On September 1, 2011, the Fifth Circuit delivered an opinion which should remind everyone to renew their insurance policies if they expired or are about to expire.

In Campo v. Allstate Insurance Company, the insured maintained a flood insurance policy with Allstate. On June 28, 2005, Allstate mailed the insured an expiration notice informing him that his 2004-05 policy would expire on August 13, 2005. The notice provided that the insured could retroactively renew his policy for the 2005-06 coverage period without a gap in coverage by paying the required premium within 30 days of the expiration. This grace period ended September 13, 2005.

Hurricane Katrina destroyed the insured’s home on August 29, 2005, before the end of the grace period for retroactively reinstating his policy. After Katrina, the Federal Emergency Management Agency (“FEMA”) extended the grace period for retroactively renewing policies for ninety days, making the insured’s deadline for paying his premium December 12, 2005. During his deposition, the insured acknowledged receiving the expiration notice and understanding that his coverage expired on August 13, 2005.

The insured filed a claim with Allstate in early September 2005. On October 29, 2005, Allstate sent the insured a letter stating that it had concluded that the claim would reach or exceed the insured’s policy limits and the National Flood Insurance Program should issue a check to the insured for his policy limits. A month later, after several telephone conversations between the insured and Allstate’s representatives, Allstate issued an advance check on the policy for $2,500 for living expenses. Neither the insured nor Allstate mentioned the delinquent premium payment, before the end of the grace period, during the insured’s many telephone conversations with Allstate.

On December 12, 2005, the insured’s grace period for retroactively renewing his policy expired, and he had not paid the premium. Two weeks later, Allstate mailed the insured a letter stating that it was “unable to extend coverage or payment consideration for [the insured’s] reported loss.” Allstate then denied the insured’s claim because “no policy was in force at the time of this loss,” as the policy lapsed on August 13, 2005.

After the insured filed suit, the District Court issued a judgment for the insured and held that the insured proved all three elements of negligent misrepresentation by a preponderance of the evidence: (1) a legal duty to supply correct information, (2) breach of that duty, and (3) damages resulting from justifiable reliance on the misrepresentation.

On appeal, the Fifth Circuit reversed and found that it was not reasonable for the insured to rely on Allstate’s representations in concluding that his claim would be covered under his expired policy. None of Allstate’s alleged misrepresentations affirmatively suggested that the insured’s loss would be covered even if he failed to pay his premium during the extended grace period. Neither party mentioned the delinquent premium after the insured’s loss until Allstate’s December 2005 letter denying the insured’s claim. The Court concluded that “although Allstate did inform the insured that his loss would be covered by the expired policy and that it had requested that the National Flood Insurance Program issue a check to the insured for the policy’s limits, neither of these representations gave any affirmative indication that his claim would be covered even if he failed to pay a premium reinstating his coverage by the end of the grace period.

Learn from this case; renew any expired or soon-to-be expired policies in a timely fashion. The insured could have avoided more than six years of litigation and struggles to recover if had he just renewed his policy during the grace period.