In my basic course about property insurance coverage to public adjusters, and as a standard issue regarding case intake at Merlin Law Group, I first emphasize to always make certain the named insureds and clients have a right to bring the claims. There is a practical aspect of this—you want to represent people and businesses that are going to get paid by the insurance company. The second thing is to always check the property address and make sure there are no underwriting issues. “Is the property listed as insured also the property that sustained damage?” seems like a practical follow-up question to the first question.

A case that should not have been lost by the policyholder is why I raise today’s question. It was recently lost in part when a federal judge ruled that the property in question was not the property listed on the policy. 1 It was an obvious clerical mistake because the policy listed two building locations with the same 2803 address and failed to list the 2805 address. This could have been corrected in any number of ways and easily with a reformation lawsuit, as noted by the defendant insurer in their motion for summary judgment:

[T]he Plaintiffs have only filed one count for breach of contract; the Plaintiffs did not file counts for reformation of the Policy or declaratory judgment. Thus, the Policy cannot be reformed and the court must rule based on the plain and unambiguous language of the Policy. Specifically, the Building coverage section for the commercial property coverage states that Westchester ‘will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.’ Accordingly, the Commercial Property Declarations only lists the two buildings at the 2803 Property. The Commercial Property Declarations does not list, schedule, or include the 2805 Property. Thus, the language of the Policy unambiguously demonstrates that the commercial property insurance only lists the 2803 Policy. Additionally, the Plaintiffs do not have any evidence to prove that the 2805 Property was listed on the Property or a breach of contract by Westchester relating to the 2805 Property. Therefore, Plaintiffs are not entitled to any damages or payments for the 2805 Property, including any payment for the alleged cost of $123,993.52 and $127,310.72, to replace the roofs of the two buildings at the 2805 Property, as alleged by Plaintiffs’…

This is a very technical point and, in my view, a completely wrong position of the coverage contemplated by the insurer. But insurance defense counsel are paid (and ethically required) to advocate for their insurer clients zealously. Policyholders and their attorneys have to respond with evidence and legal theories and anticipate these technical issues.

In this case, the Cozen O’Connor lawyers did an excellent job representing Westchester Surplus Lines because the judge agreed with their arguments. After successfully objecting to evidence which would have demonstrated that the 2805 property and buildings were covered, the court then ruled for the defendant insurer:

[T]he Parties agree that the 2805 Property is not listed, nor explicitly identified anywhere within the Policy. The Parties, disagree, however, as to whether there is an ambiguity in the Policy, specifically in the commercial general liability coverage section. There, the declarations page lists the 2803 Property, but in the ‘Class and Premium Table’ indicates that properties with 26 units and 17 units are insured. The 2803 Property and 2805 Property have 26 and 17 units respectively. Even if the Court assumes that this is an ambiguity within the Policy, the properties listed within the commercial general liability coverage hold no bearing on the relief Plaintiffs request in this action. Specifically, the commercial general liability coverage only applies to suits seeking damages of ‘bodily injury’ or ‘property damage.’ Moreover, the Policy states that such commercial general liability coverage does not apply to ‘property that [the insured] owns, rents, or occupies.’ The applicable section of the Policy relevant to this action is the commercial property coverage, providing insurance coverage for direct physical loss or damage to covered property caused by or resulting from any ‘Covered Cause of Loss,’ which includes wind or hurricane events. The Parties do not dispute that the commercial property coverage solely lists two buildings on the 2803 Property. The language of the Policy unambiguously makes no reference to the 2805 Property. Accordingly, the Court finds that there is no genuine issue of material fact with respect to Plaintiffs’ breach of contract claim for the 2805 Property. 2

Larry Bache wrote about lessons on reformation of a property insurance policy a decade ago in Hey, That’s Not the Insurance Coverage That We Agreed to – Lessons on Reformation of an Insurance Policy, Part I. He describes a situation just like this instant case and why reformation is an important remedy in property insurance law:

But what happens if both parties make a mistake when the policy is being purchased? What happens when the agreement reduced to writing fails to express the agreement of the parties? An easy to understand example: the insurance policy lists an address with a typo. Instead of listing 444 1st Avenue, the policy lists 444 1st Street. The client pays for the insurance and provides a copy of prior insurance coverage for the house on 1st Avenue. The contract can be reformed to reflect the true intent of the parties and correct the address to 444 1st Avenue. However, beware to avoid these mistakes before the policy is issued because changing even an address can be a legal battle. The best advice is to read all applications and policies and make sure the product is the same as what you were promised and planned on purchasing.

In a nutshell, contract reformation happens when the former contract is rewritten in a manner that reflects the true intentions of the parties more accurately. There can also be a reformation of a policy when one party makes a mistake coupled with fraud.

Dan Veroff wrote how reformation can be used in California When Can You Ask for Reformation:

Everyone in the insurance industry has heard the term reformation, but it is often misunderstood. In California (and elsewhere), the legal right to reformation originated over a century ago when we still had separate courts of ‘law’ and ‘equity.’ Reformation was a creature of the latter, designed to prevent one party from using a mistake in a written agreement against the other.

Today, a court’s power to reform is generally restricted to the scenarios set forth in California’s Civil Code section 3399, which only authorizes reformation in three situations: When a contract fails to reflect the parties’ actual agreement because of fraud, a mutual mistake, or the unilateral mistake by one party which was known or suspected by the other.

So, from this part of the cited case, the basic lessons to remember are: The first question is whether the client is the one who can bring the claim, as noted in Analyzing the Insurance Policy: “Who” is Insured Should Be the First Determination. The second lesson is to check the address to make certain that there is no underwriting problem.

I suppose a third lesson is to contact a competent policyholder attorney about what to do if you have a problem with either of the first two questions.

Thought For The Day

It’s the little details that are vital. Little things make big things happen.
—John Wooden

1 St. Joe Homes & Investments v. Westchester Surplus Lines Ins. Co., No. 2:23-cv-14362 (S.D. Fla. Sept. 20, 2024).
2 Id. at 9.