Upon Renewal of a Policy, Insurers Must Give Policyholders Advance Notice of “Material Changes”

Recently, the Houston Merlin team has encountered several cases that turn on notice to policyholders, or rather, the lack thereof, when an insurer makes “material changes” to a policy renewal. A hypothetical example of this situation might be if a policyholder has a homeowners’ policy that did not exclude cosmetic damage to the policyholder’s roof and the next year, the renewal policy, unbeknownst to the policyholder, contains a cosmetic damage exclusion. Thinking the “renewal” policy was the same as the prior policy, except for coverage dates, the policyholder accepts it and pays his premium. Along comes the typical Texas hail/windstorm, and the policyholder’s metal roof suffers hundreds of unsightly dings. Policyholder files a claim with his insurance company only to find out that his current renewal policy has a new endorsement excluding what the insurance industry labels as “cosmetic” damage to his roof. His insurer denies the claim based on the “new” cosmetic damage exclusion in his renewal policy. Policyholder contacts Merlin Law Group for help. Given these facts, the information below regarding Texas law and renewal policies may be helpful to this hypothetical policyholder, and now Merlin client, and his case.

What is a Renewal Policy?

A renewal policy, like its name suggests, can be one that is no different from the prior policy with the same terms and conditions and for the same amount as provided in the prior policy except with different coverage dates.¹ It is a general rule in the insurance industry that “a renewal of a policy constitutes a separate and distinct contract for the period of time covered by the renewal.”² One court describes renewal policies as including “new contracts that begin again, recommence, resume, reestablish, recreate, and replace a preceding policy without a lapse of coverage.”³ In fact, under Texas law, an insured/policyholder may accept a renewal policy “without reading it and in reliance on the assumption that it contains no limitations or conditions not found in the original policy. . . .”⁴ While, however, there is a presumption that renewals are upon the same terms as the original policy, the parties may agree to renew on different terms.⁵ “Put simply, a renewal policy is presumed to be on the same terms as the original policy, but different terms do not necessarily constitute nonrenewal.”⁶

Statutory Authority for an Insurers’ Mandatory Notice to Policyholders on Material Changes to a Policy Renewal:

Of late, the Texas Insurance Code was amended by Senate Bill (“SB”) SB417 to reflect new notice provisions when insurers make material changes in a renewal policy.⁷ Prior to the amendments, insurers that wanted to provide less coverage to the existing policyholder were required to cancel or non-renew the policy and give the policyholder a brand-new offer. Insurers can now make “material changes” and avoid canceling or nonrenewing the policy simply by providing policyholders with a written notice of a “material change,” to:⁸

• reduce coverage;
• change conditions of coverage; or
• change the duties of the insured at renewal.⁹

These three statutory changes in the code constitute the definition for “material change.” Further, notice of a “material change” must: (1) appear in a conspicuous place in the notice of renewal, (2) clearly indicate each material change to the policy being made on renewal, (3) be written in plain language, and (4) be provided to the policyholder at least 30 days before the renewal date.¹⁰ These four statutory requirements are mandatory for insurers in a notice of material change in a policy renewal situation. The required notice of a material change may be provided to a policyholder in a notice of renewal so long as the notice of renewal is timely provided—at least 30 days before the renewal date.¹¹

Likewise, the insurer must provide to its agents notice of the insurer’s election to use an endorsement to make a material change to a policy and notice of a material change to a policy form.¹² Because insurers are required to comply with insurance statutes and regulations, a further step of incorporating the statutory language into endorsements and/or new policy forms, in effect, turns compliance requirements into enforceable contractual rights. Thus, when an insurance company or its agents fail to comply and give proper notice of a material change in a renewed policy, or in a policy form, a suit can be brought for breach of contract or for violations of the Texas Insurance Code.

As of yet, there are only a couple of reported cases regarding these Texas Insurance Code notice amendments to “material changes” of policy renewals, and they are summary judgment cases with varying facts and results. If you find yourself in a situation like the hypothetical policyholder above, don’t hesitate to call Merlin Law Group which is always ready to help policyholders.
_________________________________________
¹ See International Motorists Assn. v. Aguilar, 402 S.W.2d 516, 519-20 (Tex. Civ. App. Austin 1966), writ dism’d, (October 5, 1966).
² Great Am. Indem. Co. v. State, 229 S.W.2d 850, 853 (Tex. App.—Austin 1950, writ ref’d).
³ Berry v. Tex. Farm Bureau Mutual Ins. Co., 782 S.W.2d 246, 249 (Tex. App.—Waco 1989, no pet.).
⁴ See Indiana & O. Live Stock Ins. Co. v. Keiningham, 161 S.W.384 (Tex. Civ. App. Dallas 1913), writ refused, (March 25, 1914).
⁵ See, e.g., Materials Evaluation and Tech Corp. v. Mid-Continent Cas. Co., 519 F. App’x 228, 232 (5th Cir. 2013) (holding subsequent policy with different terms to be a renewal); American Cent. Ins. Co. v. Robinson, 219 S.W. 277 (Tex. Civ. App. Dallas 1920), writ dism’d w. o. j., (Dec. 22, 1920) (different terms and rate).
⁶ Materials Evaluations, 519 F. App’x at 231.
⁷ To implement SB417, the Texas Commissioner of Insurance adopted new 28 TAC §§5.9750-5.9752 (2017).
⁸ See TEX. INS. CODE §551.1055(b).
⁹ See TEX. INS. CODE §§551.056, 551.1055, 2002.001, and 2002.102.
¹⁰ See TEX. INS. CODE §§551.1055(c), 2002.102(c).
¹¹ See TEX. INS. CODE §2002.001(c).
¹² See TEX. INS. CODE §2002.001(d), §§551.1055(d),2002.001(d), 2002.102(d); see also, Texas Department of Insurance Commissioner’s Bulletin #B-0022-20 (April 21, 2020).