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Have you ever woken up in a cold sweat with the stark realization that you forgot to do something important?  Well, if your panic is insurance policy endorsement related – as most late night panic attacks are – you may have a little less to worry about.  Very recently, a federal Court used its power to re-write an insurance policy to include an omitted endorsement which both parties intended to include.  In this situation, however, the endorsement limited coverage and was to the detriment of the policy holder.

On April 26, 2013, the Eighth Circuit Court of Appeals, in Smith Flooring, Inc. v. Pennsylvania Lumbermen’s Mutual Insurance Company, 2013 WL 1776419 (8th Cir. 2013), applied Missouri law and handed down a decision affirming a trial court’s decision to re-write an insurance policy to include a missing endorsement.  Smith Flooring – a manufacturer and seller of hardwood floors – had utilized Pennsylvania Lumbermen’s for roughly five years for commercial property insurance coverage.  Each year, Pennsylvania Lumbermen’s would issue Smith Flooring a new annual policy with endorsements entitled “ADDITIONAL PROPERTY NOT COVERED” excluding certain property from coverage.  Included in these endorsements was an exclusion for the “Pine Warehouse” – an outbuilding on Smith Flooring’s property. 

Despite including the exclusionary endorsements, Pennsylvania Lumbermen’s employee, who drafted the policy, failed to include the Pine Warehouse in the endorsement for the 2007-08 policy, and again for the 2008-09 policy.  In January 2009, the Pine Warehouse collapsed under the weight of sleet and ice.  Smith Flooring, in turn, submitted the claim to its insurer who denied coverage.  Smith Flooring sued, alleging breach of contract and declaratory judgment as to the terms of the policy as the insurance policy did not include the endorsement excluding the Pine Warehouse.

During the course of the trial, Mr. Smith testified that he spoke with his agent and said he believed all the buildings – including the Pine Warehouse – to be covered under the blanket provision in his policy.  Smith Flooring’s insurance agent, however, testified that the Pine Warehouse was always meant to be excluded, despite Pennsylvania Lumbermen’s failure to include it in the endorsements.  That the Pine Warehouse was intended to be excluded from coverage, that no value was ever assigned to it, and it was the “intention and understanding” to exclude the Pine Warehouse as had been done in previous years.  Pennsylvania Lumbermen’s employee that drafted the policy then took the stand and testified that she prepared the policy endorsements, and that she intended to include the endorsements but she simply “overlooked typing them in” for the 2007-08 policy.  Then, for the 2008-09 policy, she referred back to and copied the 2007-08 policy, which had inadvertently omitted the Pine Warehouse exclusion.

Taking this testimony into consideration, the Court found that there was clear and uncontroverted evidence that both parties intended to exclude the Pine Warehouse from insurance coverage, however, the policy did not reflect this agreement.  The Court then utilized its equitable power to “reform” (or re-write) the policy to include this policy endorsement, exclude the Pine Warehouse from coverage, and deny Smith Lumber’s claim.

While this recent Court ruling seems to be negative for policyholders, it does not need to be viewed that way.  In essence, Smith Lumber was trying to take advantage of the system by capitalizing on a mistake in the policy, despite both the insurer and the insured’s understanding of the exclusion.  This decision works both ways.  In the event that an insurer and an insured intended to include something in coverage, however, mistakenly omitted that intended coverage, Courts have now expressed their willingness to re-write the policy to include that coverage in the event the policy erroneously excludes it.  While the above-case was a win for this particular insurance company, it’s real effect is to ensure the insurance policy accurately reflects the parties’ intentions.  Such a holding acts as a safeguard to policyholders in the event of an erroneous omission, and also prevents a party from capitalizing on an unintended, and unnoticed, error.

Frank Cragle is a trial lawyer and a member of Hirschler Fleischer’s Insurance Recovery Team. He handles a variety of commercial business disputes, including insurance recovery and policyholder claims. Frank also devotes a substantial portion of his time to business tort litigation and intellectual property claims. For more information, contact Frank at 804.771.9515 or

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