Massachusetts High Court Rules for Horace Mann in Policy Reformation Case

August 26, 2013

The Massachusetts Supreme Judicial Court, the state’s highest court, recently ruled in favor of an insurance carrier in a case involving a mutual misunderstanding by both the homeowners policyholder and an insurance agent.

The case involved a homeowners policy written by Horace Mann Insurance Company — and an “animal liability endorsement” that limited coverage to $25,000 for claims arising from any animal bites. According to court documents, both the homeowner and the Horace Mann agent weren’t aware of this coverage limit during the application process.

But while both parties individually held this inaccurate assumption, they did not specifically communicate or discuss this topic during the application process. The issue only arose when someone who was bitten by the policyholder’s dog commenced a lawsuit. The high court ruled earlier this month that since there was no proof of a prior agreement between the parties that differed from what’s written in the policy, there was no “mutual mistake” that could warrant reformation of the policy.

The court documents show that in March 2006, Alan and Katherine Fowler purchased a homeowner’s insurance policy from Horace Mann. The policy was to replace a previous policy the Fowlers had purchased through the Massachusetts Property Insurance Underwriting Association’s assigned risk pool, which was more expensive than commercial homeowner’s insurance policies.

On March 10, 2006, Katherine met with a Horace Mann agent to prepare an application for homeowner’s insurance through Horace Mann. The agent asked Katherine if she owned certain specific breeds of dog, and Katherine answered, “[N]o.”

Katherine added that she owned an American Bull Dog, which was not among the breeds the agent had named. Katherine did not express any concern as to the potential risk for the American Bull Dog breed, nor did she ask any questions about coverage for dog-related claims.

The agent printed Katherine’s completed application form and they both signed the form. Katherine gave a check for $310, representing 40 percent of the total premium cost, and was given a “Verification of Coverage” sheet, showing personal liability limits of $500,000 — with a full policy to be mailed to her.

When Katherine received the full policy, she “skimmed” through it, according to court documents. The policy contained an “Animal Liability Endorsement” which limited coverage to $25,000 for claims arising from animal bites. Additionally, it precluded any coverage for bites by certain listed breeds of dog; the Fowlers’ American Bull Dog was not among the excluded breeds.

According to Katherine’s affidavit, when she purchased the policy after meeting with the agent, she mistakenly assumed that the policy provided the full $500,000 in liability coverage for claims involving animal bites, the court documents showed.

Horace Mann’s agent stated in her affidavit that she, too, mistakenly believed that the policy would provide full liability coverage for dog bite claims if the dog was not one of the listed excluded breeds — although the agent never conveyed this belief to Katherine. According to court documents, the two parties did not discuss coverage for animal bite claims during their meeting.

In June 2006, plaintiff Scott Caron was bitten in the face and severely injured by the Fowlers’ dog, the court documents show. He and his wife Caryn brought an action against the Fowlers in the Superior Court.

A jury found for the Carons and awarded them $250,559.96, including prejudgment interest. Horace Mann paid $25,000 of this judgment, maintaining that, due to the endorsement, such was the extent of its liability. The Carons reached a settlement with the Fowlers regarding the balance of the judgment, and became assignees of the Fowlers’ claims against Horace Mann.

The Carons then commenced an action in the Superior Court against Horace Mann alleging that the Fowlers and Horace Mann were mutually mistaken as to the application of the endorsement, and thus that the policy should be reformed by striking the endorsement.

A Superior Court judge granted partial summary judgment in favor of the Carons on this claim, and denied Horace Mann’s cross motion for summary judgment on all counts. The judge allowed the Carons’ motion for entry of separate and final judgment on the reformation claim.

Horace Mann then moved to correct the judgment, and the judge issued an amended final judgment against Horace Mann, totaling $225,559.96, with interest in the amount of $77,197.80. Horace Mann appealed.

In its review, the Massachusetts Supreme Judicial Court stated that “The question before us, then, is whether [the Horace Mann agent’s] misunderstanding of the endorsement, which was never expressed to Katherine, but which tracks Katherine’s own misunderstanding, provides a basis by which the Carons may claim mutual mistake.”

“The rationale underlying the mutual mistake doctrine compels us to answer in the negative,” the high court stated.

The mutual mistake doctrine exists to effectuate the agreement intended by the parties to a contract where the contract language fails to capture that agreement, the high court stated.

Central to this doctrine is the fundamental underpinning that the parties had reached an agreement on a point which they intended to enshrine in the written contract but which, for some reason, was mistakenly omitted from that written contract.

In this case, however, the agent’s misunderstanding as to the application of the endorsement cannot function as the necessary prerequisite to a claim of mutual mistake, the high court ruled.

Although the agent’s misunderstanding is consistent with Katherine’s misunderstanding, it is not a prior “expressed agreement” because the agent never communicated this misunderstanding to Katherine, the court stated.

“We accordingly reverse the entry of partial summary judgment in the insured’s favor ordering such reformation, and order the entry of separate and final judgment for the insurer on the reformation claim,” the Massachusetts Supreme Judicial Court ruled. The matter has been remanded to the Superior Court for further proceedings consistent with the high court’s opinion.

The case is SCOTT CARON & another vs. HORACE MANN INSURANCE COMPANY. (SJC 11273) 466 Mass. 218 (2013).

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