Don’t Let This Insurance Mistake Happen To Your Business!
Did you know that changing the structure of your business can affect your insurance coverage? That concept was at the heart of a case decided by the United States Court of Appeals, Tenth Circuit, in January: Christy v. Travelers Indemnity Company of America. Failing to update his insurance company of a change in business form may end up precluding a business owner from collecting on an insurance claim from a vehicle accident.
Corey Christy purchased a Commercial General Liability policy (CGL) from Travelers in the name of his sole proprietorship, K&D Oilfield Supply. He subsequently incorporated his business as K&D Oilfield Supply, Inc. He renewed his CGL policy annually, but did not notify Travelers of the change in business form.
When he was subsequently in an accident with an underinsured motorist (UM) he made a claim under the CGL policy believing that as the sole proprietor of K&D Oilfield Supply, the policy provided UM coverage for any accident, not just ones occurring in a covered auto.
Travelers denied the claim because Mr. Christy failed to inform Travelers of the change in business form. Travelers contended the incorporation effectively changed the named insured to K&D Oilfield Supply, Inc. and in the case of insuring a corporation, the policy would only apply to covered autos and Mr. Christy was not operating a covered auto at the time of the accident.
The district court originally granted summary judgment in favor of Travelers and found that Mr. Christy had a duty to notify Travelers of the change in business form and that his failure to update Travelers about the change constituted a material misrepresentation that induced Travelers to renew the policy. The district court therefore reformed the CGL policy to reflect K&D Oilfield Supply, Inc. as the named insured and held that the policy did not cover the accident.
Mr. Christy appealed and the appeals court ruled that since neither Travelers nor Mr. Christy’s insurance agent ever expressly told Mr. Christy that changing business form could affect Travelers’ decision to renew the policy, the district court should not have granted summary judgment in favor of Travelers and remanded the case for further proceedings. The issue of whether Mr. Christy’s annual discussions with his insurance agent and generic language included in his renewal notice inquiring about any changes were sufficient for him to have known that the change in business form was material to Travelers must be decided by the court.
Laws vary by state and the ultimate resolution of this case is yet to be determined, but the takeaway point is clear; if you’re making any changes to the structure or form of your business, let your insurance agent or insurance company know immediately to avoid the potential for denial of future claims.
The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals.