24, 2017, Plaintiff’s home suffered significant damage due to a wind storm, requiring extensive repairs…. At the time of the loss Plaintiff’s home was covered by a replacement cost ‘LibertyGuard Deluxe Homeowners Policy’ underwritten by Defendant…. Plaintiff had been insured by Defendant on a replacement cost basis since 1986, and the Policy in force at the time of the loss was a renewal policy with a policy period from April 28, 2017 to April 28, 2018….

Defendant’s policy declaration page, under the ‘Coverage Information’ section that Defendant described as ‘important coverage information’ that Plaintiff should ‘review … in detail to ensure [he was] fully covered,’ informed Plaintiff that he was purchasing a ‘Standard Policy with HomeProtector Plus’ that covered his ‘Dwelling with Expanded Replacement Cost’ coverage. Amended Compl. Ex. 1 (emphasis added). The ‘Coverage Information’ said nothing about the roof of Plaintiff’s home being excluded from ‘Expanded Replacement Cost’ coverage.

I am going to end this post at this point because there is Liberty Mutual’s side of the story which I will write about tomorrow. The outcome is obviously against the policyholder. And the reason is stated by the policyholder’s brief:

Defendant has now moved to dismiss….Defendant argues that an insurance carrier is permitted to place any false and misleading description on the policy declaration page, but then avoid liability by pointing to the policy endorsement that contradicts the fraudulent description.

So, the practical lesson is that you really should read the declarations, but do not trust them. Read the policy. I know you will not do so because nobody reads all the pages of every policy, including all the renewal policies. Even if you did, you would not understand everything you are reading because as proof, we argue about what they mean all the time.

Thought For The Day

Nothing in fine print is ever good news.
—Andy Rooney
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1 Richelson v. Liberty Ins. Corp., No. 19-3035, 2020 U.S. App. LEXIS 862 (6th Cir. Jan. 6, 2020).