Commercial insurance policies are often complex agreements with many levels of coverages, sub-limits and exclusions. Negotiations of policy terms often take time and lots of back and forth between the prospective policyholder and the insurance carrier. Because of this, these sorts of policies are often multiyear agreements that will include automatic renewal language or a promise to offer a renewal. A recent Third Circuit Court of Appeals opinion in a Pennsylvania case speaks to what can be considered a renewal.1
In Indian Harbor Insurance Company v. F&M Equipment, LTD, the question was whether Indian Harbor breached its initial insurance policy with F&M when it offered a “renewal” that contained substantially different terms than the initial policy. The initial policy issued by Indian Harbor to F&M was for a 10-year term with $14 million in coverage. Near the expiration of the initial 10-year policy, Indian Harbor offered a “renewal” with a new price, a one year policy term, $5 million in coverage instead of $14 million, and excluded some property that was originally covered.
F&M declined the renewal and filed a declaratory judgment action alleging that Indian Harbor breached its promise to offer a renewal. The U.S. District Court for the Eastern District of Pennsylvania ruled for Indian Harbor and F&M appealed. The Third Circuit reversed the decision and found that the new policy offered from Indian Harbor was not a renewal. The appeal court found:
The length of coverage is different, the amount of coverage is different, and the scope of coverage is different. The general subject matter is the same and the parties are the same, but this is not enough. Because Indian Harbor did not offer a contract that is either the same or nearly the same as the Policy, it breached its promise to offer a renewal extension of coverage.
When an insurer is obligated to offer a policy renewal, that renewal must be on terms that are, at least, nearly identical to the underlying policy. Anything else constitutes a new policy offer and not a renewal.
1 Indian Harbor Ins. Co. v. F&M Equipment, LTD, No. 14-1897 (3rd Cir. Oct. 15, 2015).