Recently, the Eighth Circuit issued a decision of interest to those who represent insurers and policyholders alike, Acuity v. Johnson, ___ F.3d ___, 2015 WL 177041 (8th Cir. 2015). The Court held that when a policyholder claims that an insurer made an unauthorized unilateral change to the policy, the validity of the change is governed by basic contract principles of mutual assent, and not by principles of reformation. Thus, the insurer bore the burden of proving that the change was actually requested by the policyholder. The Court also held that the excess insurer had standing to challenge the validity of the change when its obligations were dependent on whether primary coverage existed, even after the primary carrier settled with the policyholder on a policy release.
After a serious accident involving a tractor-trailer unit, the insurer of the tractor, Acuity, claimed that the policyholder had contacted it nine months earlier, and requested that the involved tractor unit be removed from the Acuity policy. The policyholder denied requesting the change, and had significant evidence supporting that he was actively using the vehicle. Acuity brought a declaratory judgment action against its policyholder and against the insurer of the involved trailer unit, Western National, claiming that because the policyholder had removed the involved tractor from coverage, the involved trailer coverage provided by Western National was primary.
The matter proceeded to a jury trial. Acuity claimed that because the involved tractor was not listed on its policy on the date of the accident, the policyholder and Western National were required to “reform” the Acuity policy and bore the burden of during so. Acuity also stated that because it settled with its policyholder, Western National had no standing to seek reformation or to challenge coverage under the Acuity policy. The district court disagreed, and allowed the jury to hear evidence and decide whether the policyholder had indeed requested the change. The jury was instructed that Acuity had the burden of proving that the policyholder actually requested the change. The jury found that the policyholder had never requested the change, and the district court entered judgment in favor of Western National.
The Eighth Circuit affirmed, finding that reformation was not applicable to the case. Instead, the issue was whether the insurer had unilaterally altered the insurance contract through unauthorized removal of the involved tractor without policyholder consent. It further agreed that Western National, as the potential excess insurer, had standing to challenge the unauthorized removal of the involved tractor unit, even after Acuity settled with the policyholder in the weeks before the jury trial. The court noted that the rights and liabilities of Western National were predicated entirely upon Acuity’s obligations to its policyholder, so Western National had standing to challenge the unauthorized removal.
Western National was represented at trial and on appeal by Paula Duggan Vraa and John Bjorkman from Larson King LLP in St. Paul, Minnesota. If you have any further questions, please feel free to call at 651-312-6500. A link to the decision is here.
