For the average homeowner, an insurance policy may not be the most thrilling reading. But it shouldn’t be ignored altogether in favor of relying on the promises of an insurance agent. If those promises turn out to be different than what’s contained in the policy, the policy governs – and a claim of fraud or misrepresentation against the agent will not stand. This was the holding of the Court of Appeals in Schumitsch v. Pioneer State Mutual Insurance Company et al — which is discussed after the break.
The plaintiffs in Schumitsch purchased a “farmowners” insurance policy from the Sam Heron Insurance Agency. They didn’t pay for specific coverage for farm structures. Instead, they claim that they were led to believe from conversations with the agency and from the type of policy they purchased that there was coverage for the barn. Not so – the policy specifically excluded property used for farming. Plaintiffs admitted that they never read the policy. Nevertheless, when the barn burned down and Pioneer denied coverage, plaintiffs sued the insurance agency for “misrepresentation/negligence.”
The Court of Appeals found that the plaintiffs’ failure to read the policy was their undoing. A party cannot prevail on a fraud or misrepresentation claim premised on misrepresentations contrary to the clear terms of an insurance policy. The Court stated that, although there is no common-law duty to investigate, ignoring information in the contract that contradicts a misrepresentation is much different than failing to actively investigate a representation. In light of the plaintiffs’ failure to read the policy, they couldn’t establish reasonable reliance on the misrepresentation, and the insurance agency was entitled to judgment as a matter of law.
Although their misrepresentation claim went down in flames, the Court didn’t shut down the plaintiffs’ entire case against the insurance agency. Failing to read the insurance policy does not bar recovery against the agency under a negligence theory. When an insurance agent misrepresents the nature or extent of coverage offered, this creates a “special relationship” under the law and an additional duty to advise that normally would not exist. A failure to read the policy can be considered by the trier of fact in determining the issue of comparative negligence.