Many insurance policies are renewed. When the renewal occurs, new policy forms or terms are sometimes incorporated. Nothing was considered amiss about this…until now.

In the case of Indian Harbor Insurance v. F&M Equipment, Ltd., the Third Circuit (applying Pennsylvania law) has just ruled that a renewal policy must continue “coverage on the same, or nearly the same, terms as the policy being renewed.” The facts giving rise to this decision are as follows. Indian Harbor issued a ten year policy to F&M with a promise of renewal. At the end of the ten year term, Indian Harbor offered a renewal policy that had: (a) an updated price; (b) a one year and not a ten year term; (c) a substantially lower coverage limit; and (d) a specific location (Elizabethown) exclusion. These term changes appear to have largely been the result of a “bad” (environmental) loss that F&M had in Elizabethtown. When offered the “renewal” policy, F&M rejected the proposal and instead demanded that a policy with the same terms be offered. Indian Harbor refused and the instant lawsuit resulted.

The holding of the case (wherein the Third Circuit reversed the trial court), i.e. a renewal policy must continue “coverage on the same, or nearly the same, terms as the policy being renewed”, seems onerous. But, the question is whether this decision is limited to the facts at bar, i.e. to an insurance policy that stated that Indian Harbor could only non-renew the Policy for one of five reasons (none of which applied), or if it deals with all situations in which an insurer offers a policy that it characterizes as a “renewal.” We think the better argument is that the decision is specific to a policy that contained an automatic renewal clause, but insurers should expect to see this argument raised whenever a policy “renewal” contains different terms – especially if those different terms than serve as the basis for a coverage disclaimer.

For more information about this post please e-mail Bob Cosgrove .