Is There Coverage Where an Insurer Unilaterally Removes Property from a Policy Without the Policyholder's Consent?


By: Joyce M. Mocek
In a recent circuit court decision, Acuity v. Johnson, 2015 WL 177041 ((8th Cir. 2015), the Court reviewed the appropriate standards to be applied when an insurer and policyholder dispute whether a change has been requested by a policyholder to a policy.  The Court also considered whether a potential excess insurer had standing to challenge the interpretation and application of the contract terms between a policyholder and primary insurer, even if it was not a party to the contract.
In this case, there was an auto accident  involving a particular tractor-trailer unit and resulting claims.  The insurer of the tractor, Acuity, denied that it was required to pay the claims and contended that the policyholder had requested that the subject tractor be removed from the policy.    Acuity further contended that the insurer of the trailer involved in the accident, Western National, should provide primary coverage for the accident because the tractor had been removed from the Acuity policy.  Acuity filed a declaratory judgment action against the policyholder and the insurer of the trailer, claiming that the Western National policy was primary and required to reform its policy.  The policyholder claimed that Acuity made a unilateral change to the policy by removing the subject tractor as the policyholder contended that it had not requested the removal of the tractor.      Western National argued that Acuity was required to “reform” the Acuity policy to include the subject tractor.  Acuity contended that since it had settled, Western National lacked standing to contend that it should reform its policy.
The Eighth Circuit concluded that the validity of whether a change was requested to a policy should be governed by basic contract principles relating to mutual assent, and not by principles of reformation.  Thus, the insurer, Acuity, bore the burden of proving that the policyholder requested the change, and the district court had properly considered evidence at trial on whether the insurer, Acuity, had unilaterally removed the subject tractor from the policy without the policyholder’s consent.  It also held that Western National, as the potential excess insurer, had standing to dispute the removal of the subject tractor from the Acuity policy.  This decision has far reaching implication for insurers, as it reiterates that the burden is placed on the insurer to substantiate a change to a policy resulting in a reduction in coverage, and it also permits insurers standing in situations where basic contract principles may not permit it.