In my previous post in this series, I introduced the basic principle of insurance policy reformation. In a nutshell, contract reformation happens with 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. A basic example that encompasses a mutual mistake is when the wrong address is listed on a policy because of a typo or mistake. Obviously both parties wanted the address of the risk to be insured and correct but a typo on an address can make a giant difference when a claim happens. I have litigated a claim against a Florida based insurance company who used the type on the address to attempt to deny responsibility for an accidental house fire.

Today, we consider the request for a reformation of an insurance policy made by the insurance company when someone is missing as a named insured on the policy.

I must mention it is very important keep in mind that courts in different jurisdictions will handle cases pursuant to the particular jurisdiction’s laws, and the facts of a reformation case (like many other contract cases) are so distinct, the outcome can turn on one small detail. Accordingly, the cases listed in this blog series are merely provided for our readers to see some interesting reformation attempts in action. If you think your policy should be reformed, please contact us directly.

The setting is the summer of 1964, in Wisconsin, and Richard Shearer’s home was damaged by fire three times. He made claims with his insurance company, Dunn County Farmers Mutual Insurance Company, to recover for the fire losses. The insurance company denied liability on two losses and said that the wife of the named insured committed arson and the claims were not covered. The insurance company’s argument was that the policy did not provide coverage when an insured intentionally caused the fire damage.

The insurance company added Beverly Shearer (the wife) to the action and the insurer amended its defenses and stated that the acts of Richard Shearer established his wife was a co-insured under the policy. The insurance company attempted to rely on the theories of ratification, modification, and reformation of the policy. Both the trial and appellate count disagreed and a judgment was entered that Beverley was not a co-insured under the policy.

Summary of important facts

  • The farm was owned by Richard but his mother had a life estate and Beverly had an interest if Richard died and she was still alive.
  • The personal property was mostly owned by Richard.
  • Richard was the only one who signed the application.
  • Richard was the only one named on the insurance policy.
  • Richard, Beverly and Richard’s mother were on the mortgage
  • The bank advised the insurance company to add Beverly to the policy and mortgagee clause before the fires. The change was made to insurance company’s documents but the carrier never sent an amended policy to Richard.
  • Insurance company did sent a letter that stated Beverley was being added but no amendment or endorsement was ever sent. (poor underwriting)
  • Premiums were billed to both Richard and Beverly.
  • Beverly never had any dealings with the insurance company or the agents.
  • FHA attempted to have the Richard put the farm in joint tenancy at the time the loan was negotiated but Richard refused to do so as he did not want his wife to be a co-owner.
  • Richard testified he understood the FHA required insurance coverage on the mortgaged property but did not know his wife was also to be named as an insured.
  • When fire number one happens on July 2, a check is issued on July 3, to Richard and Beverly Shearer and Farmers Home Adm., but Beverly never endorsed the check, however, her name was printed on the back.
  • The addition of Beverly to the insurance company’s file was unilateral and at the request of the mortgage company- Richard had nothing to do with it.

At trial, the insurance company asked for the contract to be reformed because it argued there was evidence of mutual mistake, error, inadvertence, or at least a mistake on one side and an inequitable conduct by Richard. The court said that reformation was clearly a remedy, but in order for a party to be entitled to reformation, the evidence of the mistake and the intended provisions of the contract, which were omitted from the written agreement, must be clear and satisfactory, and that the facts were not sufficient for reformation to add Beverly as an insured on the policy.

The court also denied the insurer any other remedy to find that Mrs. Beverly Shearer was an insured under the policy. My favorite quote in this opinion:

This court rejects the invitation to invent a doctrine that a spouse should be denied recovery on an insurance contract because of action of the other spouse when those actions cannot be imputed to the insured spouse. The marriage relationship should not be used as a basis for such a law. Married people are still individuals and responsible for their own acts. Vicarious liability is not an attribute of marriage.1 (Emphasis added).

Stay tuned for more cases that illustrate insurance policy reformation failures and successes.

1 Shearer v. Dunn County Farmers Mut. Ins. Co., 39 Wis. 2d 240, 249, 159 N.W.2d 89, 93 (1968).