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October 10, 2019 Practice Points

Flood Coverage and High Hazard Zones: Issues Policyholders Should Be Aware Of

Counsel for both insurers and policyholders should consider the particularities of any online application, including both the wording and format

by Lindsay L. Rollins

There is no denying that millennials are changing the way many industries do business, and the insurance industry is no exception. Unlike previous generations, millennials are less likely to obtain insurance coverage through an insurance agency, and more likely to apply for coverage online. While in many respects this is a positive change for both the consumer and the insurance industry (e.g., easier access for consumers, lower overhead costs for insurers), online applications present unique issues which may result in coverage questions that put insurers and policyholders at odds.

In Progressive Advanced Insurance Co. v. Corekin, No. DKC 16-1340, 2017 U.S. Dist. LEXIS 151269 (D. Md. Sept. 18, 2017), for example, a policyholder disputed whether his electronic waiver of the default underinsured motorist coverage limits was effective under Maryland law. As part of his online application, the policyholder completed a page entitled “Notice Concerning the Waiver of Increased Limits of Uninsured Motorists Coverage in Maryland”, which contained a reproduction of a Maryland Insurance Administration form that authorized individuals to waive the default amount of UIM coverage. On that page, the policyholder clicked a box stating he was “affirmatively waiv[ing] [the default uninsured motorist coverage] and instead elect[ing] to purchase lower uninsured motorists limits.” He then typed his name in the signature space of the page. The inception policy and each renewal consistently stated that the UIM coverage limit was $100,000 per person. Nonetheless, after the policyholder was involved in an automobile accident, he asserted that he was entitled to additional UIM coverage because his waiver of the default UIM limits was not effective. Pointing to a state law requiring consent to conduct a transaction electronically, the policyholder argued that he never consented to conduct business with the insurer electronically and could not effectively waive the default UIM coverage. The court disagreed, finding that the policyholder’s conduct (creating an online account, completing an online application, communicating with the insurer electronically, and paying premiums online, etc.) established an agreement to conduct transactions electronically. As such, the waiver of default UIM coverage was effective and the policyholder was not entitled to additional coverage.

As another example, Nationwide Property & Casualty Insurance Co. v. Faircloth, 845 F.3d 378 (8th Cir. 2016) raised issues as to material misrepresentations made in an online application. There, the policyholder completed an online application which asked him to identify the “primary use” of the insured vehicle from a multiple choice list. According to the insurer, the list contained three choices: “Work/School (commute to/from, errands)”; “Pleasure (recreational driving)”; and “Business (deliveries, sales calls, taxi)”. The policyholder selected the “work” option. Nationwide later discovered that the policyholder used the vehicle to make business-related deliveries, and rescinded the policy due to material misrepresentations in the application. The policyholder disputed whether the online application contained the parentheticals described above as alleged by the insurer, but the court concluded that the policyholder failed to offer evidence sufficient to raise a material question of fact on that issue. The court further rejected the policyholder’s argument that “work” and “business” have the same colloquial meaning. Finding that the policy would not have been issued if the policyholder had properly selected the “business” option, the court held that the insurer was entitled to rescind the policy.

Other courts have considered online applications in the context of unfair or deceptive trade practices laws. At least one court has held that state unfair or deceptive trade practices claims based on an insurer’s allegedly confusing online insurance application could withstand summary judgment. See Estrada v. Progressive Direct Ins. Co., 53 F. Supp. 3d 484 (D. Mass. 2014) (finding that policyholders presented sufficient evidence that customers were confused by online application where application made default deductible recommendations).

Disputes like those described above are likely to become more common as millennials make up an increasing percentage of insurance consumers. Counsel for both insurers and policyholders should consider the particularities of the online application at issue, including both the wording and format. As technology evolves, accessing prior versions of online applications may prove to be a challenging but critical component of discovery. Carrier-side counsel are encouraged to institute early litigation holds and work with their clients’ information technology personnel to locate prior versions of online applications, while policyholder-side counsel should begin gathering information about historical versions of online applications as soon as possible. Internet archive services (e.g. the Wayback Machine) may be useful in this endeavor.

Lindsay L. Rollins is with Hancock, Daniel, Johnson & Nagle, PC, Richmond, VA.

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