In a case decided by a 3-2 vote which involved coverage under a commercial liability insurance policy issued by Allstate, the Supreme Court of Tennessee held in favor of an insured finding that the insurance company was responsible for a mistake by one of its agents in Tennessee. The case falls in the category of an insurance agent mistake case, many of which type cases end up in Tennessee courts.
Here are the key facts of the case:
• The Plaintiff in the case was a customer of Allstate Insurance Company who owned and insured six vehicles under a commercial policy with Allstate
• The Plaintiff insured one vehicle under a personal liability policy
• The commercial policy provided significantly more liability coverage than the personal policy
• One of the vehicles which was insured was a van (the “Van”)
• The Van was involved in an accident on June 17, 2005
• In 2002, when the Van was originally insured with Allstate, it was insured under the commercial policy
• Allstate took the position that, prior to the accident, the Plaintiff had requested Allstate to move the coverage of the Van to the personal policy in order to reduce the premiums that would be owed by the Plaintiff
• The Plaintiff testified that he never instructed Allstate to move the coverage of the Van from the commercial policy to the personal policy, though he acknowledged that he called his agent’s office in 2005 to tell it that it had to find a way to reduce his premiums or he would quit doing business with Allstate
• The Plaintiff testified that “there was no question in his mind” that he instructed the Allstate agency office to place the Van on the coverage for the commercial policy
• No employees of the Allstate agency could testify that they remembered the Plaintiff instructing the office to move coverage of the Van to the personal policy, but one employee of the agency testified that the coverage would not have been moved unless the Plaintiff had requested the same
• In 2005, and before the accident, the Plaintiff received a number of documents which Allstate contended made it clear that coverage of the Van had been moved from the commercial policy to the personal policy, which documents were:
• On March 25, 2005, the Allstate office sent the Plaintiff a letter verifying the changes it had made to his coverage which indicated that there had been a change in insurance coverage for the Van and referring to an accompanying “Amended Policy Declarations” which, according to the dissent, “clearly” stated that the Van was subject to the lower coverage limits of the personal insurance policy
• Four bills for the commercial policy which did not list the Van as a vehicle covered by that policy
• Two bills for the personal policy which reflected that the Van was covered by the personal policy
Allstate filed a declaratory judgment action. When the case went to trial, the trial court found that both the Plaintiff and the Allstate witnesses were credible. The trial court found that “maybe” the reason that the Van was placed on the personal policy was because of a misunderstanding. The trial court held in favor of Allstate, and found that the Van was not covered under the commercial policy because the Plaintiff had “ratified” the change in coverage by not objecting when he received the March 25th letter and the insurance premium bills.
The Supreme Court held that the Plaintiff never ratified the change of coverage, and that Allstate was estopped to deny coverage under the commercial liability policy because its agent had made the mistake of changing the coverage. The legal concept of ratification is bandied about sometimes in breach of contract cases, though it is probably seldom fully understood by litigants. The opinion of the Supreme Court is useful because, in it, the Court discussed the concept of ratification.
According to the Supreme Court, “ratification of a contract occurs when one approves, adopts, or confirms a contract previously executed by another, in his stead and for his benefit, but without his authority.” Plugging this definition of contract ratification into the facts of the case before it, the Supreme Court held that ratification was not possible because the Allstate agency, when it changed the coverage, was not acting in the place of, or, for the benefit of, the Plaintiff. Instead, it was acting for its principal, Allstate Insurance Company.
The Supreme Court further held that, consistent with long-standing Tennessee law, Allstate was estopped to deny that the Van was not covered under the commercial insurance policy because it was the mistake of its agent that the coverage for the Van was not on the commercial policy.
As is obvious by the vote, this was a close case. Judge Koch wrote a compelling and thorough dissent which is well worth reading if you are involved in an insurance agent mistake case. Another case that might well be very important for any lawyer involved in an insurance agent mistake case is Henry v. S. Fire & Casualty Company, a 1958 opinion of the Tennessee Court of Appeals.