An insurer has an affirmative obligation to call an insured's attention to changes in the insured's coverage. Whether an insurance company sufficiently notified an insured of a change in coverage at the time of policy renewal is a question of law to be determined by the trial court.
Insurance Company Made Policy Change Without Express Notice
In the 1995 Michigan Court of Appeals case, Koski v. Allstate Insurance Co. 213 Mich App 166, 170; 539 NW2d 561 (1995), the plaintiff, Thomas Koski, sued to recover indemnification from the defendant, Allstate Insurance Company, under his homeowner's insurance policy. The plaintiff had purchased insurance coverage from the defendant since 1976. In 1982, the defendant mailed a cover letter, brochure, and revised insurance policy describing changes in his homeowner's coverage to the plaintiff. The letter asked the reader to "take a few minutes to read your new policy," and detailed new features in the plaintiff's coverage without mentioning any exclusions.
The revised policy contained an exclusion stating that the defendant would no longer provide liability protection when members of the same household sued each other. The plaintiff renewed his coverage with payment of his premium.
Insurance Carrier Denied Coverage
In October of 1984, the plaintiff's daughter was seriously injured as a result of the plaintiff's negligence, and the plaintiff was informed by the defendant that he did not have liability coverage relating to the accident.
In May 1986, the defendant's agent informed the plaintiff's daughter and mother that the plaintiff's policy excluded coverage of plaintiff's daughter. The plaintiff's daughter retained counsel and initiated an action against the plaintiff. A default judgment was entered against the plaintiff. Upon being notified of the judgment, the defendant refused to pay.
Declaratory Relief Action
In October 1990, the plaintiff sued the defendant in circuit court for breach of contract. The defendant claimed that the coverage was excluded, and that the plaintiff forfeited any coverage by failing to notify the defendant of the underlying suit. The jury found that the material received by the plaintiff did not call attention to the changes in the policy. The court stated that the question of whether the changes in coverage sufficiently alerted the plaintiff was a question of fact for the jury. The court entered judgment for the plaintiff and the defendant appealed.
The Michigan Court of Appeals affirmed. An insurer has an affirmative obligation to call his insured's attention to a change in coverage. The question of whether an insurer sufficiently notified an insured of a change in coverage is one of law to be determined by the trial court.
While the Court of Appeals found error in submitting the question of coverage to the jury, it ruled the error was harmless. The court stated that the notification given to the plaintiff was insufficient, as a matter of law, because it only consisted of "a single unemphasized reference in a 12-page booklet." Encouraging the plaintiff to read the new policy did not compensate for the inadequate notice. Rather, the defendant had an affirmative obligation to expressly alert the plaintiff of any reductions in coverage.
The court further stated that, despite an insured's being obligated to read an insurance policy and raise any questions within a reasonable time, an exception exists where the policy is renewed without notice to the insured of any alterations. If the policy is renewed without the policy holder being sufficiently alerted to the changed terms, the provider is bound by the earlier coverage.
Finally, the court dismissed the defendant's arguments that it had been prejudiced by the plaintiff's failure to provide timely notice of the claim. The court ruled that, since the defendant received information of the claim from another source, it had been sufficiently notified. The court stated that, if the defendant is notified of a claim by the policy holder and does not act, it cannot later claim it was in some way prejudiced.
Koski Reflects Majority View
The Koski opinion reflects the majority view in the United States. This rule, followed by such states as Colorado, Arizona, California, New Jersey and Louisiana, is that an insurance company is bound by the greater coverage in an earlier policy where the renewal policy is issued without calling to the insured's attention a change in terms or a reduction in the policy coverage.
In Massachusetts, for example, a reduction in policy coverage will only be recognized where: the entire renewal policy is written in readable English in good size point; the policy jacket contained notice, in capital letters, that there were some coverage changes; and the jacket is followed by a one page summary setting forth each change, with boldface type for special limitation.
Michigan Supreme Court Over-Rules Appellate Court
The Michigan Supreme Court over-ruled the appellate decision in the Koski appellate case, Koski v. Allstate Ins. Co., 456 Mich. 439, 572 N.W.2d 636 (1998) on the grounds that the plaintiff failed to comply with the notice-of-suit provisions in the insurance policy. The Michigan Supreme Court did not address the sufficiency of notice for an insurance policy renewal when coverage is being decreased or changed.