You Only Get What You Pay For
Barry Zalma, Esq., CFE
Insurance claims expert, consultant at Barry Zalma, Inc. and author/Publisher at ClaimSchool, Inc.
Posted on December 8, 2020 by Barry Zalma
Paying Premium is Presumptively Acceptance of Policy
Two insured parties, a married couple, filed suit against their insurance agent and agency after they were denied coverage by the insurance carrier. The trial court found that it was undisputed that the insureds had paid the premium for the policy in effect and applied Tennessee Code Annotated section 56-7-135(b), which provides: “The payment of premium for an insurance contract, or amendment thereto, by an insured shall create a rebuttable presumption that the coverage provided has been accepted by all insureds under the contract.” In Talat Parveen, Et Al. v. ACG South Insurance Agency, LLC, Et Al, No. E2018-01759-SC-R11-CV, Supreme Court Of Tennessee At Knoxville (December 4, 2020) the Supreme Court was asked to decide the application of the statute to insurance agents and brokers.
FACTUAL BACKGROUND
This case arises from the purchase of a personal umbrella insurance policy. Dr. Talat Parveen and Mr. Khurshid Shaukat (collectively, “Insureds”), a married couple, before moving to Tennessee, had a State Farm umbrella policy that provided excess uninsured motorist coverage as a separate line item with a separate premium amount for such coverage.
Mr. Shaukat testified that during his roughly thirty-minute meeting with agent Norris he gave a copy of his State Farm umbrella policy and explained that the Insureds wanted the exact same coverage in Tennessee. Mr. Norris, however, has consistently denied this claim. As is pertinent to this appeal, Mr. Norris provided Mr. Shaukat with a quote for a personal umbrella policy through Safeco Insurance Company of America (“Safeco”). A copy of the quote provided to Mr. Shaukat reveals no separate line item for excess uninsured motorist coverage, nor did the policy’s premium reflect the inclusion of such coverage. Mr. Shaukat accepted coverage and purchased the Safeco umbrella policy, among other insurance policies. The Insureds received a copy of the policy and a declarations page and paid the premiums, which did not include a charge for excess uninsured motorist coverage.
On November 10, 2015, while the Safeco policy was in force, Dr. Parveen was involved in an automobile accident. Dr. Parveen sustained personal injuries, and her vehicle was totaled as a result of the crash. The Insureds then discovered that the driver of the wrecker vehicle who caused the accident was underinsured. In a later meeting with Mr. Norris, they further discovered that the Safeco umbrella policy in effect did not include excess uninsured motorist coverage. At that time, Mr. Shaukat requested that such coverage be added to their umbrella policy and paid the premium, though he was informed that the coverage was not retroactive.
The complaint alleged that Mr. Norris negligently failed to procure the requested excess uninsured motorist coverage as a part of the Safeco umbrella insurance policy. The Insureds sought damages from the Appellants “in an amount no less than One Million Dollars ($1,000,000).” The trial court granted Appellants’ motion for summary judgment, finding that it was undisputed that the Insureds had paid the premiums for the policies in effect in 2013, 2014, and 2015 none of which contained coverage for UM/UIM losses. The court determined that the Insureds had not presented evidence to rebut the presumption and that, therefore, summary judgment was appropriate.
ANALYSIS
Tennessee Code Annotated section 56-7-135 provides as follows:
(a) The signature of an applicant for or party to an insurance contract on an application, amendment, or other document stating the type, amount, or terms and conditions of coverage, shall create a rebuttable presumption that the statements provided by the person bind all insureds under the contract and that the person signing such document has read, understands, and accepts the contents of such document.
(b) The payment of premium for an insurance contract, or amendment thereto, by an insured shall create a rebuttable presumption that the coverage provided has been accepted by all insureds under the contract.
A cause of action for failure to procure insurance is separate and distinct from any cause of action against an insurer or a proposed insurer; in a failure to procure claim, the agent, rather than the insurance company, is independently liable. An issue of first impression for the Supreme Court was whether section 56-7-135(b)’s rebuttable presumption of acceptance of the policy terms by payment of premiums applies equally to an insured’s action against an agent for negligent failure to procure requested coverage as it does to an action against a carrier for coverage under the policy.
Reversing the trial court’s grant of summary judgment, the Court of Appeals specifically focused on the statute’s use of the phrase “under the contract.” It explained: “In analyzing the statutory subsection at issue, our General Assembly included the phrase ‘under the contract’ and that phrase must be given full effect. In looking at the statute as a whole, subsection (a) also includes language related to the insurance contract.” The Court of Appeal concluded that the rebuttable presumption does not apply to actions brought against an insurance agent who failed to procure the insurance coverage as directed by the insured.
The Supreme Court, reviewing the facts and the statute, noted that the Court of Appeals’ reading of the statutory language over-emphasized the phrase “under the contract.” The phrase “under the contract” immediately follows and simply modifies the word “insureds.” In the view of the Supreme Court the word clearly refers only to those against whom the rebuttable presumption applies—”all insureds”—and not to the persons or entities by whom the presumption may be asserted.
As applied in this case when Mr. Shaukat paid the annual premium, the rebuttable presumption was triggered that the coverage provided had been accepted by all insureds, Mr. Shaukat and Dr. Parveen, under the contract, the Safeco umbrella policy.
The Supreme Court concluded that if the legislature had intended to limit the rebuttable presumption to actions against certain persons or entities, it certainly could have done so, but the statute is silent as to the types of legal claims to which the rebuttable presumption applies and as to which persons or entities may rely on it. Therefore, the Supreme Court concluded that the Court of Appeals erred in construing the language of Tennessee Code Annotated section 56-7-135.
Because the Insureds failed to rebut the statutory presumption, the trial court properly granted the Appellants’ motion for summary judgment.
ZALMA OPINION
Insurance is not free. By definition it is a contract that only comes into effect when consideration – payment of a premium – is provided to the insurer. The plaintiffs paid nothing for excess underinsured motorist coverage and accepted, by paying the premium, for three years running a policy that did not provide that coverage. By paying the premium based on a policy without the excess coverage the insured accepted the policy provided not the policy – after an accident – it claimed it ordered. The presumption was rebuttable but the plaintiffs had no evidence to rebut the presumption that by payment they accepted the policy as issued for three years in a row.
? 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at https://www.zalma.com and [email protected].
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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