Alan Howard Peters v. Casey Burgess

Citations: 416 S.W.3d 394; 2011 Tenn. App. LEXIS 574Docket: E2010-01324-COA-R3-CV

Court: Court of Appeals of Tennessee; October 24, 2011; Tennessee; State Appellate Court

Original Court Document: View Document

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Alan Howard Peters sustained severe injuries from a collision with logs that fell off a truck while driving on State Highway 30. He and his wife, Edith H. Peters, initiated a personal injury lawsuit against the truck's driver and owner, subsequently settling for the defendants' insurance policy limits of $1 million while reserving their claim against their uninsured motorist (UM) carrier, Cincinnati Insurance Company (CIC). The UM coverage was part of a commercial umbrella policy renewed in 2005, which left the UM limits blank, defaulting to the umbrella policy's $2 million liability limits. After settling with the tortfeasors, CIC counterclaimed to reform the policy, asserting that the UM limits should revert to the previous $1 million. The trial court agreed, reforming the policy and dismissing the Peters' remaining claims against CIC. The Peters appealed the decision, but the Court of Appeals of Tennessee affirmed the trial court's judgment, upholding the reform of the policy. The court noted that the Peters had properly preserved their claim against CIC in accordance with Tennessee law.

CIC faced potential liability exposure of $1 million beyond what tortfeasors paid, prompting it to amend its answer with a counterclaim. CIC argued that the omission in the insurance application was a mistake and sought to reform the policy to reflect an intent for $1 million in uninsured motorist (UM) coverage. The trial court heard evidence without a jury. The Insured, who had worked with Hugh Huffaker of Huffaker Insurance Agency since 1994, had consistently sought comprehensive coverage. Huffaker moved the Insured’s coverage from USF&G to CIC in 1999, claiming better coverage for a lower premium. Although the Insured did not read or sign the application requesting $1 million in UM coverage, he received the CIC policy, which indicated an umbrella limit of $2 million and a total premium that was lower than expected. The Insured believed the UM coverage matched the liability limits, not realizing the specifics due to lack of discussion regarding UM limits with Huffaker. The 1999 CIC policy included an endorsement specifying that UM coverage was limited to the lesser of the limits shown in the Declarations or $1 million. The Insured’s testimony revealed that he assumed he was receiving $2 million in coverage despite paying premiums for $1 million in UM coverage since 1999, a misunderstanding that persisted into the 2002 policy renewal, which also reflected $1 million in UM coverage.

The insurance umbrella policy was renewed in 2005 with liability limits of $2 million, but the Form 203 UM endorsement was left blank regarding policy limits. As a result, the controlling language indicated that the limit was the $2 million shown in the Declarations. Testimony at trial focused on whether this blank was intentional and what should have been typed there. Underwriter Deborah Hitt stated that $1 million was meant to be typed, supported by instructions to the typist to enter $2 million for the umbrella and $1 million for UM limits. The typist, Anthony Richardson, acknowledged he failed to type the $1 million, despite clear instructions. The insured was unaware of this omission until litigation began, as he did not read his policies. The policy was renewed in 2008 with the $1 million correctly typed in. The court found Richardson's error was inadvertent and confirmed that both the insured and insurer intended to establish an umbrella policy with $2 million liability and $1 million excess UM coverage. The application submitted was not signed by the insured, but this was not required by the insurer. The insured does not claim any wrongdoing by the agent who submitted the application. Although the insured argues for $2 million excess UM coverage from 2005 to 2008, they did not acknowledge that they had only $1 million excess UM coverage prior to 2005, which remained consistent. Additionally, current Tennessee law does not mandate insurers to offer excess uninsured motorist coverage. The evidence indicated a consistent practice from the insured to allow their agent to seek and submit insurance options for approval, maintaining the coverage amounts of $2 million for Umbrella Liability and $1 million for Excess UM.

The Insured, portrayed as a knowledgeable business individual, did not read his insurance contracts and cannot now claim coverage that was not purchased. There was a renewal of the 2005 policy under the same terms, which included $1,000,000 in Excess UM coverage. A typographical error by Anthony Richardson prevented the correct amount from being documented in Form 203. The Insured never paid premiums for $2,000,000 in Excess UM coverage or requested a policy change to reflect that amount. Evidence indicates that both the Insured and CIC intended to renew the Umbrella policy with $1,000,000 coverage, and the court found sufficient grounds to reform the contract by inserting "1,000,000" into the blank space. The case was dismissed, determining that CIC had no liability under the reformed UM policy since the Insured had already received $1 million, which matched the policy limit.

The Insured appealed, questioning whether CIC provided clear and convincing evidence of a prior agreement differing from the issued insurance policy. The standard of review for trial court findings in civil cases, as detailed in Tennessee law, presumes the trial court's fact findings are correct unless evidence suggests otherwise, with a focus on the credibility of witnesses. Legal questions are reviewed de novo, while cases requiring clear and convincing evidence must demonstrate a high probability of the cause of action's elements. The standards for contract reformation, as established in Sikora v. Vanderploeg, emphasize that reformation is an equitable remedy aimed at aligning the contract with the true intentions of the parties, requiring clear and convincing evidence of mistake beyond mere preponderance.

Mistake in expression refers to situations where one or both parties to a written contract mistakenly believe that the document reflects their intended agreement. Courts may reform the contract to align it with the true agreement if clear and convincing evidence is presented showing: 1) a prior agreement existed, 2) there was intent for this agreement to be included in the written contract, 3) the written contract materially differs from the prior agreement, and 4) the difference is not due to the gross negligence of the reformation-seeking party. A denial of a prior agreement or claims of non-mutual mistake do not automatically prevent reformation if the required elements are established, and discrepancies are generally presumed mutual unless fraud is evident.

In this case, the Insured claims no mutual mistake regarding the 2005 CIC policy's UM coverage, asserting it matched his understanding. However, this fails to consider evidence showing that prior policies (1999 and 2002) explicitly stated UM limits of $1 million and that the intent in 2005 was to renew without changes. When renewing an insurance contract, it is presumed that the new contract retains the same terms as the previous one. The Insured's argument of no prior agreement regarding UM limits ignores that he received copies of the prior policies that clearly stated the limits, implying he should have known their contents. Legal precedent establishes that an insured cannot claim ignorance of a contract's provisions if they have not read it, barring claims of fraud or mistake. Courts presume insured individuals are aware of and agree to all policy terms regardless of their actual reading of the contract.

In De Ford v. National Life, Accident Ins. Co., the court upheld the principle that a party to a contract is presumed to have knowledge of its contents, regardless of their ability to read or their failure to do so. The plaintiff's claim that he could not be held to the terms of the insurance contract due to not reading provided notices over a decade was rejected. The court emphasized that allowing such an argument would undermine the integrity of contracts. It was determined that the plaintiff was conclusively presumed to understand the contract provisions and could not claim insufficient knowledge to ratify the contract. The trial court's finding, supported by clear and convincing evidence, confirmed that the parties intended to renew the insurance policy under the same terms as previous policies. Consequently, the trial court's decision to reform the policy and dismiss the claim was affirmed. Costs on appeal were assigned to the appellants, and the case was remanded for the collection of lower court costs.